What is the IRS position on debt that is forgiven?
In most cases, clients can exclude forgiven debt from their income through the “insolvency exclusion” provided by the IRS code. This exclusion means that your liabilities exceed the fair market value of your assets. However, in the event that a forgiven debt amount exceeds $600.00, financial institutions sometimes provide a Form 1099-C. Even if you receive a Form 1099-C showing income in the form of canceled debt, this does not necessarily mean that you owe taxes on the forgiven portion of the debt. We highly recommend that you consult a tax advisor regarding your particular circumstances. If appropriate, your advisor will also be able to assist you in filling out Form 982 that excludes you from a particular debt.
