Finance
According to the IRS, whenever a bank or other creditor accepts a lower amount as full payment of a debt, the difference is income on which the borrower must pay taxes.

Gretchen, a small business owner, borrows $100,000 from a bank but cannot repay it all. The bank agrees to accept $80,000 as full payment of the debt. The bank could sue for the difference, since it has received no additional consideration in exchange for accepting the lower amount. But assuming it does not, Gretchen now has an obligation to the IRS, namely, to recognize the unpaid $20,000 as taxable income. Because she received $100,000 and repaid only $80,000, Gretchen is in a better financial position, with $20,000 more than she had before the loan transaction. Consequently, the IRS requires that she report the $20,000 as income, on which she must pay taxes at the applicable rate.