My wife had defaulted on her credit cards in late 2012/early 2013 due to financial circumstances. In mid-2013, we setup payments with issuer and that was that. We filed taxes for 2013 and didn't declare cancelled debt because we were making payments on it. Payments for two of the cards ended in May 2015 and the last one is going to end in a few months.
Fast forward to today, I received a letter from the IRS asking for taxes on the cancelled debt because the issuer declared it on their return as cancelled.
What can I do to resolve this? I am going to call the issuer and request a statement and since I paid by check, I have online withdrawal slips. Will IRS consider this as sufficient info? Can I pay taxes on the debt this year and somehow claim it back the next.
Edit: The issuer didn't forgive any debt. We are paying everything she owed.