[briandear]

It is income. Someone gave you money. Otherwise, why wouldn’t a company “loan” you a higher salary and then just “forgive” the debt? Or, you could set up a company to loan yourself money — the company deducts the “loss” and you don’t pay taxes on the gain.

[Retric]

The principal is presumably income, however the interest or fees should not be. The IRS will even occasionally cancel debt that’s mostly fines and interest without considering it income.

[dmix]

Like all laws there should be some context. But I guess you’re right it’s an easy loophole to exploit and the simpler the tax law the better.