Consignor Loan Not Debt Forgiveness

Tighe, Kress & Orr.

Posted By: Tighe, Kress & Orr.

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)

All content provided on the TKO Insights website is for informational purposes only. Any tax advice contained in this communication (including attachments or links) is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of (i) avoiding tax penalties or (ii) promoting, marketing or recommending to another party the matter or transaction addressed herein. We recommend you consult your tax, audit, accounting or business valuation advisor related to any content on this site.