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Taxes on credit card settlements

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  • Taxes on credit card settlements

    Just curious to see if anyone heard of this happening in NJ or anywhere else. A friend of mine had his mother pay off one of his credit card debts from his college days. The collection agency offered a settlement taking off all the interest and late fee's. That was 3 years ago. Recently, he got a letter from the IRS saying that he should have claimed all the interest and late fee's that the collection agency agreed to dismiss. Since it was 3 years ago he basically is in debt to the IRS now due to their late fee's and what not. Anyone know any specifics on it?

  • #2
    I think they are saying that the late fees and interest were income. Your friend should consult a tax expert for advice and possible negotiation to work out a settltment to this matter.

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