DISCHARGED STUDENT LOANS NOT REPORTED
Discharged student loans not reported. Many changes to the tax code happen, and the economic cycle certainly plays a big role in that. When the economy is down, the govenrment of the United States, and generally most all governments, try to accomodate citizens, by passing laws to help them get by in uncertain times. Covid has presented one of the biggest challenges to our government and society in the 20th century. Letter rulings are IRS procedures we deal with, where a taxpayer wants to know a grey area of the law, prior to fliling a tax return, so they don’t get into trouble. Yet, sometimes the IRS changes its position, and the taxpayer gets into hot water anyway. That’s ok, as we can take the IRS to tax court in such situations. The IRS has made a ruling regarding discharged student loans, as so many students are underwater financially that they don’t want forgiven debt added to that. That will also keep them from needing Tax Resolution Services, due to a tax debt. Discharged student loans not reported.
IRS FRESH START PROGRAM
Forgiven debt is one of the cruelest parts of the Internal Revenue Code. A person who is financially distressed, who is forced to walk away from certain debt, say a credit card debt, or home loan, ends up getting a 1099-MISC, and the amount of the forgiven tax debt is added just like self employment income, just at the worst possible time for them. Fortunately, the public outcry over student loan debt reached members of Congress and some laws were passed, and as a result, the IRS issued guidance in Notice 2022-1, which pertains to the American Rescue Plan Act. ARPA added a special rule in Sec. 108(f)(5) providing that taxpayers gross income does not include any amount discharged after Dec. 31, 2020, and before Jan1, 2026, for certain loans provided expressly for postsecondary educational expenses, whether throguh an educational instituionor directly to the borrower.