rp-18-39.pdf

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26 CFR 1.61-12: Income from discharge of indebtedness.

Rev. Proc. 2018-39

# SECTION 1. PURPOSE

This revenue procedure amplifies Rev. Proc. 2015-57, 2015-51 I.R.B. 863, and
Rev. Proc. 2017-24, 2017-7 I.R.B. 916, to extend relief to taxpayers who took out
private student loans to finance attendance at a school owned by Corinthian College,
Inc. (CCI) or American Career Institutes, Inc. (ACI).

# SECTION 2. BACKGROUND

.01 Rev. Proc. 2015-57 and Rev. Proc. 2017-24 provide relief for taxpayers who
took out Federal student loans to finance attendance at a school owned by CCI and
ACI, respectively, and whose loans were discharged by the Department of Education
under the "Defense to Repayment" or "Closed School" discharge process.

.02 Specifically, Rev. Proc. 2015-57 and Rev. Proc. 2017-24 provide the
following relief: First, the Internal Revenue Service ("IRS") will not assert that these
taxpayers must recognize gross income resulting from the discharge of these Federal
student loans. Second, the IRS will not assert that these taxpayers must increase their
gross income by the amount of certain tax credits or deductions related to the
discharged Federal student loans. Third, the IRS will not assert that the creditors of
these discharged loans must file information returns and furnish payee statements

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under section 6050P of the Internal Revenue Code as a result of discharging these
Federal student loans.

.03 The Treasury Department and the IRS are aware that Federal and state
governmental agencies have brought legal causes of action that have resulted in
settlements resolving various allegations of unlawful business practices, including
unfair, deceptive, and abusive acts and practices by CCI, ACI, and certain private
lenders that made student loans to finance attendance at schools owned by CCI and
ACI.

.04 Neither Rev. Proc. 2015-57 nor Rev. Proc. 2017-24 address the discharge of
private student loans taken out to attend a school owned by CCI or ACI.

.05 The Treasury Department and the IRS have determined that it is appropriate
to extend the relief provided in Rev. Proc. 2015-57 and Rev. Proc. 2017-24 to taxpayers
who took out private student loans to finance attendance at a school owned by CCI or
ACI where the private loans are discharged based on a settlement of a legal cause of
action against CCI, ACI, and certain private lenders. As in Rev. Proc. 2015-57 and Rev.
Proc. 2017-24, the Treasury Department and the IRS conclude that most private
student loan borrowers would be able to exclude from gross income all or substantially
all of the discharged amounts based on the insolvency exclusion; fraudulent or material
misrepresentations made by CCI, ACI, or certain private lenders to the students; or
another tax law authority.

SECTION 3. SCOPE

The treatment provided in section 4 of this revenue procedure applies to any
taxpayer who took out private student loans to finance attendance at a school owned by

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CCI or ACI and whose private student loans are discharged based on a settlement of a
legal cause of action against CCI, ACI and certain private lenders. This revenue
procedure also applies to any applicable entity (as defined in section 6050P and the
regulations thereunder) that discharges these loans.

SECTION 4. AMPLIFICATION OF REV. PROC. 2015-57 AND REV. PROC. 2017-24
Rev. Proc. 2015-57 and Rev. Proc. 2017-24 are amplified to provide as follows:

.01 Discharge of indebtedness income. The IRS will not assert that a taxpayer
within the scope of this revenue procedure must recognize gross income as a result of
the discharge of a private student loan taken out to finance attendance at a school
owned by CCI or ACI.

.02 Recapture of tax credits and tax benefit rule. The IRS will not assert that a
taxpayer within the scope of this revenue procedure must increase his or her taxes
owed in the year of a discharge, or in a prior year, if he or she received an education
credit under section 25A attributable to payments made with proceeds of the discharged
loans, or claimed a deduction for the payment of interest under section 221 attributable
to interest paid on a discharged loan, or claimed a deduction for the payment of
qualified tuition and related expenses under section 222 attributable to payments made
with proceeds of the discharged loan.

.03 Information reporting. The IRS will not assert that a creditor that is an
applicable entity must file information returns and furnish payee statements pursuant to
section 6050P for the discharge of any indebtedness within the scope of this revenue
procedure.

SECTION 5. EFFECT ON OTHER DOCUMENTS

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Rev. Proc. 2015-57 and Rev. Proc. 2017-24 are amplified.

## SECTION 6. EFFECTIVE DATE

For private student loans taken out to finance attendance at schools owned by
CCI, this revenue procedure will be treated as in effect as of the effective date of Rev.
Proc. 2015-57 (taxable years beginning on or after January 1, 2015). For private
student loans taken out to finance attendance at schools owned by ACI, this revenue
procedure will be treated as in effect as of the effective date of Rev. Proc. 2017-24
(taxable years beginning on or after January 1, 2016). Taxpayers may apply this
revenue procedure in taxable years for which the period of limitation on claims for a
credit or refund under section 6511 has not expired.

## SECTION 7. DRAFTING INFORMATION

The principal author of this revenue procedure is Craig Wojay of the Office of
Associate Chief Counsel (Income Tax & Accounting). For further information regarding
discharge of indebtedness income and exclusions, contact Mr. Wojay at (202) 317-4718
(not a toll-free call), and for further information regarding information reporting, contact
Elizer Mishory at (202) 317-6844.