Forgiven student loan debt

[joanie3444]

Client is an attorney. She became permently disabled two years ago and still had $87000 in student loans from law school. The debt was forgiven last summer due to her disability. On Saturday she received a 1099 C. Is there any way around

having to pay the tax on this forgiven debt? She is not insolvent. What do you all think?

Joann

[schirallicpa]

Sounds like income to me.

The obvious question is, why was debt forgiven if she can make payments? Mute point, probably.

[norcalea]

There has been alot written about the tax bill that comes along with having student loan debt forgiven due to permanent disability. Mostly that the tax nightmare catches most by surprise. Unfortunately insolvency is the only current option for excusing the income.

I have one of these in house right now as well...bummer..

[jainen]

>>Is there any way around having to pay the tax on this forgiven debt?<<

No way around IRS assessing the tax. Quite a few ways around having to pay the tax. Something may come to mind if you consider this as a collections engagement rather than tax preparation.

[Bart]

Unfortunately insolvency is the only current option for excusing the income.

Bankruptcy excuses the income also.

[joanmcq]

Sounds like income to me. The obvious question is, why was debt forgiven if she can make payments? Mute point, probably.

Just because she's not insolvent doesn't mean she can make the payments. She could easily have home equity, or retirement funds that aren't easily accessible or funds that she needs to live on. At least the tax is less than the debt.

[kcjenkins]

Also consider if she could qualify for an installment agreement ?

http://www.irs.gov/taxtopics/tc202.html