Tax Research 3 - Tax Research 3 Facts: Regina has $40,000...

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Tax Research 3 Facts: Regina has $40,000 in student loans. If she teaches for Three years in a rural school, the loans will be forgiven Issues: If Kristina’s $40,000 in student loans is forgiven by the “debt forgiveness program”, will she be required to include the $40,000 in her gross income? Conclusion: Yes Authority To assist the growing number of taxpayers facing foreclosure or mortgage restructuring, the Mortgage Forgiveness Debt Relief Act of 2007, and its 3-year extension as part of the Emergency Economic Stabilization Act of 2008, allows taxpayers to generally exclude from taxable income forgiven mortgage debt used to buy, build, or substantially improve a principal residence. 1 Joint Committee on Taxation (JCT) estimates originally suggested that the exclusion of forgiven mortgage debt from taxable income may result in about $968 million in federal revenue losses from fiscal year (FY) 2008 through FY 2013 and more recent estimates suggest that the revenue losses could be closer to $1.9 billion. 2 The Department of Treasury estimates suggest that the exclusion may result in federal revenue losses of about $1.4 billion from FY 2008 through FY 2013. 3 Some taxpayers with forgiven mortgage debts may be bankrupt or insolvent; however, others are not and therefore may have the ability to pay taxes on forgiven mortgage debts. The briefing contained in appendix I, provided to your offices on July 28, 2010, and subsequently updated, summarizes our assessment of the Internal Revenue Service's (IRS) administration of this tax provision. In response to your request, our objectives were to identify 1. the number of taxpayers who have reported the exclusion of forgiven mortgage debt since the program's inception and the dollar amount excluded; 2. the challenges, if any, IRS faces in administering the exclusion and evaluate how effectively IRS is addressing the challenges; and 3. the challenges, if any, taxpayers could face in understanding whether forgiven mortgage debt can be excluded from taxable income and evaluate how to address these challenges. IRS estimates suggest the dollar amount of forgiven mortgage debt excluded from
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This note was uploaded on 02/21/2011 for the course ACCT 3410 taught by Professor Vicky during the Spring '11 term at Aarhus Universitet, Aarhus.

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Tax Research 3 - Tax Research 3 Facts: Regina has $40,000...

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