Nikki
Coconut Creek,#2Consumer Comment
Thu, August 23, 2007
Anytime you settle a debt, you must pay taxes on the amount forgiven by the collector. The IRS treats this as income to you (or maybe interest income). Personally, I don't think it's right. You can't deduct the interest you pay on most of your debts, so how can they make you pay for interest "refunded" to you? By the time it goes to collections, it is usually a portion of the interest that you're forgiven.
John
Louisville,#3Consumer Comment
Thu, August 23, 2007
The IRS considers forgiven debt just as if someone gave you a cash gift for the same amount. Yes...this doesn't make sense and it's not fair...but it's the law. I am surprised that the attorney who helped you with the settlement offer wasn't aware of this basic piece of information.