California tax law, forgiven employee debt, gift or income for tax purposes

Asked about 6 years ago - Cupertino, CA

If a company forgives a debt that an employee owed the company, as far as tax is concerned, would it be considered a gift from the company or an income to the employee and a deduction for the company?

Attorney answers (2)

  1. Janet Lee Brewer


    Contributor Level 17


    Lawyers agree

    Answered . A company cannot make a gift to a person (only to a charitable organization); it may be a "bonus", but whatever way you look at it, it is taxable income to the employee. And, yes, forgiving a debt is income.

    This information is not intended to substitute for professional legal advice and does not create an attorney-client relationship. You should accept legal advice only from a licensed legal professional with whom you have an attorney-client relationship.

  2. Anthony John Colleluori

    Contributor Level 15


    Lawyers agree


    Answered . Usually it is charged as income.You should consult a tax consultant or accountant to acertain what you can do to avoid paying too much tax on this windfall.

    Good luck

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