Wednesday, July 23, 2008
IRS Clarifies Rule on Taxing Forgiven Loans is a July 11, 2008 National Law Journal article that law students may be interested in. It concerns an IRS revenue ruling, where the agency clarified that the privilege of not claiming the erased loans as income applies to certain students (not all) who go into the legal profession. As the article states:
Specifically, the IRS clarification says that a law school graduate can work for a public interest or community service organization, a legal aid office or clinic, a prosecutor's office, a public defender's office or another local, state or federal government office and qualify for avoiding taxes on the loan write-off.
Some law schools were confused and concerned about the tax implications of their loan-repayment assistance programs, designed to give a financial benefit to students taking on lower-income jobs while carrying heavy law school debt, after a 2006 tax court summary opinion issued in Moloney v. Commissioner (.pdf). That decision suggested that only students going into medical, nursing or teaching careers might be able to avoid income taxes on loans that are forgiven.
"The Moloney decision led to some confusion, and for the purpose of clarification we published the revenue ruling," said Craig Wojay, an IRS attorney adviser.
I am sure that this is welcomed news to law students and law schools who have loan foregiveness programs.
Mitchell H. Rubinstein