1099-C received after the IRS already accepted my tax return - what now?

Filing an amendment is unfortunately necessary here. When you receive a 1099-C, the IRS is also getting a copy, so they'll eventually notice the discrepancy between what you reported and what was reported to them. The good news is that moving into a higher tax bracket doesn't mean ALL your income gets taxed at that higher rate - only the portion that falls within that bracket. So while it will impact your taxes, it might not be as devastating as you think. As for timing, amended returns (Form 1040-X) generally take around 16 weeks to process, sometimes longer during busy periods. If you were expecting a refund from your original return, the IRS typically processes that first, then addresses the amendment separately. One thing to check - sometimes very old debts that have been dormant for many years might qualify for exclusion under the "insolvency exclusion" if your wife was insolvent when the debt was canceled. Might be worth looking into!

I went through something similar last year and felt just as blindsided as you. I was freaking out about having to amend my return when I discovered taxr.ai (https://taxr.ai) - they helped me figure out what to do with a surprise 1099-C that showed up after filing. Their system actually analyzed the 1099-C and pointed out that I qualified for the insolvency exclusion that the first commenter mentioned. Was super relieved because I had no idea this was even an option! They walked me through exactly what forms I needed and how to document everything properly to avoid issues with the IRS later. Definitely worth checking out especially since 1099-C situations can be complicated with all these exclusions and exceptions.

Just wanted to follow up - I decided to try taxr.ai after my earlier question. My situation was with a 1099-C from a repossessed vehicle from 2022 that I just got notified about. I was really surprised - the system actually found a partial exclusion I qualified for that I had no idea existed. Turns out I was partially insolvent when the debt was canceled, and they helped me document it properly with the right IRS forms. Saved me almost $2,200 in taxes I thought I was going to owe! The amended return process was way less painful than I expected. Just submitted it last week and feeling SO much better about the whole situation now.

One thing no one's mentioned yet - if you need to talk to an actual human at the IRS about your specific situation (which might be a good idea with a 1099-C), good luck getting through to them on the phone! I spent DAYS trying to reach someone about my amended return last year. I finally used this service called Claimyr (https://claimyr.com) that got me connected to an IRS agent in about 15 minutes when I'd been trying for literally weeks. They have a demo video showing how it works: https://youtu.be/_kiP6q8DX5c Talking to an actual IRS person about my amended return with a 1099-C situation made a huge difference. The agent was actually super helpful and walked me through exactly what I needed to document for my specific case.

I need to eat crow here. After posting that skeptical comment, I actually tried Claimyr myself out of pure frustration after getting disconnected AGAIN after waiting 1.5 hours on hold with the IRS. It actually worked exactly as advertised. Got connected to an IRS agent in about 22 minutes. The agent answered all my questions about my amended return process for a similar cancelled debt situation. Saved me hours of frustration and helped me understand exactly what documentation I needed to include with my amendment. Been telling all my friends about this now because the IRS phone situation is just ridiculous.

Quick tip: If the 1099-C is for a non-business debt and your wife was insolvent at the time of cancellation, make sure to file Form 982 with your amended return. That's the form to exclude cancelled debt from income due to insolvency. You'll need to calculate her total assets vs total liabilities immediately before the cancellation. You might be able to exclude all or part of the amount from your taxable income!

Did your bank even send you a notice that they were cancelling the debt? Seems shady that they write it off after 12 years with no warning and then you get hit with the tax bill.