IRS Relaxes Its Interim Rules on Debt-Forgiveness Reporting
de Senerpont Domis, Olaf, American Banker
WASHINGTON- Lenders can breathe easier, at least for the time being, thanks to an Internal Revenue Service decision to limit the information that must be provided under interim tax rules when debts are forgiven.
Final rules, which should be in place by mid-1995, will likely reflect the eased requirements announced last week by the IRS.
"The temporary regulations were unadministerable," said Angelynn Hall, tax counsel for the American Bankers Association. "They requested things bankers just couldn't do."
The IRS held a hearing in March to address the banking industry's strong opposition to the reporting regulations. This helped trigger the hiatus in requirements, according to Jim O'Connor, tax counsel at the Savings and Community Bankers of America.
"They realized that the game was simply not worth the gamble," said Mr. O'Connor. "These regulations created huge problems; some of them perceptual, most of them real. The agents couldn't audit, and the banks couldn't comply."
The regulations in question affect banks, credit unions, credit card companies, the Resolution Trust Corp., the Federal Deposit Insurance Corp., and any lender that forgives debt.
For the time being, banks will no longer be penalized for failing to report the following: debts forgiven in bankruptcy proceedings, debts erased by statute of limitations expiration, amounts other than the principal amount of a forgiven debt, and information pertaining to persons other than the primary debtor named in an account.
The IRS published notice of the changes June 30.
The IRS created the interim regulations as an interpretation of a statute in the 1993 tax bill that said banks and thrills must report income that results from forgiving debts.
The rules confounded bankers, because much of the information required for compliance was not available to bankers, according to Ms. …