Thanks for your response, but that does not help.

How do I make sure the written off amount is not being treated like income received and therefor taxable at the time of the write off? I don't want to pay tax on money I didn't receive! Also no tax was actually collected and its saying there was. It seems there is something going on in the background in Quickbooks that is not right. In my investigations, I did locate an inactive account called 'Discounts' which I think is incorrectly labeled as an Income account. Running a quick report does not show this invoice, however. The only account I see being used in this invoices transactions are the expense account 'Write-offs' and accounts receivable. But even though the payment amount is 0, the recent payments listed in the customer profile showed the discounted amount that we are discussing.

I'm guessing that's where the problem lies. It's not actually a payment.