Student Loan Repayment

[Diane]

Client received a check for $10,000 from a Non Profit to pay off their student loan for law school. They have to take the check and apply it toward their student loan. It was not a direct payment or a forgiveness of the loan balance. Just money to pay off the loan. They received a 1099G in box 6 (Taxable Grants). They think this money is not taxable because of Code Section 108F. I think they have a problem between 'loan forgiveness' and receiving money to pay on the loan. One of them received this in 2008, did not put it on his tax return, and, of course, got a letter from IRS. He is going to argue the point based on Section 108F. I could not advise them on how to handle this. I would have put it on the return as taxable income. Has anyone else seen this kind of 1099G for loan repayment money?

Diane

[OldJack]

He is going to lose as 108(f)(1) is exclude gross income "by reason of the discharge". This income had nothing to do about discharge.

[Diane]

That's what I thought. It has to do with 'forgiveness' of loan. But, they are young lawyers. The one who got the notice is going to argue with IRS. The one who received the 1099G this year is going to put it on her return as taxable income; then wait to see what happens with the other lawyer and amend if he wins. I wished them good luck. I'm not going to do their returns.

Diane

[OldJack]

Lawyers and Politicians should be required to do their own tax returns.

[schirallicpa]

I was told once that the biggest abusers of the bankruptcy laws were the lawyers. They go to school, run up lots of debt, buy your household items on visa, don't get married, don't buy real estate, sign for a job, and file bankruptcy before the job begins. A lawyer told me that. I wonder if he played that game himself.