@BlueHeron wrote:
Since I do not need to (and will therefore not) file 1099C, I still have the question, given that there is a no deficiency provision, does the borrower need to declare the shortfall to be income?
Why would I want to voluntarily file 1099C? Is there any possible benefit of doing so? If I am audited after declaring non-business bad debt for the unpaid portion, would that trigger generation of a 1099C by the IRS or have consequences for the borrower?
It's best not to worry about someone else's tax return. A canceled debt might or might not be taxable income depending on insolvency and other factors. That's the borrower's problem.
There is no benefit to you to filing a 1099-C other than revenge (putting the IRS on notice to look for this income or an explanation on the borrower's return).
