American Rescue Plan Act Section 9675 revised IRC §108(f)(5) to provide a temporary rule for the exclusion from income of certain discharges of student loan debt. In Notice 2021-01[1] the IRS provides that lenders are not to issue Forms 1099-C, Cancellation of Debt, for discharges that qualify for this relief.

The Notice describes the income exclusion as follows:

Under this special rule, gross income does not include any amount which would otherwise be includible in gross income by reason of the discharge (in whole or in part) after December 31, 2020, and before January 1, 2026, of loans provided for postsecondary educational expenses, whether the loan was provided through the educational institution or directly to the borrower. Such loans must have been made, insured, or guaranteed by the United States, or an instrumentality or agency thereof, a State, territory, or possession of the United States, or the District of Columbia, or any political subdivision thereof, or an eligible educational institution. Additionally, certain private education loans and loans made by certain educational organizations qualify for this special rule.[2]

The Notice provides that the lender should not issue a Form 1099-C for this discharge, explaining it is likely to generate an erroneous notice from the IRS to the borrower:

When all or a portion of a student loan described in section 108(f)(5) is discharged after December 31, 2020 and before January 1, 2026, an applicable entity is not required to, and should not, file a Form 1099-C information return with the IRS or furnish a payee statement to the borrower under section 6050P as a result of the discharge. The filing of an information return with the IRS, although not required, could result in the issuance of an underreporter notice (IRS Letter CP2000) to the borrower through the IRS’s Automated Underreporter program, and the furnishing of a payee statement to the borrower could cause confusion for a taxpayer with a tax-exempt discharge of debt.[3]

[1] Notice 2022-01, December 21, 2021, https://www.irs.gov/pub/irs-drop/n-22-01.pdf (retrieved December 21, 2021)

[2] Notice 2022-01, SECTION 2, December 21, 2021

[3] Notice 2022-01, SECTION 3, December 21, 2021