More taxpayers qualify for student loan COD relief

by | Jul 28, 2020 | Uncategorized | 0 comments

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More taxpayers qualify for student loan COD relief

The IRS extended its safe-harbor relief from recognizing cancellation-of-debt (COD) income for students whose loans were discharged either because their schools were closed or as a result of some type of fraud (Rev. Proc. 2020-11). The IRS had earlier provided relief for students from Corinthian College or American Career Institutes Inc. whose loans were discharged by the Education Department under the “Closed School” or “Defense to Repayment” discharge process (Rev. Proc. 2015-57 and Rev. Proc. 2017-24). Rev. Proc. 2018-39 provided relief for students from those schools whose loans were discharged under a settlement of a legal cause of action resolving various allegations of unlawful business practices, including unfair, deceptive, and abusive acts and practices.

The IRS has determined that it is appropriate to provide relief to students from other schools who have obtained federal or private student loans and who qualify under one of the following safe harbors:

The IRS recognizes that many of these students would qualify for forgiveness from recognizing COD income under other Code provisions, such as the insolvency provision, but wants to make it easier for students to determine whether they qualify for exclusion.

In addition, the IRS will not assert that a creditor that is an “applicable entity” under Sec. 6050P must file information returns and furnish payee statements for the discharge of any indebtedness within the scope of this revenue procedure. Filing those information returns with the IRS could result in the Service’s mistakenly issuing underreporter notices to taxpayers, and furnishing payee statements to taxpayers could cause confusion. This means that the IRS does not want creditors to file Forms 1099-C, Cancellation of Debt, for taxpayers who qualify for this relief.

Sally P. Schreiber, J.D., (Sally.Schreiber@aicpa-cima.com) is a JofA senior editor.

Research & References of More taxpayers qualify for student loan COD relief|A&C Accounting And Tax Services
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