Son's Death Leaves Mom with Big Tax Bill on Forgiven Student Loan Debt
If a student loan borrower is unable to repay the money because he or she dies, that’s the end of the story, not only for the lender but the Internal Revenue Service, too.
If the borrower is the parent of the deceased student, however, that’s a different story. And Regina Friend can tell it from personal experience, the Baltimore Sun reports.
After the suicide last year of her son, who was a student at Temple University, both his student loans and the $55,400 she took out in ParentPlus debt were forgiven. But Friend was shocked this year to find out that the IRS expects her to pay a $14,000 tax bill because the forgiven debt is counted as personal income.
Friend doesn’t have the money to pay that amount, and her tax preparer has applied for a filing extension, until Oct. 15. However, penalties for underpaid tax will accrue in the meantime, and, while she can presumably enter into a payment plan, she doesn’t look forward to being reminded of her son’s death every month when she writes a check for the tax bill, the Sun article explains.
If a taxpayer can prove he or she simply doesn’t have the money, the IRS may eventually forgive the debt after a decade, according to experts. But a more likely scenario for Friend, says financial planner Lyle K. Benson of Towson, Md., is to negotiate with the IRS to try to reach a compromise amount.
While this is a lengthy project that would require her to provide the government with a lot of financial information, it would also allow her to explain the special circumstances surrounding the death of her son, Roswell, shortly after he completed his requirements for his Temple degree, the newspaper reports.
“She can incorporate the tragic circumstances around how she came to owe. That will definitely resonate with the IRS,” Benson said.
ABAJournal.com: “Report: Those 50 and Over Hold Almost 20 Percent of All Outstanding Student Loan Debt”