On April 26, 2019, the IRS released PLR 201917002 concluding that an entity’s extension of credit, incidental to its sale of nonfinancial goods or performance of nonfinancial services, would not create an obligation under section 6050P to file a Form 1099-C if the entity subsequently discharged the indebtedness associated with the extension of credit.

Section 6050P requires all “applicable entities” to file a Form 1099-C for any calendar year in which the applicable entity discharges any indebtedness in excess of $600.  An “applicable entity” is defined in section 6050P to include “any organization a significant trade or business of which is the lending of money.”  However, Treasury Regulation § 1.6050P-2(c) provides that an entity whose primary trade or business is the sale of nonfinancial goods or performance of nonfinancial services will not be considered an “applicable entity” if the entity only extends credit to the purchasers of its goods or services in order to finance a sale.  Thus, a nonfinancial service provider that extends credit to its customers directly, and subsequently discharges the debt associated with that extension of credit, will not be considered an “applicable entity” for purposes of Section 6050P and will not be required to report the discharge of indebtedness by filing a Form 1099-C.

However, both the discussion in the PLR and the Treasury Regulations draw a distinction between an entity with an internal financing division and a subsidiary, the sole function of which is to perform the financial services for a parent organization.  In the later scenario, the subsidiary’s business likely would qualify as a “significant trade or business of which is the lending of money.”  Therefore, the subsidiary would likely be subject to the reporting requirements of section 6050P for any calendar year in which the subsidiary discharged any indebtedness in excess of $600.

Organizations should be aware of this distinction when deciding if and how to extend credit in relation to the sale of nonfinancial goods or performance of nonfinancial services.

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Photo of Molly Ramsden Molly Ramsden

Molly Ramsden helps employers of all sizes and industries maneuver the regulatory landscape of ERISA, the Internal Revenue Code, and various federal, state, and municipal employment laws. She counsels companies and individuals on all aspects of employee benefits, compensation, and employment issues, including…

Molly Ramsden helps employers of all sizes and industries maneuver the regulatory landscape of ERISA, the Internal Revenue Code, and various federal, state, and municipal employment laws. She counsels companies and individuals on all aspects of employee benefits, compensation, and employment issues, including tax-qualified retirement plans, health and welfare plans, executive employment and consulting agreements, and mergers and acquisitions.

Photo of Michael M. Lloyd Michael M. Lloyd

Michael Lloyd practices in the areas of tax and employee benefits with a focus on information reporting and withholding on cross-border payments (e.g., Forms 1042 and 1042-S) and Foreign Account Tax Compliance Act (FATCA), backup withholding, employment taxation, the treatment of fringe benefits…

Michael Lloyd practices in the areas of tax and employee benefits with a focus on information reporting and withholding on cross-border payments (e.g., Forms 1042 and 1042-S) and Foreign Account Tax Compliance Act (FATCA), backup withholding, employment taxation, the treatment of fringe benefits, cross-border compensation, domestic information reporting (e.g., Forms W-2, 1099, 1095 series returns), penalty abatement, and general tax planning and controversy matters. Mr. Lloyd advises large U.S. and foreign multinationals regarding compliance with information reporting and withholding issues, as well as a range of other federal and state tax issues.