Update: What You Need to Know about CCRAA Loan Forgiveness

Early last week, I wrote a post about the CCRAA loan forgiveness program in which I noted that it was still unclear whether loan forgiveness under the CCRAA would trigger tax liability. Paul Caron of the TaxProf Blog reported on Friday that the IRS handed down Rev. Rul. 2008-34 “which clarifies that law school public interest loan forgiveness programs qualify for the § 108(f) exception (and, as a result, students need not report the forgiven interest as discharge of indebtedness income). ” The ruling applies to loans made through the Loan Repayment Assistance Program (LRAP) under which loans, administered directly by law schools, are offered to students pursuing careers in public service. LRAP loans have provisions similar to loans consolidated under the CCRAA including a loan forgiveness provision. While Rev. Rul. 2008-34 does not specifically address loans made under the CCRAA, it is an indication that the IRS is likely to find that CCRAA loan forgiveness provision will also fall under the 108(f) exception and the forgiveness will not trigger tax liability.