3 ways to get out of paying taxes on discharge of indebtedness income ("DOI")

There are three ways to legally avoid DOI taxes. There are as follows:

1) Argue that the discharge or forgiveness is really a settlement for a Contested liability. In other words, lets say you had a mortgage for $100,000. But you have refused to pay it because you dispute whether this was a fair amount for the house or whether the lender is charging you too much since you can prove you already paid what they are saying you did not pay. Whatever your reasons, you refuse to pay $100,000. You agree to pay instead $85,000. The lender accepts the $85,000. Normally you would have to pay $15,000 DOI taxes. You would have to pay taxes on the $15K. But in this case, because you disputed the liability, you would inform the IRS that there are no taxes due since this is a contested liability.

2) Nontaxable purchase price reduction argument. If the original sale involved coercion or fraud to pay a higher price when the house was not worth that, you can argue that DOI is not taxable because the debt was forgiven due to a "nontaxable purchase price reduction."

3) Insolvency. You can avoid DOI taxes by demonstrating to the IRS that you are insolvent. If your mortgage plus your other debts exceed your assets, you are basically insolvent and so you cannot pay DOI taxes under the insolvency exception.