Capital one sued me on a debt and it was dismissed without prejudice , they didn’t show up. about 7 months later they sued me again. this time i hired a lawyer and it was dismissed with prejudice. they can’t sue me again..yay. now almost a year later. i get a letter from IRS saying i owe back taxes for a forgiven debt.
my question. do i really owe tax on a forgiven debt? i beat them in court. they sued me and lost. they didn’t forgive anything.
Thanks for your question. Forgiveness of indebtedness is income. You may qualify not have to include it as taxable income if you qualify for one of the relief provisions (the most likely consumer debt relief is due to insolvency).
However, you must report it. If you qualify for relief, you would include Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness, with your return.
Unfortunately, winning in Court is not relief from the IRS.
Jim Buttonow is one of the resident debt experts here at GetOutOfDebt.org that helps people for free. Jim is a licensed CPA who spent 19 years with the IRS coordinating large compliance teams of IRS agents and specialized personnel. In the last 5 years, Jim has invented consumer and practitioner software and treatises on how to address many different tax issues. He has also represented many people before the IRS examination, collection, filing, and appeals functions. He currently assists taxpayers on an active pro bono tax practice aimed at serving people in need. He can be reached at IRSMind.com.
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