Not judging you at all, I promise. I found it ironically funny that forgiving debt could lead someone into bankruptcy. Talk about a win-win situation.

Yep. In my case we were overjoyed having finally worked out a deal with the bank, only to discover that now I was in debt to the IRS instead of the bank :'(

It sure feels like your government is shitting on you during an already tough situation.

So the idea is the bank gave you a loan then forgave it, so it’s now income? That’s a big leap in logic and sounds evil considering you never consider that when getting a loan, you only expect the internet to accrue.

It is income. Someone gave you money. Otherwise, why wouldn’t a company “loan” you a higher salary and then just “forgive” the debt? Or, you could set up a company to loan yourself money — the company deducts the “loss” and you don’t pay taxes on the gain.

The principal is presumably income, however the interest or fees should not be. The IRS will even occasionally cancel debt that’s mostly fines and interest without considering it income.

Like all laws there should be some context. But I guess you’re right it’s an easy loophole to exploit and the simpler the tax law the better.

The IRS definitely (as definite as a capricious federal bureaucracy can be) let you make payments on the taxes in that situation.

This. Despite what many people think, the IRS doesn’t want to bankrupt people. They’ll work with you and set up a payment plan if necessary.

Yep me too. It's crazy. I had to consult with a bankruptcy lawyer because of this. I couldn't believe it.

What kind of amount in tax are you talking about? Is it net profit anyway compared to paying back tens of thousands?