Q: My child support and alimony to my ex was reduced by court order in 2008. At the same time, the accrued arrearages was changed to zero. My ex has informed me that she will issue me a 1099 for the change in arrearage as a debt forgiveness on her part. Is this change in what I owed her a debt forgiveness that has to be reported in my income?
A: No. What you are describing is a reduction in debt by court order, similar to what happens in a bankruptcy reorganization. This is not taxable debt forgiveness under IRS Publication 525, Taxable and Nontaxable Income. It is treated as a correction of the amount owed. Your ex-spouse should not issue a 1099 to you for the change in the arrears owed to her, nor should she deduct that amount from her taxable income.
If you receive a 1099 from your ex-spouse, do not include that 1099 "income" amount in your listed income for 2008. Attach a copy of the invalid 1099 with your tax return as filed, and also include a "true copy" (a copy stamped by the court clerk) of the court's order that changed the amount. You should also write a brief explanation of these attachments to the IRS somewhere on your return, or on a separate paper attached to the return.
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