SECTION 2. BACKGROUND

.01 In general .

Revenue Procedure 2015–57 addresses taxpayers who took out Federal student loans to finance attendance at a school owned by Corinthian Colleges, Inc. and whose Federal student loans are discharged under the Department of Education’s “Defense to Repayment” or “Closed School” discharge process. The IRS determined that it will not assert that these taxpayers must recognize gross income as a result of these discharge processes.

The Treasury Department and the IRS are aware that the Department of Education (ED) has begun a process for settling and discharging Federal student loans taken out by taxpayers to finance attendance at a school owned by ACI. ED has estimated that to date about 4,400 ACI borrowers may be eligible for discharges under this program and that number may increase.

In general, under the Higher Education Act of 1965 (HEA), Pub. L. 89–329, the Closed School discharge process allows ED to discharge a Federal student loan obtained by a student, or by a parent on behalf of a student, who was attending a school at the time it closed or who withdrew from the school within a certain period prior to the closing date. See gener- ally 20 U.S.C. § 1087(c) (Federal Family Education Loan (FFEL)); 20 U.S.C. § 1087dd(g) (Federal Perkins Loan); and 20 U.S.C. § 1087e(a)(1) (Federal Direct Loan).

Under the HEA, the Defense to Repayment process requires ED to discharge a Federal Direct Loan if a student loan borrower establishes, as a defense against repayment, that a school’s actions would give rise to a cause of action against the school under applicable state law. See generally 20 U.S.C. § 1087e(h) and 34 C.F.R. § 685.206(c). FFEL loans may also be discharged under this process if certain additional requirements are met. See 34 C.F.R. § 682.209(g).

Section 61(a)(12) of the Internal Revenue Code (Code) provides that gross income includes income from the discharge of indebtedness. There are, however, exceptions under which a taxpayer may not be required to include income from the

such early reporting period. The preamble to the CbC reporting regulations indicated that the Treasury Department and the IRS would provide a procedure for ultimate parent entities of U.S. MNE groups to file Form 8975 for early reporting periods.