8122 / Is the discharge of a guaranteed debt income to the guarantor?

No. The rationale for taxing discharge of debt income is the debtor’s tax-free enjoyment of the borrowed funds during the period he or she was obligated to repay the lender. Once the obligation is discharged, then it is appropriate to tax the previously enjoyed economic benefit. Conversely, a guarantor who has a contingent obligation to repay the debt (because the primary obligor defaults) never enjoyed the benefit of the borrowing. Therefore, the discharge of a guaranteed debt does not trigger discharge of debt income to the guarantor.