Sen. Dan Coats (R-IN) recently introduced S.1413, a bill to amend the Internal Revenue Code to improve compliance in higher education tax benefits. The legislation would ease the yearly cycle of proposed fines from the Internal Revenue Service, followed by waiver requests from institutions, related to missing or inaccurate taxpayer identification numbers (TIN) on Form 1098-T. In response to concerns regarding taxpayer fraud related to the higher education tax credits, the bill would also require taxpayers to have a valid 1098-T or other form of proof in order to qualify for the American Opportunity or Lifetime Learning Tax Credits or the deduction for tuition expenses.
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 took action in response to the resulting proposed fines, waiver requests, other notices, and eventually the confirmation of waivers.
NACUBO believes the IRS should revise the process used to file Forms 1098-T to allow the filing organization to affirmatively certify that it has "acted in a responsible manner" and met the standards for soliciting TINs from its students. S. 1413 provides this safe harbor. The bill notes that penalties will not apply "if the person required to file the return certifies under penalty of perjury that such person has complied with standards promulgated by the Secretary for obtaining the individual's TIN, unless it is shown that such certification is materially untrue."
Taxpayer Possession of Form 1098-T
Coats, who has long been troubled by taxpayer fraud, introduced S. 1413 shortly after 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.
The legislation does not mandate possession of a 1098-T to claim education tax credits for noncredit coursework; therefore, institutions would not need to process Forms 1098-T for students only enrolled in noncredit classes. There is also a safe harbor for students who do not receive Forms 1098-T for other reasons. NACUBO does not believe the legislation requires any changes in current Form 1098-T processing requirements for institutions. However, since possession of a 1098-T was not a requirement for students in the past, this measure would require the new level of substantiation in the future for most taxpayers attempting to claim and education credit.
There is a possibility this legislation will be enacted later this year. NACUBO will provide updates as appropriate.