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Originally Posted by proberts  As per terms of a settlement, the school I attended will be paying my loans off in full directly to my loan provider. My lawyers asked me to fill out a W-9 for the school and the loan provider before they will pay the loans off. No money is coming to me as they are dealing with one another. My lawyers say that they cannot issue any tax advice and they cannot say if there will be tax ramifications. I have consulted the IRS and tax preparers; to which they all asked if I would be receiving a 1099. The lawyers don't know the answer to this.
Is this a taxable situation for me even though it's not income or debt forgiveness?
My understanding of debt forgiveness is that the loan provider writes off the debt and cancels your debt to them. In this case, they are being paid by someone else to satisfy my debt.
How would I find out what my tax liability was IF I am being issued a 1099? In other words, will this be something I owe taxes on the end of the tax year even though I did not receive any money? |
Is this a taxable situation for me even though it's not income or debt forgiveness?
===============>>>>>>>>>> Probably. Aslongas it is a student loan, then None for you. A write-off or cancellation releases you from all obligations to repay the loan. Student loans can be discharged in bankruptcy, but only in extremely rare cases. You will have to prove that the student loans are an Undue Hardship as determined by a bankruptcy judge. This is a very, very difficult hurdle, and most people cannot meet this requirement. For the vast majority of people experiencing economic hardship, student loans will not be discharged. The loan is not deductible;it wasn't income when you got it, so you get nothing to subtract when it is paid back.The school can write off the interest/ loan if they are itemizing. The school doesn't count the money you owe them as an asset anymore. Its financial statements will reflect that change. They're required to write off certain bad loans so as not to mislead stakeholders ot etc. So your debt was just written off of one credtitor's books. It hasn't gone off and died, however. Rarely is debt forgiven or forgotten. You still owe the money.
My understanding of debt forgiveness is that the loan provider writes off the debt and cancels your debt to them. In this case, they are being paid by someone else to satisfy my debt.
==============>>>>>>>>>>they are being paid by someone else to satisfy my debt”? I do not think so however, as said above, the school can write off the loan/ interest if they are itemizing.
Note; any financial institution/lender that forgives or writes off $600 or more of a debt's principal (the amount not attributable to interest or fees) must send you and the IRS a Form 1099-C at the end of the tax year. These forms are for reporting income, which means that when you file your tax return for the tax year in which your debt was settled or written off, the IRS will make sure that you report the amount on the Form 1099-C as income.Even if you don't get a Form 1099-C from a creditor, the creditor may very well have submitted one to the IRS. If you haven't listed the income on your tax return and the creditor has provided the information to the IRS, you could get a tax bill or, worse, an audit notice. This could end up costing you more (in IRS interest and penalties) in the long run.
Exceptions to Reporting Income; a student loan is canceled if you worked in a profession and for an employer as promised when you took out the loan.
How would I find out what my tax liability was IF I am being issued a 1099? In other words, will this be something I owe taxes on the end of the tax year even though I did not receive any money
=================>>>>>>>>>>>>> you should confirm that the cancellation of your debt / loan income is taxable.In general, as you can see, the cancellation of debt reported on Form 1099C is income. However, the question always is: Is it taxable income? O if you are being issued a 1099C, then, the answer lies in whether you qualify for one of several exclusions allowed by law. The most common exclusion reasons are;1.Debt canceled in a Title 11 bankruptcy case 2.Debt canceled during insolvency 3.Cancellation of qualified principal residence indebtedness. Assuming that you confirmed that you owe taxes on the 1099C and do not have the ability to pay (from your monthly income or from other sources, such as available liquid assets), then you would need to make arrangements with the IRS to address the balance owed.When you cannot pay your tax bill to the IRS, you do have options to consider:1.Getting into a monthly payment plan based on your ability to pay (i.e. your monthly income less your monthly living expenses) 2.Asking the IRS for currently not collectible status (i.e. proving you do not have an ability to pay) 3. Submitting an offer in compromise (i.e. proving to the IRS that you do not have the ability to pay or assets to satisfy the liability now or in the future).
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