The Internal Revenue Service and the Treasury Department are offering a safe harbor to provide relief to taxpayers who borrowed money to attend a nonprofit or for-profit school and had their student loan debts discharged.
The Treasury Department and the IRS said Wednesday they have determined that it’s appropriate to extend the relief already provided in
In many cases, discharged debts are taxable under federal law, so the revenue procedures provide tax relief for former students who attended schools and were left with high levels of student loan debt.
The new revenue procedure provides relief when the federal loans are discharged by the Department of Education under the Closed School or Defense to Repayment discharge process, or where the private loans are discharged based on settlements of certain types of legal causes of action against nonprofit or other for-profit schools and certain private lenders.
Taxpayers within the scope of the revenue procedure will won’t have to recognize gross income as a result of the discharge, and taxpayers shouldn’t report the amount of the discharged loan in gross income on their federal income tax return.
In addition, the IRS said it would not assert that a creditor must file information returns and furnish payee statements for the discharge of any indebtedness within the scope of this revenue procedure. To avoid any confusion, the IRS is strongly recommending that these creditors not furnish students nor the IRS with a Form 1099-C.