The Internal Revenue Service is letting former students of a now-defunct for-profit college chain, Corinthian Colleges, to avoid including their forgiven student loan debts within gross income.
Corinthian was one of the largest for-profit post-secondary education operators in the U.S. and Canada, operating more than 100 campuses in North America under names such as Everest College, Heald College and WyoTech, short for the Wyoming Technical Institute. In May, the company declared bankruptcy, affecting more than 16,000 students and employees, and leaving many of its students with high student debts.
On Thursday, the IRS released Revenue Procedure 2015-57, which applies to a taxpayer who took out federal student loans to finance attendance at a school owned by Corinthian Colleges, Inc. that are discharged under the Department of Education’s Defense to Repayment discharge process or Closed School discharge process.
Rev. Proc. 2015-57 provides that the IRS will not assert that a taxpayer whose federal student loans are discharged under the Education Department’s Defense to Repayment discharge process needs to recognize gross income as a result of the debt discharge process. The revenue procedure identifies the statutory provisions under which taxpayers whose federal student loans are discharged under the Education Department’s Closed School discharge process may exclude the discharged amount from gross income.
In addition, the IRS said it will not assert that these taxpayers must increase the amount of taxes they owe in the year of discharge, or in a prior taxable year, as a result of either discharge process, if in a prior year he or she received an education credit under section 25A attributable to payments made with proceeds of the discharged loan. The IRS also will not assert that these taxpayers must increase their income in the year of the discharge if he or she took a deduction under Section 221 of the Tax Code in a prior year attributable to interest paid on a discharged loan or a deduction under Section 222 in a prior taxable year attributable to payments of qualified tuition and related expenses made with proceeds of the discharged loan.