Hazel, a solvent individual but a recovering alcoholic, embezzled $6,000 from her employer.In the same year that she embezzled the funds, her employer discovered the theft.Her employer did not fire her and told her she did not have to repay the $6,000 if she would attend Alcoholics Anonymous.Hazel met the conditions and her employer canceled the debt.

Question

Quizplus · Accepted Answer

Embezzlement is not a gift, and when Hazel's employer canceled her debt, that constituted a discharge of indebtedness. The cancellation of debt is treated as income to the debtor, as it relieves the debtor of an obligation to pay the debt. Therefore, the $6,000 must be included in Hazel's gross income.

Hazel, a Solvent Individual but a Recovering Alcoholic, Embezzled $6,000