The IRS has announced (Announcement 2016-17) that it will not impose penalties under Section 6721 or 6722 on colleges, universities and other educational institutions for any Form 1098-Trequired to be filed for the 2016 calendar year on which the institution reports the aggregate amount billed (rather than the aggregate amount received) for qualified tuition and related expenses.

Background

Section 6050S requires eligible educational institutions to file information returns with the IRS and to furnish written statements to individuals reporting qualified tuition and related expenses paid by, or on behalf of, students. Prior to the amendments of the Protecting Americans from Tax Hikes Act of 2015 (PATH Act), educational institutions could report either the aggregate amount of payments received for such expenses in the calendar year or the aggregate amount billed. Effective for expenses paid after December 31, 2015, the PATH Act eliminated the option of reporting the aggregate amount billed, thus requiring organizations to only report amounts received.

Form 1098-T is the information return used for Section 6050S tuition expense reporting to the IRS and individuals. Penalties apply for failures to timely file correct information returns with the IRS and for failures to timely furnish correct information statements to individuals under Sections 6721 and 6722, respectively (unless the failure is due to reasonable cause and not due to willful neglect).

Penalty relief

The IRS stated that, following the enactment of the PATH Act, it received numerous comments from educational institutions expressing concerns that implementing the law change would require computer software reprogramming and other changes that could not be completed in time to correctly file for the 2016 calendar year by the applicable due date. In response to these concerns, the IRS announced that it will not impose penalties under Section 6721 or 6722 for 2016 Forms 1098-T solely because they report aggregate amounts billed rather than aggregate amounts received (as required by the PATH Act). This penalty relief applies only to 2016 Forms 1098-T required to be filed by eligible educational institutions by February 28, 2017 (or March 31, 2017, if filed electronically), and furnished to recipients by January 31, 2017.

Implications

This IRS announcement allows eligible schools to continue to report for the 2016 calendar year either amounts received or amounts billed for qualified tuition and related expenses without incurring penalties. The additional year offers universities and educational systems an opportunity to update their systems and processes for completing and filing Form 1098-T. Penalty relief is limited to 2016 Forms 1098-T required to be filed by eligible educational institutions by February 28, 2017 (or March 31, 2017, if filed electronically), and furnished to recipients by January 31, 2017. Organizations must therefore be in compliance for qualified tuition and related expenses paid after December 31, 2016. Penalty relief does not apply to any other failure subject to a penalty under Section 6721 or 6722.

Please contact your EY tax practitioner for further information.

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RELATED RESOURCES

— For more information about EY's Exempt Organization Tax Services group, visit us at www.ey.com/ExemptOrg

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