by BlendedUnicorn » Mon Nov 16, 2020 1:13 pm
reading further, it strikes me as pretty dubious. He says that income based repayment plans should fall under the "qualified scholarships" exception on the theory that, unlike PSLF, there's no "quid pro quo." As an alternative, he also makes the Johann argument,
Even if section 108(f) does
not apply, section 108(a)(1)(B) could — COD income is excluded if the taxpayer is insolvent when
the debt is canceled. That was one reason that
Treasury excluded the COSD income in the Corinthian case.
Insolvency is defined as the excess of liabilities
over the fair market value of assets.50 The determination is made immediately before the cancellation,
and any exclusion is not greater than the amount of
the insolvency at that time.51 The upshot is that, to
have a full exclusion for the COSD income, the
borrower must be insolvent by at least the amount
of the forgiven debt. If a borrower has $50,000 in
student debt forgiven, and immediately before the
forgiveness the excess of his liabilities, including
that debt, over assets is only $1,000, then there
would still be taxable COSD income of $49,000.
If that's right, then I guess it supports the run up your debt as much as humanly possible approach.
reading further, it strikes me as pretty dubious. He says that income based repayment plans should fall under the "qualified scholarships" exception on the theory that, unlike PSLF, there's no "quid pro quo." As an alternative, he also makes the Johann argument,
[quote]Even if section 108(f) does
not apply, section 108(a)(1)(B) could — COD income is excluded if the taxpayer is insolvent when
the debt is canceled. That was one reason that
Treasury excluded the COSD income in the Corinthian case.
Insolvency is defined as the excess of liabilities
over the fair market value of assets.50 The determination is made immediately before the cancellation,
and any exclusion is not greater than the amount of
the insolvency at that time.51 The upshot is that, to
have a full exclusion for the COSD income, the
borrower must be insolvent by at least the amount
of the forgiven debt. If a borrower has $50,000 in
student debt forgiven, and immediately before the
forgiveness the excess of his liabilities, including
that debt, over assets is only $1,000, then there
would still be taxable COSD income of $49,000.[/quote]
If that's right, then I guess it supports the run up your debt as much as humanly possible approach.