Thank you for the response! Like you said this is a rare and unique situation. This is a one where the debt was made up out of thin air just to spite the person who left the venture. I am thinking we don't include the amount in the taxes and then provide support documentation of why we did not include it. We are going to contact the IRS today and confirm and determine what Forms and support documentation they need. It doesn't make sense to me that someone could fraudulently make up a 1099C and then the recipient has to bear reporting it. I understand if there was initially some form of debt, but in this case there was no debt to start with. I will post a response after talking to the IRS on how they suggest to proceed in this particular circumstance. If the IRS does not provide guidance, then we will contact a tax professional to complete the taxes.
