Taxes and Tax Preparation
Income Taxes
US Air Force

If you make a settlement with a creditor and the deficiency between the total amount and the settlement is 4000 can you legally avoid paying taxes on the forgiven amount?



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Relief of debt is a form of income, they have given you $4,000 to do anything you want (usually past tense) with. As such, the IRS is going to want their share of your good fortune. Not much you can do about that. Consult with a tax consultant for ways to ease the burden.