A service company that finances its own customers need not file 1099-C cancellation-of-debt forms

Plain-English summary

A company whose main business is providing (non-financial) services also
lets its customers finance the cost of those services. It asked the IRS
whether it has to send Forms 1099-C, the "cancellation of debt" information
returns, whenever it forgives a customer's balance. Under IRC § 6050P, only
an "applicable entity" must file 1099-Cs, and one category is any
organization whose significant trade or business is lending money. A
Treasury regulation, § 1.6050P-2(c), carves out sellers of goods or services
that merely extend credit to their own buyers to finance those purchases,
saying that credit is not a significant money-lending business. The IRS
concluded the company fits that carve-out: its real business is services,
its lending is only customer financing, and none of the other "applicable
entity" categories apply, so it is not required to file Forms 1099-C.
Businesses that offer in-house financing care because this spares them the
reporting burden (and the customer confusion) that 1099-C filing creates.

Ruling snapshot

• Question: Must a service provider that finances its customers' purchases file Forms 1099-C for debt it discharges?
• Outcome: Approved (not an applicable entity; no 1099-C filing required)
• Key authorities: IRC § 6050P(c)(2)(D); Treas. Reg. §§ 1.6050P-1, 1.6050P-2(c)

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201917002 Third Party Communication: None
Release Date: 4/26/2019 Date of Communication: Not Applicable
Index Number: 6050P.01-00
Person To Contact:
----------------------------------------- ----------, ID No. ------
--------------------------------------------------------- Telephone Number:
------------------------------ ----------
----------------------------------------------------- Refer Reply To:
-------------------------------------- CC:PA:02
PLR-117308-18
In Re: ----------------------------------------- Date:
November 08, 2018

Legend

Entity = -----------------------------------------

Service provider = ----------

Services = ----------

Dear ----------------:

This letter responds to the letter dated -------------------, submitted on behalf of Entity
requesting a ruling that Entity is not required by I.R.C. § 6050P and Treasury
Regulations § 1.6050P-1 to file Forms 1099-C to report discharges of indebtedness
because Entity is not an applicable entity under section 6050P(c). For the reasons set
forth below, we conclude that Entity is not required to report discharges of indebtedness
because it is not an applicable entity under section 6050P(c).

                                                  Facts

Entity was a service provider that also provided financing to its customers for services.
Entity was involved in the founding of other entities that may be applicable financial
entities. These other entities are not the taxpayer and are not the subject of this ruling.

                                           Law & Analysis

Section 6050P of the Internal Revenue Code requires that an applicable entity report
any discharges (in whole or in part) of indebtedness of any person in excess of $600 on
a Form 1099-C. Applicable entity is defined in section 6050P(c). Relevant here,
applicable entity includes "any organization a significant trade or business of which is
the lending of money." I.R.C. § 6050P(c)(2)(D). Under section 1.6050P-2(c), if an entity
whose principal trade or business is selling nonfinancial goods or providing nonfinancial
services extends credit to the purchasers of those goods or services to finance the
purchases, then, for purposes of section 6050P(c)(2)(D), the extensions of credit are not
a significant trade or business of lending money. Entity fits within the rule in section
1.6050P-2(c). Entity's principal trade or business is providing nonfinancial services.
Entity's lending activities are limited to extending credit to the purchasers of those
services to finance the purchase of the services. Therefore, entity is not an
"organization a significant trade or business of which is the lending of money." None of
the other definitions of applicable entity in section 6050P(c) apply to Entity. Therefore,
Entity is not an applicable entity under section 6050P.

                                    Conclusion

Based solely on the information provided and representations made, we conclude that
Entity is not required to file Forms 1099-C to report discharges of indebtedness under
section 6050P because Entity is not an applicable entity.

Except as expressly provided herein, no opinion is expressed or implied concerning the
tax consequences of any aspect of any transaction or item discussed or referenced in
this letter.

This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code
provides that it may not be used or cited as precedent.

In accordance with the Power of Attorney on file with this office, a copy of this letter is
being sent to your authorized representative.

The rulings contained in this letter are based upon information and representations
submitted by the taxpayer and accompanied by a penalty of perjury statement executed
by an appropriate party. While this office has not verified any of the material submitted
in support of the request for rulings, it is subject to verification on examination.

                                   Sincerely,


                                   Blaise Dusenberry
                                   Senior Counsel
                                   (Procedure & Administration)

Enclosures: (1) Copy of letter for section 6110 purposes
(2) Notice of Intention to Disclose, Notice 437

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