My question is: I have never heard from the IRS on this loan discharge. Should I assume they don't know about the discharge?=========>> Some loan forgiveness programs are taxable and some are not. Under current law, the amount forgiven generally represents taxable income for income tax purposes in the year it is written off. Generally, student loan forgiveness is excluded from income if the forgiveness is contingent upon the student working for a specific number of years in certain professions. even if your student loan debt is canceled, even because of disability, expect a bill from the IRS. The agency considers forgiven debt of all kinds taxable income .So, there is no tax break for student loan debt that has been cancelled due to disability, despite the fact that borrowers who qualify for cancellation are considered totally and permanently disabled, and may never work again. In fact, the Department of the Treasury has specifically stated that student loans cancelled due to the Death and Disability Discharge are taxable; the insolvency exclusion, which requires debtors to be insolvent immediately prior to the discharge, may allow you to avoid paying taxes on some or all of the debt. Borrowers who can prove they were insolvent may be able to ease the tax burden, but may not be able to eliminate it. The insolvency , that is, their total liabilities exceeded the value of their assets,calculation is notoriously complex, particularly for people who are dealing with medical problems . The amount of taxable income can be reduced, but only to the extent of the insolvency.
If I file a return for the year 2011, they will then know for sure. I don't have any assets to speak of, except a 2012 Corolla. No savings or retirement plan. I am single so no spousal assets. If I file for the year 2011, I would file an offer in compromise, maybe offering $500. But I'm tempted to do nothing since the IRS doesn't seem to even be aware of the debt forgiveness income for that year=======>>it is your responsibility to file return whether or not the IRS knows it.I guess the IRS has more data about you; This does not mean everyone is under constant surveillance. But it does signal a new reliance on technology by the IRS to capture, analyze and use much more personal data. you need to contact the IRS for sure; the IRS would put a tax lien on your assets and may report her to the credit reporting agencies UNLESSS the debt is paid back. You can aske them, If you are not capable to work due to a medical disability to pay the student loan, are you supposed to work to pay the taxes? Borrowers who can prove they were insolvent may be able to ease the tax burden, but may not be able to eliminate it. And many people do not even know this exception exists. The insolvency calculation is notoriously complex, particularly for people who are dealing with medical problems or the death of a child, consumer advocates said, which is another instance in which student loan debts may be discharged.
The IRS has just completely modified their Debt Forgiveness Program which is called the “Offer in Compromise. The IRS has realized that taxpayers will never pay their tax debt off if there is no hope. With penalties and interest running faster than the speed of sound, IRS finally figured out it is far better to settle right now. An Offer in Compromise allows you to settle your tax debt for less than the full amount you owe to the IRS. It may be a legitimate option if you cannot pay your full tax liability, or in doing so creates a financial hardship. IRS will consider your unique set of facts and circumstances when determining settlements for IRS debt forgiveness.