Issue

The PATH Act of 2015 includes a stipulation that colleges would no longer have the option of reporting amounts billed on Form 1098-T after 2015.  Many schools and other groups commented to the IRS on the “murkiness” of this new rule.

Situation

Saltwater Christian College (SCC), a private college that is exempt under Internal Revenue Code section 501(c)(3) and 170(b)(1)(A)(ii).  SCC’s CFO called us to ask about the new Form 1098-T reporting requirements.  At a conference, he had heard about the requirement that – beginning with 2016 – higher education institutions will be required to report payments for qualified tuition and related expenses in Box 1 of IRS Form 1098-T and there will no longer be an option to report amounts billed for qualified expenses in Box 2.

We answer that this is correct, partly.  In Announcement 2016-17, the IRS agreed to waive any penalties for the 2016 Form 1098-T with regard to the “Box 1” issue.  The Service cited student account changes, training requirements, and form testing as reasons for the waiver.  However, this in only a one year waiver.  Colleges need to be ready for “Box 1 reporting” in 2017.

Rules

From Section 212 of the PATH Act of 2015:

  • IN GENERAL. – Section 6050S(b)(2)(B)(i) is amended by striking “or the aggregate amount billed”.
  • EFFECTIVE DATE. – The amendments made by subsection (b) shall apply to expenses paid after December 31, 2015, for education furnished in academic periods beginning after such date.

In real English this means that higher education institutions will no longer have the option of reporting amounts billed on IRS Form 1098-T, Tuition Statement, after 2015.  The change is effective for tax year 2016 forms, generally filed in 2017.  All institutions will be required to report payments for qualified tuition and related expenses.

Beginning with the 2016 tax year, institutions will be required to report payments for qualified tuition and related expenses in Box 1 of IRS Form 1098-T. There will no longer be an option to report amounts billed for qualified expenses in Box 2.

On April 27, 2016, the IRS issued Ann. 2016-17 in which they agreed to waive any penalties for the 2016 Form 1098-T with regard to the “Box 1” issue.  The Service cited student account changes, training requirements, and form testing as reasons for the waiver.  Ann. 2016-17 states:

Following the enactment of PATH, numerous eligible educational institutions informed the IRS that implementation of the law change will require computer software reprogramming and other changes that cannot be implemented in time to meet the applicable filing and furnishing due dates for Form 1098-T for calendar year 2016.  In light of this, the IRS will not impose penalties under section 6721 or 6722 with respect to 2016 Forms 1098-T solely because the eligible educational institution reports the aggregate amount billed for qualified tuition and related expenses for the 2016 calendar year. Thus, eligible educational institutions will continue to have the option of reporting either the amount of payments of qualified tuition and related expenses received or the amount of qualified tuition and related expenses billed for the 2016 calendar year without being subject to penalties.

Bottom Line

This is not the only issue going on with Form 1098-T.  The form has been changed for 2016 and there are still issues with potential future penalties for omitting student taxpayer identification numbers.  You should with a qualified tax advisor on these items.

Specific questions? Email Dave Moja.

The information provided herein presents general information and should not be relied on as accounting, tax, or legal advice when analyzing and resolving a specific tax issue. If you have specific questions regarding a particular fact situation, please consult with competent accounting, tax, and/or legal counsel about the facts and laws that apply.