Legal Question in Business Law in California

Re: Loans and 1099 Loan Loses

If the borrower has a "gain" because he was not required to repay a loan, and the loan is not one that is exempted under recent legislation for the relief of a foreclosed homeowner, then a 1099 is probably in order. Improper filing of a 1099 for malicious or harassment purposes would be illegal.

If by "personal loan" you mean one that wasn't secured by real estate, I would think the lender must have lost its claim to repayment by some means, such as formally acknowledging satisfaction or running of the statute of limitations for a suit to collect. The 1099 acknowledges that the borrower has a taxable gain and that occurs when the loan no longer has to be repaid for some reason.

I think you should discuss this directly with the IRS and get an official interpretation based on all the facts.