[Federal Register Volume 81, Number 148 (Tuesday, August 2, 2016)]
[Proposed Rules]
[Pages 50657-50671]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-18032]
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Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
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Federal Register / Vol. 81, No. 148 / Tuesday, August 2, 2016 /
Proposed Rules
[[Page 50657]]
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 301
[REG-131418-14]
RIN 1545-BN27
Reporting for Qualified Tuition and Related Expenses; Education
Tax Credits
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking and notice of public hearing.
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SUMMARY: This document contains proposed regulations that revise the
rules for reporting qualified tuition and related expenses under
section 6050S on a Form 1098-T, ``Tuition Statement,'' and conforms the
regulations to the changes made to section 6050S by the Protecting
Americans from Tax Hikes Act of 2015. This document also seeks to amend
the regulations on the education tax credits under section 25A
generally as well as to conform the regulations to changes made to
section 25A by the Trade Preferences Extension Act of 2015 and the
Protecting Americans from Tax Hikes Act of 2015. The proposed
regulations affect certain higher educational institutions required to
file Form 1098-T and taxpayers eligible to claim an education tax
credit. This document also provides notice of a public hearing on these
proposed regulations.
DATES: Written or electronic comments must be received by October 31,
2016. Outlines of topics to be discussed at the public hearing
scheduled for November 30, 2016 must be received by October 31, 2016.
ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-131418-14), Room
5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station,
Washington, DC 20044. Submissions may be hand-delivered Monday through
Friday between the hours of 8:00 a.m. and 4:00 p.m. to CC:PA:LPD:PR
(REG-131418-14), Courier's Desk, Internal Revenue Service, 1111
Constitution Avenue NW., Washington, DC 20224. Alternatively, taxpayers
may submit comments electronically via the Federal eRulemaking Portal
at www.regulations.gov (IRS REG-131418-14).
FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations,
Gerald Semasek of the Office of Associate Chief Counsel (Procedure and
Administration) for the proposed regulations under sections 6050S and
6724, (202) 317-6845, and Sheldon Iskow of the Office of Associate
Chief Counsel (Income Tax and Accounting) for the proposed regulations
under section 25A, (202) 317-4718; concerning the submission of
comments and requests for a public hearing, Regina Johnson, (202) 317-
6901 (not toll-free calls).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information contained in this notice of proposed
rulemaking has been approved by the Office of Management and Budget
through Form 1040 (OMB No. 1545-0074), Form 8863 (OMB No. 1545-0074)
and Form 1098-T (OMB No. 1545-1574) in accordance with the Paperwork
Reduction Act of 1995 (44 U.S.C. 3507(d)). Notice and an opportunity to
comment on the proposed changes to burden hours for the forms related
to this proposed rule will be published in a separate notice in the
Federal Register.
Background
This document contains proposed regulations to amend the Income Tax
Regulations (26 CFR part 1) under section 25A of the Internal Revenue
Code (Code) and the Procedure and Administration Regulations (26 CFR
part 301) under section 6050S, to reflect the amendments to sections
25A and 6724 under the Trade Preferences Extension Act of 2015 (Pub. L.
114-27 (129 Stat. 362 (2015)) (TPEA) and the amendments to sections 25A
and 6050S under the Protecting Americans from Tax Hikes Act of 2015
(Pub. L. 114-113 (129 Stat. 2242 (2015)) (PATH). Furthermore, the
document contains proposed regulations to amend the Income Tax
Regulations under section 25A to update the definition of qualified
tuition and related expenses in Sec. 1.25A-2(d) to reflect the changes
made by the American Recovery and Reinvestment Act of 2009 (Pub. L.
111-5 (123 Stat. 115) (ARRA)), to clarify the prepayment rule in Sec.
1.25A-5(e), and to clarify the rule for refunds in Sec. 1.25A-5(f).
1. Section 25A--Education Tax Credits
The Taxpayer Relief Act of 1997 (Pub. L. 105-34 (111 Stat. 788)
(TRA '97)) added section 25A to provide students and their families
with two new nonrefundable tax credits to help pay for college
(education tax credits). Pursuant to TRA `97, section 25A allowed
eligible taxpayers to claim either the Hope Scholarship Credit or the
Lifetime Learning Credit (LLC) for qualified tuition and related
expenses paid during the taxable year for an academic period beginning
during the taxable year. In general, either the student or the parent
who claims a dependency exemption for the student may claim a credit
for the student's qualified tuition and related expenses. Section
25A(f)(1) defines ``qualified tuition and related expenses'' as tuition
and fees required for enrollment or attendance at an eligible
educational institution (institution). Section 25A(f)(2) generally
defines an ``eligible educational institution'' as an institution
described in the Higher Education Act of 1965 that is eligible to
participate in federal college financial aid programs. Section
25A(g)(4) provides that amounts paid during the taxable year for
enrollment during an academic period beginning within the first three
months of the following taxable year are treated as amounts paid for an
academic period beginning during the taxable year. Section 25A(g)(5)
provides that no credit is allowed for any expenses for which a
deduction is allowed under another provision of the Code.
Final regulations under section 25A were published in the Federal
Register (67 FR 78687) on December 26, 2002. Section 1.25A-2(d)(1) of
these regulations defines ``qualified tuition and related expenses'' to
mean tuition and fees required for the enrollment or attendance of a
student for courses of instruction at an institution. Section 1.25A-
2(d)(2)(i) provides that only fees required to be paid to the
institution as a condition of the student's enrollment
[[Page 50658]]
or attendance at the institution are treated as qualified tuition and
related expenses for purposes of section 25A. Under this rule, fees for
books, supplies, and equipment used in a course of study are required
fees only if the fees must be paid to the institution for the
enrollment or attendance of the student at the institution. See Sec.
1.25A-2(d)(2)(ii). In addition, Sec. 1.25A-5(e)(1) provides that an
education tax credit is allowed only for payments of qualified tuition
and related expenses for an academic period beginning in the same
taxable year as the year the payment is made. Section 1.25A-5(e)(2)
provides that qualified tuition and related expenses paid during one
taxable year for an academic period beginning in the first three months
of the taxable year following the taxable year in which the payment is
made will be treated as paid for an academic period beginning in the
same taxable year as the year the payment is made (prepayment rule).
Section 1.25A-5(f) provides rules for refunds of qualified tuition
and related expenses. If qualified tuition and related expenses are
paid and a refund of these expenses is received in the same taxable
year, qualified tuition and related expenses for the taxable year are
reduced by the amount of the refund. Section 1.25A-5(f)(1). If a
taxpayer receives a refund of qualified tuition and related expenses in
the current taxable year (current year) that were paid in the prior
taxable year (prior year) before the taxpayer files his/her federal
income tax return for the prior year, the taxpayer reduces the
qualified tuition and related expenses for the prior year by the refund
amount. Section 1.25A-5(f)(2). However, if the taxpayer receives the
refund after filing his/her federal income tax return for the prior
year, the taxpayer must increase the tax imposed for the current year
by the recapture amount. Section 1.25A-5(f)(3)(i). The recapture amount
is calculated in the manner provided in Sec. 1.25A-5(f)(3)(ii).
Sections 1.25A-5(f)(4) and (f)(5) provide that refunds of loan proceeds
and receipt of excludable educational assistance are treated as refunds
for purposes of Sec. 1.25A-5(f)(1), (2), and (3), as appropriate.
In 2009, ARRA enacted section 25A(i), which expanded the Hope
Scholarship Credit with the American Opportunity Tax Credit (AOTC) for
taxable years beginning after 2008. The definition of ``qualified
tuition and related expenses'' for purposes of the AOTC is broader than
the definition of qualified tuition and related expenses for the Hope
Scholarship Credit and the LLC because it includes expenses paid for
course materials. See section 25A(i)(3).
2. Section 222--Deduction for Qualified Expenses
Section 431(a) of the Economic Growth and Tax Relief Reconciliation
Act of 2001, Public Law 107-16 (115 Stat. 38) added section 222, which
generally allows a deduction for qualified tuition and related expenses
paid by a taxpayer during the taxable year subject to certain dollar
and income limitations. Section 222(b) provides that no deduction is
allowed if the taxpayer claims an education tax credit for the student.
3. Section 6050S--Information Reporting for Eligible Educational
Institutions
TRA '97 also added section 6050S to require eligible educational
institutions to file information returns and to furnish written
statements to assist taxpayers and the IRS in determining whether a
taxpayer is eligible for an education tax credit under section 25A, as
well as other education tax benefits. These returns and statements are
made on Form 1098-T, ``Tuition Statement.'' Prior to the enactment of
PATH, section 6050S(b)(2)(B)(i) permitted institutions to report either
the aggregate amount of payments received or the aggregate amount
billed for qualified tuition and related expenses during the calendar
year for individuals enrolled for any academic period. Institutions
also must report the aggregate amount of scholarships or grants
received for an individual's costs of attendance that the institution
administered and processed during the calendar year. See section
6050S(b)(2)(B)(ii). Section 6050S(b)(2)(B)(iii) requires that
institutions must separately report adjustments (that is, refunds of
payments or reductions in charges) made during the calendar year to
qualified tuition and related expenses that were reported in a prior
calendar year and that institutions also must separately report
adjustments (that is, refunds or reductions) made during the calendar
year to scholarships that were reported in a prior calendar year.
Section 6050S(b)(2)(D) requires that the information return include
other information as the Secretary may prescribe.
In addition, sections 6050S(a)(2) and (a)(3) require any person
engaged in a trade or business of making payments to any individual
under an insurance agreement as reimbursements or refunds of qualified
expenses (an insurer) or who receives from any individual $600 or more
of interest during the calendar year on qualified education loans to
file information returns and to furnish written information statements.
Section 6050S(b)(2) provides that these information returns must
contain the name, address, and TIN of any individual with respect to
whom these payments were made or received, the aggregate amount of
reimbursements or refunds (or similar amounts paid to such individuals
during the calendar year by an insurer), the aggregate amount of
interest received for the calendar year from the individual, and such
other information as the Secretary may prescribe.
Section 6050S(d) provides that every person required to make a
return under section 6050S(a) must furnish a written statement to each
individual whose name is set forth on the return showing the name,
address, and phone number of the person required to make the return and
the amounts described in section 6050S(b)(2)(B). For taxable years
beginning after June 29, 2015, all of the information required by
section 6050S(b)(2), not just the amounts, must be included on the
written statement. The written statement must be furnished by January
31 of the year following the year for which the return is required to
be made.
Final regulations under section 6050S were published in the Federal
Register (67 FR 77678) in the same Treasury Decision as the final
regulations for section 25A on December 19, 2002. The section 6050S
regulations provide exceptions to the reporting requirements for
educational institutions for students who are nonresident aliens, for
noncredit courses, for certain billing arrangements, and in cases where
qualified tuition and related expenses are paid entirely with
scholarships or grants. These regulations also set forth the specific
information that institutions must report to the IRS, as well as
information that the institution must include with the statement
furnished to the student. These regulations also include requirements
regarding the time and manner for soliciting the student's TIN.
4. Sections 6721, 6722 and 6724--Information Reporting Penalties and
Penalty Relief
Section 6721 imposes a penalty on an eligible educational
institution that fails to timely file correct information returns with
the IRS. Section 6722 imposes a penalty on an educational institution
that fails to timely furnish correct written statements to the student.
Generally, the penalty under section 6721 and section 6722 is $100 per
failure, with an annual maximum
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penalty of $1.5 million. The penalty is increased to $250 per failure
and the annual maximum penalty is increased to $3 million for returns
required to be filed and statements required to be made after December
31, 2015. However, section 6724(a) provides that the penalty under
section 6721 or 6722 may be waived if it is shown that the failure was
due to reasonable cause and not due to willful neglect.
Section 301.6724-1(a)(2) provides that the penalty is waived for
reasonable cause only if the filer establishes that: (1) Either there
are significant mitigating factors with respect to the failure or that
the failure arose from events beyond the filer's control and (2) the
filer acted in a responsible manner both before and after the failure.
In the case of a missing or incorrect TIN, Sec. 301.6724-1(d)(2)
provides that the filer acted in a responsible manner if the filer
satisfies the solicitation requirements in Sec. 301.6724-1(e)
(regarding a missing TIN) or (f) (regarding an incorrect TIN).
Section 1.6050S-1(e)(3) provides that the rules regarding
reasonable cause under Sec. 301.6724-1 do not apply in the case of
failure to include a correct TIN on a Form 1098-T. Instead, Sec.
1.6050S-1(e)(3) provides special rules for institutions to establish
reasonable cause for a failure to include a correct TIN on Form 1098-T.
Section 1.6050S-1(e)(3)(i) provides that reasonable cause for a
failure to include a correct TIN on the Form 1098-T may be established
if (1) the failure arose from events beyond the institution's control,
such as a failure of the individual to furnish a correct TIN, and (2)
the institution acted in a responsible manner before and after the
failure. Section 1.6050S-1(e)(3)(ii) provides that if the institution
does not have the student's correct TIN in its records, acting in a
responsible manner means making a single solicitation for the TIN by
December 31 of the calendar year for which the payment is made, the
amount is billed, or a reimbursement is made. Section 1.6050S-
1(e)(3)(iii) also provides for the manner by which an educational
institution should request the individual's TIN. The solicitation must
be done in writing and must clearly notify the individual that the law
requires the individual to furnish a TIN so that it may be included on
an information return filed by the institution. The solicitation may be
made on Form W-9S, ``Request for Student's or Borrower's Taxpayer
Identification Number and Certification,'' or the institution may
develop its own form and incorporate it into other forms customarily
used by the institution, such as financial aid forms. In the instance
that an institution does not have a student's TIN in its records and
the student does not provide the TIN in response to a solicitation
described in Sec. 1.6050S-1(e), the institution must file and furnish
the Form 1098-T, leaving the space for the TIN blank.
5. TPEA Amendments to Sections 25A, 222 and 6724
Section 804(a) of TPEA amended section 25A by adding a new
subparagraph (g)(8), which provides that, for taxable years beginning
after June 29, 2015, except as provided by the Secretary, a taxpayer
may not claim an education tax credit under section 25A unless the
taxpayer receives a statement furnished by an eligible educational
institution that contains all of the information required in section
6050S(d)(2) (that is, the recipient's copy of the Form 1098-T). Section
804(b) similarly amends section 222(d) to provide that, for taxable
years beginning after June 29, 2015, except as provided by the
Secretary, a taxpayer may not claim a deduction for qualified tuition
and related expenses unless the taxpayer receives the recipient's copy
of the Form 1098-T. For purposes of both the education tax credit and
the deduction, a taxpayer who claims a student as a dependent will be
treated as receiving the statement if the student receives the
statement.
Section 805 of TPEA amends section 6724 by adding a new subsection
(f), which provides that no penalty will be imposed under section 6721
or 6722 against an eligible educational institution solely by reason of
failing to include the individual's TIN on a Form 1098-T or related
statement if the institution contemporaneously certifies under
penalties of perjury in the form and manner prescribed by the Secretary
that it has complied with the standards promulgated by the Secretary
for obtaining the individual's TIN. The provision applies to returns
required to be made and statements required to be furnished after
December 31, 2015.
6. PATH Amendments to Sections 25A, 222 and 6050S
a. AOTC Permanent and Section 222 Extended
Section 102(a) of PATH amends section 25A(i) to make the AOTC
permanent. Section 153(a) of PATH amends section 222(e) to
retroactively extend the deduction for qualified tuition and related
expenses for taxable years beginning after December 31, 2014, and
ending on or before December 31, 2016.
b. Amendments to Section 25A
Section 206(a)(2) of PATH amends section 25A(i) to provide that the
AOTC is not allowed if the student's TIN and the TIN of the taxpayer
claiming the credit is issued after the due date for filing the return
for the taxable year. Pursuant to section 206(b)(1), this amendment is
effective for returns (including an amended return) filed after
December 18, 2015. Section 206(b)(2) of PATH provides, however, that
this amendment does not apply to any return (other than an amendment to
any return) for a taxable year that includes the date of enactment of
PATH (December 18, 2015) if the return is filed on or before the due
date for such return.
Section 211(a) of PATH amends section 25A(i) to provide that the
AOTC is not allowed if the return does not include the employer
identification number (EIN) of any institution to which the qualified
tuition and related expenses were paid with respect to the student.
This amendment is effective for taxable years beginning after December
31, 2015.
c. Amendments to Section 6050S
Section 211(b) of PATH amends section 6050S(b)(2) to require
eligible educational institutions and insurers to report their EIN on
the return and statement. This amendment is effective for expenses paid
after December 31, 2015, for education furnished in academic periods
beginning after such date.
Section 212 of PATH amends section 6050S(b)(2)(B)(i) to eliminate
the option for eligible educational institutions to report aggregate
qualified tuition and related expenses billed for the calendar year.
Accordingly, for expenses paid after December 31, 2015, for education
furnished in academic periods beginning after such date, eligible
educational institutions are required to report aggregate payments of
qualified tuition and related expenses received during the calendar
year.
Explanation of Provisions
1. Changes To Implement TPEA and PATH
a. Changes to Section 25A and Section 222
Both TPEA and PATH add new requirements for claiming education tax
benefits. Under TPEA, the student is required to receive a Form 1098-T
in order to claim the LLC or the AOTC or claim the deduction under
section 222. Under PATH, the ability to claim the AOTC is further
limited. First, the
[[Page 50660]]
taxpayer can claim the AOTC only if the taxpayer includes, on his/her
return for which the credit is claimed, the EIN of any educational
institution to which qualified tuition and related expenses are paid.
Second, the taxpayer can claim the AOTC only if the TIN of the student
and the TIN of the taxpayer, on the return for which the credit is
claimed, are issued on or before the due date of the original return.
i. Form 1098-T Requirement Under TPEA
Form 1098-T assists taxpayers in determining whether they are
eligible to claim education tax credits under section 25A or the
deduction for qualified tuition and related expenses under section 222.
However, before TPEA, there was no requirement that the taxpayer (or
the taxpayer's dependent if the taxpayer's dependent is the student)
receive a Form 1098-T to claim these tax benefits.
Section 804 of TPEA changes the requirements for a taxpayer to
claim education tax benefits under section 25A or section 222. For
qualified tuition and related expenses paid during taxable years
beginning after June 29, 2015, TPEA provides that, unless the Secretary
provides otherwise, a taxpayer must receive a Form 1098-T to claim
either a credit under section 25A or a deduction under section 222.
The proposed regulations reflect these changes. Specifically, the
proposed regulations add a new paragraph (f) to Sec. 1.25A-1 to
require that for taxable years beginning after June 29, 2015, unless an
exception applies, no education tax credit is allowed unless the
taxpayer (or the taxpayer's dependent) receives a Form 1098-T. However,
the proposed regulations explain that the amount reported on the Form
1098-T may not reflect the total amount of qualified tuition and
related expenses that the taxpayer has paid during the taxable year
because certain expenses are not required to be reported on the Form
1098-T. For example, under Sec. 1.25A-2(d)(3), expenses for course
materials paid to a vendor other than an eligible educational
institution are eligible for the AOTC. However, because these expenses
are not paid to an eligible educational institution, these expenses are
not required to be reported on a Form 1098-T. Accordingly, a taxpayer
who meets the requirements in Sec. 1.25A-1(f) regarding the Form 1098-
T requirement to claim the credit and who can substantiate payment of
qualified tuition and related expenses may include these unreported
expenses in the computation of the amount of the education tax credit
allowable for the taxable year even though the expenses are not
reported on a Form 1098-T.
Proposed Sec. 1.25A-1(f)(2)(i) provides an exception to the Form
1098-T requirement in Sec. 1.25A-1(f)(1) if the student has not
received a Form 1098-T by the later of (a) January 31 of the taxable
year following the taxable year to which the education credit relates
or (b) the date the federal income tax return claiming the education
tax credit is filed. This exception only applies if the taxpayer or
taxpayer's dependent (i) has requested, in the manner prescribed in
publications, forms and instructions, or published guidance, the
eligible educational institution to furnish the Form 1098-T after
January 31 of the year following the taxable year to which the
education tax credit relates but on or before the date the return is
filed claiming the education tax credit, and (ii) has cooperated fully
with the eligible educational institution's efforts to obtain
information necessary to furnish the statement. Proposed Sec. 1.25A-
1(f)(2)(ii) provides that the receipt of a Form 1098-T is not required
if the reporting rules under section 6050S and related regulations
provide that the eligible educational institution is exempt from
providing a Form 1098-T to the student (for example, non-credit
courses). Proposed Sec. 1.25A-1(f)(2)(iii) also provides that the IRS
may provide additional exceptions in published guidance of general
applicability, see Sec. 601.601(d)(2). The proposed regulations under
Sec. 1.25A-1(f) apply to education tax credits claimed for taxable
years beginning after June 29, 2015.
Until the proposed regulations under Sec. Sec. 1.25A-1(f) and
1.6050S-1(a) are published in the Federal Register as final
regulations, a taxpayer (or the taxpayer's dependent) (other than a
non-resident alien) who does not receive a Form 1098-T because its
institution is exempt from furnishing a Form 1098-T under current Sec.
1.6050S-1(a)(2) may claim an education tax credit under section 25A(a)
if the taxpayer (1) is otherwise qualified, (2) can demonstrate that
the taxpayer (or the taxpayer's dependent) was enrolled at an eligible
educational institution, and (3) can substantiate the payment of
qualified tuition and related expenses. Section 804(b) of TPEA also
amends section 222 to require a Form 1098-T to claim a deduction for
qualified tuition and related expenses for taxable years beginning
after June 29, 2015. Rules similar to those in proposed Sec. 1.25A-
1(f), including the exceptions, apply for purposes of section 222.
ii. Identification Requirements for AOTC Under PATH
Section 206(a)(2) of PATH amends section 25A(i) to provide that the
AOTC is not allowed if the student's TIN or the TIN of the taxpayer
claiming the credit is issued after the due date for filing the return
for the taxable year. This amendment is generally effective for any
return or amended return filed after December 18, 2015. The proposed
regulations reflect this change. Specifically, the proposed regulations
add new Sec. 1.25A-1(e)(2)(i), which provides that, for any federal
income tax return (including an amended return) filed after December
18, 2015, no AOTC is allowed unless the student's TIN and the
taxpayer's TIN are issued on or before the due date (including an
extension, if timely requested) for filing the return for that taxable
year.
Section 211 of PATH amends section 25A(i) to provide that the AOTC
is not allowed unless the taxpayer's return includes the EIN of any
institution to which the qualified tuition and related expenses were
paid with respect to the student. The proposed regulations reflect this
change by adding new Sec. 1.25A-1(e)(2)(ii).
b. Changes to Section 6050S Reporting To Conform With TPEA 1098-T
Requirement
i. Exceptions To Reporting Requirement and Clarifying Changes
Currently, the regulations under section 6050S include exceptions
to reporting. For instance, under Sec. 1.6050S-1(a)(2)(i),
institutions are not required to file a Form 1098-T with the IRS or
provide a Form 1098-T to a nonresident alien, unless the individual
requests a Form 1098-T. Under Sec. 1.6050S-1(a)(2)(ii), institutions
are not required to report information with respect to courses for
which no academic credit is awarded. In addition, reporting is not
required with respect to individuals whose qualified tuition and
related expenses are paid entirely with scholarships under Sec.
1.6050S-1(a)(2)(iii) or individuals whose qualified tuition and related
expenses are paid under a formal billing arrangement under Sec.
1.6050S-1(a)(2)(iv).
The exceptions in Sec. Sec. 1.6050S-1(a)(2)(i), (iii), and (iv) to
reporting on Form 1098-T are inconsistent with the TPEA, which
generally requires a student to receive a Form 1098-T from the
educational institution to claim a section 25A education credit. With
these exceptions, a significant number of taxpayers claiming the credit
will not have a Form 1098-T, which would frustrate the explicit purpose
of TPEA.
[[Page 50661]]
Therefore, the proposed regulations remove these exceptions.
Removal of the exceptions in Sec. Sec. 1.6050S-1(a)(2)(i), (iii),
and (iv) also assists students. Students to whom these exceptions apply
are deprived of important information that they need to determine their
eligibility for education tax credits. The Form 1098-T provides
students with the amount of tuition paid (or billed for calendar year
2016 only), the amount of scholarships and grants that the institution
administered and processed, and an indication of whether the student
was enrolled at least a half time for an academic period. Students who
do not receive a Form 1098-T cannot use the information that would be
provided on the form to assist them in determining the proper amount of
education credits they may claim. Further, removal of these exceptions
will improve the IRS's ability to use the Form 1098-T to verify whether
taxpayers should be allowed the education tax benefits that are
claimed. In addition, removal of these exceptions would improve the
IRS's ability to determine whether the institutions are complying with
their reporting obligations.
The proposed regulations would not remove the exception to
reporting under Sec. 1.6050S-1(a)(2)(ii) for courses for which no
academic credit is awarded. Treasury and the IRS understand that in
many cases fees for these courses are charged outside of the financial
systems used for students who are taking courses for credit. In
addition, given that non-credit courses would not be eligible for the
AOTC (or Hope Credit) and would only be eligible for the LLC if the
student is taking the course to acquire or improve job skills,
reporting expenses paid for non-credit courses could cause confusion
and unintended non-compliance.
Treasury and the IRS believe that students benefit from receipt of
the Form 1098-T because the information on the form assists the student
in determining eligibility for education tax benefits that make higher
education more affordable. Reporting that does not provide useful
information to students and the IRS, however, unduly burdens
institutions and the IRS and could confuse students about whether they
are eligible to claim education tax benefits. Therefore, Treasury and
the IRS are asking for comments regarding exceptions to the reporting
under section 6050S. Specifically, comments are requested regarding the
exception to reporting for students who are nonresident aliens,
including how an institution determines that a student is a nonresident
alien and experience administering the existing exception. Comments are
also requested regarding whether the exception for noncredit courses
should be retained, and if so, whether there should be any changes to
the exception.
The proposed regulations also revise the information that
institutions are required to report on the Form 1098-T in an effort to
provide more precise information for students to use when determining
eligibility for and the amount of an education tax credit and for the
IRS to use to verify compliance with the requirements for claiming the
education tax credits. For instance, the current regulations under
Sec. 1.6050S-1(b)(2)(ii)(D) require that the Form 1098-T include an
indication of whether amounts reported relate to an academic period
that begins in the first three months of the next calendar year
pursuant to the prepayment rule in Sec. 1.25A-5(e)(2). The proposed
regulations revise this section to include a requirement that the
amount paid that relates to an academic period that begins in the first
three months of the next calendar year be specifically stated on the
Form 1098-T. This will assist the IRS in identifying credits claimed in
two years for the same qualified tuition and related expenses.
In addition, the proposed regulations add a new paragraph (I) to
Sec. 1.6050S-1(b)(2)(ii) to require the institution to indicate the
number of months that a student was a full-time student during the
calendar year. The proposed regulations also add to that paragraph a
definition of what constitutes a month. This information will assist
the IRS in determining whether a parent properly claimed the student as
a dependent and, therefore, properly claimed the credit for the
student's qualified tuition and related expenses. See Sec. 1.25A-1(f)
for rules relating to claiming the credit in the case of a dependent.
The proposed regulations clarify Sec. 1.6050S-1(b)(2)(v) regarding
the rules for determining the amount of payments received for qualified
tuition and related expenses. This clarification is intended to provide
a uniform rule for all institutions to determine whether a payment
received by an institution should be reported on a Form 1098-T as
qualified tuition and related expenses in the current year. Under the
proposed rule, payments received during a calendar year are treated
first as payments of qualified tuition and related expenses up to the
total amount billed by the institution for qualified tuition and
related expenses for enrollment during the calendar year and then as
payments of expenses other than qualified tuition and related expenses
for enrollment during the calendar year. A similar rule applies in the
case of payments received during the calendar year with respect to
enrollment in an academic period beginning during the first three
months of the next calendar year. In that case, the payments received
by the institution with respect to the amount billed for enrollment in
an academic period beginning during the first three months of the next
calendar year are treated as payments of qualified tuition and related
expenses for the calendar year in which the payments are received.
Examples have been added to Sec. 1.6050S-1(b)(2)(vii) to illustrate
these rules. Treasury and the IRS request comments regarding these
rules, including alternative approaches and recommendations for
addressing other issues that should be covered by these rules.
The proposed regulations also revise Sec. 1.6050S-1(c)(1)(iii)
regarding the instructions accompanying the Form 1098-T that the
institution must furnish to students. The proposed regulations add a
new paragraph (D) to Sec. 1.6050S-1(c)(1)(iii) to require institutions
to include a paragraph in the instructions informing students that they
may be able to optimize their federal tax benefits by taking a portion
of a scholarship or grant into income. This new paragraph will alert
students about their ability to optimize their federal education tax
benefits by allocating all or a portion of their scholarship or grant
to pay the student's actual living expenses (if permitted by the terms
of the scholarship or grant) by including such amounts in income on the
student's tax return if the student is required to file a return. By
including such amounts in income, the scholarship or grant is no longer
tax free, and the student is not required to reduce qualified tuition
and related expenses by the amount paid with the now taxable
scholarship or grant. See section 25A(g)(2) and Sec. 1.25A-5(c)(3) for
rules regarding allocation of scholarships and grants between qualified
tuition and related expenses and other expenses. Minor revisions have
also been made to the other paragraphs required to be included in
instructions, including addition of the name of the form (Form 1098-T)
on which reporting occurs and specific identification of Publication
970, ``Tax Benefits for Education,'' as a resource for taxpayers.
The proposed regulations also provide a definition of
``administered and processed'' for purposes of determining which
scholarships and grants an institution is required to report on the
Form 1098-T. The current regulations
[[Page 50662]]
do not have a definition of this term, and the lack of a definition has
resulted in uncertainty and inconsistent reporting. The proposed
regulations resolve this by adding a definition of ``administered and
processed'' to Sec. 1.6050S-1(e)(1)(i). Under this definition, a
scholarship or grant is administered and processed by an institution if
the institution receives payment of an amount (whether by cash, check,
or other means of payment) that the institution knows or reasonably
should know, is a scholarship or grant, regardless of whether the
institution is named as the payee or a co-payee of the amount and
regardless of whether, in the case of a payment other than in cash, the
student endorses the check or other means of payment for the benefit of
the institution. Pell Grants are provided as an example of a
scholarship or grant that is treated as administered and processed by
an institution.
ii. PATH Eliminates Option To Report Amount Billed
These proposed regulations also implement the amendment to section
6050S(b)(2)(B)(i) under PATH, which eliminates the option for eligible
educational institutions to report the aggregate amount billed for
qualified tuition and related expenses for expenses paid after December
31, 2015, for education furnished in academic periods beginning after
such date. Eligible educational institutions have informed the IRS that
they cannot implement the necessary changes in technology to enable
reporting of aggregate payments of qualified tuition and expenses for
the first year in which the statutory amendment applies, calendar year
2016. Therefore, in Announcement 2016-17, I.R.B. 2016-20, the IRS
stated that it will not impose penalties under section 6721 or 6722
against an eligible educational institution required to file 2016 Forms
1098-T solely because the institution reports the aggregate amount
billed for qualified tuition and expenses rather than the aggregate
payments of qualified tuition and related expenses received. Thus, for
calendar year 2016, no penalties will be imposed if an educational
institution fails to implement the PATH's amendment to section
6050S(b)(2)(B)(i) and continues to report the amount billed.
The proposed regulations reflect the PATH amendment by eliminating
the option to report the amount billed. These regulations are proposed
to be effective on publication of final regulations in the Federal
Register. In the interim, the limited penalty relief in Announcement
2016-17 will apply to allow educational institutions to report the
amount billed for calendar year 2016.
iii. No Change Required To Implement EIN Reporting Requirement
Current regulations under Sec. 1.6050S-1(b)(2)(ii)(A) require that
the eligible educational institution report its name, address, and TIN
on the Form 1098-T. Accordingly, the amendment to section 6050S(b)(2)
by section 211(b) of PATH requiring eligible educational institution
and insurers to report their EIN does not require a change to the
regulations.
c. Changes To Implement New Section 6724(f)
Section 1.6050S-1(f)(4) of the proposed regulations reflects the
enactment of section 6724(f) by section 805 of TPEA. Under section
6724(f), the IRS may not impose information reporting penalties under
section 6721 and section 6722 against an eligible educational
institution for failure to include a correct TIN on the Form 1098-T if
the institution certifies compliance with IRS standards for soliciting
TINs. Relief under section 6724(f) applies only to eligible educational
institutions and does not apply to insurers required to file Forms
1098-T under section 6050S(a)(2).
The IRS generally sends penalty notices to taxpayers who fail to
file information returns when required or who file incorrect
information returns. Filers seeking penalty relief based on reasonable
cause must respond to the penalty notice with a statement explaining
how the filer qualifies for relief. Under section 6724(f), however, no
penalty under section 6721 or 6722 is imposed in the first instance if
the educational institution contemporaneously makes a true and accurate
certification under penalties of perjury in such form and manner as may
be prescribed by the Secretary that it complied with the standards
promulgated by the Secretary to obtain the student's TIN. Section
6724(f) is effective for returns required to be filed and statements
required to be furnished after December 31, 2015.
Standards for obtaining the student's TIN are set forth in Sec.
1.6050S-1(e)(3)(ii) and (iii) of the existing regulations. These
regulations are proposed to be redesignated as Sec. 1.6050S-
1(f)(3)(ii) and (iii). Under these standards, the institution does not
have to solicit a student's TIN, but may use the TIN that it has in its
records. If the institution does not have the student's correct TIN in
its records, then it must solicit the TIN in the time and manner
described in redesignated Sec. 1.6050S-1(f). To implement section
6724(f), Sec. 1.6050S-1(f)(4) of the proposed regulations has been
added to provide that for returns required to be filed and statements
required to be furnished after December 31, 2015, the IRS will not
impose a penalty against an institution under section 6721 or 6722 for
failure to include the student's correct TIN on the return or statement
if the institution certifies to the IRS under penalties of perjury in
the form and manner prescribed by the Secretary in publications, forms
and instructions, or other published guidance at the time of filing of
the return that the institution complied with the requirements in Sec.
1.6050S-1(f)(3)(ii) and (iii). However, the proposed regulations make
clear that the certification will not protect the institution from
penalty if the IRS determines subsequently that the requirements of
Sec. 1.6050S-1(f)(3)(ii) and (iii) were not satisfied or if the
failure to file correct information returns relates to something other
than a failure to provide the correct TIN for the student. In addition,
a cross-reference is proposed to be added to the regulations under
section 6724 to alert taxpayers that the rules for penalty relief for
eligible educational institutions with respect to reporting obligations
under section 6050S are contained in Sec. 1.6050S-1(f).
d. Penalty Relief Under Section 6724(f) for Calendar Year 2015 Forms
1098-T
Section 6724(f) requires the IRS to develop procedures enabling an
eligible educational institution to avoid imposition of the section
6721 and section 6722 penalty for failure to include a student's
correct TIN on the Form 1098-T by certifying under penalties of perjury
at the time of filing or furnishing the form that the institution
complied with the IRS standards for obtaining a student's TIN. In
Announcement 2016-03, I.R.B. 2016-4, the IRS stated that it will not
impose penalties under section 6721 or 6722 against an eligible
educational institution required to file Forms 1098-T for calendar year
2015 solely because the student's TIN is missing or incorrect.
2. Other Changes to Regulations Under Section 25A and Section 6050S
The proposed regulations also update and clarify the regulations
under section 25A. The proposed regulations update Sec. 1.25A-2(d) to
reflect the changes made by ARRA allowing students to claim the AOTC
for expenses paid for course materials (such as books, supplies, and
equipment) required for enrollment or attendance, whether or not the
course
[[Page 50663]]
materials are purchased from the institution. Prior to ARRA, the term
``qualified tuition and related expenses'' included tuition and fees,
but did not include course materials, such as books, unless the cost of
these materials was a fee that was required to be paid to the
institution as a condition of attendance or enrollment. See section
25A(f)(1) and Sec. 1.25A-2(d)(2)(ii).
When Congress enacted the AOTC in 2009, it expanded the definition
of qualified tuition and related expenses for purposes of the AOTC to
include expenses paid for course materials. See H.R. Conf. Rep. 111-16,
111th Cong., 1st Sess. p. 525 (February 29, 2009). Course materials are
qualified expenses only for the AOTC and not for the LLC. See Tax
Increase Prevention Act of 2014 (Pub. L. 113-295, 128 Stat. 4010). The
proposed regulations update Sec. 1.25A-2(d) to provide that, for
purposes of claiming the AOTC for tax years beginning after December
31, 2008, the definition of qualified tuition and related expenses
includes not only tuition and fees required for enrollment or
attendance at an eligible educational institution, but also expenses
paid for course materials needed for enrollment or attendance at an
eligible educational institution. Accordingly, after ARRA, for purposes
of claiming the Hope Scholarship Credit and LLC, qualified tuition and
related expenses continue to exclude the cost of books, supplies, and
equipment if they can be purchased from any vendor. However, for
purposes of claiming the AOTC, qualified tuition and related expenses
includes the cost of course materials such as books, supplies and
equipment that is needed for meaningful attendance or enrollment in a
course of study, whether or not the materials are purchased from the
institution. The proposed regulations provide an example that
illustrates that for purposes of the AOTC qualified tuition and related
expenses includes the cost of course material, including books, even if
a taxpayer purchases these materials from a vendor other than the
institution.
In addition, the proposed regulations add a new section under
section 6050S to eliminate uncertainty in the reporting requirements
that may result from these proposed amendments to Sec. 1.25A-2(d).
Under proposed Sec. 1.6050S-1(a)(2)(i), an institution is not required
to report the amount paid or billed for books, supplies, and equipment
unless the amount is a fee that must be paid to the eligible
educational institution as a condition of enrollment or attendance
under Sec. 1.25A-2(d)(2)(ii).
The proposed regulations also clarify the example in Sec. 1.25A-
5(e)(2)(ii) regarding the prepayment rule. Under Sec. 1.25A-
5(e)(2)(i), if qualified tuition and related expenses are paid during
one taxable year for an academic period that begins during the first
three months of the taxpayer's next taxable year (that is, in January,
February, or March of the next taxable year for calendar year
taxpayers), an education tax credit is allowed for the qualified
tuition and related expenses only in the taxable year in which the
taxpayer pays the expenses. The Treasury Department and the IRS are
aware that there is some uncertainty regarding the application of the
prepayment rule to amounts paid in the prior year and the current year
for an academic period beginning during the current year. The proposed
regulations clarify the proper treatment in this situation by expanding
the Example in Sec. 1.25A-5(e)(2)(ii) to illustrate that a student who
pays part of a semester's tuition in Year 1, and the remainder in Year
2, may claim a credit for Year 1, for the portion of the tuition paid
in December Year 1 and a separate credit for Year 2 for the portion of
the tuition paid in February Year 2.
The proposed regulations also clarify the rules under Sec. 1.25A-
5(f) regarding a refund of qualified tuition and related expenses
received from an eligible educational institution. The current
regulations do not address the situation where the taxpayer receives a
refund in the current taxable year of qualified tuition and related
expenses for an academic period beginning in the current taxable year
for which payments were made during the prior taxable year under the
prepayment rule and payments were made during the current taxable year.
To address this situation, the proposed regulations provide that the
taxpayer may allocate the refund in any proportion to reduce qualified
tuition and related expenses paid in either taxable year, except that
the amount of the refund allocated to a taxable year may not exceed the
qualified tuition and related expenses paid in the taxable year for the
academic period to which the refund relates. The sum of the amounts
allocated to each taxable year cannot exceed the amount of the refund.
The proposed regulations add an example to illustrate this rule.
Proposed Effective and Applicability Dates
These regulations are proposed to take effect when published in the
Federal Register as final regulations.
Statement of Availability of IRS Documents
IRS published guidance cited in this preamble is published in the
Internal Revenue Bulletin and is available from the Superintendent of
Documents, U.S. Government Publishing Office, Washington, DC 20402, or
by visiting the IRS Web site at http://www.irs.gov.
Special Analyses
Certain IRS regulations, including this one, are exempt from the
requirements of Executive Order 12866, as supplemented and reaffirmed
by Executive Order 13563. Therefore, a regulatory impact assessment is
not required. It has also been determined that section 553(b) of the
Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to
these regulations.
It is hereby certified that the collection of information in this
notice of proposed rulemaking will not have a significant economic
impact on a substantial number of small entities within the meaning of
section 601(6) of the Regulatory Flexibility Act (5 U.S.C. chapter 6).
The type of small entities to which the regulations may apply are small
eligible educational institutions (generally colleges and universities
eligible to receive federal financial aid for education under the
Higher Education Act of 1965). This certification is based on the fact
that few, if any, new eligible educational institutions will be subject
to reporting and the changes made by this notice of proposed rulemaking
require little, if any, additional time for compliance by institutions
currently subject to reporting requirements. The collection of
information in this regulation implements the statute and should not
require eligible educational institutions to collect information that
is not already maintained by the institution. Eligible educational
institutions have been subject to information reporting under section
6050S since 1998, and the obligations under the existing final
regulations that are the foundation for these proposed regulations are
already in place. Any additional information returns required to be
filed under this notice of proposed rulemaking should result in few, if
any, new eligible educational institutions being subject to reporting
that were not already required to file Forms 1098-T. Only eligible
educational institutions, not all educational institutions, are subject
to these reporting rules. For this purpose, an eligible educational
institution means an institution described in section 481 of the Higher
Education Act of 1965 (20 U.S.C. 1088) as in effect on the date of
enactment (August 5, 1997), and which is eligible to participate in a
program under title IV of such act (generally colleges and universities
whose students are eligible to receive
[[Page 50664]]
federal financial aid for higher education). See sections 25A(f)(2) and
6050S(e). Further, this notice of proposed rulemaking contains
modifications that should simplify compliance and thereby reduce the
time needed to comply with the information reporting obligations under
section 6050S. Therefore, a Regulatory Flexibility Analysis under the
Regulatory Flexibility Act is not required. Pursuant to section 7805(f)
of the Code, this proposed regulation has been submitted to the Chief
Counsel for Advocacy of the Small Business Administration for comment
on its impact on small businesses. The Internal Revenue Service invites
the public to comment on this certification.
Comments and Requests for a Public Hearing
Before these proposed regulations are adopted as final regulations,
consideration will be given to any comments that are submitted timely
to the IRS as prescribed in this preamble under the DATES and ADDRESSES
headings. The Treasury Department and the IRS request comments on all
aspects of the proposed rules. All comments will be available at
www.regulations.gov or upon request.
A public hearing has been scheduled for November 30, 2016 at 10:00
a.m. in the IRS Auditorium, Internal Revenue Service Building, 1111
Constitution Avenue NW., Washington, DC 20224. Due to building security
procedures, visitors must enter at the Constitution Avenue entrance. In
addition, all visitors must present photo identification to enter the
building. Because of access restrictions, visitors will not be admitted
beyond the immediate entrance area more than 30 minutes before the
hearing starts. For information about having your name placed onto the
building access list to attend the hearing, see the FOR FURTHER
INFORMATION CONTACT section of this preamble.
The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who
wish to present oral comments at the hearing must submit written or
electronic comments by October 31, 2016 and an outline of the topics to
be discussed and the time to be devoted to each topic (a signed
original and eight (8) copies) by October 31, 2016. A period of 10
minutes will be allotted to each person for making comments. An agenda
showing the scheduling of speakers will be prepared after the deadline
for receiving outlines has passed. Copies of the agenda will be
available free of charge at the hearing.
Drafting Information
The principal author of these proposed regulations is Gerald
Semasek of the Office of Associate Chief Counsel (Procedure and
Administration) for the proposed regulations under section 6050S and
section 6724 and Sheldon Iskow of the Office of Associate Chief Counsel
(Income Tax and Accounting) for the proposed regulations under section
25A.
List of Subjects
26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
26 CFR Part 301
Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income
taxes, Penalties, Reporting and recordkeeping requirements.
Proposed Amendments to the Regulations
Accordingly, 26 CFR parts 1 and 301 are proposed to be amended as
follows:
PART 1--INCOME TAXES
0
Paragraph 1. The authority citation for part 1 continues to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *
0
Par. 2. Section 1.25A-0 is amended by:
0
1. Revising the entry for Sec. 1.25A-1(e)(1) introductory text.
0
2. Adding entries for Sec. 1.25A-1(e)(1), (2), and (3).
0
3. Revising the entries for Sec. 1.25A-1(f) introductory text and
(f)(2).
0
4. Adding entries for Sec. 1.25A-1(f)(3) and (4).
0
5. Revising the entries for Sec. 1.25A-1(g) and (h).
0
6. Adding an entry for Sec. 1.25A-1(i).
0
7. Revising the entries for Sec. Sec. 1.25A-2(d)(3), (4), (5), and
(6).
0
8. Adding entries for Sec. Sec. 1.25A-2(d)(7) and (e).
0
9. Revising the entry for Sec. 1.25A-2(f)(6).
0
10. Adding entries for Sec. Sec. 1.25A-5(f)(7) and (g).
The revisions and additions read as follows:
Sec. 1.25A-0 Table of Contents.
* * * * *
Sec. 1.25A-1 Calculation of Education Tax Credit and General
Eligibility Requirements
* * * * *
(e) Identification requirements.
(1) In general.
(2) Additional identification requirements for the American
Opportunity Tax Credit.
(i) TIN must be issued on or before the due date of the original
return.
(ii) Return must include the eligible educational institution's
employer identification number (EIN).
(3) Effective/applicability dates.
(f) Statement requirement.
* * * * *
(2) Exceptions.
(3) Transition rule.
(4) Effective/applicability date.
(g) Claiming the credit in the case of a dependent.
(h) Married taxpayers.
(i) Nonresident alien taxpayers and dependents.
Sec. 1.25A-2 Definitions
* * * * *
(d) * * *
(3) Course materials for the American Opportunity Tax Credit for
taxable years beginning after December 31, 2008.
(4) Personal expenses.
(5) Treatment of a comprehensive or bundled fee.
(6) Hobby courses.
(7) Examples.
(e) Effective/applicability date.
* * * * *
Sec. 1.25A-5 Special Rules Relating to Characterization and Timing of
Payments
* * * * *
(f) * * *
(6) Treatment of refunds where qualified tuition and related
expenses paid in two taxable years for the same academic period.
(7) Examples.
(g) Effective/applicability date.
0
Par. 3. Section 1.25A-1 is amended by:
0
1. Revising paragraph (e).
0
2. Redesignating paragraphs (f), (g), and (h) as paragraphs (g), (h),
and (i), respectively.
0
3. Adding a new paragraph (f).
0
4. In newly redesignated paragraph (g)(2), removing the language
``(f)'' and adding ``(g)'' in its place.
The revisions and additions read as follows:
Sec. 1.25A-1 Calculation of education tax credit and general
eligibility requirements.
* * * * *
(e) Identification requirements--(1) In general. No education tax
credit is allowed unless a taxpayer includes on the federal income tax
return claiming the credit the name and the taxpayer identification
number (TIN) of the student for whom the credit is claimed. For rules
relating to assessment for an omission of a correct taxpayer
identification number, see section 6213(b) and (g)(2)(J).
(2) Additional identification requirements for the American
[[Page 50665]]
Opportunity Tax Credit (AOTC)--(i) TIN must be issued on or before the
due date of the original return. For any federal income tax return
(including an amended return) filed after December 18, 2015, no AOTC is
allowed unless the TIN of the student and the TIN for the taxpayer
claiming the credit are issued on or before the due date, or the
extended due date if the extension request is timely filed, for filing
the return for the taxable year for which the credit is claimed.
(ii) Return must include the eligible educational institution's
employer identification number (EIN). For taxable years beginning after
December 31, 2015, no AOTC is allowed unless the taxpayer includes the
EIN of each eligible educational institution to which qualified tuition
and related expenses were paid.
(3) Applicability dates. (i) Except as provided in paragraphs
(e)(3)(ii) and (iii) of this section, this paragraph (e) applies on or
after December 26, 2002.
(ii) Paragraph (e)(2)(i) of this section applies to federal income
tax returns (including amended returns) filed after December 18, 2015.
(iii) Paragraph (e)(2)(ii) of this section applies to taxable years
beginning after December 31, 2015.
(f) Statement requirement--(1) In general. Except as provided in
paragraph (f)(2) of this section, for taxable years beginning after
June 29, 2015, no education tax credit is allowed unless the taxpayer
(or the taxpayer's dependent) receives a statement furnished by an
eligible educational institution, as defined in Sec. 1.25A-2(b),
containing all of the information required under Sec. 1.6050S-1(b)(2).
The amount of qualified tuition and related expenses reported on the
statement furnished by an eligible educational institution may not
reflect the total amount of the qualified tuition and related expenses
paid during the taxable year for which a taxpayer may claim an
education tax credit. A taxpayer that substantiates payment of
qualified tuition and related expenses that are not reported on Form
1098-T, ``Tuition Statement'', may include those expenses in computing
the amount of the education tax credit allowable for the taxable year.
(2) Exceptions. Paragraph (f)(1) of this section does not apply--
(i) If the taxpayer or the taxpayer's dependent:
(A) Has not received such a statement from an eligible educational
institution required to furnish such statement under section 6050S and
the regulations thereunder as of January 31 of the year following the
taxable year to which the education tax credit relates or the date the
return is filed claiming the education tax credit, whichever is later;
(B) Has requested, in the manner prescribed in forms, instructions,
or in other published guidance, the eligible educational institution to
furnish the Form 1098-T after January 31 of the year following the
taxable year to which the education tax credit relates but on or before
the date the return is filed claiming the education tax credit; and
(C) Has cooperated fully with the eligible educational
institution's efforts to obtain information necessary to furnish the
statement;
(ii) If the eligible educational institution is not required to
furnish a statement to the student under section 6050S and the
regulations thereunder; or
(iii) As otherwise provided in published guidance of general
applicability, see Sec. 601.601(d)(2) of this chapter.
(3) Applicability date. Paragraph (f) of this section applies to
credits claimed for taxable years beginning after June 29, 2015.
* * * * *
0
Par. 4. Section 1.25A-2 is amended by:
0
1. Revising paragraphs (d)(2)(i) and (ii).
0
2. In paragraph (d)(2)(iii), removing the language ``(d)(3)'' and
adding ``(d)(4)'' in its place.
0
3. Redesignating paragraphs (d)(3), (4), (5), and (6) as paragraphs
(d)(4), (5), (6), and (7), respectively.
0
4. Adding a new paragraph (d)(3).
0
5. In newly redesignated paragraph (d)(5), by removing the language
``(d)(3)'' and adding ``(d)(4)'' in its place.
0
6. In newly redesignated paragraph (d)(7), revising Example 2,
redesignating Examples 3, 4, 5, and 6, as Examples 4, 5, 6, and 7, and
adding a new Example 3.
0
7. Adding paragraph (e).
The revisions and additions read as follows:
Sec. 1.25A-2 Definitions.
* * * * *
(d) * * *
(2) Required fees--(i) In general. Except as provided in paragraphs
(d)(3) and (4) of this section, the test for determining whether any
fee is a qualified tuition and related expense is whether the fee is
required to be paid to the eligible educational institution as a
condition of the student's enrollment or attendance at the institution.
(ii) Books, supplies, and equipment. For taxable years beginning
before January 1, 2009, for purposes of the Hope Scholarship Credit,
and for taxable years beginning after December 31, 1997, for purposes
of the Lifetime Learning Credit, qualified tuition and related expenses
include fees for books, supplies, and equipment used in a course of
study only if the fees must be paid to the eligible educational
institution for the enrollment or attendance of the student at the
institution. For taxable years beginning after December 31, 2008, see
paragraph (d)(3) of this section for rules relating to books, supplies
and equipment for purposes of the American Opportunity Tax Credit.
* * * * *
(3) Course materials for the American Opportunity Tax Credit for
taxable years beginning after December 31, 2008. For taxable years
beginning after December 31, 2008, the term ``qualified tuition and
related expenses'' for purposes of the American Opportunity Tax Credit
under section 25A(i) includes the amount paid for course materials
(such as books, supplies, and equipment) required for enrollment or
attendance at an eligible educational institution. For this purpose,
``required for enrollment or attendance'' means that the course
materials are needed for meaningful attendance or enrollment in a
course of study, regardless of whether the course materials are
purchased from the institution.
* * * * *
(7) * * *
Example 2. First-year students attending College W during 2008
are required to obtain books and other materials used in its
mandatory first-year curriculum. The books and other reading
materials are not required to be purchased from College W and may be
borrowed from other students or purchased from off-campus
bookstores, as well as from College W's bookstore. College W bills
students for any books and materials purchased from College W's
bookstore. The expenses paid for the first-year books and materials
purchased at College W's bookstore are not qualified tuition and
related expenses because under Sec. 1.25A-2(d)(2)(ii) the books and
materials are not required to be purchased from College W for
enrollment or attendance at the institution. In addition, expenses
paid for the first-year books and materials borrowed from other
students or purchased from vendors other than College W's bookstore
are also not qualified tuition and related expenses because under
Sec. 1.25A-2(d)(2)(ii) the books and materials are not required to
be purchased from College W for enrollment or attendance at the
institution.
Example 3. Assume the same facts as Example 2, except that the
books and materials are required for first-year students attending
College W during 2009. Because the expenses are paid with respect to
enrollment or attendance after 2008, Sec. 1.25A-1(d)(3) applies
rather than Sec. 1.25A-1(d)(2)(ii), if the taxpayer claims the
American
[[Page 50666]]
Opportunity Tax Credit under section 25A(i). Under Sec. 1.25A-
1(d)(3), expenses for books and other course materials are qualified
tuition and related expenses for purposes of the American
Opportunity Tax Credit if they are needed for meaningful attendance
in the student's course of study at College W. Accordingly, if the
taxpayer claims the American Opportunity Tax Credit for 2009, the
expenses paid for the first-year books and materials are qualified
tuition and related expenses. However, if the taxpayer claims the
Lifetime Learning Credit for 2009 under section 25A(c), Sec. 1.25A-
2(d)(2)(ii) applies rather than Sec. 1.25A-1(d)(3). Accordingly, if
the taxpayer claims the Lifetime Learning Credit, the expenses paid
for the first-year books and materials purchased at College W's
bookstore are not qualified tuition and related expenses because
under Sec. 1.25A-2(d)(2)(ii) the books and materials are not
required to be purchased from College W for enrollment or attendance
at the institution.
* * * * *
(e) Applicability date. (1) Except as provided in paragraph (e)(2)
of this section, this section applies on or after December 26, 2002.
(2) Paragraphs (d)(2)(i), (d)(2)(ii), (d)(3), and Examples 2 and 3
of paragraph (d)(7) of this section apply to qualified tuition and
related expenses paid, and education furnished in academic periods
beginning, on or after the date of publication of the Treasury decision
adopting these rules as final regulations in the Federal Register.
However, taxpayers may apply paragraphs (d)(2)(i), (d)(2)(ii), (d)(3),
and Examples 2 and 3 of paragraph (d)(7) of this section for taxable
years beginning after December 31, 2008, for which the period of
limitations on filing a claim for credit or refund under section 6511
has not expired.
0
Par. 5. Section 1.25A-5 is amended by:
0
1. In paragraph (e)(2)(ii), revising the Example.
0
2. Redesignating paragraph (f)(6) as paragraph (f)(7).
0
3. Adding a new paragraph (f)(6).
0
4. In newly redesignated paragraph (f)(7), adding Example 4.
0
5. Adding paragraph (g).
The revisions and additions read as follows:
Sec. 1.25A-5 Special rules relating to characterization and timing of
payments.
* * * * *
(e) * * *
(2) * * *
(ii) * * *
Example. In December 2016, Taxpayer A, a calendar year taxpayer
who is not a dependent of another taxpayer under section 151,
receives a bill from College Z for $5,000 for qualified tuition and
related expenses to attend College Z for the 2017 spring semester,
which begins in January 2017. This is the first semester that
Taxpayer A will attend College Z. On December 15, 2016, Taxpayer A
pays College Z $1,000 in qualified tuition and related expenses for
the 2017 spring semester. On February 15, 2017, Taxpayer A pays
College Z the remaining $4,000 due for qualified tuition and related
expenses for the 2017 spring semester. In August 2017, Taxpayer A
receives a bill from College Z for $7,000 for qualified tuition and
related expenses to attend College Z for the 2017 fall semester,
which begins in September 2017. Taxpayer A pays the entire $7,000 on
September 1, 2017. In December 2017, Taxpayer A receives a bill from
College Z for $7,000 for qualified tuition and related expenses to
attend for the 2018 spring semester. Taxpayer A pays $1,000 of the
2018 spring semester bill on December 15, 2017 and $6,000 of that
bill in February 15, 2018. Taxpayer A does not enroll in an eligible
educational institution for the 2018 fall semester or the 2019
spring semester. Taxpayer A may claim an education tax credit on
Taxpayer A's 2016 Form 1040 with respect to the $1,000 taxpayer paid
to College Z on December 15, 2016 for the 2017 spring semester. On
Taxpayer A's 2017 Form 1040, Taxpayer A may claim an education
credit with respect to the $12,000 Taxpayer A paid to College Z
during 2017 ($4,000 paid on February 15, 2017 for the 2017 spring
semester, $7,000 paid on September 1, 2017, for the 2017 fall
semester, and $1,000 paid on December 15, 2017, for the 2018 spring
semester). On Taxpayer A's 2018 Form 1040, Taxpayer A may claim an
education credit with respect to the $6,000 taxpayer paid to College
Z on February 15, 2018.
* * * * *
(f) * * *
(6) Treatment of refunds where qualified tuition and related
expenses paid in two taxable years for the same academic period. If a
taxpayer or someone other than the taxpayer--
(i) Pays qualified tuition and related expenses in one taxable year
(prior taxable year) for a student's enrollment or attendance at an
eligible educational institution during an academic period beginning in
the first three months of the taxpayer's next taxable year (subsequent
taxable year);
(ii) Pays qualified tuition and related expenses in the subsequent
taxable year for the academic period beginning in the first three
months of the subsequent taxable year; and
(iii) Receives a refund of qualified tuition and related expenses
during the subsequent taxable year for the academic period beginning in
the first three months of the subsequent taxable year (including an
amount treated as a refund under paragraph (f)(4) or (5) of this
section), the taxpayer may allocate the refund in any proportion to
qualified tuition and related expenses paid in the prior taxable year
under paragraph (f)(2) or (3) of this section or the subsequent taxable
year under paragraph (f)(1) of this section, except that the amount of
the refund allocated to a taxable year may not exceed the qualified
tuition and related expenses paid during the taxable year with respect
to the academic period beginning in the subsequent taxable year. The
sum of the amounts allocated to each taxable year cannot exceed the
amount of the refund.
(7) * * *
Example 4. In December 2016, Taxpayer D, a calendar year
taxpayer who is not a dependent of another taxpayer under section
151, receives a bill from University X for $2,000 for qualified
tuition and related expenses to attend University X as a full-time
student for the 2017 spring semester, which begins in January 2017.
In December 2016, D pays $500 of qualified tuition and related
expenses for the 2017 spring semester. In January 2017, D pays an
additional $1,500 of qualified tuition and related expenses for the
2017 spring semester. Early in the 2017 spring semester, D withdraws
from several courses and no longer qualifies as a full-time student.
As a result of D's change in status from a full-time student to a
part-time student, D receives a $750 refund from University X on
February 16, 2017. D has no other qualified tuition and related
expenses for 2017. Under paragraph (f)(6) of this section, D may
allocate all, or a portion, of the $750 refund to reduce the $1,500
of qualified tuition and related expenses paid in 2017 or D may also
allocate a portion of the $750 refund, up to $500, to reduce the
qualified tuition and related expenses paid in 2016 and allocate the
remainder of the refund to reduce the qualified tuition and related
expenses paid in 2017.
(g) Applicability date. (1) Except as provided in paragraph (g)(2)
of this section, this section applies on or after December 26, 2002.
(2) Paragraphs (e)(2)(ii), (f)(6), and Example 4 in paragraph
(f)(7) of this section apply to qualified tuition and related expenses
paid and education furnished in academic periods beginning on or after
the date of publication of the Treasury decision adopting these rules
as final regulations in the Federal Register. However, taxpayers may
apply paragraphs (e)(2)(ii), (f)(6), and Example 4 in paragraph (f)(7)
of this section in taxable years for which the limitation on filing a
claim for credit or refund under section 6511 has not expired.
0
Par. 6. Section 1.6050S-0 is amended by:
0
1. Revising the entry for Sec. 1.6050S-1(a)(2)(i).
0
2. Removing the entries for Sec. 1.6050S-1(a)(2)(iii) and (iv).
0
3. Revising the entries for Sec. 1.6050S-1(b)(2) introductory text and
(b)(2)(ii).
0
4. Revising the entry for Sec. 1.6050S-1(b)(3) introductory text.
0
5. Removing the entries for Sec. 1.6050S-1(b)(3)(iii), (iv) and (v).
[[Page 50667]]
0
6. Revising the entry for Sec. 1.6050S-1(b)(4).
0
7. Removing the entry for Sec. 1.6050S-1(b)(5).
0
8. Redesignating the entry for Sec. 1.6050S-1(b)(6) as Sec. 1.6050S-
1(b)(5).
0
9. Adding entries for Sec. 1.6050S-1(c)(1)(i), (ii) and (iii).
0
10. Removing the entry for Sec. 1.6050S-1(c)(2)(ii).
0
11. Redesignating the entry for Sec. 1.6050S-1(c)(2)(iii) as Sec.
1.6050S-1(c)(2)(ii).
0
12. Redesignating the entries for Sec. 1.6050S-1(e) and Sec. 1.6050S-
1(f) as Sec. 1.6050S-1(f) and Sec. 1.6050S-1(g), respectively.
0
13. Adding a new entry for Sec. 1.6050S-1(e).
0
14. Revising the newly redesignated entry for Sec. 1.6050S-1(f)(4).
0
15. Adding a new entry for Sec. 1.6050S-1(f)(5).
The revisions and additions to read as follows:
Sec. 1.6050S-0 Table of contents.
* * * * *
Sec. 1.6050S-1 Information reporting for qualified tuition and
related expenses.
(a) * * *
(2) * * *
(i) No reporting of amounts for books, supplies and equipment
unless the amount is a fee required to be paid to the institution.
(A) In general.
(B) Examples.
* * * * *
(b) * * *
(2) Information reporting requirements for educational
institutions for qualified tuition and related expenses.
* * * * *
(ii) Information included on return.
(A) Name, address and TIN of institution
(B) Name address and TIN of individual enrolled at institution
(C) Amount of payments of qualified tuition and related expenses
(D) Indication of whether payments pertain to academic period
commencing in first three months of following calendar year
(E) Amount of scholarships or grants
(F) Amount of reimbursements or refunds pertaining to expenses
reported in prior year
(G) Amount of reductions of scholarships or grants
(H) Statement of whether individual enrolled for at least half
of normal full-time work load
(I) Number of months during which individual enrolled for normal
full-time workload
(J) Statement of individual's enrollment in graduate-level
program
(K) Any additional information required by Form 1098-T or
instructions
* * * * *
(3) Requirements for insurers.
* * * * *
(4) Time and place for filing return.
(i) In general.
(ii) Extensions of time.
* * * * *
(c) * * *
(1) * * *
(i) Required information.
(ii) Legend identifying statement as important tax information.
(iii) Instructions.
(A) Statement of payments made or reimbursements or refunds
made.
(B) Statement regarding extent of individual's eligibility for
credit under section 25A.
(C) Statement regarding reduction in tax credit due to grant or
scholarship.
(D) Statement notifying individual of ability to allocate
scholarship or grant.
(E) Statement notifying individual of consequences of refunds,
reimbursements. reductions in tuition charges or grants or
scholarships for prior taxable year.
(F) Statement informing individual of consequences of
reimbursement or refund by institution or insurer.
(G) Statement notifying individual to consult forms and
publications of IRS.
(H) Name, address and phone number of educational institution or
insurer.
* * * * *
(e) Definitions.
(1) Administered and processed.
(i) In general.
(ii) Examples.
(2) Cost of attendance.
(f) * * *
(4) No penalty imposed on eligible educational institutions that
certify compliance with paragraph (f)(3) of this section at the time
of filing the return.
(5) Failure to furnish TIN.
* * * * *
0
Par. 7. Section 1.6050S-1 is amended by:
0
1. Revising paragraph (a)(2)(i) and removing paragraphs (a)(2)(iii) and
(iv).
0
2. Revising paragraphs (b)(1), (b)(2)(i), and (b)(2)(ii)(D), (E), (G)
and (H).
0
3. Redesignating paragraphs (b)(2)(ii)(I) and (J) as paragraphs
(b)(2)(ii)(J) and (K), respectively, and adding a new paragraph
(b)(2)(ii)(I).
0
4. Revising newly redesignated paragraph (b)(2)(ii)(J).
0
5. Revising paragraphs (b)(2)(iv), (v), (vi) and Example 1, 2, 3, and 4
in paragraph (b)(2)(vii).
0
6. In paragraph (b)(2)(vii), adding Example 5 and 6.
0
7. Removing paragraph (b)(3) and redesignating paragraphs (b)(4), (5)
and (6) as paragraphs (b)(3), (4) and (5), respectively.
0
8. Revising newly redesignated paragraph (b)(4)(i).
0
9. Removing newly redesignated paragraph (b)(4)(ii) and further
redesignating paragraph (b)(4)(iii) as paragraph (b)(4)(ii).
0
10. Revising paragraphs (c)(1)(iii)(A), (B) and (C).
0
11. Redesignating paragraphs (c)(1)(iii)(D), (E), (F), and (G) as
paragraphs (c)(1)(iii)(E), (F), (G), and (H), respectively.
0
12. Revising newly re-designated paragraphs (c)(1)(iii)(E), (F), (G),
and (H).
0
13. Adding a new paragraph (c)(1)(iii)(D).
0
14. Revising paragraph (c)(2)(i).
0
15. Removing paragraph (c)(2)(ii) and redesignating paragraph
(c)(2)(iii) as paragraph (c)(2)(ii).
0
16. Redesignating paragraphs (e) and (f) as paragraphs (f) and (g),
respectively.
0
17. Adding a new paragraph (e).
0
18. In newly redesignated paragraph (f):
i. Revising paragraph (f)(3)(ii).
ii. In paragraph (f)(3)(iii), removing the language ``(e)(3)(iii)''
and adding ``(f)(3)(iii)'' in its place.
iii. Further redesignating paragraph (f)(4) as paragraph (f)(5).
iv. Adding new paragraph (f)(4).
0
19. Revising newly redesignated paragraph (g).
The revisions and additions read as follows:
Sec. 1.6050S-1 Information reporting for qualified tuition and
related expenses.
(a) * * *
(2) * * *
(i) No reporting of amounts for books, supplies and equipment
unless the amount is a fee required to be paid to the institution--(A)
In general. The information reporting requirements of this section do
not apply to amounts paid for books, supplies, and equipment unless the
amount is a fee that must be paid to the eligible educational
institution as a condition of enrollment or attendance under Sec.
1.25A-2(d)(2)(ii).
(B) Examples. The following examples illustrates the rules of this
paragraph (a)(2):
Example 1. First-year students at College W are required to
obtain books and other materials used in its mandatory first-year
curriculum. The books and other materials are not required to be
purchased from College W and may be borrowed from other students or
purchased from off-campus bookstores, as well as from College W's
bookstore. College W bills students for any books and materials
purchased from College W's bookstore. Because the first-year books
and materials may be purchased from any vendor, the amount is not a
fee that must be paid to the eligible educational institution as a
condition of enrollment or attendance and, therefore, is not subject
to reporting under paragraph (a)(2)(i) of this section. No amount is
reportable even if a first-year student pays College W for the
required books and other materials purchased from College W's
bookstore.
Example 2. Assume the same facts as Example 1 of this paragraph
(a)(2), except College W furnishes the books and other materials to
each first-year student and the
[[Page 50668]]
books may not be borrowed or purchased from other sources. College W
charges a separate fee for books and materials to all first-year
students for these items as part of the bill required to be paid to
attend the institution. Under paragraph (a)(2)(i) of this section,
because the amount is a fee that must be paid to the eligible
educational institution as a condition of enrollment or attendance,
the fee, if paid by or on behalf of the student, must be reported on
the Form 1098-T as part of the qualified tuition and related
expenses.
* * * * *
(b) Requirement to file return--(1) In general. Eligible
educational institutions must report the information described in
paragraph (b)(2) of this section, which requires institutions to
report, among other information, the amount of payments received during
the calendar year for qualified tuition and related expenses.
Institutions must report separately adjustments made during the
calendar year that relate to payments received for qualified tuition
and related expenses that were reported for a prior calendar year. For
purposes of paragraph (b)(2) of this section, an adjustment made to
payments received means a reimbursement or refund. Insurers must report
the information described in paragraph (b)(3) of this section.
(2) Information reporting requirements--(i) In general. Except as
provided in paragraph (a)(2) of this section (regarding exceptions
where no information reporting is required), an eligible educational
institution must file an information return with the IRS on Form 1098-
T, ``Tuition Statement,'' with respect to each individual enrolled (as
determined in paragraph (d)(1) of this section) for an academic period
beginning during the calendar year (including an academic period
beginning during the first three months of the next calendar year) or
during a prior calendar year and for whom a transaction described in
paragraph (b)(2)(ii)(C), (E), (F), or (G) of this section is made
during the calendar year. An eligible educational institution may use a
substitute Form 1098-T if the substitute form complies with applicable
revenue procedures relating to substitute forms (see Sec.
601.601(d)(2) of this chapter).
(ii) * * *
(D) An indication by the institution whether any payments received
for qualified tuition and related expenses reported for the calendar
year relate to an academic period that begins during the first three
months of the next calendar year and the amount of such payments;
(E) The amount of any scholarships or grants for the payment of the
individual's cost of attendance (as defined in paragraph (e)(2) of this
section) that the institution administered and processed (as defined in
paragraph (e)(1) of this section) during the calendar year;
* * * * *
(G) The amount of any reductions to the amount of scholarships or
grants for the payment of the individual's cost of attendance (as
defined in paragraph (e)(2) of this section) that were reported by the
eligible educational institution with respect to the individual for a
prior calendar year;
(H) A statement or other indication showing whether the individual
was enrolled for at least half of the normal full-time work load for
the course of study the individual is pursuing for at least one
academic period that begins during the calendar year (see section 25A
and the regulations thereunder for more information regarding workload
requirements);
(I) A statement or other indication showing the number of months
(for this purpose, one day in a month is treated as an entire month)
during the calendar year that the individual was enrolled for the
normal full-time workload for the course of study the individual is
pursuing at the institution;
(J) A statement or other indication showing whether the individual
was enrolled in a program leading to a graduate-level degree, graduate-
level certificate, or other recognized graduate-level educational
credential, unless the student is enrolled in both a graduate-level
program and an undergraduate level program during the same calendar
year at the same institution in which case no statement or indication
is required; and
* * * * *
(iv) Separate reporting of reimbursements or refunds of payments of
qualified tuition and related expenses that were reported for a prior
calendar year. An institution must separately report on Form 1098-T any
reimbursements or refunds (as defined in paragraph (b)(2)(vi) of this
section) made during the current calendar year that relate to payments
of qualified tuition and related expenses that were reported by the
institution for a prior calendar year. Such reimbursements or refunds
are not netted against the payments received for qualified tuition and
related expenses during the current calendar year.
(v) Payments received for qualified tuition and related expenses
determined. For purposes of determining the amount of payments received
for qualified tuition and related expenses during a calendar year,
payments received with respect to an individual during the calendar
year from any source (except for any scholarship or grant that, by its
terms, must be applied to expenses other than qualified tuition and
related expenses, such as room and board) are treated first as payments
of qualified tuition and related expenses up to the total amount billed
by the institution for qualified tuition and related expenses for
enrollment during the calendar year, and then as payments of expenses
other than qualified tuition and related expenses for enrollment during
the calendar year. Payments received with respect to an amount billed
for enrollment during an academic period beginning in the first 3
months of the following calendar year in which the payment is made are
treated as payment of qualified tuition and related expenses in the
calendar year during which the payment is received by the institution.
For purposes of this section, a payment includes any positive account
balance (such as any reimbursement or refund credited to an
individual's account) that an institution applies toward current
charges.
(vi) Reimbursements or refunds of payments for qualified tuition
and related expenses determined. For purposes of determining the amount
of reimbursements or refunds made of payments received for qualified
tuition and related expenses, any reimbursement or refund made with
respect to an individual during a calendar year (except for any refund
of a scholarship or grant that, by its terms, was required to be
applied to expenses other than qualified tuition and related expenses,
such as room and board) is treated as a reimbursement or refund of
payments for qualified tuition and related expenses up to the amount of
any reduction in charges for qualified tuition and related expenses.
For purposes of this section, a reimbursement or refund includes
amounts that an institution credits to an individual's account, as well
as amounts disbursed to, or on behalf of, the individual.
(vii) * * *
Example 1. (i) Student A enrolls in University X as a full-time
student for the 2016 fall semester. In early August 2016, University
X sends a bill to Student A for $16,000 for the 2016 fall semester
breaking out the current charges as follows: $10,000 for qualified
tuition and related expenses and $6,000 for room and board. In late
August 2016, Student A pays $11,000 to University X, leaving a
remaining balance to be paid of $5,000. In early September 2016,
Student A drops to half-time enrollment for the 2016 fall semester
but remains in on-campus housing. In late September 2016, University
[[Page 50669]]
X credits $5,000 to Student A's account, reflecting a $5,000
reduction in the $10,000 charge for qualified tuition and related
expenses as a result of dropping from full-time to half-time status.
No other transactions occur with respect to Student A's account with
University X. In late September 2016, University X applies the
$5,000 credit toward Student A's current charges, eliminating any
outstanding balance on Student A's account with University X.
(ii) Under paragraph (b)(2)(v) of this section, the $11,000
payment is treated as a payment of qualified tuition and related
expenses up to the $10,000 billed for qualified tuition and related
expenses. Under paragraph (b)(2)(vi) of this section, the $5,000
credited to the student's account is treated as a reimbursement or
refund of payments for qualified tuition and related expenses
because there is a reduction in charges for qualified tuition and
related expenses equal to the $5,000 credit due to Student A
dropping to half-time for the 2016 fall semester. Under paragraph
(b)(2)(iii) of this section, the $10,000 payment received for
qualified tuition and related expenses during 2016 is reduced by the
$5,000 reimbursement or refund of payments received for qualified
tuition and related expenses during 2016. Therefore, University X is
required to report $5,000 of payments received for qualified tuition
and related expenses during 2016 on a 2016 Form 1098-T.
Example 2. (i) The facts are the same as in Example 1 of this
paragraph (b)(2)(vii), except that Student A pays the full $16,000
in late August 2016. In late September 2016, University X reduces
the tuition charges by $5,000 and issues a $5,000 refund to Student
A.
(ii) Under paragraph (b)(2)(v) of this section, the $16,000
payment is treated as a payment of qualified tuition and related
expenses up to the $10,000 billed for qualified tuition and related
expenses. Under paragraph (b)(2)(vi) of this section, the $5,000
refund is treated as reimbursement or refund of payments for
qualified tuition and related expenses because University X reduced
the charges for qualified tuition and related expenses equal to the
$5,000 refund disbursed to the student due to dropping to half-time
for the 2016 fall semester. Under paragraph (b)(2)(iii) of this
section, the $10,000 payment received for qualified tuition and
related expenses during 2016 is reduced by the $5,000 reimbursement
or refund of payments received for qualified tuition and related
expenses during 2016. Therefore, University X is required to report
$5,000 of payments received for qualified tuition and related
expenses during 2016 on a 2016 Form 1098-T.
Example 3. (i) The facts are the same as in Example 1 of this
paragraph (b)(2)(vii), except that Student A is enrolled full-time,
and, in early September 2016, Student A decides to live at home with
her parents. In late September 2016, University X adjusts Student
A's account to eliminate room and board charges and issues a $1,000
refund to Student A.
(ii) Under paragraph (b)(2)(v) of this section, the $11,000
payment is treated as a payment of qualified tuition and related
expenses up to the $10,000 billed for qualified tuition and related
expenses. Under paragraph (b)(2)(vi) of this section, the $1,000
refund is not treated as reimbursement or refund of payments for
qualified tuition and related expenses because University X has
reduced room and board charges for the 2016 fall semester, rather
than reducing charges for qualified tuition and related expenses for
the 2016 fall semester. Therefore, under paragraph (b)(2)(iii) of
this section, University X is required to report $10,000 of payments
received for qualified tuition and related expenses during 2016 on a
2016 Form 1098-T.
Example 4. (i) Student B enrolls in College Y as a full-time
student for the 2017 spring semester. In early December 2016,
College Y sends a bill to Student B for $16,000 for the 2017 spring
semester breaking out current charges as follows: $10,000 for
qualified tuition and related expenses and $6,000 for room and
board. In late December 2016, College Y receives a payment of
$16,000 from Student B. In mid-January 2017, after the 2017 spring
semester classes begin, Student B drops to half-time enrollment. In
mid-January 2017, College Y credits Student B's account with $5,000,
reflecting a $5,000 reduction in charges for qualified tuition and
related expenses, but does not issue a refund to Student B.
Thereafter, Student B's account reflects a positive balance of
$5,000 due to the credit and there is no other activity on Student
B's account until early August when College Y sends a bill for
$16,000 for the 2017 fall semester breaking out the current charges
as follows: $10,000 for qualified tuition and related expenses and
$6,000 for room and board. In early September 2017, College Y
applies the $5,000 positive account balance (credit) toward Student
B's $16,000 bill for the 2017 fall semester. In late September 2017,
Student B pays $6,000 towards the charges for the 2017 fall
semester.
(ii) For calendar year 2016, under paragraph (b)(2)(v) of this
section, $10,000 of the $16,000 payment received by College Y in
December 2016 is treated as a payment of qualified tuition and
related expenses. Therefore, College Y is required to report $10,000
of payments received for qualified tuition and related expenses
during 2016 on a 2016 Form 1098-T. In addition, College Y is
required to indicate that $10,000 of the payments reported on the
2016 Form 1098-T relate to an academic period that begins during the
first three months of the next calendar year.
(iii) Under paragraph (b)(2)(vi) of this section, the $5,000
credited to Student B's account in January 2017 is treated as a
reimbursement or refund of qualified tuition and related expenses
because there is a reduction in charges for qualified tuition and
related expenses of $5,000 for the 2017 spring semester. Under
paragraph (b)(2)(iv) of this section, however, this reduction is a
reimbursement or refund of qualified tuition and related expenses
made during 2017 and, therefore, must be separately reported on the
2017 Form 1098-T. The 2016 Form 1098-T reporting $10,000 of
qualified tuition and related expenses for 2016 is unchanged.
(iv) Under paragraph (b)(2)(v) of this section, the $5,000
positive account balance that is applied toward charges for the 2017
fall semester is treated as a payment made in 2017. Therefore,
College Y received total payments of $11,000 during 2017 (the $5,000
credit plus the $6,000 payment). Under paragraph (b)(2)(v) of this
section, the $11,000 of total payments made during 2017 are treated
as a payment of qualified tuition and related expenses up to the
$10,000 billed for qualified tuition and related expenses for the
2017 fall semester. Therefore, for 2017, College Y is required to
report $10,000 of payments received for qualified tuition and
related expenses during 2017 and a $5,000 refund of payments of
qualified tuition and related expenses reported for 2016 on the 2017
Form 1098-T.
Example 5. (i) Student C enrolls in College Z as a full-time
student the 2016 fall semester and the 2017 spring semester. Student
C was not enrolled in, and did not attend, any institution of higher
education prior to the 2016 fall semester. In August 2016, College Z
sends a bill to Student C for $11,000 for the 2016 fall semester. In
December 2016, College Z sends a bill to Student C for $11,000 for
the 2017 spring semesters. Qualified tuition and related expenses
billed for each semester is $6,000 and room and board billed for
each semester is $5,000. In September 2016, College Z receives a
payment of $11,000 which is applied toward the amount billed for
Student C's attendance during the 2016 fall semester. In December
2016, College Z receives a payment of $4,500 which is applied toward
the amount billed for Student C's attendance during the 2017 spring
semester. In February 2017, College Z receives a payment of $6,500,
the remainder of the amount billed for enrollment during the 2017
spring semester.
(ii) On the 2016 Form 1098-T, College Z reports the payment of
$10,500 of qualified tuition and related expenses determined as
follows: $6,000 for the payment received in September 2016 with
respect to the amount billed for qualified tuition and related
expenses for the 2016 fall semester and $4,500 for the payment
received in December 2016 with respect to the amount billed for
qualified tuition and related expenses for the 2017 spring semester.
On the 2017 Form 1098-T, College Z reports the payment of $1,500 of
qualified tuition and related expenses received in February 2017
with respect to the amount billed for qualified tuition and related
expenses for the 2017 spring semester.
Example 6. The facts are the same as Example 5 of this paragraph
(b)(2)(vii) except in January 2017 College Z receives payment of
$11,000 for the entire amount billed for the 2017 spring semester.
On the 2016 Form 1098-T, College Z reports the payment of $6,000 for
the payment received in September 2016 with respect to the amount
billed for qualified tuition and related expenses for the 2016 fall
semester. On the 2017 Form 1098-T, College Z reports the payment of
$6,000 of qualified tuition and related expenses received in January
2017 with respect to the amount billed for qualified tuition and
related expenses for the 2017 spring semester.
* * * * *
[[Page 50670]]
(4) Time and place for filing return--(i) In general. Except as
provided in paragraph (b)(4)(ii) of this section, Form 1098-T must be
filed on or before February 28 (March 31 if filed electronically) of
the year following the calendar year in which payments were received
for qualified tuition or related expenses, or reimbursements, refunds,
or reductions of such amounts were made. An institution or insurer must
file Form 1098-T with the IRS according to the instructions for Form
1098-T.
* * * * *
(c) * * *
(1) * * *
(iii) * * *
(A) State that the statement reports total payments received by the
institution for qualified tuition and related expenses during the
calendar year, or the total reimbursements or refunds made by the
insurer;
(B) State that, under section 25A and the regulations thereunder,
the taxpayer may claim an education tax credit only with respect to
qualified tuition and related expenses actually paid during the
calendar year; and that the taxpayer may not be able to claim an
education tax credit with respect to the entire amount of payments
received for qualified tuition and related expenses reported on the
Form 1098-T for the calendar year;
(C) State that the amount of any scholarships or grants reported on
the Form 1098-T for the calendar year and other similar amounts not
reported on the Form 1098-T (because they are not administered and
processed by the eligible educational institution as defined in
paragraph (e)(1) of this section) that are allocated by the student to
pay qualified tuition and related expenses may reduce the amount of any
allowable education tax credit for the taxable year;
(D) State that even if the eligible educational institution applies
scholarships or grants reported on the Form 1098-T for the calendar
year to qualified tuition and related expenses, the student may, for
tax purposes, be able to allocate all or a portion of the scholarships
or grants to expenses other than qualified tuition and related expenses
(and, therefore, forego having to reduce the amount of the education
tax credit the student may claim) if the terms of the scholarship or
grant permit it to be used for expenses other than qualified tuition
and related expenses and the student includes the amount in income on
his federal income tax return.
* * * * *
(E) State that the amount of any reimbursements or refunds of
payments received, or reductions in charges, for qualified tuition and
related expenses, or any reductions to the amount of scholarships or
grants, reported by the eligible educational institution with respect
to the individual for a prior calendar year on Form 1098-T may affect
the amount of any allowable education tax credit for the prior calendar
year (and may result in an increase in tax liability for the year of
the refund);
(F) State that the amount of any reimbursements or refunds of
qualified tuition and related expenses reported on a Form 1098-T by an
eligible educational institution or insurer may reduce the amount of an
allowable education tax credit for a taxable year (and may result in an
increase in tax liability for the year of the refund);
(G) State that the taxpayer should refer to relevant IRS forms and
publications, such as Publication 970, ``Tax Benefits for Education,''
and should not refer to the institution or the insurer, for
explanations relating to the eligibility requirements for, and
calculation of, any allowable education tax credit; and
(H) Include the name, address, and phone number of the information
contact of the eligible educational institution or insurer that filed
the Form 1098-T.
(2) Time and manner for furnishing statement--(i) In general.
Except as provided in paragraphs (c)(2)(ii) of this section, an
institution or insurer must furnish the statement described in
paragraph (c)(1) of this section to each individual for whom it is
required to file a return, on or before January 31 of the year
following the calendar year in which payments were received for
qualified tuition and related expenses, or reimbursements, refunds or
reductions of such amounts were made. If mailed, the statement must be
sent to the individual's permanent address or the individual's
temporary address if the institution or insurer does not know the
individual's permanent address. If furnished electronically, the
statement must be furnished in accordance with applicable regulations.
* * * * *
(e) Definitions. The following definitions apply with respect to
this section:
(1) Administered and processed--(i) In general. A scholarship or
grant is ``administered and processed'' by an eligible educational
institution if the institution receives payment of an amount (whether
by cash, check, or other means of payment) that the institution knows
or reasonably should know, is a scholarship or grant, regardless of
whether the institution is named payee or co-payee of such amount and
regardless of whether, in the case of a payment other than in cash, the
student endorses the check or other means of payment for the benefit of
the institution. For instance, Pell Grants, described in the Higher
Education Act of 1965 (20 U.S.C. 1070), as amended, are administered
and processed by an institution in all cases.
(ii) Examples. The following examples illustrate the definition in
this paragraph (e)(1):
Example 1. University M received a Pell Grant on behalf of
Student B, a student enrolled in a degree program at University M.
University M provides all required notifications to and obtains all
the necessary paperwork from Student B and applies the Pell Grant to
Student B's account. Because University M received the Pell Grant
and University M knows or should know that the Pell Grant is a
scholarship or grant, under paragraph (e)(1)(i) of this section, the
Pell Grant is administered and processed by University M.
Example 2. University N receives a check from Organization Y
made out to Student C. University N is not named as a payee on the
check. The cover letter accompanying the check provides University N
with sufficient information to reasonably know that the check
represents payment of a scholarship that may be used to pay Student
C's qualified tuition and related expenses. Under paragraph
(e)(1)(i) of this section, the scholarship from Organization Y is
administered and processed by University N. This is the case even
though University N is not named on the check as a payee and
regardless of whether Student C endorses the check over to
University N.
(2) Cost of attendance. The term ``cost of attendance'' has the
same meaning as section 472 of the Higher Education Act of 1965, 20
U.S.C. 1087ll.
(f) * * *
(3) * * *
(ii) Acting in a responsible manner. An institution or insurer must
request the TIN of each individual for whom it is required to file a
return if it does not already have a record of the individual's correct
TIN. If the institution or insurer does not have a record of the
individual's correct TIN, then it must solicit the TIN in the manner
described in paragraph (f)(3)(iii) of this section on or before
December 31 of each year during which it receives payments of qualified
tuition and related expenses or makes reimbursements, refunds, or
reductions of such amounts with respect to the individual. If an
individual refuses to provide his or her TIN upon request, the
institution or insurer must file the return and furnish the statement
required by this section without the individual's TIN, but with all
other
[[Page 50671]]
required information. The specific solicitation requirements of
paragraph (f)(3)(iii) of this section apply in lieu of the solicitation
requirements of Sec. 301.6724-1(e) and (f) of this chapter for the
purpose of determining whether an institution or insurer acted in a
responsible manner in attempting to obtain a correct TIN. An
institution or insurer that complies with the requirements of this
paragraph (f)(3) will be considered to have acted in a responsible
manner within the meaning of Sec. 301.6724-1(d) of this chapter with
respect to any failure to include the correct TIN of an individual on a
return or statement required by section 6050S and this section.
* * * * *
(4) No penalty imposed on eligible educational institutions that
certify compliance with paragraph (f)(3) of this section at the time of
filing the return. In the case of returns required to be filed and
statements required to be furnished after December 31, 2015, the IRS
will not impose a penalty against an eligible educational institution
under section 6721 or 6722 for failure to include the individual's
correct TIN on the return or statement if the institution makes a true
and accurate certification to the IRS under penalties of perjury (in
the form and manner prescribed by the Secretary in publications, forms
and instructions, or other published guidance) at the time of filing of
the return that the institution complied with the requirements in
paragraphs (f)(3)(ii) and (iii) of this section. Nothing in this
paragraph (f)(4) prevents the IRS from imposing a penalty under section
6721or 6722 if after the IRS receives the certification described in
this paragraph (f)(4) the IRS determines that the requirements of
paragraph (f)(3) of this section are not satisfied or the failure is
unrelated to an incorrect or missing TIN for the individual for whom
the institution is required to file a return or statement.
* * * * *
(g) Applicability date. The rules in this section apply to
information returns required to be filed, and statements required to be
furnished, after December 31, 2003, except that paragraphs (a)(2)
(b)(1), (b)(2)(i), (b)(2)(ii)(D), (E), and (G) through (K), (b)(2)(iv)
through (vii), (b)(4)(i) and (ii), (c)(1)(iii)(B) through (H), (e), and
(f)(4) apply to information returns required to be filed, and
statements required to be furnished, after the date of publication of
the Treasury decision adopting these rules as final regulations in the
Federal Register. For information returns required to be filed, and
statements required to be furnished, on or before the date of
publication of the Treasury decision adopting these rules as final
regulations in the Federal Register, Sec. 1.6050S-1 (as contained in
26 CFR part 1, revised April 2014) applies.
PART 301--PROCEDURE AND ADMINISTRATION
0
Par. 8. The authority citation for part 301 continues to read in part
as follows:
Authority: 26 U.S.C. 7805. * * *
0
Par. 9. Section 301.6724-1 is amended by adding a sentence at the end
of paragraph (a)(1) to read as follows:
Sec. 301.6724-1 Reasonable cause.
(a) * * *
(1) * * * For waiver in the case of eligible educational
institutions required to report information under section 6050S with
respect to qualified tuition and related expenses, see Sec. 1.6050S-
1(f) of this chapter.
* * * * *
John Dalrymple,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2016-18032 Filed 7-29-16; 11:15 am]
BILLING CODE 4830-01-P