NACUBO, together with 10 other higher education associations, submitted comments on October 31 on a Notice of Proposed Rulemaking (NPRM) that calls for significant reporting changes for IRS Form 1098-T.
The proposal would implement changes mandated by the Protecting Americans from Tax Hikes Act of 2015 (PATH Act), as well as changes to section 25A enacted as part of the Trade Preferences Extension Act of 2015 (TPEA), but proposed new requirements for colleges and universities go beyond the changes enacted in 2015.
NACUBO consulted extensively with members responsible for 1098-T compliance at large and small, public and independent nonprofit colleges and universities and collected survey data from almost 400 institutions to understand the potential impact of the proposed changes.
"We fully appreciate the goals of the Internal Revenue Service (IRS) and the Department of Treasury to conform the regulations to statute, to clarify rules, and to establish effective processes that both efficiently enable taxpayers to claim credits due to them and prevent individuals from claiming them erroneously," NACUBO President and CEO John Walda wrote in the letter to the IRS. However, "much of the new information you propose to collect misses the mark and will not bolster compliance efforts vis-à-vis the education tax credits."
NACUBO is supportive of parts of the IRS proposal. First, NACUBO commends the IRS for continuing the 1098-T reporting exception for noncredit classes. Second, the association agrees that the reporting exception for students whose qualified tuition and related expenses are paid entirely with scholarships and grants should be eliminated. The majority of schools responding to the NACUBO survey indicated that they already provide Forms 1098-T to these students and that the forms will be useful.
However, several of the recommendations in the NPRM will only serve to increase burden and confusion and do not reflect current student financial service practices. NACUBO objected to proposals that would eliminate the current exemptions for reporting on:
- Nonresident aliens (NRAs), and
- Students whose qualified expenses are paid under a formal billing arrangement where the institution does not maintain a financial account for the student (primarily dual-enrollment and contract education students).
As an alternative to reporting for all NRAs, NACUBO suggested that the IRS might consider only requiring 1098-Ts for those who provided a taxpayer identification number (TIN) to their institution.
The IRS also proposed adding two new data elements to the 1098-T that it argues will help ensure accuracy and guard against fraudulent claims. NACUBO objects to both changes.
First, the NPRM proposes to require schools to parse out the amount paid for qualified tuition and related expenses (QTRE) related to an academic year beginning in January, February, or March of the coming calendar year. Student accounting systems do not typically identify or track payments in this manner and most of NACUBO's survey respondents described the proposed requirement of reporting dollar amounts of payments attributable to future terms as either "difficult" or "very difficult," arguing that extensive reprogramming would be required to identify and report these amounts.
Second, the IRS proposes adding a box to Form 1098-T for the school to provide the number of months that the student was enrolled on a full-time basis. The definition in the NPRM specifies that enrollment for one day in any given month would constitute one month. NACUBO strongly opposed this provision as colleges and universities do not track student attendance or enrollment by month. Just as a student's account can be in constant flux, so too can enrollment status. Further, schools already face difficulty meeting disparate rules on full-time status imposed by other federal agencies: The Department of Education uses terms based on status as of a census date, while the Department of Veterans Affairs ignores terms and looks at the number of credits the student is taking on a week-by-week basis. Now, the IRS wants to count enrollment status in yet another way.
In the letter, NACUBO also raised concerns with proposed guidance regarding how schools determine the amount of payments received for QTRE. While this IRS provision is generally helpful, it does not reflect the realities of how most student account application of payment protocols operate. Further clarification of this provision is needed as there is considerable variation in how institutions understand it. NACUBO suggested that the provision be structured as a safe harbor for institutions, rather than as a requirement.
Several longstanding concerns surrounding the 1098-T in the NPRM were also addressed in the letter, including (1) how to treat payments made during the year that are attributable to an academic period that took place in a previous calendar year, and (2) the reporting obligations of foreign institutions that are eligible institutions since they participate in the Federal Direct Loan program.
NACUBO also has concerns with the implementation of changes to reporting requirements for IRS Form 1098-T, repeating an October 21 request to delay implementation of Box 1 (Amounts Paid) reporting requirements the 1098-T for tax year 2017.
"Constant changes to complicated processes are inefficient and expensive to implement. Incremental changes also complicate efforts to educate students, taxpayers, and tax preparers on how to utilize Form 1098-T when claiming education tax benefits," NACUBO noted in the letter.
A hearing on the NPRM is currently scheduled for November 30. NACUBO has requested to have a witness speak. Publication of the final rules is expected in 2017, but the timeline is unpredictable given that a new administration will be responsible for moving the agenda on Form 1098-T and education tax credits next year.