Question about taxes and debt settlement.

[forgotmylogin]

I am in the hopefully last stages of settling a huge amount of credit card debt I racked up over my entire lifetime. I paid off approximately 75% of it in full via debt consolidation until I literally couldn't do it anymore, but by then the minimum payments on all my cards were much more manageable. I got a call from a settlement company and entered a process to settle the remaining amounts for less than the total. They've been amazingly helpful and great and I have no problems with them.

I just got a letter from the IRS saying that I owe about $640 on my 2016 return because Citibank reported a debt-forgiveness on me of around $5000. I know you really can't fight the IRS, and I'll pay it if I need to, but it just seemed weird that they are taxing me for "income" that I didn't receive, and Citibank didn't receive. I guess it's projected profit that Citibank is writing off to lower their tax amount, but how are they taxing me on money that doesn't actually exist for me as income?

I just was curious if anyone had advice whether it's even worth it to talk to the IRS about this, or is this standard and I shouldn't waste time on it and just cough it up.

Thanks!