18 August 2017 IRS will not further delay implementation of tuition reporting changes on Form 1098-T According to a report by Tax Analysts (2017 TNT 156-5), the IRS has told the National Association of College and University Business Officers (NACUBO) that it will not delay by an additional year its implementation of changes to the tuition reporting methodology on Form 1098-T, Tuition Statement. NACUBO last month sent the IRS a letter asking for the additional year extension with respect to the Form 1098-T changes — including the elimination of Box 2 in accordance with the Protecting Americans from Tax Hikes Act of 2015 (PATH Act) — until after the publication of final regulations. The PATH Act eliminated the option of reporting "amounts billed" for tuition, rather than amounts received, for expenses paid after December 31, 2015. Responding to concerns about implementation, the IRS twice delayed the changes, until 2017 and then 2018. See Tax Alert 2017-1279 for additional background and discussion of NACUBO's July 2017 letter. An additional year delay would have postponed the new reporting requirements until the 2019 tax year. However, without the delay, educational institutions will need to institute the changes for 2018 reporting, which will be due in early 2019. Mary Bachinger, NACUBO's director of tax policy, told Tax Analysts that it will develop recommendations to help institutions comply with the new requirements for their 2018 forms. 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 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). On January 21, 2016, NACUBO requested immediate interim guidance to confirm that the IRS would delay implementation of changes to the tuition reporting methodology on Form 1098-T on the basis that there was not enough time for colleges and universities to convert existing data collection and tuition reporting systems for the 2016 year. As a result, in May 2016, the IRS issued Announcement 2016-17 (see Tax Alert 2016-793) saying that it would 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. On October 31, 2016, NACUBO submitted comments to the IRS pursuant to a Notice of Proposed Rulemaking (NPRM) on changes to the reporting requirements on Form 1098-T. In those comments, NACUBO stressed that institutions of higher education and their software providers faced significant challenges due to "a lack of guidance on transition issues and potential additional changes looming over their efforts." Because of these issues, NACUBO requested a delay in the implementation of changes to Form 1098-T reporting requirements for tax year 2017. On November 17, 2016, the IRS released Announcement 2016-42 (see Tax Alert 2016-2005), declaring that it would not impose Section 6721 or Section 6722 penalties on eligible educational institutions with respect to timely filed tuition statements (Form 1098-T) for the 2017 tax year simply because the institution reports the aggregate amount billed for qualified tuition and related expenses instead of the aggregate amount of payments received. In Announcement 2016-42, the IRS acknowledged that educational institutions have encountered several challenges when trying to update their accounting systems, software, and business practices for filing and furnishing Forms 1098-T. The IRS also noted that software vendors and service providers utilized by educational institutions had not yet been able to develop a methodology that calculates and reports the aggregate amount of payments received for qualified tuition and related expenses as required by the PATH Act. In light of these issues, the IRS decided not to impose penalties on educational institutions that continued to report the aggregate amount billed for qualified tuition and related expenses, rather than the aggregate amount of payments received, on the 2017 Form 1098-T. This penalty relief was limited to 2017 Forms 1098-T required to be filed by educational institutions with the IRS by February 28, 2018 (or April 2, 2018, if filed electronically), and furnished to recipients by January 31, 2018. Announcement 2016-42 did not extend penalty relief to any other failure that would cause the institution to be subject to penalties under Sections 6721 or 6722, or any other penalty under any provision of the Internal Revenue Code. Announcement 2016-42 effectively extended the penalty relief that had been provided for the 2016 tax year by Announcement 2016-17 to the 2017 tax year. In its July 2017 letter, NACUBO urged the IRS to leave Form 1098-T unchanged for the 2018 tax year as well, and to clarify whether colleges and universities will be penalized for reporting the aggregate amount billed for qualified tuition and related expenses on Form 1098-T, Box 2, and leaving Box 1 blank for tax year 2018. NACUBO stated that colleges and universities cannot begin compliance efforts without knowing what the final rules will be. Moreover, even if regulations were issued soon, there would not be enough time remaining before January 1, 2018, when the educational institutions need to begin collecting the data to comply. For those in the higher education community, the delay of final reporting regulations could potentially create a myriad of problems. In his July 21, 2017, letter to the IRS, NACUBO President and CEO John Walda explained that "for campuses to comply with all of the changes that the impending new rules will require, the software providers that colleges and universities rely on will need to make system modifications and customizations to enable data collection and tracking based on the provisions of final rules. In the absence of final rules, this critical initial step cannot take place." In addition, after the software providers' work is finished, Walda noted, "institutions will need to implement and integrate those changes within their own student account systems and test them." NACUBO has stated that it will develop recommendations to help educational institutions with their 2018 forms, which will be filed early in 2019. However, the IRS has yet to release an official statement on its decision not to delay the implementation of changes to the tuition reporting methodology on Form 1098-T. Therefore, the most prudent course of action for educational institutions would be to work toward compliance with the law in its present construct and to monitor guidance as it becomes available. — For more information about EY's Exempt Organization Tax Services group, visit us at www.ey.com/ExemptOrg.
Document ID: 2017-1346 | ||||||||||||||||||||||||||||||
