1099c

[quicksam]

Client received 1099C for cancellation of Federal Student Loan. She says it was relieved because of working a required amount of time in the field she majored in. Everything I read says this cancellation is excluded from being taxed because of this.

However, I do not see how to enter this into Drake to where she will not get a CP2000. There is no box on the 982 to exclude for fulfilling work related field. If I just leave it off, the return will surely red flag.

Have any of you handled anything similar to this.

Thanks

[appelman]

How about an 8275?

The use is a little off-label, but it might do the trick.

[Lion]

Practical Tax Expert,§3,420.25,Exclusion for Cancellation of Student Loans

The discharge of student loans does not give rise to discharge-of-indebtedness income if the discharge is pursuant to a provision in the loan agreement under which all or a part of the student loan is forgiven, provided the student works for a certain period of time in certain professions for any of a broad class of employers. 5 In addition, an individual's gross income does not include forgiveness of loans made by tax-exempt charitable organizations (e.g., educational organizations or private foundations) if the proceeds of such loans are used to pay costs of attendance at an educational institution or to refinance outstanding student loans and the student is not employed by the lender organization. Code Sec. 108(f)(3).

CAUTION
This exclusion does not apply to the extent the taxpayer is insolvent or is involved in a bankruptcy case. Code Sec. 108(a)(2).

The exclusion applies if the proceeds are used to refinance any loan made to assist an individual in attending an educational institution, not just loans made by educational organizations. The refinancing loan must be made under a program that requires the student to fulfill a public-service work requirement. Code Sec. 108(f)(2).

Payments received under the National Health Services Corps loan repayment program (Section 338B(g) of the Public Health Service Act) or under state loan repayment programs (Section 338I of the Public Health Service Act) are excluded from gross income. Repayments under other state loan repayment or forgiveness programs that are intended to provide for the increased availability of health care services in underserved or health professional shortage areas, as determined by the state, are also excluded from gross income for tax years beginning after 2008. Code Sec. 108(f)(4). Taxpayers who claim the exclusion may have their gross income reduced for that year and be entitled to refunds of both income taxes, and in the case of employees, Federal Insurance Contributions Act (FICA) taxes. If an employer does not seek a refund on the employee’s behalf, the employee may request a refund of FICA taxes by filing Form 843, Claim for Refund and Request for Abatement. The employee’s refund claim should include a statement from the employer indicating whether the employer has reimbursed the employee for any FICA tax or filed a refund claim for any amounts of which the employee is claiming a refund. CCA 201049028.

The IRS ruled that the discharge of a law school graduate's student loan debt is not included in the graduate's gross income where the discharge is made through a law school's Loan Repayment Assistance Program (LRAP) designed to help reduce the student loan debt of graduates who engage in public service by refinancing the graduate's original student loan debt and then forgiving all or part of that refinanced loan if the graduate works for a required period of time in a law-related public service position. Rev. Rul. 2008-34, 2008-2 CB 76.

[Bill Tubbs]

Line 21

Perhaps: report the 1099-C income on Line 21, along with a equal & offsetting entry with a note of "§3,420.25, Exclusion for Cancellation of Student Loans".

Might not prevent the computer from flagging it for review, but then when the return hits an auditor's desk they should see the income and offsetting line and not generate a letter to the client.

Bill

[DaveO]

I just saw one of these for an attorney in the public defenders office. Only problem it is on a 1099MISC as other income. I see the Sec 108 election as an option on the 982 but other than offsetting entries on Line 21 I don't see how to zero this out.