Cancellation of Debt

Avoiding Tax on Discharge of a Mortgage

There are times in life when you may feel that you can’t get ahead. One step forward, two steps back–as they say. Paying income tax on debt that you avoid is an example. You negotiate with the lender or creditor and they agree to settle the balance for less. One step forward. Then a few […]

Cancellation of Debt Federal Income Tax Tax

Reporting Debt Discharged in a Court Settlement to the IRS

There are some circumstances where information has to be reported to the IRS, even though the information does not trigger a tax. But the potential problem can be that the information reporting triggers an IRS audit or other consequences. The Form 1099-C, Cancellation of Debt, form can have this effect. In PLR 201927005 the IRS […]

Cancellation of Debt Federal Income Tax Tax

Avoiding Cancellation of Debt Using Rebates or Refunds

Can taxpayers avoid cancellation of debt income by structuring debt reductions as rebates or refunds?  The court touched on this issue in French v. Commissioner, T.C. Summary Opinion 2018-36. The Facts & Procedural History The taxpayers borrowed money to purchase a home.  When they failed to make their payments on the mortgage, the bank made contacted […]

Cancellation of Debt Federal Income Tax Tax

How are Employer Loans in Lieu of Wages Taxed?

Can you avoid paying Federal income tax by having your employer make loans to you in lieu of wages, and then have the employer forgive the loans over time?  The court addressed this in Wyatt v. Commissioner, T.C. Summary Opinion 2015-31. Facts & Procedural History Dr. Wyatt was a gynecologist.  He recruited to practice in Putnam […]

Cancellation of Debt Federal Income Tax Tax

Is an Insurance Agents Repayment of Advanced Commissions Cancellation of Debt Income?

If an insurance company makes loans to its life insurance agents in lieu of wages and the insurance agents use a portion of those funds to repay costs to the insurance company, how is that taxed?  The court addressed this in Harper v. Commissioner, T.C. Summary Opinion 2007-133. Facts & Procedural History Mrs. Harper was in the […]