I found some good information on this.
It is considered taxable income. However, if the business is not solvent, then the amount would not be taxable income.
Take a look at this link as it addresses this issue. The tax law is the same yet for credit cards as it is now, so while the link has some older years, the tax law is still the same in this area.
http://www.asktaxguru.com/7306-1099-c-for-closed-business.html
