Be Sure to Report Cancellation of Debt Income

Cancellation of debt generally results in a 1099 being issued on which all the debt forgiven is reported as taxable income to the IRS. In some cases it is not necessary to pay tax on this income. (I.e. when insolvent or in bankruptcy at cancellation.) Whether or not tax is due, this income must be reported on your tax return or you are sure to get a bill from the IRS within 3 years.