08 August 2016 Proposed rules revise reporting requirements for colleges filing tuition statements The IRS has issued proposed regulations (REG-131418-14, the Proposed Regulations) revising the rules under Section 6050S applicable to colleges, universities and other educational institutions with respect to the reporting of qualified tuition and related expenses on Forms 1098-T (Tuition Statement). 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. The information is intended to help taxpayers and the IRS determine when taxpayers are eligible for education tax credits under Section 25A. 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). The Trade Preferences Extension Act (TPEA) of 2015, signed into law in June 2015, generally increases the penalties for late or incorrectly filed information returns, effective for information returns filed on or after December 31, 2015. The law also added a special rule under Section 6724(f) for certain returns of educational institutions, prohibiting the imposition of penalties under Section 6721 (or Section 6722) solely by reason of failing to provide the taxpayer identification number (TIN) of an individual on Form 1098-T if the eligible educational institution required to file that form contemporaneously makes a true and accurate certification under penalty of perjury that it has complied with regulations governing solicitation of the individual's TIN. TPEA also amended Section 25A, generally restricting taxpayers' ability to claim Section 25A education credits unless they receive the statements stipulated under Section 6050S (i.e., Forms 1098-T). In December 2015, President Obama signed into law the Protecting Americans from Tax Hikes Act of 2015 (PATH Act). Prior to the PATH Act, educational institutions could report on Form 1098-T either the aggregate amount of payments received for such tuition and related expenses in the calendar year or the aggregate amount billed. Effective for tuition and related 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. In May 2016, the IRS 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-T required 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. See Tax Alert 2016-793{}. In addition to including revised rules under Section 25A applicable to taxpayers claiming education tax credits, the Proposed Regulations make a number of changes to the rules under Section 6050S that would impact educational institutions filing Forms 1098-T. The discussion below focuses on the proposed rules applicable to educational institutions. The rules are proposed to be effective once finalized, and generally respond to changes implemented by TPEA and the PATH Act. Because the changes made by TPEA generally require the receipt of a Form 1098-T for claiming Section 25A education credits, the Proposed Regulations would limit the exceptions under which an institution is not required to file a Form 1098-T. Specifically, they would remove such exceptions with respect to nonresident alien students under Reg. Section 1.6050S-1(a)(2)(i), and with respect to individuals whose qualified tuition and related expenses are paid entirely with scholarships under Reg. Section 1.6050S-1(a)(2)(iii) or individuals whose qualified tuition and related expenses are paid under a formal billing arrangement under Reg. Section 1.6050S-1(a)(2)(iv). However, the Proposed Regulations would retain the reporting exception under Reg. Section 1.6050S-1(a)(2)(i) with respect to courses for which no academic credit is awarded. The Proposed Regulations would also revise the information that institutions are required to report on Form 1098-T. For instance, to help the IRS identify credits claimed in two years for the same expenses, the Proposed Regulations would add a requirement that an amount paid that relates to an academic period that begins in the first three months of the next calendar year be specifically stated on the Form 1098-T. In addition, the Proposed Regulations would require institutions to indicate the number of months that a student was a full-time student during the calendar year. To provide a uniform rule for all institutions to determine whether a payment received by an institution should be reported on a Form 1098-T as qualified tuition and related expenses in the current year, the Proposed Regulations would clarify that payments received during a calendar year are treated first as payments of qualified tuition and related expenses — up to the total amount billed by the institution for qualified tuition and related expenses for enrollment during the calendar year — and then as payments of expenses other than qualified tuition and related expenses for enrollment during the calendar year. In addition, the Proposed Regulations would (1) revise the instructions that institutions must send along with the Form 1098-T furnished to students, to include a paragraph informing students they may be able to optimize their federal tax benefits by including scholarship or grant awards as income; and (2) add a definition of "administered and processed" for purposes of determining which scholarships and grants an institution is required to report on the Form 1098-T. The Proposed Regulations would also implement the changes made to Section 6050S by the PATH Act, eliminating the option for eligible educational institutions to report the aggregate amount billed for qualified tuition and related expenses for expenses paid after December 31, 2015. As stated in Announcement 2016-17, the IRS will not impose penalties for calendar year 2016 for institutions failing to meet the new requirement. Furthermore, the Proposed Regulations would implement Section 6724(f), as added by TPEA. For returns required to be filed and statements required to be furnished after December 31, 2015, the Proposed Regulations would generally provide that the IRS will not impose a penalty against an institution under Section 6721 or 6722 for failure to include the student's correct TIN on the return or statement if the institution certifies to the IRS under penalties of perjury that the institution complied with the applicable regulatory requirements for obtaining the student's TIN. To assist students in determining their eligibility for education tax credits, the IRS has issued proposed regulations that revise the requirements for reporting qualified tuition and related expenses on Form 1098-T. These proposed regulations generally expand on and clarify the new requirements created by TPEA and the PATH Act, and revise the information that educational institutions are required to report on Form 1098-T. The Proposed Regulations adopt the PATH Act requirement that Form 1098-T report only the aggregate payments of qualified tuition and related expenses actually paid during the year. However, under the Proposed Regulations any amounts paid that relate to an academic period that begins in the first three months of the next calendar year will need to be specifically identified on Form 1098-T. Additionally, the Proposed Regulations remove some of the exceptions to Section 6050S reporting. Specifically, under the Proposed Regulations, educational institutions will be required to file a Form 1098-T for nonresident aliens and for students whose qualified tuition and related expenses were paid entirely by scholarship and grants or formal billing arrangements. The IRS believes that these additional reporting requirements will provide students with more precise information to use when determining eligibility for and the amount of an education tax credit and at the same time allow the IRS to verify compliance with the requirements for claiming the education tax credits. Prior to the Proposed Regulations being adopted as final, the IRS and Treasury will consider any written comments that are timely submitted. Colleges, universities and other educational institutions subject to the new rules should consider submitting comments on their viewpoint by October 31, 2016. — For more information about EY's Exempt Organization Tax Services group, visit us at www.ey.com/ExemptOrg.
Document ID: 2016-1361 | ||||||||||||||||||||||||||||||||
