Debt beats: penalizing forgiveness.

• Author: Doherty, Brian
• Position: Citings - Brief article

IN THESE hard times, credit card companies are often willing to settle delinquent accounts for a fraction of what the debtor actually owes. But that boon comes at a cost: IRS regulations count forgiven debt as income.

If you have managed to get a credit card company to give up on a debt, you should expect to receive a 1099-C in the mail. That form lets you know that the IRS knows exactly how much was forgiven and how much your taxable income increased as a result. USA Today reported in March that the IRS anticipates up to $6.4 million in such taxable "income" this year, up from just $3.9 million in 2010, as the economic downturn staggers on.

If you can prove you were insolvent or went bankrupt legally...