Sunday, January 24, 2010

Is Debt Cancellation Income?

Since there's so much confusion at the USCF, Wick, and others, I'll make one last post on this issue.

Was their legal liabilities reduced by $39,000 or not? About that crack about "HONESTLY portrayed that way" (see below) have you checked with the IRS regarding rules on taxable income? A phone call may help you guys clarify the matter of debt cancellation being income.


Confusion Alert: Susan owes money to the lawyers; her lawyers did not owe money to Susan. It was her debt (not the lawyers') that was partially cancelled by the insurance payment. This seems to be the point which is leading the USCF, Wick, and others astray.


  1. I remain astounded at the ability of some to whistle past the graveyard.

  2. I don't quite see your point. Polgar owes legal fees. The settlement reimburses some (though far from all) of those fees. The money goes directly from the insurance company to the lawyers. It's not like she can keep the cash and stiff her attorneys. How that's treated for tax purposes may be of interest to specialists, but why would the rest of us care?

  3. You started a thread called "Polgar Wins" and indicated that there were cash payments to Polgar as part of the settlement. I wrote that there were NO winners (except the lawyers) and no cash payments from the USCF to Polgar/Truong. Now, you're writing about how the IRS treats debt cancellation? Sheesh.

  4. I'm talking about economic benefit. Maybe another example might help here.

    We have a fender-bender. Whose insurance company has to pay off? Your's or mine? Most people would consider this to be a big deal.

  5. Out of curiosity, Jack. Do think that Polgar's attorneys will have an obligation to send her a 1099?

  6. Assuming that Polgars' attorney fees were more than $39,000, she actually lost money (as well as time) on the lawsuit.

    Jack, you're an accountant, so tell us: if one of your clients loses $100k during the year, but gets a debt of $39k cancelled in the same year, would you say your client has had a winning financial year?

  7. Jack, if we're in a fender-bender, and your insurance company pays 15% of the damage to my vehicle, I'd say that you're 15% liable and I'm 85% liable.

  8. A further thought... the fender-bender analogy doesn't hold up to scrutiny because a typical insurance payment is for actual damages. Payment for damages: that's what Polgar sought, but how much payment for damages was in the settlement?

    Please answer that, Jack: how much settlement money went for damages? If the answer is $0, then your analogy completely doesn't apply.

    If you want to draw an insurance analogy, let's suppose you and I had a fender-bender, and I sued you for a million simoleons. In order to sue you, I paid an attorney 100k simoleons.

    Now if in the settlement your insurer pays my attorney 39k simoleons, and leaves me holding the bag for 61k simoleons in attorney fees, and pays me 0 simoleons for the damages I claimed, I'd say I suffered a pretty serious setback. I envisioned receiving the better part of a million simoleons, but instead I suffered a loss of 61k simoleons. Not a good year.

    Of course, you're my friend, Jack, so this is just a hypothetical. :) May all the defeats between us come on the chess board. Look me up on FICS if you want to play a game; my handle is "flatman."

    Best regards,


  9. Chris, I think you hit on the important loss in this sorry matter in your last paragraph: Many friendships have suffered irreversible harm over the petty squabbles of two juvenile personalities (RSS and FSS). No one "won" as Jack wants to spin the settlement. We ALL lost.