Certain Types of Law School Debt Forgiveness Exempt from Gross Income

A recent rule revision (Rev. Rul 2008-34, 2008-28 IRB) exempts certain types of law school debt forgiveness, when loans qualify for purposes of section 108(f), from gross income taxes. A potential situation is as follows:

An individual attending law school has outstanding student loans. The loans do not address whether any of the indebtedness would be forgiven if the taxpayer worked in a particular profession for a specified period of time. In order to encourage graduate law school students to engage in public service, a law school offered a Loan Repayment Assistance Program (LRAP). Under the LRAP, the law school makes loans to refinance the graduate’s original student loans. To qualify for the loan, the graduate must work in a law-related public service position. After the graduate works for the required period in a qualifying position, the law school will forgive all or part of the graduate’s LRAP loan.

The IRS has ruled that the LRAP qualifies as a student loan under section 108(f)(2). As such, the forgiveness of all or part of the loan is not includible in the gross income of the law graduate.

For more information on potential tax savings, please contact Gil Weiner or your local CB&H tax professional.

FOR MORE INFORMATION, PLEASE CONTACT:
Gil Weiner
gweiner@cbh.com
404.733.3214

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