We're both citing similar references. You would know that your situation qualifies. It seems that we could have had an easier time of it had if been a direct cancellation of debt with an exception (certain student loans). I have no idea how much the 1099 is for, but the fact it's reported, means the IRS is expecting it on the return. If the email came from the payer of the 1099, you could enter the income and deduct it out again citing the sec 108 reference. It may be best to clarify with them before you do. The answer below shows you how.
