Short Sale & Income Tax to Owner?

I am an aspiring RE Investor. I was discussing Short Sales with my mom the other day. I grew up in SoCal during the early 90’s bubble burst. My mom needed out of our house. She had a buyer but for $17,000 less then the mortgage. She negotiated a short sale with the bank and sold to the buyer. Since that $17,000 was forgiven by the Lender she said the I.R.S. nabbed her and made her pay income taxes on that amount.
My question is, will the I.R.S. still nab the home owner when an Investor does a short sale on their property? Also, if that is the case does anyone broach the subject with property owners? It seems to me that mentiong this would only hurt the RE Investors position, however there is the whole ethics thing…

oops, looks like I should have searched a little longer before I posted my own topic. ::slight_smile: