Hello,In Helvering v. AL Killian Co., 128 F. 2d 433 (US 8th Cir. 5/15/1942), the Eight Circuit Court of Appeals writes that "a reduction in the purchase price of property brought about by shrinkage in the value of the property and the consequent decrease in the assets of the taxpayer" is not taxable income. This is the rationale used by the courts in determining that no taxable income results from a seller financed transaction where the seller forgives a portion of the financing -- it is simply a reduction in the price of the property financed.See also, Hirsch v. Commissioner, 115 F.2d 656 (7th Cir. 1940); Charles L. Nutter, 7 T.C. 480 (1946); Gehring Publishing Co., 1 T.C. 345 (1942).Hope this helps.