[header] How to account for debt forgiveness [title] Determine whether it is business or non-business bad debt. [step] The irs distinguishes clearly between business and non-business types of bad debt. Business bad debt is a worthless (uncollectible) debt that was created or acquired during the course of business. 
This might includes loans or credit sales to customers or vendors, or business loan guarantees. Nonbusiness bad debts are defined more broadly as all other bad debts (not related to business).