What document must a creditor file with the IRS when forgiving a loan balance greater than $600?

When a creditor forgives a loan balance greater than $600, they are required to report this cancellation of debt to the IRS using Form 1099-C. This form is specifically designed for reporting the cancellation of debts, indicating that the debtor is no longer responsible for repaying that amount. The IRS treats forgiven debts as taxable income, so this form helps ensure that the appropriate tax implications are acknowledged.

In contrast, Form 1040 is an individual income tax return used by taxpayers to report their annual income, but it is not used for debt forgiveness reporting. Form W-2 is utilized by employers to report wages and taxes withheld for employees, not for debt cancellation. Lastly, Form 1098 is used to report mortgage interest paid, and while it deals with matters related to loans, it does not pertain to loan forgiveness or cancellation of debt. Therefore, the requirement to file Form 1099-C is a key compliance step for creditors when they cancel a debt over that threshold.