TaxProf Blog

Editor: Paul L. Caron
Pepperdine University School of Law

A Member of the Law Professor Blogs Network

Friday, September 21, 2012

Son’s Death Leaves Mom with Big Tax Bill on Forgiven Student Loan Debt

ABA Journal, Son’s Death Leaves Mom with Big Tax Bill on Forgiven Student Loan Debt:

If a student loan borrower is unable to repay the money because he or she dies, that's the end of the story, not only for the lender but the Internal Revenue Service, too.

If the borrower is the parent of the deceased student, however, that's a different story. And Regina Friend can tell it from personal experience, the Baltimore Sun reports.

After the suicide last year of her son, who was a student at Temple University, both his student loans and the $55,400 she took out in ParentPlus debt were forgiven. But Friend was shocked this year to find out that the IRS expects her to pay a $14,000 tax bill because the forgiven debt is counted as personal income. ...

The U.S. Department of Education reported that it canceled $2.7 billion in student loans in 2011 when borrowers died, became disabled or went bankrupt. While Regina Friend's situation might not be unusual, it is impossible to tell from the data how many other parents are facing similar tax bills.

Forbes: There's No Escape: Death, Taxes And Student Loans, by Robert W. Wood.

http://taxprof.typepad.com/taxprof_blog/2012/09/sons-death.html

Legal Education, Tax | Permalink

TrackBack URL for this entry:

http://www.typepad.com/services/trackback/6a00d8341c4eab53ef017d3c361be9970c

Listed below are links to weblogs that reference Son’s Death Leaves Mom with Big Tax Bill on Forgiven Student Loan Debt:

Comments

"The U.S. Department of Education reported that it canceled $2.7 billion in student loans in 2011 when borrowers died, became disabled or went bankrupt"

The Dept. of Ed wasn't writing off too many loans because of bankruptcy, given the near impossible requirements for discharge of student loans.

Too bad the author screwed that up - if there is any area that needs many fewer *misrepresentations* - it is the area of legal education.

Posted by: cas127 | Sep 21, 2012 4:34:20 PM

Too much to say here but:

(1) I am sorry Ms. Friend's loss;
(2) Her son had $55,400 in student loan debt, undergrad, and it appears he still had more school to go before he graduated.
(3) If you click on the link, you can see her talking about the "IRS rules" regarding the tax. When will someone, anyone, go out there and get it through the American people's heads that Congress enacts the tax laws? Sure, there is lower guidance too. Treasury issues Regulations (not the IRS). But the highest guidance from the IRS are Revenue Rulings and Revenue Procedures. Don't forget about the courts (from trial, courts of appeal, to SCOTUS).

Is there somewhere in RRA98 that (uncodified likely) that gives someone the power to show off the kinder, friendlier IRS and make the point that the IRS may be the bearer of bad news and the tax collector they likely are enforcing the law established by two other branches of government (predominantly Congress who wrote and passed the laws) or the Treasury Department.

As long as I am on wishful thinking, can I have a pony for my birthday?

Posted by: tax guy | Sep 22, 2012 3:15:27 AM