rr-08-34.pdf

Preserve advance releases and the authoritative Internal Revenue Bulletin rendition; directory timestamps are file-publication metadata, not legal effective dates. HTML bulletins begin June 2003; earlier available issues require full PDF parsing.

This collection currently includes the publisher’s available advance-release directory. Historical bulletin renditions are discovered separately; an advance-release record alone does not certify the collection archive complete.

Part I

Section 108.—Income from Discharge of Indebtedness

Rev. Rul. 2008-34

ISSUE

Do the terms of a loan made under the Loan Repayment Assistance Program
(LRAP) described below satisfy the requirements of § 108(f)(1) of the Internal Revenue
Code, and is the LRAP loan a “student loan” within the meaning of § 108(f)(2)?
FACTS
A, an individual, attended law school and has student loan debt. Neither the
loans nor the underlying loan documents addressed whether any of the indebtedness
would be forgiven if A worked in a particular profession for a specified period of time.
A’s law school offers a Loan Repayment Assistance Program (LRAP) to help
reduce the student loan debt of graduates who engage in public service. The LRAP is
designed to encourage graduates to enter into public service in occupations or areas
with unmet needs. Under the LRAP, the law school makes loans that refinance the
graduates’ original student loan(s). To qualify for an LRAP loan, a graduate must work
in a law-related public service position for, or under the direction of, a tax-exempt

2
charitable organization or a governmental unit, including a position in (1) a public
interest or community service organization, (2) a legal aid office or clinic, (3) a
prosecutor’s office, (4) a public defender’s office, or (5) a state, local, or federal
government office. The amount of the LRAP loan is based on the graduate’s
outstanding student loan debt and annual income. After the graduate works for the
required period in a qualifying position, the law school will forgive all or part of the
graduate’s LRAP loan.
After A graduates from law school, A signs an LRAP promissory note and
accepts the terms and conditions of the law school’s LRAP loan. The LRAP loan
provides that the indebtedness will be forgiven if A works for a certain minimum period
of time in a qualifying law-related public service position.
LAW
Section 61(a) provides that gross income means all income from whatever
source derived. Section 61(a)(12) provides that gross income includes income from the
discharge of indebtedness.
Section 108(f)(1) provides that in the case of an individual, gross income does
not include any amount which (but for § 108(f)) would be includible in gross income by
reason of the discharge (in whole or in part) of any student loan if such discharge was
pursuant to a provision of such loan under which all or part of the indebtedness of the
individual would be discharged if the individual worked for a certain period of time in
certain professions for any of a broad class of employers.

3
Section 108(f)(2) defines “student loan” for purposes of § 108(f) to include
any loan to an individual to assist the individual in attending an educational
organization described in § 170(b)(1)(A)(ii) made by (A) the United States, or an
instrumentality or agency thereof, (B) a State, territory, or possession of the
United States, or the District of Columbia, or any political subdivision thereof, or
(C) certain tax-exempt public benefit corporations. The Taxpayer Relief Act of
1997 (1997 Act), Pub. L.105-34, added § 108(f)(2)(D), which amended and
expanded the definition of “student loan” to include loans made by the
educational organizations themselves if the loans were made either:
(i) pursuant to an agreement with any entity described in subparagraph
(A), (B), or (C) under which the funds from which the loan was made were
provided to such educational organization, or

(ii) pursuant to a program of such educational organization which is
designed to encourage its students to serve in occupations with unmet needs or
in areas with unmet needs and under which the services provided by the
students (or former students) are for or under the direction of a governmental unit
or an organization described in section 501(c)(3) and exempt from tax under
section 501(a).

The 1997 Act further amended § 108(f)(2) to provide that the term “student
loan” includes any loan made by an educational organization described in section
170(b)(1)(A)(ii) or by an organization exempt from tax under section 501(a) “to
refinance a loan to an individual to assist the individual in attending any such
educational organization but only if the refinancing loan is pursuant to a program
of the refinancing organization which is designed as described in subparagraph

4
(D)(ii).”
1
The legislative history to the 1997 Act explains that, in the case of loans
made or refinanced by educational organizations (and loans refinanced by
certain tax-exempt organizations), the student’s work must fulfill a “public service
requirement.” See H.R. Conf. Rep. No. 105-220, at 375-76 (1997).
ANALYSIS
The terms of A’s LRAP loan provide for loan forgiveness only if A works for a
certain minimum period of time in a qualifying law-related public service position. This
requirement is consistent with the requirement in §108(f)(1) to work in certain
professions for a certain period of time.
Additionally, the law school’s LRAP is designed to encourage its students to
engage in public service in occupations or areas with unmet needs. All of the positions
listed in the LRAP are for, or under the direction of, a governmental unit or a tax-exempt
charitable organization. Further, the LRAP loan was made to refinance A‘s original
student loans. Therefore, the LRAP loan meets the definition of a “student loan” in
§ 108(f)(2).
HOLDING
The terms of the loan made under the LRAP satisfy the requirements of
§ 108(f)(1), and the LRAP loan is a “student loan” within the meaning of § 108(f)(2).

1
A technical correction clarified that gross income does not include amounts from the forgiveness of
loans made by educational organizations and certain tax-exempt organizations to refinance any existing
student loan (and not just loans made by educational organizations). See Pub. L. 105-206, § 6004(f)(1),
and H. R. Rep. No. 356, 105
th
Cong., 1
st
Sess. 10 (1997).

5
DRAFTING INFORMATION
The principal author of this revenue ruling is Craig R. Wojay of the Office of
Associate Chief Counsel (Income Tax & Accounting). For further information regarding
this revenue ruling, contact Craig R. Wojay at (202) 622-4920 (not a toll-free call).