I actually kind of enjoyed writing this. It was cool to write all legalese-ish.
Dear Department of Treasury Internal Revenue Service at PO Box 1234, Someplace, USA 56789-1234,
I received notice the other day that there was an error in my 2003 Form 1040. This notice also mentions that I may owe (A LOT OF MONEY), which is broken out as (A LITTLE BIT LESS THAN A LOT OF MONEY) for a 2003 Tax Increase and (JUST ENOUGH MONEY TO MAKE IT A LOT OF MONEY) for interest on the alleged amount owed. Page 7 of this document determines the issue to be a cancellation of debt that my wife received in the amount of (A GOODLY SUM OF MONEY) from the Kentucky Higher Education Student Loan Corporation.
My following explanation should suffice as to the reasons why this debt cancellation did not show up on my 2003 Form 1040. Generally speaking, most debt cancellations result in a taxable event. Some do not. There are qualifying circumstances for tax-free treatment of a debt cancellation. I turn your attention to page 27 of Chapter 5 in the IRS's own document Publication 970 (Cat. No. 25221V) titled : "Tax Benefits for Education: For Use In Preparing 2003 Returns". I'm attaching this section to my letter.
In this section there are criteria for determining if a student loan cancellation results in a tax-free event. Note the first section: "To qualify for tax-free treatment your loan must contain a provision that all or part of the debt will be cancelled if you work:
- For a certain period of time,
- In certain professions, and
- For any of a broad class of employers
The loan must have been made by a qualified lender to assist the borrower in attending an eligible educational institution. The document goes on to note that qualified lenders include:
- The government- federal, state, or local or an instrumentality, agency, or subdivision thereof.
- A tax exempt public corporation that takes over a hospital and whose employees are considered state employees.
- An eligibile educational institution.
I won't go further in to reading this document. My wife works as a teacher in the (insert some godforsaken county in Kentucky) School District. Before doing so, she studied at (an expensive university). To do so, she required significant student loans. The debt cancellation that your notice references are from these student loans from the Kentucky Higher Education Student Loan Corporation.
The Kentucky Higher Education Student Loan Corporation forgives student loan interest for each year that an individual teaches at an eligible education institution in the Commonwealth of Kentucky. This would meet the first requirement of a certain period of time. It is because she is a teacher in the Commonwealth of Kentucky that she is given this forgiveness. This would certainly meet the second requirement of being in certain professions. My wife could work at any educational institution in the Commonwealth of Kentucky, so this would be a broad class of employers.
Note further that the lender in this case, the Kentucky Higher Education Student Loan Corporation is an agency of the Commonwealth of Kentucky. So it would thus be determined to be a qualified lender.
In this letter, I have demonstrated that the debt cancellation referenced in your notice should be considered a tax-free event. This being the case, you will find the previous amount of tax paid for the tax year 2003 is correct, requiring no payment to the IRS on my part.
Thank you and have a good day.
Sincerely,
Marty Johnson, BA in Accounting, MS in Accountancy
