Debt Cancellation – From the Frying Pan to the Fire?

Debt Cancellation - From the Frying Pan to the Fire? | Wayne Greenwald

When you're floundering in debt, having some of it cancelled or forgiven sounds great. Be careful. You may be trading a junk-yard dog for Godzilla. To the Internal Revenue Service (the "IRS") forgiven debt creates Cancellation of Debt Income ("CODI").1 CODI is taxable unless the discharge:

(A) occurs in a bankruptcy case;

(B) occurs when the taxpayer is insolvent;

(C) is of qualified farm indebtedness;

(D) is of qualified real property business debt of anyone other than a C corporation; or

(E) is of debt from a qualified principal residence which occurred-

Click here to read Wayne Greenwald's full article...