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I sent a demand letter via email to a client for a $500 balance they owed. They offered a token amount, by email, to settle. Their token was so small that I would rather send them a 1099-C.

My reasoning is that the 1099-C will make them uncomfortable enough to pay the debt, and if not, then at least I have put the IRS on alert that the person has received $500 in income in the form of "forgiven" debt.

However, the only data I have about the client is their name, email address, their social-media-self-reported employment history (e.g., LinkedIn, and profile pages at companies they've worked at), and email notices from PayPal about the money that had sent to me before they became a deadbeat. Their PayPal profile reveals only their name and email address.

I was told by another business that they have been successful in sending incomplete 1099-Cs to their deadbeat clients; i.e., that the IRS easily figures it out. However, the data they are missing is usually a social security number.

I have no phone number, street address, or social security number. Only the person's name, email, and a transaction history from PayPal that shows the money and email-alert trail until they stopped paying.

Given only the person's name and email on the 1099-C, will the IRS be able to figure out who they are?

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    That seems like a pretty odd next step. Unless they acknowledge the debt (not just that they've received your letter), there is seemingly a dispute about the debt. That would normally lead to a lawsuit (presumably in small claims court). Once you get a judgement, you could attempt to collect the judgement or write it off (and generate the 1099-C). Or you could say that $500 isn't worth the hassle. Aug 29, 2023 at 7:02
  • There is a documented trail of services via email exchanges and attached files. Because we live in different states, small claims is not feasible.
    – RJo
    Aug 29, 2023 at 22:59
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    If there is any chance that your client would dispute the debt, blindly sending a 1099 creates non-trivial risks to you. Assuming the IRS manages to figure out who you intend to send the form to, the IRS is very, very uninterested in getting adjudicating business disputes. You may have solid evidence that would let you go to court and win a judgement. But you don't have that judgement now and you can't just claim that you'd obviously win if you went to court. If distance and the amount in question makes going to court impractical, just walk away. Aug 30, 2023 at 14:45

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Generally, you won't send a 1099 to a client/customer who pays you. Most 1099s are issued to people you pay (e.g. contractors, certain vendors, certain service providers, etc.).

You're probably thinking of using 1099-C (Cancellation of Debt) to force the delinquent client to report the nonpayment in their income and at least face some penalty for it, or to "encourage" them to pay the debt they owe. However, be very careful with this, because although the IRS doesn't explicitly disallow you from issuing a 1099-C to "forgive" a nonpayment, doing so incorrectly may violate tax laws, consumer protection laws, the Fair Debt Collection Act, etc.

Your specific situation will determine whether issuing a 1099-C is appropriate. You should consult a lawyer since this clearly crosses into legal advice territory.

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  • Your points are excellent, and I thank you. The question, however, is about providing the IRS with a 1099 that has missing data. I will update the question title and content to clarify this.
    – RJo
    Aug 29, 2023 at 23:01
  • @RJo I think your revisions are substantial enough to call for a rollback of this question to the original, and reposting your revised question as a new one, as they are fundamentally different. That being said, the IRS won't rely just on a name and email to identify an individual.
    – Stan H
    Aug 30, 2023 at 2:20

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