Lenders Should Not Report Student Loans Discharged Under ARPA

Lenders and servicers of most student loans should not file Form 1099-C, Cancellation of Debt, for loans discharged in 2021 through 2025, since borrowers do not have to include these forgiven amounts as income for tax purposes, the IRS stated Tuesday.

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The guidance in Notice 2022-1 pertains to a provision of the American Rescue Plan Act (ARPA), P.L. 117-2, passed in March 2021. ARPA added a special rule in Sec. 108(f)(5) providing that taxpayers' gross income does not include any amount discharged after December 31, 2020, and before January 1, 2026, for certain loans provided expressly for postsecondary educational expenses, whether through an educational institution or directly to the borrower.

The covered loans are those made, insured, or guaranteed by the United States or its instrumentalities or agencies; a state, territory, or possession of the United States or the District of Columbia, or any of their political subdivisions; or made by an eligible educational institution, as defined in IRS Section 25A. Also covered by the provision are certain student loans made by educational organizations and private lenders.

Call the "Tax Pros on Demand" now at 215.550.3636, from 1000am to 1000pm, Monday through Sunday, should you have any questions on this or any other subject matters related to your business's or your individual income tax returns.

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The notice advises lenders and servicers of these loans that they are not required to, and should not, file information returns or payee statements (i.e., Form 1099-C) reporting an applicable discharge of student debt to the IRS or to the borrower, which could cause the IRS to erroneously issue a notice of underreported income and confuse the borrower. 

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R Clyde Olivieri, Jr.

P.S.  Should you believe to have fallen into a situation related to this issue and know not what to do, or how to handle your specific matter, call us now, at 215.550.3636, from 1000am until 1000pm, Monday through Sunday. We will come up with solutions or suggestions, related to your potential tax consequences. We have convenient evening and weekend appointment hours.