Yy
Quote:
Originally Posted by JustinD
Blech, 1099. 
I was audited 5 years later for a stupid 1099 I had completely forgotten about. The worst. Nothing like paying taxes and a penalty for absolutely no financial gain.
(I was on my deathbed and did not pay a credit card due to disability income. They added a s**t-ton of fees and interest to it and I settled for the original amount sans fees. The IRS calls this a 10K profit and nails me for the taxes and 5 years of interest. That law is direct from the depths of hades. Not that I hold a grudge, lol) |
It's called debt forgiveness, and can be a real kick in the teeth for someone that couldn't afford to pay the debt to begin with. Special rules are involved, but basically if a bank, business or others had in effect loaned you money or let you buy and pay for something over time, and then later on let you off the hook and forgave you repaying the debt, the IRS can in some instances treat the amount of debt you had forgiven as additional ordinary income you could end up owing income tax on. Again, special rules apply to determine how much does get picked up as taxable income, and there are some exceptions to picking up any taxable income at all, like being bankrupt or insolvent at the time the debt is forgiven.