15.1 Government Overpayments

Cancellation or waiver of an overpayment of government assistance may constitute debt cancellation income.1  However, waiver of an overpayment due to economic hardship should be excluded from income under the general welfare exclusion doctrine.2

• 1See, e.g., Waterhouse v. Comm’r, T.C. Memo 1994-467 (waiver of VA overpayment creates debt cancellation income); see also IRS Chief Counsel Opinion CC: Pa: 01: RJGoldstein, PRESP-109087-12 (Mar. 9, 2012).
• 2See, e.g., Rev. Rul. 78-46, 1978-1 C.B. 22.