Consignor Loan Not Debt Forgiveness
A guarantor who cosigned a loan isn’t taxed on a discharged debt. When individuals become delinquent on debts they owe, lenders sometimes forgive all or part of the debt. When this happens, taxpayers must generally report the forgiven debt amount as taxable income. The U.S. Tax Court ruled that a loan guarantor who cosigned a loan with her son didn’t have cancellation of debt income when the unpaid loan balance was forgiven. The court found that the taxpayer intended only to be a cosigner and the lender never looked to her for repayment. (TC Memo 2017-219)