If a creditor writes off your debt, or even if you settle that debt with your creditor, the IRS may still count the amount as taxable income.
If you work out a deal to settle with a creditor for any less money than the exact amount that you owe, or if the creditor writes off the debt, the IRS may still regard you as owing money. The IRS will consider the forgiven amount of the debt as income, and you will continue to owe income taxes on it.
How does this work? Creditors will often wait for a pre-determined period … Read more at 2008 Taxes.
