Income From Discharge of Indebtedness
Although a loan does not start out as income to the borrower, it becomes income to the borrower if the borrower is discharged of indebtedness. Thus, if a debt is discharged, then the borrower essentially has received income equal to the amount of the indebtedness. The Internal Revenue Code lists “Income from Discharge of Indebtedness” in Section 61(a)(12) as a source of gross income.
Example: X owes Y $50,000. If Y discharges the indebtedness, then X no longer owes Y $50,000. For purposes of calculating income, this should be treated the same way as if Y gave X $50,000.
For a more detailed description of the “discharge of indebtedness”, look at Section 108 (Cancellation of Debt (COD) Income) of the Internal Revenue Code.
Read more about this topic: Loan
Famous quotes containing the words income, discharge and/or indebtedness:
“Italy is such a delightful place to live in if you happen to be a man. There one may enjoy that exquisite luxury of Socialism—that true Socialism which is based not on equality of income or character, but on the equality of manners. In the democracy of the caffè or the street the great question of our life has been solved, and the brotherhood of man is a reality. But it is accomplished at the expense of the sisterhood of women.”
—E.M. (Edward Morgan)
“... women of the North, I ask you to rise up with earnest, honest purpose, and go forward in the way of right, fearlessly, as independent human beings, responsible to God alone for the discharge of every duty, for the faithful use of every gift, the good Father has given you. Forget conventionalisms; forget what the world will say, whether you are in your place or out of your place; think your best thoughts, speak your best words, do your best works, looking to your own conscience for approval.”
—Susan B. Anthony (1820–1906)
“I cannot assent to a measure which stains our credit. We must keep that untainted. We are a debtor nation. Low rates of interest on the vast indebtedness we must carry for many years, is the important end to be kept in view. Expediency and justice both demand honest coinage.”
—Rutherford Birchard Hayes (1822–1893)