I work with a national senior group doing taxes for us "older folks". This year, I have already talked to about a dozen folks who are very nervous about the receipt of 1099-Cs for cancelled debt. The big debts being cancelled in our age group are by and large student loans for our kids and grandkids, mortgage and re-fi things, and unexpected health issues that break our banks. All of these situations are being made worse by now getting a very unpleasant surprise. That cancellation is now being placed as income to you. Which, in many cases, causes Social Security retirement to be taxable - sometimes 100% of your benefits. Add the cancelled debt to that income, and you now have an unplanned tax liability on $100K of "income". This could be 10's of thousands of tax now due April 15th. In the case of the student loan debt, we (older folks) are getting total and permanent disability discharges, that then parlay in to a substantial tax bill. In most cases the IRS is more aggressive and demanding than sallie mae ever was. It MAY be better to set up minimal payments on the student loans with the servicer, rather than being garnished or attached by the IRS. Similarly, if your kids or grandkids are using one of the exceptions that allow them to receive "forgiveness" of student loan debt in exchange for working in strategic careers....BE SURE that your family gets written proof that the job is authorized to participate in those exceptions. I have two cases where the now, graduated, student was "told" his position was an exception....only to receive a 1099-C with substantial student debt canceled, that he is now subject to a very large tax bill, on. A lot of these positions are low paying, service, nursing or teaching positions. I am neither a professional, accountant or lawyer. But please check in to this, BEFORE you commit to something that will bite you down the road. Bests
My son, who is a grad student in his mid 20s, has mysteriously started leaning towards the position that we don't pay enough taxes, that our times of greatest prosperity was back in the late 40s and 50s, when tax rates were in the 50-70% bracket. He thinks that the evil rich guys and corporations, who make $100s of millions should be paying more. What he fails to understand is that they have rooms full of lawyers and accountants, who find the loopholes in the laws - and now matter how high you raise the tax bracket, they're not going to be paying any more. As you pointed out, it's the middle class, working guy who has to pick up the slack. In the case of someone who has debt modification or cancellation, the reason those debts where changed was because they couldn't afford them - what makes the government think they can then pay taxes on it. Living on a fixed income is really tough - when you throw in things like this, it's just impossible.
When I was in my forties, the IRS caught up with me for an old student loan. Originally, it was only a $500 loan. I had made a few payments on it, then forgot about it for twenty-five years. By the time the IRS got hold of, it had stretched into the thousands. They froze my bank account, which was nearly empty anyhow, then garnished fifty percent of my wages. Fortunately, I was a co-owner of an ambulance company, paying myself a salary, so I cut my wages and let the company pick up my rent, utilities and fuel expenses. Someone from the IRS called, seemingly concerned that they hadn't left me with enough to live on, offering to negotiate an easier payment plan. Since an easier payment plan wouldn't absolve me of interest, I told them I'd rather get it over with. So now, at least, I have no student loan debt.
The IRS will come after you also if you do not file, I made the mistake of thinking my income at one time was low enough to not need to file, I was in error the fines were in the thousands of dollars. I didn't owe money and they didn't owe me so I thougt it was ok the income was so low. It really upset me to think I had to pay all of that money for fines that the government decided to charge me.