When you’re floundering in debt, having some of it canceled or forgiven sounds great. Be careful. You may be trading a junk-yard dog for Godzilla. To the Internal Revenue Service (the “IRS”) forgiven debt creates Cancellation of Debt Income (“CODI”).1 CODI is taxable unless the discharge: (A) occurs in a bankruptcy case; (B) occurs when the taxpayer is insolvent; (C) is of qualified farm indebtedness; (D) is of qualified real property business debt of anyone other than a C corporation; or (E) is of debt from a qualified principal residence…Read More
