Chipper borrowed money from several creditors for personal uses. At a time when his assets are worth $120,000 and his debts are $140,000, his creditors agree on a compromise settlement in which they forgive $26,000 of the debt. How much of the $26,000 is included in Chipper's Gross Income?

Question

Quizplus · Accepted Answer

Chipper is insolvent by $20,000 ($140,000 debts - $120,000 assets). The forgiven debt of $26,000 exceeds his insolvency by $6,000, which is included in his Gross Income.

Chipper Borrowed Money from Several Creditors for Personal Uses