Millard J. and Jacquie M. Scott - Page 7

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               Debt Defined                                                           
               A debt is any amount owed to you including stated principal,           
               stated interest, fees, penalties, administrative costs, and            
               fines.  The amount of debt canceled may be all or only part            
               of the total amount owed.  However, for a lending                      
               transaction, you are required to report only the stated                
               principal.  See Exceptions on page AC-3.                               
                         *    *    *    *    *    *    *                              
               Exceptions                                                             
                         *    *    *    *    *    *    *                              
                    2.  Interest.  You are not required to report interest.           
               However, if you choose to report interest as part of the               
               canceled debt in box 2 [of the 1099-C], you must show the              
               interest separately in box 3.                                          
                    3.  Nonprincipal amounts.  For a lending transaction,             
               you are not required to report any amount other than stated            
               principal.  A lending transaction occurs when a lender loans           
               money to, or makes advances on behalf of, a borrower                   
               (including revolving credit and lines of credit).                      
               Nonprincipal amounts include penalties, fines, fees, and               
               administrative costs.  However, for a nonlending                       
               transaction, report any of these amounts that are included             
               in the debt.                                                           
          This guidance is provided by the IRS to assist parties in                   
          preparing a Form 1099-C.                                                    
               First, the authoritative sources of Federal tax law are in             
          the statutes, regulations, and judicial decisions, and not in               
          informal publications provided by the IRS.  Zimmerman v.                    
          Commissioner, 71 T.C. 367, 371 (1978), affd. without published              
          opinion 614 F.2d 1294 (2d Cir. 1979).  Second, petitioners have             
          not shown the total amount of interest, operation charges, and              
          penalties that they claim should reduce their outstanding credit            






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