From the corrections column of today's Times:
An article on Feb. 5 about the expiration of a tax break for homeowners who received mortgage debt relief or went through a short sale, in which the house is sold for less than the mortgage balance, omitted an exception for some California homeowners. Because under state law borrowers are not personally liable for the unpaid balance on their loans in the event of a short sale, the Internal Revenue Service determined that homeowners in California would not have to count the difference as taxable income. The I.R.S. guidance applies only to California, and does not apply to principle reduction, which is taxable as income.
I think what the Times means here is "principal reduction," not "principle reduction." The only principle being reduced here is the one that says the editors in charge of the Times corrections column should use the English language with care.