Income from cancellation of debt is A only excluded if buyer is insolvent B is n

Question

Income from cancellation of debt is A only excluded if buyer is insolvent B is not excludible from income if buyer is insolvent C may be excluded to the extent the buyer has negative net worth D is taxable to the extent that the buyer has negative net worh Income from cancellation of debt is A only excluded if buyer is insolvent B is not excludible from income if buyer is insolvent C may be excluded to the extent the buyer has negative net worth D is taxable to the extent that the buyer has negative net worh Income from cancellation of debt is A only excluded if buyer is insolvent B is not excludible from income if buyer is insolvent C may be excluded to the extent the buyer has negative net worth D is taxable to the extent that the buyer has negative net worh A only excluded if buyer is insolvent B is not excludible from income if buyer is insolvent C may be excluded to the extent the buyer has negative net worth D is taxable to the extent that the buyer has negative net worh

Explanation / Answer

Income from cancellation of debt is normally always included in the taxable income and the taxpayer has to pay tax on the amount to debt foregone to be paid by him. However, in certain cases the debt payer is not required to include in the taxable income, income from cancellation of debt. One of such instance is where, the buyer or the debtor becomes insolvent, and thereby his debts are greater than his assets, and has a negative net worth. But the exclusion will be only to the extent of insolvency or to the extent the buyer has negative net worth.

Ans is C.

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