If a debt is forgiven or canceled, the IRS requires lenders to issue a 1099-C tax form to the borrower to show the amount of debt not paid. The IRS then requires the borrower to report that amount on a tax return as income, and it's often an unpleasant surprise:or many consumers with debt problems, after the debt collector leaves their lives, the taxman arrives. Months after successfully resolving credit card debts, consumers may receive 1099-C  cancellation of debt  tax notices in the mail.