"Debt Forgiveness"

Around this time of year, many consumers are finding that they are getting what they THINK is good news in the mail. Many creditors and collection agencies have sent out IRS form 1099-C to consumers from whom they have given up on collecting alleged debts.

Essentially, they forgive you the amount they say you owe, but that amount is then counted as INCOME for the consumer in the year that the 1099-C is written. There are some exclusions, though, so it's important to immediately speak with a tax professional about how to handle it. A consumer's failure to report the 1099-C can even trigger an IRS audit!