In early 2020, the Internal Revenue Service issued Revenue Procedure 2020-11 (Rev. Proc. 2020-11) about the established safe harbor that extends relief to taxpayers who used federal or private student loans to finance attending a nonprofit or for-profit school. The relief described in Rev. Proc. 2020-11 is also extended to any creditor that would otherwise be required by law to file information returns and provide payee statements to discharge any indebtedness within the scope of the revenue procedure.
The Treasury Department and the IRS had extended relief to student loan borrowers in the last five years as follows, and now wishes to extend such relief:
This revenue procedure includes provisions that the IRS will not assert that certain taxpayers, whose Federal student loans are discharged under the Department of Education’s “Defense to Repayment” discharge process, must recognize gross income as a result of a discharge. Rev. Proc. 2015-57 also contains other provisions related to not asserting the recognition of gross income.
This revenue procedure extends the relief provided under Rev. Proc. 2015–57 and 2015–51 I.R.B. 863 to those taxpayers who took out Federal student loans to finance attendance at a school owned by American Career Institutes, Inc. (ACI) and whose Federal student loans are discharged under the Department of Education’s “Defense to Repayment” or “Closed School” discharge process.
This revenue procedure provides further guidance on Rev. Proc. 2015–57, 2015–51 I.R.B. 863, and Rev. Proc. 2017–24, 2017–7 I.R.B. 916, to extend relief to taxpayers who took out private student loans to finance attendance at a school owned by Corinthian College, Inc. (CCI) or American Career Institutes, Inc. (ACI).
The Treasury Department and IRS have determined that it is appropriate to extend the relief provided in Rev. Proc. 2015-57, Rev. Proc. 2017-24 and Rev. Proc. 2018-39 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.
The Revenue Procedure notes the requirement that the relief applies to federal loans discharged by the Department of Education under the Closed School or Defense to Repayment discharge process, as well as private loans discharged based on settlements of legal action against nonprofit, other for-profit schools, and private lenders.
Taxpayers within the scope of this revenue procedure are not required to recognize gross income resulting from the discharge, and should not report any amount of the discharged loan in gross income on their federal income tax return.
Additionally, the IRS will 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 confusion, the IRS strongly recommends that these creditors not furnish students nor the IRS with a Form 1099-C.
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