The IRS may count a debt written off or settled by your creditor as taxable income If you settle a debt with a creditor for less than the full amount or a creditor writes off a debt you owe you might owe money to the IRS The IRS treats the forgiven debt as income on which you might owe federal income taxes.
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It also deals in actual losses instead of initial estimates, the earliest date court action could have been started can be harder to work out, the generally accepted accounting principles.