The Department of Treasury and the Internal Revenue Service (IRS) published an August 2 Notice of Proposed Rulemaking (NPRM) on changes to Form 1098-T, Tuition Statement. The notice also amends the regulations on the education tax credits under section 25A.
Last year, new requirements for claiming education tax benefits were added by the Trade Preferences Extension Act of 2015 (TPEA) and the Protecting Americans from Tax Hikes (PATH) Act of 2015. The proposed regulations reflect these legislative changes. The NPRM also recommends additional changes, creating new categories of information colleges and universities will need to collect and report on the Form 1098-T.
The TPEA requires that, subject to specified exceptions, no education tax credit is allowed unless the taxpayer receives a Form 1098-T. In the proposed rules, the IRS and Treasury recognize, despite this requirement, that the amount reported on the Form 1098-T does not necessarily reflect the total amount of qualified tuition and related expenses (QTRE) that the taxpayer has paid during the tax year- because some expenses, such as books or required supplies not purchased from the institution, are not required to be reported on the form.
The proposed rules also clarify that the IRS may not impose penalties against an institution for failure to include a correct taxpayer identification number (TIN) on the Form 1098-T if the school certifies compliance with IRS requirements for soliciting TINs, as required by the changes made in the TPEA.
The NPRM reflects the change made in the PATH Act to section 25A(i) providing that no American Opportunity Tax Credit will be allowed unless the student's TIN and the TIN of the taxpayer claiming the credit are issued on or before the due date (including an extension, if timely requested) for filing the return for that tax year. The proposed rules also incorporate the PATH Act change stipulating that the credit is not allowed unless the taxpayer's return includes the Employer Identification Number (EIN) of any institution to which the qualified tuition and related expenses were paid for the student.
The IRS and Treasury would formally adopt the elimination of the option to report the aggregate amount billed for qualified tuition and expenses in Box 2 of the form, the major change that was enacted late last year as a part of the PATH Act. However, no penalties will be imposed for calendar year 2016 if an institution fails to comply with the amendment and continues to report the amount billed.
2015 Legislative Changes to IRS Form 1098-T Reporting
|Trade Preferences Extension Act of 2015
||Protecting Americans from Tax Hikes Act of 2015
- Requires taxpayers to possess a Form 1098-T in order to receive an education credit under §25A (American Opportunity and Lifetime Learning tax credits) or an education deduction under §222, but allows exceptions.
- Requires taxpayers to report the EIN of any institution to which QTRE were paid.
- Allows educational institutions to certify, under penalties of perjury, that the institution has followed proper TIN solicitation procedures.
- Requires institutions to report QTRE on an amounts received basis.
- Prohibits taxpayers from retroactively claiming the AOTC by amending a return (or filing an original return if he or she failed to file) for any year if the taxpayer identification number of the student for whom the credit is claimed was issued after the due date of the return.
Beyond the Statutory Changes
In addition to provisions that reflect recent changes to the law, the NPRM introduces new information colleges and universities will need to collect and report on the Form 1098-T.
Colleges and universities officials will be relieved to see that the proposed rules preserve the reporting exception that applies to courses for which no academic credit is awarded. However, the IRS and Treasury are seeking comments regarding the exception for noncredit courses and asking whether there should be a change.
The NPRM would now require Form 1098-T reporting for the following student populations, for whom institutions have not previously been required to report:
- Nonresident aliens (NRAs).
- Individuals whose qualified tuition and related expenses are paid entirely with scholarships.
- Individuals whose qualified tuition and related expenses are paid under a formal billing arrangement.
The IRS and Treasury also seek specific comments on the removal of the NRA exception, including how an institution determines a student is an NRA and information about how institutions currently administer the existing exception to reporting.
Other new requirements for colleges and universities would include:
- A requirement to report the amount paid that relates to an academic period that begins in the first three months of the next calendar year. Current rules require checking a box indicating that some amounts reported are for an academic period beginning during that time.
- A requirement to report the number of months that student was enrolled full time during the calendar year.
- A requirement to state that payments received during the year are first treated as QTRE up to the amount billed, then as other, nonqualified expenses.
The deadline for comments is October 31 and a public hearing will follow on November 30 in Washington, DC.
NACUBO is currently reviewing the proposal and will submit comments advocating for reasonable rules and fair guidance that institutions can follow. We strongly encourage individual institutions to submit comments as well. Please send copies of your school's comments to email@example.com.