Gus owes $50,000 in credit card debt to Neighbor's Bank. Gus was having financial difficulties during the current year and Neighbor's Bank agreed to reduce Gus's debt to $20,000 to help him get his financial affairs in order and avoid bankruptcy.
I. If Gus's assets were $100,000 and his liabilities were $150,000 before the discharge, he is not taxed on any of the $30,000 debt reduction.
II. If
Gus's assets were $80,000 and his liabilities were $100,000 before the discharge, he is taxed on all $30,000 of the debt reduction.
a. Only statement I is correct.
b. Only statement II is correct.
c. Both statements are correct.
d. Neither statement is correct.
a
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