IRS Rules Loan Repayment Assistance $$ Not Taxable

faculty_barrett On Friday, June 20, 2008, the Internal Revenue Service ruled that amounts forgiven under law schools’ Loan Repayment Assistance Programs (LRAP) including Notre Dame’s generally will not be treated as taxable income.

Notre Dame recently enhanced its LRAP program in several ways, including increasing the maximum qualifying income; increasing the maximum income at which the program covers 100 percent of law school loan payments; and reducing the number of years of public service work necessary to qualify for partial and full loan forgiveness.

“This ruling benefits the public, prospective and current law students interested in public interest careers, and recent graduates already serving the public interest who graduated from about 100 law schools that already offer Loan Repayment Assistance Programs,” says Matt Barrett, tax law professor at Notre Dame Law School.
Explains Barrett, “A 2006 summary opinion of the United States Tax Court, Moloney v. Commissioner, T.C. Summary Opinion No. 2006-53, included a footnote that stated that ‘The term ‘certain professions’ to which section 108(f)(1) applies are medicine, nursing, and teaching,’ citing Porten v. Commissioner, T.C. Memo, 1993-73 n.1. This troubling footnote 5 suggested that no law school loan forgiveness program, however structured, could meet the requirements in section 108(f) or qualify for the exclusion from gross income. Fortunately, the recent ruling explicitly confirms that law school loan repayment programs qualify under section 108(f) and offers encouraging news to similar programs that seek to encourage public interest careers beyond the medical, nursing, and teaching professions in fields such as social work, accounting, architecture, and engineering.”

Barrett participated in a meeting with representatives of the Treasury Department and Internal Revenue Service at the Department of the Treasury in Washington, D.C., in January 2007 and helped to draft a letter following up on various issues raised at that meeting.



For details on Notre Dame Law School’s Loan Repayment Assistance Program, go to: http://law.nd.edu/admissions-and-financial-aid/financing-your-legal-education/loan-repayment-assistance-program-lrap