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I guess I did not fully state my question, in part one the IRS says I must pay taxes on the entire 45,000, 25% of that amount went to the IRS to pay the taxes and penalties.
On the other one, we never got any communications from any of our creditors about the amount of the settlement. In most of the cases, the amount "owed" at the close of the account was twice or more of the actual money borrowed. Say we had borrowed $5000 from Citi Bank, and we were paying the minimum, then I forgot and tried to charge something that exceeded my $5000 credit limit, BANG they hit me with a $150 over limit penalty and they double my minimum payment and kicked the interest charges up to almost 30%. That over the limit fee kept up until I finally realized I had to come up with enough money to get the total amount owed back down < $5000. This is one of the banks I do remember the amount on, we settled with them for $5500, but they claimed we owed them almost $13,000, but the most we had opened at any one time was $5000. Because the difference was $7500 we had to pay the debt company %25 of the “saved” $7500. I can see paying taxes on loan where someone forgave money that had actually added to your net worth, but not when the “money” was excessive interest and penalties, and they make no allowance for how much it cost a person to get the debt forgiven. Besides, I thought that when someone did something to increase your income they were supposed to tell you with a copy of a W2 or 1099.