Taxpayers who took out federal or private student loans to finance their attendance at a nonprofit or for-profit school now qualify for safe harbor with regard to cancellation of debt income for discharged student loans. Relief is also extended to any creditor that would otherwise be required to file information returns and furnish payee statements for the discharge of any indebtedness within the scope of this revenue procedure.
Background
Previously, the Treasury Department and the IRS provided relief for federal loans 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. However, this relief is now extended to taxpayers who took out federal and private student loans to finance attendance at nonprofit or other for-profit schools not owned by Corinthian College, Inc. or American Career Institutes, Inc.
What this means for taxpayers
Under the safe harbor, taxpayers should not report the amount of the discharged loan in gross income on his or her federal income tax return. Additionally, the IRS will not require that a creditor must file information returns and furnish payee statements for the discharge of any indebtedness within the scope of this revenue procedure.
Please contact the office if you have any questions about this topic.