Debt Forgiveness
Many people do not often realize that debt forgiveness is income on their tax return. People often work with credit companies to reduce the amount of debt owed to the credit cards. This can be done personally or through an attorney. When this happens you will owe less to the credit card company BUT this amount that is "forgiven" is taxable income on your tax return. The credit card company issues a 1099 for the amount and that is reported to the IRS as well. If it is not reported properly on your tax return, the IRS will send a letter and in addition to the taxes owed, they will add a penalty for non-reporting as well as interest.