The IRS is asking wounded Michigan veteran Will Milzarski to pay $62,000 in income taxes after the federal government forgave his student loans.
First Lt. Milzarski had served two tours in Afghanistan, which left him with a traumatic brain injury, post-traumatic stress disorder, and hearing loss.
After deeming him permanently and totally disabled, the federal government cancelled some $223,000 in student debt the veteran had accrued.
Speaking to the Lansing State Journal, Milzarski said the brunt of his debt comes from law school. He hadn’t been expecting forgiveness to entail a hefty bill from the Internal Revenue Service.
“One part of the government says, ‘We recognize your service, we recognize your inability to work,’” he said. “The other branch says, ‘Give us your blood.’ Well, the U.S. Army already took a lot of my blood.”
Milzarski’s case has been taken on by Michigan State University’s Low-Income Tax Clinic.
John Wease, the clinic’s director, said tax in Milzarski’s case isn’t logical.
“If an individual has been deemed disabled and unable to pay their student loans, it seems incredible that they wouldn’t also be deemed unable to pay the taxes on the forgiveness of those same student loans,” explains Wease.
Before attending the U.S. Army’s officer candidate school, Milzaski had been working as a lawyer in Bath Township, MI., and specialized in disability rights.
He tried returning to his state job after last year, but retired not long after. Milzaski said he found himself struggling with his own concentration and memory, likely as a result of the injuries he’d suffered in Afghanistan.
Unable to make his loan payments while living off disability checks, Milzaski was elated to learn that his $223,000 in outstanding debt had been forgiven by the U.S. Department of Education.
His relief didn’t last long – soon thereafter, he received a notice from the IRS demanding tens of thousands of dollars in income tax, as well as a similar order from Michigan’s own tax department.
Wease said the Tax Clinic’s first priority is to deal with the federal government, since Michigan tends to base its own tax decisions on precedent set by the Internal Revenue Service.
He explained that Milzarski’s case may be unusual due to the high amount of debt, and highlighted one misconception laypeople often have about tax law – that canceled debt is, in fact, often regarded as income.
“It’s kind of a weird area of law,” he said. “A lot of people don’t think when your debt’s canceled that it’s income because you don’t have that money in your pocket.”
For his part, Wease doesn’t think federal law intentionally included loan cancelations for wounded veterans as a matter of policy.
“Sometimes the law can’t always conceive of every single circumstance that comes up,” he said.
Wease said that it may take two to three months to work through court appeals.
In the meantime, Milzarski said that he’s facing garnishment on his disability pay and a lien against his Bath Township home.
State Sen. Rick Jones (R-Grand Ledge) said Milzarski’s situation prompted him to draft a bill that would exempt wounded veterans from having canceled debt considered income under state.
Even if Jones’ legislation is passed, it wouldn’t be of much help to Milzarski – the law wouldn’t be retroactive, and would have no effect on federal policy.
Nevertheless, Milzarski said he’s happy to see the system might be changed.
“It’s bittersweet. It will make sure that some of the other veterans out there never have it happen to them, but it won’t help me,” he said.
Sources
Putnam: Wounded Army vet wins the battle but loses the tax war
Wounded veteran sees student debt forgiven but $62K tax bill
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