TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Wednesday, November 8, 2017

IRS Seeks To Tax Disabled Vet's Forgiven Law School Loans

USA Today, Wounded Army Vet Wins the Battle But Loses the Tax War:

The federal government forgave wounded veteran Will Milzarski’s sizable student debt but, in an ironic twist, the IRS wants him to pay $62,000 in income taxes on the loan cancellation.

Retired 1st Lt. Milzarski, 47, is a lawyer from Bath Township who specialized in disability rights. At 40, he took a leave from his state job to return to the Army to attend Officer Candidate School.

His two tours of duty in Afghanistan left him with a traumatic brain injury, post traumatic stress disorder and hearing loss. The Department of Veterans Affairs considers him totally and permanently disabled, leading to a cancellation of nearly a quarter-million in student loans.

Joshua Wease, a clinical associate professor of law who directs Michigan State University’s low-income tax clinic, said the tax in this case is not logical. "If an individual has been deemed disabled and unable to pay their student loans, it seems incredible that they wouldn’t also be deemed unable to pay the taxes on the forgiveness of those same student loans,” he said. ...

Milzarski led soldiers on 244 combat missions and 43 engagements with the enemy. Six soldiers under his command died, and a ricocheted bullet hit him in the face during combat in Afghanistan. Among his 18 awards are Purple Heart and Meritorious Service medals.

Milzarski's high student debt was largely attributed to his law degree, which he earned in 2002 from Cooley Law School.

 

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Comments

Many people have the problem that although their student loans are cancelled, the cancellation creates a tax liability. The cancellation should be tax-free.

Posted by: Gator | Nov 9, 2017 5:32:53 AM

$62,000 tax on $223,000 in forgiven debt income is a high tax rate. There ought to be some kind of income-averaging for forgiven debt income--- or, he should have asked for and been granted gradual forgiveness of the loans.
He did, however, borrow the money, and it's a pretty sweet deal to get $223,000 for free, without having to pay it back.

Posted by: Eric Rasmusen | Nov 9, 2017 8:18:41 AM

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