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You are only required to issue a 1099-C if you are in the business of lending money. However, the IRS issued a ruling that anyone with a legitimate canceled debt may issue a 1099-C, on the grounds that it will help increase tax compliance. Remember that to issue a 1099-C, the debt must be canceled and uncollectible, and you may not make efforts to collect the debt later if circumstances change. It's meant to be final. (So, you can't list yourself as a creditor if the client files for bankruptcy, you can't sue or send the debt to a collections agency, you can't try and collect if you discover later that the client was hiding funds or has suddenly come into money, etc.)
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