                  T.C. Summary Opinion 2006-53



                       UNITED STATES TAX COURT



                MELISSA L. MOLONEY, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 21859-04S.             Filed April 17, 2006.



     Melissa L. Moloney, pro se.

     Bradley C. Plovan, for respondent.



     CHIECHI, Judge:    This case was heard pursuant to the provi-

sions of section 7463 of the Internal Revenue Code in effect at

the time the petition was filed.1   The decision to be entered is

not reviewable by any other court, and this opinion should not be

cited as authority.


     1
      Hereinafter, all section references are to the Internal
Revenue Code in effect for 2002, the year at issue. All Rule
references are to the Tax Court Rules of Practice and Procedure.
                               - 2 -

      Respondent determined a deficiency of $1,377 in petitioner’s

Federal income tax for her taxable year 2002.

      The issue remaining for decision is whether petitioner is

required to include in gross income for her taxable year 2002 a

$4,372 award that she received in that year.    We hold that she

is.

                            Background

      Virtually all of the facts have been stipulated by the

parties and are so found.

      At the time petitioner filed the petition in this case, she

resided in Baltimore, Maryland.

      Throughout the period 1996 through 1999, the Federal

Stafford Loan (Subsidized and Unsubsidized) Program made educa-

tional loans totaling approximately $55,000 to petitioner that

she used to pay expenses that she incurred in attending law

school (petitioner’s law school loan).   Neither the note nor any

other documents relating to that loan provided that petitioner’s

law school loan would be forgiven if petitioner were to work

after law school for the Baltimore County State’s Attorney’s

Office (State’s Attorney’s Office).

      In 2002, the Janet L. Hoffman Loan Assistance Repayment

Program (LARP), through the Maryland Higher Education Commission,

offered petitioner an award of $4,372 for the 2002-2003 award

year (petitioner’s LARP award) that was to be used to repay part
                              - 3 -

of petitioner’s law school loan.   The letter by which petitioner

was notified of petitioner’s LARP award (petitioner’s LARP award

notification letter) stated in pertinent part:

     You are being offered a Janet L. Hoffman Loan Assis-
     tance Repayment Program (LARP) award for the 2002-2003
     award year.

     Please sign and return the LARP award letter and cer-
     tification form to the Office of Student Financial
     Assistance within three weeks of the date on the award
     letter. * * *

     Please be aware of the following information regarding
     your LARP award.

     1.   The LARP award will be sent to you in the form of
          a dual-payee check made out to both you and the
          lender with whom you have the highest loan indebt-
          edness.

     2.   Two dual-payee checks will be sent to you, one in
          November and one in March. The first employment
          verification form is included in your application
          form. The second employment verification form
          will be sent in February. The March check will be
          sent after your second employment verification
          form has been received. If your employment veri-
          fication is not received within the allowed time,
          your LARP award will be canceled.

     3.   The LARP award is renewable next year, but is
          subject to change in light of your financial con-
          dition and the number of years you have received
          LARP assistance.

     4.   You are responsible for contacting your lender to
          discuss how the LARP award will affect payment for
          this year.

     5.   This LARP award can only be used with the lender
          specified on the award letter. It is your respon-
          sibility to pay your loans with other lenders.

     6.   The LARP award is considered taxable income for
          the year that the actual payment is received. It
                                 - 4 -

          is your responsibility to declare it as such on
          your income tax return.

     To accept the LARP award, you must maintain full-time
     employment with the state or local government or a
     nonprofit organization. * * *

     If you change employment and the new employer is ineli-
     gible, you will be required to repay the LARP award on
     a prorated basis to the Office of Student Financial
     Assistance.

     In order to qualify for petitioner’s LARP award, petitioner

was required to be a so-called public servant.   During 2002,

petitioner worked for the State’s Attorney’s Office.   Such work

qualified petitioner as a public servant for purposes of peti-

tioner’s LARP award.   Petitioner’s LARP award of $4,372 was

determined on a sliding scale based upon petitioner’s salary at

the State’s Attorney’s Office.

     On May 31, 2002, petitioner accepted petitioner’s LARP award

of $4,372 and signed the financial aid notification acceptance

letter that she received from the Maryland Higher Education

Commission.   That letter stated in pertinent part:

    The Maryland Higher Education Commission is pleased to
    offer you financial aid for the 2001-2002[2] award year.
    These funds are intended to assist you with the repay-
    ment of your educational loan with the lender listed
    below. Please be aware that this offer may change or
    be cancelled if you change employers. * * *


     2
      There is a discrepancy that we are unable to resolve on the
record before us between petitioner’s LARP award notification
letter and the financial aid notification acceptance letter as to
the award year to which petitioner’s LARP award pertained.
However, such award year is not material to our resolving the
issue presented in this case.
                                - 5 -


Neither the Janet L. Hoffman Loan Assistance Repayment Program

nor the Maryland Higher Education Commission refinanced or agreed

to assume all or part of petitioner’s law school loan in connec-

tion with the grant to petitioner of petitioner’s LARP award of

$4,372.

       At the time in 2002 petitioner was offered petitioner’s LARP

award, the lender of petitioner’s law school loan was Sun Tech.,

Inc.    Thereafter, AFSA became the owner of petitioner’s law

school loan.    Neither the original lender of petitioner’s law

school loan nor any subsequent owner of that loan agreed that

petitioner’s law school loan would be forgiven if petitioner were

to work for the State’s Attorney’s Office.

       Petitioner’s LARP award of $4,372 was made by means of a

dual-payee check ($4,372 dual-payee check) made out to both

petitioner and AFSA.    Petitioner used that check to make a

payment on petitioner’s law school loan.    Thereafter, the owner

of that loan issued a statement to petitioner indicating that it

had credited $4,372 against the principal of petitioner’s law

school loan.    At no time after petitioner used the $4,372 dual-

payee check to make a payment on petitioner’s law school loan did

the owner of that loan indicate to petitioner that it was forgiv-

ing all or part of that loan.

       Petitioner filed Form 1040A, U.S. Individual Income Tax

Return, for her taxable year 2002 (petitioner’s 2002 return).     In
                               - 6 -

that return, petitioner, inter alia, (1) did not include in gross

income petitioner’s LARP award of $4,372 and (2) claimed a

student loan interest deduction of $2,350.

     Respondent issued a notice of deficiency (notice) to peti-

tioner for her taxable year 2002.     In that notice, respondent

determined to include in gross income petitioner’s LARP award of

$4,372.   Respondent also determined in the notice to reduce to

$1,622 the amount of the student loan interest deduction that

petitioner claimed in petitioner’s 2002 return.

                            Discussion

     The only issue remaining for our consideration is whether

petitioner is required to include in gross income for 2002

petitioner’s LARP award of $4,372.3

     In support of her position that she is not required to

include in gross income for 2002 petitioner’s LARP award of

$4,372, petitioner relies on section 108(f).     According to

petitioner,

     Looking to both the language of the Internal Revenue
     Code Section 108(f) and the award letter for the LARP,
     both specify that the person receiving the financial
     award must work in a specified employment, in the case
     of the LARP, it is full-time employment with the state
     or local government or non profit organization. Look-
     ing to the CCH Explanation of Internal Revenue Code


     3
      In the petition and at trial, petitioner made no allega-
tions or arguments with respect to respondent’s determination in
the notice to reduce the amount of the student loan interest
deduction that she claimed in petitioner’s 2002 return. We
conclude that petitioner does not dispute that determination.
                         - 7 -

Section 108(f) for further guidance of the intent of
that section, it states:

     In order to ensure the professional participation
     in public service activities, many educational
     organizations sponsor programs which offer stu-
     dents an opportunity to be discharged (partially
     or completely) from their student loans, by work-
     ing for a period of time in a public serviced
     organization. (CCH--Standard Federal Tax Reports
     ¶ 7002, * * *)

Both Internal Revenue Code Section 108(f) and the LARP
award an individual for working in a public service
organization in lieu of working in the private sector.

* * * the language of the Section [108(f)] must be
examined for guidance. It says “In general....gross
income does not include....any amount....if such dis-
charge was pursuant to a provision of such loan...”
(IRC Section 108(f)). The use of the phrase “in gen-
eral” in and of itself implies that the rule is the
general rule but not exhaustive of all situation to
which 108(f) can apply. The language allows for pro-
grams, such as the Janet L. Hoffman LARP, to fall
within the Code Section without the Section requiring
rewriting. Nowhere in Code Section 108(f) does the
language state that the discharged amount must be
pursuant to a provision in the loan (emphasis added).

     Due to the fact that the language purposefully is
not exact, allowing for other possible programs, pro-
grams which may not have been in existence when the
Code Section was drafted coupled with the CCH Explana-
tion and requirements of the Janet L. Hoffman LARP, it
is Petitioner’s position that the award received
through the LARP should be treated as a discharge of
indebtedness and therefore non taxable income. The
very spirit of 108(f) is to ensure that professionals
participate in public service employment rather than
working in the private sector. This is advanced by the
Janet L. Hoffman Loan Assistance Program’s award of
money, which is directly applied to Petitioner’s enor-
mous student loan debt. Although Petitioner certainly
received a benefit by receiving the award, so too the
State of Maryland benefits by ensuring professional
participation in public service activities such as
working for the State’s Attorney’s Office. The lan-
                              - 8 -

     guage of the Internal Revenue Code Section 108(f) is
     general to provide a template from which to make deci-
     sions thus allowing for programs, such as the Janet L.
     Hoffman LARP to be governed by it. Both the letter of
     the law and the spirit of the law is served by making
     the award money received non taxable, thus allowing
     professionals to serve the public and still be able to
     pay their debt. [Reproduced literally.]

     Respondent counters petitioner’s argument under section

108(f) as follows:

     Her [petitioner’s] argument glosses over the fact that
     the award is not a discharge of indebtedness. Even if
     the award were considered to be a discharge of indebt-
     edness, it would not be excludible from income under
     I.R.C. § 108(f) under the plain language of the stat-
     ute. Petitioner attempts to avoid the language of the
     statute by arguing that the intent of the award falls
     within the intent behind the law. * * * She fails to
     recognize that this reading of I.R.C. § 108(f) is
     without foundation.

     We turn first to section 108(f) on which petitioner relies.

That section provides:

     SEC. 108. INCOME FROM DISCHARGE OF INDEBTEDNESS.

       *       *         *     *       *       *        *

     (f) Student Loans.--

          (1) In General.-–In the case of an individual,
     gross income does not include any amount which (but for
     this subsection) 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 provi-
     sion of such loan under which all or part of the in-
     debtedness 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 employ-
     ers.

          (2) Student Loan.-–For purposes of this subsec-
     tion, the term “student loan” means any loan to an
     individual to assist the individual in attending an
     educational organization described in section
     170(b)(1)(A)(ii) made by–-
                         - 9 -


            (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,

            (C) a public benefit corporation–-

               (i) which is exempt from taxation under
            section 501(c)(3),

               (ii) which has assumed control over a
            State, county, or municipal hospital, and

               (iii) whose employees have been deemed
            to be public employees under State law, or

            (D) any educational organization described
     in section 170(b)(1)(A)(ii) if such loan is made–-

               (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 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 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 refi-
nancing organization which is designed as described in
subparagraph (D)(ii).
                                - 10 -


          (3) Exception for Discharges on Account of
     Services Performed for Certain Lenders.–-Paragraph
     (1) shall not apply to the discharge of a loan made by
     an organization described in paragraph (2)(D) if the
     discharge is on account of services performed for
     either such organization.

     Petitioner’s reliance on section 108(f) is misplaced.4

Income from the discharge of indebtedness is includible in gross

income.   Sec. 61(a)(12).   Section 108 provides certain exceptions

to that treatment.   Section 108(f) entitled “Student Loans”

establishes certain circumstances under which income from the

discharge of a student loan may be excluded from gross income.

In no event may section 108(f) apply unless there is in fact a

discharge of a student loan.     In the instant case, petitioner

received petitioner’s LARP award of $4,372.     That award was to

be, and was, used by petitioner to repay a portion of

petitioner’s law school loan.     Petitioner’s LARP award did not

discharge petitioner’s law school loan or any other student loan

that petitioner may have had.5

     4
      Petitioner’s reliance on the “CCH Explanation of Section
108(f)” also is misplaced. That explanation is not binding on
the Court. It merely represents the views of the publisher of
the publication “CCH Standard Federal Tax Reporter”.
     5
      Assuming arguendo that petitioner’s LARP award of $4,372
were to constitute a discharge of a portion of petitioner’s law
school loan, sec. 108(f)(1) would not in any event permit
petitioner to exclude that award from her gross income for 2002.
That is because, as petitioner acknowledged at trial,
petitioner’s law school loan did not contain provisions “under
which all or part of the indebtedness of the individual would be
                                                   (continued...)
                               - 11 -

     We now address petitioner’s argument that section 108(f)(1)

sets forth a general rule that is “not exhaustive of all

situation[s] to which [section] 108(f) can apply.”   As petitioner

correctly points out, section 108(f)(1) sets forth a general rule

that excludes from gross income any income from the discharge of

a student loan, but that general rule applies only if the

requirements of that section are satisfied.   Only Congress may

provide exceptions to the general rule that it prescribed in

section 108(f)(1).   Congress did so in section 108(f)(3) entitled

“Exception For Discharges On Account Of Services Performed For

Certain Lenders.”    Section 108(f)(3) precludes the application of

the general rule of section 108(f)(1) (i.e., precludes the

exclusion from gross income of any income from the discharge of a

student loan that otherwise meets the requirements of section

108(f)(1)) if such discharge of a student loan made by an

organization described in section 108(f)(2)(D) was on account of

services performed for such organization.

     We turn finally to petitioner’s argument that the Court

should be guided by not only the letter but also the spirit of

section 108(f)(1).   The Court must follow the law as written by

     5
      (...continued)
discharged if the individual worked for a certain period of time
in certain professions for any of a broad class of employers.”
Sec. 108(f)(1). The term “certain professions” to which sec.
108(f)(1) applies are medicine, nursing, and teaching. Porten v.
Commissioner, T.C. Memo. 1993-73 n.1 (citing Staff of Joint Comm.
on Taxation, General Explanation of the Revenue Provisions of The
Deficit Reduction Act of 1984 at 1999(J. Comm. Print 1984)).
                              - 12 -

Congress.   Congress carved out an exception in section 108(f)(1)

to the requirement in section 61(a)(12) that income from the

discharge of indebtedness must be included in gross income.

Congress carefully prescribed the requirements that must be

satisfied in order to have the exception in section 108(f)(1)

apply to income from the discharge of a student loan.    Exclusions

from income must be narrowly construed.    Commissioner v.

Schleier, 515 U.S. 323, 328 (1995).    Petitioner’s LARP award of

$4,372 does not satisfy the requirements of section 108(f)(1).

Consequently, section 108(f)(1) does not apply to that award.

     On the record before us, we find that petitioner must

include in her gross income for her taxable year 2002

petitioner’s LARP award of $4,372.

     To reflect the foregoing and petitioner’s concession,



                                      Decision will be entered for

                               respondent.
