Penalty Relief for 2016 1098-T Filers
Section 212 of the Protecting Americans from Tax Hikes Act of 2015 (Pub. L. No. 114-113) (“PATH Act”) instituted changes including the requirement for educational institutions to report, in Box 1 on Form 1098-T, the aggregate amount of payments received. Under the Announcement, the IRS will not impose penalties under Internal Revenue Code (“IRC”) §6721 or §6722 for reporting the amount of tuition and fees billed for 2016 as opposed to the amounts actually paid.
Background
Form 1098-T is an informational form used to report qualified tuition and related expenses under IRC §6050S. According to IRS Notice 2006-72, IRC §6050S requires any eligible educational institution to file information returns and to furnish information statements to assist taxpayers and the IRS in determining the amount of qualified tuition and related expenses for which an education tax credit is allowable under IRC §25A.
Eligible educational institutions include colleges, universities, vocational schools, and other post-secondary educational institutions as described in section 481 of the Higher Education Act of 1965 as in effect on August 5, 1997, and that is eligible to participate in the Department of Education’s student aid programs. They include most accredited public, nonprofit, and private postsecondary institutions.
Qualified tuition and related expenses include tuition, fees and course materials required for a student to be enrolled at or attend an eligible educational institution. They do not include fees for room, board, insurance, medical expenses, transportation and similar personal living or family expenses.
IRC §6721 imposes a penalty for failure to provide correct or timely information returns with the IRS while IRC §6722 imposes a penalty for failure to provide a correct or timely written statement to the recipient. Neither of these penalties will apply if it is shown under IRC §6724 that the failure is due to reasonable cause and not willful neglect.
Protecting Americans from Tax Hikes Act of 2015 (PATH Act)
The PATH Act was signed into law in December of 2015 as an amendment to IRC §6050S(b)(2) and had immediate ramifications for the filers of the Form 1098-T. Prior to the PATH Act, the amount reported on Form 1098-T could be either the amount received or the amount billed. With the passing of the PATH Act, eligible educational institutions are now required to report the amount of payments received; not billed, for any qualified tuition and related expenses paid after December 31, 2015.
Conclusion
Educational institutions found it difficult to comply with the new Form 1098-T filing requirements outlined in the PATH Act by January 1, 2016. Announcement 2016-17 states that “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”. Educational institutions were concerned due to the penalties that exist under IRC §6721 or IRC §6722. In an effort to avoid these penalties, qualified educational institutions and other Form 1098-T filers expressed concerns to the IRS.
The IRS responded to these concerns and will not impose penalties for the 2016 calendar year for reporting the amount of payments billed. This penalty relief; however, does not apply to any other failure subject to a penalty under IRC §6721 or IRC §6722.
In conclusion, for 2016, educational institutions may report either the amount billed or received without incurring a penalty. It is important to note that educational institutions should continue to implement new reporting systems to enable them to comply with the PATH Act requirements and report amounts received and not billed for the 2017 calendar year.
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