Discharges of Debt Are Generally Taxable

question 107

Multiple Choice

Discharges of debt are generally taxable. However, in certain circumstances, part or all of the income from a discharge of indebtedness may be excluded. Which of the following concepts form(s) the basis for the income tax treatment of a discharged debt?
I.Wherewithal-to-Pay Concept.
II.Legislative Grace Concept.
III.Realization Concept.
IV.Substance Over Form Doctrine.
​

• A)Statements I and III are correct.
• B)Statements II and III are correct.
• C)Statements I and IV are correct.
• D)Statements I, II, and III are correct.
• E)Statements II, III, and IV are correct.

---

Definitions:

Pique Technique

Influence technique in which one captures people’s attention, as by making a novel request.

Foot-in-the-door Technique

A persuasion strategy where one starts with a small request to increase the likelihood of agreement to a larger request later.

Low-ball Technique

A persuasion strategy where an initially favorable deal is changed to less favorable terms after agreement.

Commitment and Consistency

The tendency for individuals to align their attitudes, beliefs, and behaviors with their previous decisions and actions to appear consistent to themselves and others.