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Lawmakers Ease 1098-T Penalty Enforcement

June 29, 2015

President Barack Obama recently snatched victory from the jaws of defeat in a bruising debate over trade policy. In early June, the House of Representatives failed to pass a package of bills giving the president one of the top priorities of his legislative agenda, fast-track trade authority. Republicans, using creative legislative maneuvering, managed to resurrect the package of bills, Democrats relented, and the trade legislation was passed and sent to President Obama on June 25.

One of the initial objections from Democrats came over a provision that would have cut Medicare payments to pay for aid to workers displaced by trade policies. Lawmakers removed the Medicare provision and replaced it with language that establishes a safe harbor from Internal Revenue Service (IRS) penalty notices for missing taxpayer identification numbers and requires certain taxpayers claiming education tax benefits to possess a valid 1098-T. The legislative language is similar to a bill introduced in May by Sen. Dan Coats (R-IN). The Joint Committee on Taxation estimates the new provision requiring possession of a 1098-T will raise $576 million over 10 years.

TIN Collection

The IRS began penalizing colleges and universities for filing Forms 1098-T with incorrect or missing TINs in August 2013 (for tax year 2011). NACUBO has taken numerous steps in response to what it believes is an unjust penalty and has advocated for relief. Due in large part to NACUBO's efforts, the new law reads as follows:

"No penalty shall be imposed under section 6721 or 6722 solely by reason of failing to provide the TIN of an individual on a return or statement required by section 6050(S)(a)(1) if the eligible educational institution required to make such return contemporaneously makes a true and accurate certification under penalty of perjury (and in such form and manner as may be prescribed by the Secretary) that it has complied with standards promulgated by the Secretary for obtaining such individual's TIN."

The provision goes into effect for statements furnished after December 31, 2015.

Taxpayer Possession of Form 1098-T

Language related to the possession of a 1098-T was not a NACUBO priority, but lawmakers pursued this effort in the wake of the release of a report by the Treasury Inspector General for Tax Administration, which estimated 3.6 million taxpayers received more than $5.6 billion in potentially erroneous education credits on their 2012 tax returns.

At this time, NACUBO does not believe the legislation requires any changes in current Form 1098-T processing requirements for institutions. We recognize that under current regulations, colleges and universities are not required to provide a Form 1098-T to students taking noncredit coursework and doing so would introduce significant new reporting burdens. The new legislation specifically provides for the exceptions "provided by the Secretary" in current regulations governing the processing of IRS Forms 1098-T.
However, since possession of a 1098-T was not a requirement for students in the past, this measure requires a new level of substantiation in the future for most taxpayers attempting to claim an education credit.

Contact

Mary Bachinger
Director, Tax Policy
202.861.2581
E-mail

Liz Clark
Director, Federal Affairs
202.861.2553
E-mail