I do not know whether a 1099 is required to be sent on a short sale----- I think it does, since there is element of cancellation of debt----  I think.

However........receiving or not receiving ANY 1099 or W-2 or anyother information return, even like a K-1 from a partnership, does NOT have any effect of any nature on whether or not a person has to report taxable transactions..........no linkage whatsoever.

If the nature of the transaction requires it to be reported............that transaction has to be reported..........end of story.

With respect to the guy's tax returns...........  sounds like the short sale was on his personal primary residence............and the sale of a personal primary residence is not a reportable transaction, unless gain is over 250K per taxpayer.  We report them anyway, just to make sure the data is included in the "official returns".

The cancellation of indebtedness on a primary residence mortage is not taxable income.........I think that COD income has to be reported, and then excluded from taxable income.............I would have reported it regardless, just to make sure the IRS computers could match things up, and avoided any unnecessary correspondence.

The purchase of a trailer house sounds like the purchase of a new personal primary residence..........again, not reportable. (I am not sure about any adjustment of basis due to the short sale of the prior residence.........but in any event, that adjustment would typically not be a reportable transaction.)

The cashing in of the 401(k)..............definitely a reportable transaction, and a disclosure of any exception to any application of a penalty for early withdrawal needs to be made......otherwise, 10% penalty.

The bankruptcy is usually reported.......we would have reported it, just to, again, keep the records parallel with IRS computers..........but under a personal situation, as compared to a business situation, I think the reporting is merely an informational attachment to the return..............not sure, but I know there is no taxable income from the personal bankruptcy---Chapter 7.......typically.