Lenders should not report student loans discharged under ARPA

By Paul Bonner

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.

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 Dec. 31, 2020, and before Jan. 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 Sec. 25A. Also covered by the provision are certain student loans made by educational organizations and private lenders.

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.

— To comment on this article or to suggest an idea for another article, contact Paul Bonner at Paul.Bonner@aicpa-cima.com.

Where to find January’s flipbook issue

Starting this month, all Association magazines — the Journal of Accountancy, The Tax Adviser, and FM magazine (coming in February) — are completely digital. Read more about the change and get tips on how to access the new flipbook digital issues.


Get your clients ready for tax season

Upon its enactment in March, the American Rescue Plan Act (ARPA) introduced many new tax changes, some of which retroactively affected 2020 returns. Making the right moves now can help you mitigate any surprises heading into 2022.