We previously blogged the Tax Court’s summary opinion in Moloney v. Commissioner, T.C. Summ. Op. 2006-53 (4/17/06), which held that a law school graduate working in a public interest job must report income on the receipt of funds to help repay her student loans, as well as commentary by Tax Prof and Associate Dean Ellen Aprill (Loyola-L.A.) .  On Thursday, Ellen sent this two-page letter to the Treasury and IRS about the decision:

[Moloney] includes a footnote stating that § 108(f) has only a limited application. This footnote is raising considerable concern among many members of the law school community….

Moloney concluded that a grant from a governmental program made by means of a dual-payee check to a law school graduate and her lender to be used to repay her student loans could not constitute refinancing under the special loan forgiveness exclusion provision of § 108(f). As a result, the grant gave rise to taxable income to the individual.

The troubling footnote 5 states, “The term ‘certain professions’ to which § 108(f)(1) applies are medicine, nursing, and teaching.” This footnote suggests that no law school loan forgiveness program, however structured, would be eligible for exclusion from gross income.

We in the law school community believe that the footnote is wrong as a matter of statutory language, Congressional purpose, and legislative history. When § 108(f) was enacted in the 1980’s, it applied only to governmental loan programs, and our understanding is that such programs were in fact available only for selected professions. The language of the statute, however, did not then and does not now define “certain professions.” …

As an associate dean of a law school, I have learned that the statement in the Moloney case is worrying to the financial aid officers and public interest law programs of many law schools. Any guidance you might be able to offer, including informal guidance in response to this inquiry, would be most appreciated.