On July 29, the Internal Revenue Service (“IRS”) issued proposed treasury regulations to reflect changes to the reporting requirements for Form 1098-T, Tuition Statement, made by the Trade Preferences Extension Act of 2015 (“TPEA”) and the Protecting Americans from Tax Hikes Act of 2015 (“PATH Act”). The proposed regulations also would amend current regulations concerning educational tax credits and the deduction for qualified tuition and related expenses.
Changes to Form 1098-T Reporting Exceptions
The proposed regulations would change the rules for reporting qualified tuition and related expenses on Form 1098-T. Current treasury regulations provide for the following four exceptions to the Form 1098-T reporting requirements: (1) nonresident aliens, unless specifically requested; (2) individuals whose qualified tuition and related expenses are entirely paid with scholarship monies; (3) individuals whose qualified tuition and related expenses are paid under a formal billing arrangement; and (4) information with respect to courses with no academic credit. The proposed regulations eliminate the first three exceptions to the Form 1098-T reporting requirements but maintain the exception for courses with no academic credit.
Penalty Relief for Missing TINs
TPEA added Section 6724(f) of the Internal Revenue Code (the “Code”) which prohibits the IRS from imposing informational reporting penalties on educational institutions for failing to include a correct taxpayer identification number (“TIN”) on Form 1098-T if the institution certifies, under penalty of perjury, that it has complied with the IRS standards governing the solicitation of a student’s TIN. The IRS solicitation rules provide that if an educational institution does not have a student’s correct TIN, the institution must solicit, in writing, the TIN on or before December 31 of each year during which it receives payments of qualified tuition and related expenses or makes reimbursements, refunds, or reductions of the respective amount. If the TIN is not provided, the institution is still required to file Form 1098-T with all other required information except for the TIN. The proposed regulations amend current treasury regulations under Section 6050S of the Code to reflect Section 6724(f).
Changes to Amounts Reported on Form 1098-T
The PATH Act requires educational institutions to now report the amount of payments actually received for qualified tuition and related expenses on Form 1098-T rather than the amount of payments billed. Initially, this rule was to be effective for the 2016 calendar year reporting. Earlier this year, the IRS released IRS Announcement 2016-17 to provide transition relief for qualifying educational institutions, extending the effective date to the calendar year 2017. The proposed regulations address this new requirement subject to the transition relief.
New Form 1098-T Reporting Requirement
The proposed regulations will require educational institutions to report on the Form 1098-T the number of months that a student was a full-time student during the calendar year. Under the proposed regulations, generally one day during the month is treated as an entire month for this reporting requirement.
Education Tax Credits and Deductions
The proposed regulations reflect the rules as revised by TPEA for claiming the American Opportunity or Lifetime Learning tax credits and for claiming a deduction for qualified tuition and related educational expenses. The new requirement provides that no American Opportunity or Lifetime Learning tax credit, or a deduction for qualified tuition and related expenses, is allowed unless the student receives a Form 1098-T (unless an exception applies).
The proposed regulations provide an exception for a student who does not receive a Form 1098-T by the later of January 31 of the year following the student’s tax year or the filing date of the return claiming the credit, provided the student properly requested the form and cooperated with the educational institution’s efforts to obtain the necessary information. In addition, the proposed regulations address situations where the amount reported on the Form 1098-T does not reflect the total amount of qualified education and related expenses.
Note that proposed treasury regulations are not binding. Rather, proposed regulations provide an opportunity for the public to have input into the proposed tax rules. Written or electronic comments regarding these proposed regulations must be received by the IRS by November 1, 2016. The public hearing concerning these proposed regulations is scheduled for November 30, 2016.