Everyone knows the old saying, nothing is certain but death and taxes. Well, even in the world of debt collection, taxes are a certainty. Unfortunately, taxes are a certainty that many consumers are told to expect and come as a nasty after the fact surprise. Millions of Americans are working with debt consolidation companies to have part of their credit card debt forgiven. It sounds almost too good to be true, the interest and late fees and other penalties and fees are magically wiped out and the debtor is allowed to repay the principal debt on a monthly basis without more interest accruing. Sometimes, if the debtor's situation is extremely dire or the debtor can offer a large lump sum payment, some of the actual principal debt may be wiped out. Compromises of large balances are almost the norm for second and third tier debt purchasers. In other words, if you default on your credit card balance, the credit card company may write off your debt as a bad debt and then sell your account to a debt buyer for pennies on the dollar. Your debt may even be sold multiple times, each time for less money. The company you end up paying may be more than happy to accept a deeply discounted payment as payment in full. But months later, you will receive a nasty surprise. You will receive a 1099 C which is the IRS form the creditor used to report the cancellation of part of your debt. You see when you don't have to repay a debt you have incurred, the IRS says that becomes income and as income, you owe them taxes on it. Under IRS rules and regulations, any debt forgiven which is more than $600.00 must be reported on a form 1099 C Cancellation of Debt and stated as income on your tax return. In other words, if you run up a credit card bill of $10,000 and the credit card company or whoever buys their bad debt accepts $5,000 as payment in full, you have received the benefit of $5,000 dollars you didn't have to repay. In the eyes of the IRS, it is the same as if you earned $5,000 at your job. If you fail to report it, you can be guilty of tax fraud. But don't worry, the IRS will already know about it because they will receive a copy of the 1099 C the creditor sends you and they will recalculate your return, assess taxes and penalties and interest against you. So when you are feeling great about getting your debts cut in half or even better, remember that Uncle Sam will come looking for his and usually with interest and penalties.