The IRS has established a safe harbor that extends relief to certain taxpayers who took out federal or private student loans to finance attendance at certain nonprofit or for-profit schools. Under the relief:
affected taxpayers do not have to recognize gross income resulting from the discharge of the loan;
affected taxpayers should not report the amount of the discharged loan in gross income on their federal income tax returns; and
creditors do not have to file information returns or furnish payee statements as a result of discharging these loans.
Extension of Relief
The relief applies to any taxpayer who took out federal or private student loans to finance attendance at a nonprofit or for-profit school that meets the definition of an “institution of higher education” under 20 U.S.C. §1001(a) or (b), or a for-profit school that meets the definition of a proprietary institution of higher education under 20 U.S.C. §1002(b), and
whose federal loans are discharged by the U.S. Department of Education based on the Closed School or Defense to Repayment discharge process; or
whose private loans are discharged based on a settlement of a legal cause of action resolving various allegations of unlawful business practices, including unfair, deceptive, and abusive acts and practices against a nonprofit or for-profit school or private lenders that made student loans to finance attendance at these schools.
Prior relief was provided for taxpayers who took out federal student loans to finance attendance at a school owned by Corinthian College, Inc. (CCI) ( Rev. Proc. 2015-57, I.R.B. 2015-51, 863) or American Career Institutes, Inc. (ACI) ( Rev. Proc. 2017-24, I.R.B. 2017-7, 916). Additional relief was provided for taxpayers who took out private student loans to finance attendance at a school owned by CCI or ACI and whose loans were discharged based on a settlement of a legal cause of action resolving various allegations of unlawful business practices, including unfair, deceptive, and abusive acts and practices against CCI, ACI, and certain private lenders ( Rev. Proc. 2018-39, I.R.B. 2018-34, 319).
The IRS has now extended the relief to private student loans to finance attendance at nonprofit or other for-profit schools not owned by CCI or ACI.
Relief is also extended to any creditor that is an “applicable entity” under Code Sec. 6050P that otherwise would be required to file information returns and furnish payee statements for the discharge of any indebtedness within the scope of the safe harbor relief.
Effective Date
The relief is effective for federal student loans discharged by the U.S. Department of Education in tax years beginning on or after January 1, 2016, under the Closed School or Defense to Repayment discharge process, and for private student loans discharged in tax years beginning on or after January 1, 2016, based on a settlement of a legal cause of action resolving various allegations of unlawful business practices, including unfair, deceptive, and abusive acts and practices against the nonprofit or for-profit schools or certain private lenders. Taxpayers to whom the relief applies may claim a credit or refund for an overpayment of tax for tax years for which the period of limitations under Code Sec. 6511 has not expired.
Closed School Student Loan Relief Extended
The IRS has established a safe harbor that extends relief to certain taxpayers who took out federal or private student loans to finance attendance at certain nonprofit or for-profit schools. Under the relief:
Extension of Relief
The relief applies to any taxpayer who took out federal or private student loans to finance attendance at a nonprofit or for-profit school that meets the definition of an “institution of higher education” under 20 U.S.C. §1001(a) or (b), or a for-profit school that meets the definition of a proprietary institution of higher education under 20 U.S.C. §1002(b), and
Prior relief was provided for taxpayers who took out federal student loans to finance attendance at a school owned by Corinthian College, Inc. (CCI) ( Rev. Proc. 2015-57, I.R.B. 2015-51, 863) or American Career Institutes, Inc. (ACI) ( Rev. Proc. 2017-24, I.R.B. 2017-7, 916). Additional relief was provided for taxpayers who took out private student loans to finance attendance at a school owned by CCI or ACI and whose loans were discharged based on a settlement of a legal cause of action resolving various allegations of unlawful business practices, including unfair, deceptive, and abusive acts and practices against CCI, ACI, and certain private lenders ( Rev. Proc. 2018-39, I.R.B. 2018-34, 319).
The IRS has now extended the relief to private student loans to finance attendance at nonprofit or other for-profit schools not owned by CCI or ACI.
Relief is also extended to any creditor that is an “applicable entity” under Code Sec. 6050P that otherwise would be required to file information returns and furnish payee statements for the discharge of any indebtedness within the scope of the safe harbor relief.
Effective Date
The relief is effective for federal student loans discharged by the U.S. Department of Education in tax years beginning on or after January 1, 2016, under the Closed School or Defense to Repayment discharge process, and for private student loans discharged in tax years beginning on or after January 1, 2016, based on a settlement of a legal cause of action resolving various allegations of unlawful business practices, including unfair, deceptive, and abusive acts and practices against the nonprofit or for-profit schools or certain private lenders. Taxpayers to whom the relief applies may claim a credit or refund for an overpayment of tax for tax years for which the period of limitations under Code Sec. 6511 has not expired.
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