[Federal Register Volume 67, Number 82 (Monday, April 29, 2002)]
[Proposed Rules]
[Pages 20923-20934]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-9932]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 301
[REG-105316-98; REG-161424-01]
[RIN 1545-AW67; 1545-BA43]
Information Reporting for Qualified Tuition and Related Expenses;
Magnetic Media Filing Requirements for Information Returns
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Partial withdrawal of previous proposed rules; notice of
proposed rulemaking and notice of public hearing.
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SUMMARY: This document withdraws in part proposed regulations relating
to the information reporting requirements under section 6050S. This
document also contains new proposed regulations relating to the
information reporting requirements under section 6050S for qualified
tuition and related expenses. These proposed regulations reflect
changes to the law made by the Taxpayer Relief Act of 1997 and the
amendments made by the Internal Revenue Service Restructuring and
Reform Act of 1998 and Public Law 107-131. The regulations provide
guidance to eligible educational institutions that enroll any
individual for any academic period. The regulations also provide
guidance to insurers that make reimbursements or refunds of qualified
tuition and related expenses. This document provides notice of a public
hearing on these proposed regulations.
DATES: Written or electronic comments must be received by July 29,
2002. Requests to speak and outlines of topics to be discussed at the
public hearing scheduled for August 13, 2002, at 10 a.m. must be
received by July 23, 2002.
ADDRESSES: Send submissions to: CC:ITA:RU (REG-161424-01), room
[[Page 20924]]
5226, Internal Revenue Service, POB 7604, Ben Franklin Station,
Washington, DC 20044. Submissions may be hand delivered Monday through
Friday between the hours of 8 a.m. and 5 p.m. to: CC:ITA:RU (REG-
161424-01), Courier's Desk, Internal Revenue Service, 1111 Constitution
Avenue, NW., Washington, DC. Taxpayers may also submit electronic
comments directly to the IRS Internet site at www.irs.gov/regs.
FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Donna
Welch, (202) 622-4910; concerning submissions of comments, the hearing
and/or to be placed on the building access list to attend the hearing,
Donna Poindexter, (202) 622-7180, and concerning the magnetic media
filing specifications, waivers for filing on magnetic media, and
extensions of time, contact the Internal Revenue Service, Martinsburg
Computing Center, (304) 263-8700 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information contained in this notice of proposed
rulemaking has been previously reviewed and approved by the Office of
Management and Budget in accordance with the Paperwork Reduction Act of
1995 (44 U.S.C. 3507(d)) under control number 1545-1678.
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless it displays a valid
control number assigned by the Office of Management and Budget.
Books or records relating to a collection of information must be
retained as long as their contents may become material in the
administration of any internal revenue law. Generally, tax returns and
tax return information are confidential, as required by 26 U.S.C. 6103.
Background
1. Summary
This document withdraws Sec. 1.6050S-1 of the notice of proposed
rulemaking (REG-105316-98) relating to the information reporting
requirements under section 6050S that was published in the Federal
Register (65 FR 37728) on June 16, 2000 (the 2000 proposed
regulations). This document also contains new proposed amendments to 26
CFR part 1 in Sec. 1.6050S-1 relating to information reporting
requirements under section 6050S for eligible educational institutions
and insurers (these proposed regulations). The IRS and the Treasury
Department have determined that the 2000 proposed regulations
addressing the information reporting requirements for payees who
receive payments of interest on qualified education loans will be
finalized in a separate Treasury decision.
2. Effective Date of These Proposed Regulations and Reporting
Requirements for the Calendar Year 2002
The information reporting requirements in these proposed
regulations are proposed to apply to information returns required to be
filed, and information statements required to be furnished, after
December 31, 2003, for amounts reportable for the calendar year 2003
and subsequent years. These proposed regulations will be not be
effective until they are finalized. Therefore, the information
reporting requirements in Notice 97-73 (1997-2 C.B. 335), as modified,
continue for information returns required to be filed, and information
statements required to be furnished, for amounts reportable for the
calendar year 2002 (for which the returns and statements are required
to be filed and furnished in 2003). However, taxpayers may rely on
these proposed regulations for guidance pending issuance of final
regulations. If, and to the extent, future guidance is more restrictive
than the guidance in these proposed regulations, the future guidance
will be applied without retroactive effect.
3. Current Statutory Provisions
The Taxpayer Relief Act of 1997 (Public Law 105-34 (111 Stat. 788)
(TRA '97)) added section 25A of the Internal Revenue Code (Code) to
provide the Hope Scholarship Credit and the Lifetime Learning Credit
(education tax credit). In general, the education tax credit allows
certain taxpayers who pay qualified tuition and related expenses
(qualified expenses) to an eligible educational institution (an
institution) to claim a nonrefundable credit against their Federal
income tax liability. On January 6, 1999, the IRS issued proposed
regulations under section 25A. See 64 FR 794 (1999).
In addition, TRA '97 added section 6050S of the Code. Section 6050S
was amended by the Internal Revenue Service Restructuring and Reform
Act of 1998 (Public Law 105-206 (112 Stat. 685) (RRA '98)). In general,
section 6050S requires eligible educational institutions who receive
payments of qualified tuition and related expenses to file information
returns and to furnish written information statements to assist
taxpayers and the IRS in determining any education tax credit allowable
under section 25A (as well as other tax benefits for higher education
expenses). See H.R. Conf. Rept. No. 599, 105th Cong., 2d Sess., pp.
319-320 (1998).
In addition, section 6050S requires any person engaged in a trade
or business of making payments to any individual under an insurance
agreement as reimbursements or refunds of qualified tuition and related
expenses (an insurer) to file information returns and to furnish
written information statements. Lastly, section 6050S requires certain
payees who receive payments of interest on one or more qualified
education loans to file information returns and to furnish written
information statements to assist taxpayers and the IRS in determining
any interest deduction allowable under section 221.
As currently in effect, section 6050S(b) provides that the
information return filed by an eligible educational institution or
insurer must contain: (1) The name, address, and taxpayer
identification number (TIN) of the individual with respect to whom
payments were received, or the reimbursements or refunds were made, of
qualified tuition and related expenses; (2) the name, address, and TIN
of any individual certified by the individual as the taxpayer who will
claim that individual as a dependent for purposes of the deduction
allowable under section 151 for any taxable year ending with or within
the year for which the information return is filed; (3) the aggregate
amount of payments of qualified tuition and related expenses received
by the eligible educational institution during the calendar year with
respect to the individual; (4) the aggregate amount of reimbursements
or refunds of qualified tuition and related expenses paid by an
institution or an insurer during the calendar year with respect to the
individual; (5) the aggregate amount of any scholarships or grants that
the eligible educational institution processed during the calendar year
for the individual's costs of attendance; and (6) such other
information as the Secretary may prescribe.
4. Previous Guidance Under Section 6050S
The IRS has published several notices prescribing limited
information reporting for eligible educational institutions for the
years 1998, 1999, 2000, and 2001. See Notice 97-73 (1997-2 C.B. 335),
Notice 98-46 (1998-36 I.R.B. 21), Notice 98-59 (1998-49 I.R.B. 16),
Notice 99-37 (1999-30 I.R.B.
[[Page 20925]]
124), and Notice 2000-62 (2000-51 I.R.B. 587).
A notice of proposed rulemaking under section 6050S (REG-105316-98)
was published in the Federal Register (65 FR 37728) on June 16, 2000. A
public hearing was held on the proposed regulations on February 13,
2001. The IRS received written and electronic comments responding to
the 2000 notice of proposed rulemaking.
5. Recent Amendments to Section 6050S
Section 6050S was further amended by Public Law 107-131 (115 Stat.
2410), effective for qualified expenses paid or billed after December
31, 2002, for academic periods beginning after December 31, 2002. For
calendar years beginning after December 31, 2002, eligible educational
institutions may elect to report either the aggregate amount of
payments received, or the aggregate amount billed, for qualified
tuition and related expenses during the calendar year with respect to
individuals enrolled for any academic period. Institutions will no
longer be required to report separately any refunds or reimbursements
of qualified expenses made during the calendar year that relate to
payments received for qualified expenses during the current calendar
year. Rather, institutions will be required to report separately only
adjustments made during the calendar year to payments received, or
amounts billed, for qualified expenses that were reported in a prior
calendar year. Institutions will be required to report scholarships or
grants received for the individual's costs of attendance that the
institution administered and processed during the calendar year. In
addition, institutions will be required to report separately
adjustments made during the calendar year to scholarships that were
reported in a prior calendar year. Section 6050S will no longer require
institutions to report the name, address, and TIN of any individual
certified by the individual as the taxpayer who will claim that
individual as a dependent for purposes of the deduction allowable under
section 151 for any taxable year ending with or within the year for
which the information return is filed.
These proposed regulations reflect the amendments to section 6050S
by Public Law 107-131 and address many of the concerns raised by the
educational community in their comments to the 2000 proposed
regulations. These proposed regulations for eligible educational
institutions and insurers are discussed below.
Explanation of Provisions
1. Information Reporting Relating to Qualified Tuition and Related
Expenses
A. Required Reporting and Exceptions to Reporting
Consistent with the amendments to section 6050S by Public Law 107-
131, these proposed regulations require an eligible educational
institution (as defined in section 25A(f)(2) and the regulations
thereunder) (an institution) to file a Form 1098-T, ``Tuition Payment
Statement,'' with respect to each individual who is or has been
enrolled for any academic period (as defined in the regulations under
section 25A) and for whom reportable transactions are made during the
calendar year. In addition, these proposed regulations require any
person engaged in a trade or business of making payments under an
insurance arrangement as reimbursements or refunds (or other similar
amounts) of qualified tuition and related expenses (as defined in
section 25A(f)(1) and the regulations thereunder) (an insurer) to file
a Form 1098-T with the IRS with respect to each individual for whom it
makes reimbursements or refunds of qualified expenses.
(i) Reporting Based on Academic Year vs. Calendar Year
The commentators to the 2000 proposed regulations requested that an
institution be allowed to report financial data based on an academic
year, and not based on a calendar year. Section 6050S requires
institutions to report on a calendar year in order to assist taxpayers
in calculating the education tax credit that is allowable for qualified
expenses paid during a calendar year. Therefore, these proposed
regulations do not adopt this recommendation.
(ii) Eligible Educational Institution for Portion of Calendar Year
The commentators to the 2000 proposed regulations requested
clarification of the rules for determining which institutions are
required to report under section 6050S and the exceptions to reporting.
One commentator asked whether an institution that is not an eligible
educational institution within the meaning of section 25A(f)(2) at the
beginning of the calendar year, but becomes an eligible educational
institution during the calendar year, is required to report under
section 6050S, and, if so, whether the institution must report for the
entire calendar year or only the portion of the year in which it is an
eligible educational institution. An institution that is an eligible
educational institution for any portion of a calendar year must report
under section 6050S. Further, because the education tax credit is
allowable only for payments made to an eligible educational
institution, the institution must report for only the portion of the
year in which it is an eligible educational institution.
(iii) Exception for Nonresident Aliens
Several commentators to the 2000 proposed regulations requested
clarification of the exception to reporting for an individual who is a
nonresident alien. The 2000 proposed regulations provide that an
institution or insurer must report for the year that the institution or
insurer receives a request from a nonresident alien individual to
report and all subsequent years. The commentators recommended that
reporting be limited to the calendar year for which the institution or
insurer receives the request. The commentators explained that
institutions would need to create a new database to report
automatically for subsequent years. These proposed regulations provide
that any reporting for a nonresident alien individual is limited to the
calendar year for which the institution or insurer receives a request.
(iv) Exception for Noncredit Courses
Several commentators to the 2000 proposed regulations requested
clarification of the exception to reporting for an individual who is
enrolled during the calendar year only in noncredit courses. The
commentators noted that the exception is intended to cover students
enrolled in courses for which no academic credit is offered, not
students who do not receive academic credit in a particular course.
Therefore, these proposed regulations clarify that the exception
applies to students enrolled only in courses for which academic credit
is not offered. In addition, several commentators suggested that the
word ``only'' should be removed and that the exception should apply to
students who are enrolled both in courses for which no academic credit
is offered and in courses offered for credit that may lead toward a
postsecondary degree. The exception is intended to cover nondegree
students enrolled in courses for which no academic credit is offered,
consistent with the legislative history to section 6050S. See H.R.
Conf. Rep. No. 599, 105th Cong., 2d Sess., p. 322 (1998). Therefore,
these proposed regulations do not adopt this recommendation.
Several commentators to the 2000 proposed regulations recommended
that institutions should have discretion to
[[Page 20926]]
define what constitutes academic credit. The 2000 proposed regulations
define academic credit as credit awarded by an institution for the
completion of coursework leading toward a postsecondary degree,
certificate, or other recognized postsecondary educational credential.
This definition provides a uniform test to determine academic credit
for information reporting purposes. These proposed regulations retain
the definition of academic credit and do not adopt this recommendation.
(v) No Exception for Small Institutions or Small Amounts of Qualified
Tuition and Related Expenses
One commentator to the 2000 proposed regulations suggested that the
regulations should provide an exception to reporting for institutions
with 500 or fewer students, and another commentator suggested that the
regulations should provide an exception for qualified expenses of $250
or less. The limited exceptions to required reporting are based on the
fact that certain categories of students may not be eligible to claim
the education tax credit (e.g., nondegree students enrolled in
noncredit courses cannot claim the Hope Scholarship Credit and
nonresident alien students are generally not eligible to claim the
education tax credit). See H.R. Conf. Rep. No. 599, 105th Cong., 2d
Sess., p. 322 (1998). Exceptions to reporting for small institutions or
small amounts of qualified expenses have no relationship to a student's
eligibility to claim the education tax credit. Therefore, these
proposed regulations do not adopt these recommendations.
(vi) Exception for Students Whose Qualified Expenses Are Paid With
Scholarships
Several commentators to the 2000 proposed regulations suggested
that the regulations should include an exception to reporting for
students whose qualified expenses are waived in their entirety or are
paid entirely with scholarships. Notice 97-73 provides that
institutions are not required to report for such students because the
institutions will not have received any payment of qualified expenses
on behalf of such students for which the student could, in general,
claim the education tax credit. These proposed regulations follow the
rule in Notice 97-73 and provide that an institution is not required to
report on students whose qualified expenses for the calendar year are
waived in their entirety or are paid entirely with scholarships.
(vii) Exception for Students Whose Qualified Expenses Are Covered by
Formal Billing Arrangement Between Institution and Student's Employer
Several commentators to the 2000 proposed regulations suggested
that the regulations should provide an exception to reporting for
students whose qualified expenses are paid by a third party (such as an
employer) to the institution through a formal billing arrangement. The
commentators explained that often an employer and an institution enter
into an agreement in which employees attend the institution, and the
institution bills only the employer. In this situation, the institution
does not maintain a separate account for each employee/student. These
arrangements often constitute employer-provided educational assistance
excludable from the employee's gross income under section 127. Under
section 25A and the regulations thereunder, taxpayers cannot claim the
education tax credit for education expenses paid by an employer which
are tax-free to the employee. Therefore, these proposed regulations
provide an exception to reporting with respect to any individual whose
qualified expenses are covered by a formal billing arrangement between
an institution and the individual's employer.
(viii) Family Educational Rights and Privacy Act and Optional Reporting
Several commentators to the 2000 proposed regulations requested
clarification as to whether an institution that chooses to report on
students otherwise covered by an exception to required reporting would
violate the Family Educational Rights and Privacy Act (FERPA) (20
U.S.C. section 1232g). The Department of Education has previously
determined that reporting under section 6050S does not violate FERPA.
We have asked the Department of Education to consider whether this
determination extends to institutions that choose to report on students
otherwise covered by an exception to required reporting in these
proposed regulations.
B. Required Information for Institutions
(i) Reporting of Payments Received vs. Amounts Billed
Based on the provisions of section 6050S prior to the amendments by
Public Law 107-131, the 2000 proposed regulations provide that an
institution must report the aggregate amount of payments received for
qualified expenses, and the aggregate amount of reimbursements or
refunds made of qualified expenses, with respect to any individual
during the calendar year. Numerous commentators explained that their
institutions cannot report payments for, and reimbursements or refunds
of, qualified expenses, because their financial systems do not apply
payments and reimbursements or refunds to specific charges. According
to these institutions, a student's account is a running balance of
undesignated payments and reimbursements or refunds. These commentators
suggested that the regulations should allow institutions that are
unable to report payments received for, and reimbursements or refunds
made of, qualified expenses, to report instead: (1) the amount billed
with respect to any individual for qualified expenses during the
calendar year; and (2) the amount of any reductions to the amounts
billed with respect to the individual.
Consistent with section 6050S as amended by Public Law 107-131,
these proposed regulations provide that institutions may elect to
report either the payments received, or the amounts billed, during the
calendar year for qualified tuition and related expenses with respect
to individuals enrolled for an academic period beginning during the
calendar year or during a prior calendar year.
(ii) Reporting Adjustments to Payments Received (or Amounts Billed) for
a Prior Calendar Year
The commentators to the 2000 proposed regulations suggested that
the regulations should distinguish between reimbursements or refunds
that relate to payments received during the current calendar year and
those that relate to payments for prior calendar years. The
commentators suggested that, rather than reporting separately aggregate
payments and aggregate reimbursements or refunds, institutions should
be permitted to net current year payments of qualified expenses against
any refunds of such current year payments, and to report only the net
payments received for qualified expenses during the current calendar
year. These commentators suggested that institutions should be required
to report separately only the amount of any reimbursements or refunds
made in the current year that relate to qualified expenses paid that
were reported in a prior calendar year.
Consistent with this approach, the commentators also suggested that
institutions reporting amounts billed should be permitted to net
amounts billed for qualified expenses for the current year against any
reductions in amounts billed for qualified expenses
[[Page 20927]]
for the current year, and to report only the net amount billed for
qualified expenses during the current calendar year. Similarly, the
commentators suggested that these institutions should be required to
report separately only those reductions made in the current year that
relate to amounts billed for qualified expenses that were reported in a
prior calendar year.
Congress adopted this approach in the amendments to section 6050S
by Public Law 107-131. As amended, section 6050S will require
institutions to report separately only adjustments made during the
calendar year to payments received, or amounts billed, that relate to
amounts that were reported for a prior calendar year. For example, for
institutions that report based on payments received, separate reporting
will be required only for refunds or reimbursements of qualified
expenses made during the calendar year that relate to payments of
qualified expenses that were reported for a prior calendar year. For
institutions that report based on amounts billed, separate reporting
will be required only for reductions in charges made during the
calendar year that relate to amounts billed for qualified expenses that
were reported for a prior calendar year.
Therefore, for institutions that report based on payments received,
these proposed regulations provide that, in determining the amounts to
be reported under section 6050S for a calendar year, payments received
for qualified expenses during the calendar year must be netted against
any reimbursements or refunds of qualified expenses made during the
calendar year that relate to payments received for qualified expenses
during the same calendar year. These regulations also provide that
reimbursements or refunds made during the calendar year that relate to
payments of qualified expenses that were reported for a prior calendar
year must be reported separately.
Similarly, for institutions that report based on amounts billed,
these proposed regulations provide that, in determining the amounts to
be reported under section 6050S for a calendar year, the amount billed
for qualified expenses during the calendar year must be netted against
any reductions in charges for qualified expenses made during the
calendar year that relate to amounts billed for qualified expenses
during the same calendar year. These regulations also provide that any
reductions in charges made during the calendar year that relate to
amounts reported as billed for a prior calendar year must be reported
separately.
These regulations are proposed to apply to payments received, and
amounts billed, for qualified expenses beginning in 2003. Therefore,
the first year for which institutions may be required to collect
information regarding any reimbursements or refunds of prior year
reportable payments (or any reductions in reportable amounts billed for
a prior year) is 2004. The amount of any reimbursements or refunds (or
reductions) made in 2004 for amounts paid (or billed) in 2003 would be
reported on the 2004 Forms 1098-T filed in early 2005.
(iii) Reporting Adjustments to Scholarships for a Prior Calendar Year
Consistent with section 6050S as amended by Public Law 107-131,
these proposed regulations provide that all institutions must report
separately any reductions in the amount of scholarships or grant aid
reported for a prior calendar year.
(iv) Name, Address, and TIN of Taxpayer
The 2000 proposed regulations reserve the requirement in section
6050S(b)(2)(B) that an institution or insurer obtain and report the
name, address, and TIN of any taxpayer who will claim the individual as
a dependent for purposes of the deduction allowable under section 151
for the taxable year. This statutory requirement will be eliminated by
the amendments to section 6050S by Public Law 107-131. Therefore,
consistent with section 6050S as amended, these proposed regulations
remove this requirement.
(v) Half-Time Indicator
Several commentators to the 2000 proposed regulations suggested
that institutions should not be required to indicate whether a student
was enrolled at least half time. Another commentator suggested that
institutions should be required to provide the half-time indicator only
for students enrolled in undergraduate studies. An indication as to
whether a student was enrolled at least half time for one academic
period is useful information for the IRS to verify whether the student
may be eligible to claim the Hope Scholarship Credit and certain other
education tax benefits, and this information is readily available to
institutions. Therefore, these proposed regulations do not adopt these
recommendations.
(vi) Information Statement
The 2000 proposed regulations provide that an institution or
insurer must furnish an information statement to each individual for
whom it is required to file a Form 1098-T. The statement must include
specific instructions to the taxpayer. These proposed regulations
provide that the instructions must state that a taxpayer may claim an
education tax credit only for amounts actually paid during the calendar
year. These proposed regulations also provide that the instructions
must state that the amount of any refunds or reimbursements of payments
received, or reductions in charges, for qualified expenses or any
reductions in grant aid reported for a prior calendar year may affect
the amount of any education tax credit allowable for the prior calendar
year.
The 2000 proposed regulations provide that the statement must
include the name, address, and phone number of the individual who is
the information contact for the institution or insurer that filed the
Form 1098-T. Several commentators to the 2000 proposed regulations
requested that the regulations should not require the name of an
individual. The commentators explained that it is not feasible for
institutions to provide an individual as the information contact and
requested that institutions be allowed to provide an office or
department of the institution as the information contact. These
proposed regulations adopt this recommendation.
The 2000 proposed regulations reserve the requirement in section
6050S(d) that an institution or insurer furnish a statement to any
taxpayer who will claim the individual as a dependent for purposes of
the deduction allowable under section 151 for the taxable year. This
statutory requirement will be eliminated by the amendments to section
6050S by Public Law 107-131. Therefore, consistent with section 6050S
as amended, these regulations remove this requirement.
C. Required Information for Insurers
The information reporting requirements for insurers is not changed
by the amendments to section 6050S by Public Law 107-131. Therefore,
these proposed regulations continue to provide that an insurer must
file an information return for each individual with respect to whom
reimbursements or refunds of qualified tuition and related expenses are
made during the calendar year. An insurer must include: (1) The name,
address, and TIN of the insurer; (2) the name, address, and TIN of the
individual with respect to whom reimbursements or refunds of qualified
tuition and related expenses were made; and (3) the aggregate amount of
reimbursements or refunds of qualified
[[Page 20928]]
tuition and related expenses that the insurer made with respect to the
individual during the calendar year.
D. Information Reporting Penalties
(i) Penalty Notification
These proposed regulations, as well as the 2000 proposed
regulations, provide that an institution or insurer may be subject to a
penalty under section 6721 for failure to file correct Forms 1098-T and
a penalty under section 6722 for failure to furnish correct information
statements. The 2000 proposed regulations provide that an institution
or insurer must notify the individual that the IRS may impose a $50
penalty for failure to provide a TIN. Several commentators to the 2000
proposed regulations requested that the penalty notification be
removed. Section 6723 and the regulations thereunder authorize the IRS
to impose a $50 penalty if an individual fails to provide his or her
TIN as required but do not require an institution or insurer to give
prior notification of the penalty. Therefore, these proposed
regulations adopt this recommendation.
(ii) Annual TIN Solicitation Requirement
Several commentators to the 2000 proposed regulations recommended
that institutions not be required to request an individual's TIN
annually if the institution does not have the individual's TIN. These
proposed regulations continue to provide that, in order to establish a
waiver of the information reporting penalties for reasonable cause, an
institution or insurer must request an individual's TIN annually if it
does not have the TIN. The annual solicitation rule in these
regulations is consistent with the general solicitation requirements in
section 301.6724-1(e) and (f) that a filer must meet in order to
establish reasonable cause. These proposed regulations clarify that a
separate solicitation is not necessary if an institution requests an
individual's TIN through admission or enrollment forms or financial aid
applications.
(iii) Filing Information Returns With Missing TINs
Several commentators to the 2000 proposed regulations requested
that institutions not be required to file information returns and to
furnish information statements for individuals who refuse to provide
their TINs. Information returns and information statements with missing
TINs are useful to both the IRS and the individual in verifying the
amount of any allowable education tax credit (as well as other tax
benefits for higher education expenses). Therefore, these proposed
regulations do not adopt this recommendation.
2. Requirement To File Information Returns on Magnetic Media
These regulations propose to amend the regulations under section
6011(e) to require institutions and insurers who are required to file
250 or more Forms 1098-T to file on magnetic media.
Special Analyses
It has been determined that these proposed regulations are not a
significant regulatory action as defined in Executive Order 12866.
Therefore, a regulatory 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. An initial
regulatory flexibility analysis has been prepared for this notice of
proposed rulemaking under section 5 U.S.C. 603 and is set forth under
the heading ``Initial Regulatory Flexibility Analysis'' in this
preamble. Pursuant to section 7805(f) of the Code, this notice of
proposed rulemaking will be submitted to the Chief Counsel for Advocacy
of the Small Business Administration for comment on its impact on small
business.
Initial Regulatory Flexibility Analysis
The collection of information contained in Sec. 1.6050S-1 is needed
to assist the IRS and taxpayers in determining the amount of any
education tax credit allowable under section 25A. The objectives of
these regulations are to provide uniform, practicable, and
administrable rules under section 6050S. The types of small entities to
which the regulations may apply are small eligible educational
institutions (such as colleges and universities) and certain insurers
who reimburse educational expenses. As of the end of 2001, a total of
19,817,563 Forms 1098-T were filed with the IRS for 2000. The estimated
reporting burden for 2001 is 9 minutes per Form 1098-T. No special
professional skills are necessary for preparation of the reports or
records. There are no known Federal rules that duplicate, overlap, or
conflict with these proposed regulations. The regulations proposed are
considered to have the least economic impact on small entities of all
alternatives considered.
Moreover, the proposed regulations requiring filing Forms 1098-T on
magnetic media impose no additional reporting or recordkeeping and only
prescribe the method of filing information returns that are already
required to be filed. Further, these regulations are consistent with
the statutory requirement that an institution or insurer is not
required to file Forms 1098-T on magnetic media unless required to file
at least 250 or more returns during the year. Finally, the economic
impact caused by requiring Forms 1098-T on magnetic media should be
minimal because most institution's or insurer's operations are
computerized. Even if their operations are not computerized, the
incremental cost of magnetic media reporting should be minimal in most
cases because of the availability of computer service bureaus. In
addition, the existing regulations under section 6011(e) provide that
the IRS may waive the magnetic media filing requirements on a showing
of hardship. The waiver authority will be exercised so as not to unduly
burden institutions and insurers lacking both the necessary data
processing facilities and access at a reasonable cost to computer
service bureaus.
Comments and Public Hearing
Before these proposed regulations are adopted as final regulations,
consideration will be given to any written (a signed original and eight
(8) copies) or electronic comments that are submitted timely to the
IRS. The IRS and Treasury Department request comments on the clarity of
the proposed rules and how they can be made easier to understand. All
comments will be available for public inspection and copying.
A public hearing has been scheduled for August 13, 2002, beginning
at 10 a.m. in the auditorium of the Internal Revenue Building, 1111
Constitution Avenue, NW., Washington, DC. 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 on 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 and an outline of the topics to be discussed and
the time to be devoted to each topic (signed original and eight (8)
copies) by July 23, 2002. A period of 10 minutes will be allotted to
each person for making comments. An agenda showing the scheduling of
the speakers will be prepared after the deadline for receiving outlines
has
[[Page 20929]]
passed. Copies of the agenda will be available free of charge at the
hearing.
Drafting Information
The principal author of the regulations is Donna Welch, Office of
Associate Chief Counsel (Procedure and Administration), Administrative
Provisions and Judicial Practice Division. However, other personnel
from the IRS and the Treasury Department participated in the
development of the regulations.
List of Subjects
26 CFR Part 1
Income tax, Reporting and recordkeeping requirements.
26 CFR Part 301
Employment tax, Estate tax, Excise tax, Gift tax, Income tax,
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 TAX
Paragraph 1. The authority citation for part 1 is amended by adding
an entry in numerical order to read in part as follows:
Authority: 26 U.S.C. 7805 * * * Section 1.6050S-1 also issued
under section 26 U.S.C. 6050S(g). * * *
Par. 2. Sections 1.6050S-0 is amended by revising the introductory
language and adding new entries for Sec. 1.6050S-1 to read as follows:
Sec. 1.6050S-0 Table of contents
This section lists captions contained in Secs. 1.6050S-1, 1.6050S-
2T, 1.6050S-3, and 1.6050S-4T.
Sec. 1.6050S-1 Information reporting for qualified tuition and related
expenses.
(a) Information reporting requirement.
(1) In general.
(2) Exceptions.
(i) No reporting by institutions or insurers for nonresident alien
individuals.
(ii) No reporting by institutions for individuals enrolled only in
noncredit courses.
(A) In general.
(B) Academic credit defined.
(C) Example.
(iii) No reporting by institutions for individuals whose qualified
tuition and related expenses are waived or are paid with scholarships.
(iv) No reporting by institutions for individuals whose qualified
tuition and related expenses are covered by a formal billing
arrangement.
(A) In general.
(B) Formal billing arrangement defined.
(b) Requirement to file return.
(1) In general.
(2) Information reporting requirements for institutions that elect
to report payments received for qualified tuition and related expenses.
(i) In general.
(ii) Information included on return.
(iii) Reportable amount of payments received for qualified tuition
and related expenses during calendar year determined.
(iv) Separate reporting of reimbursements or refunds of payments of
qualified tuition and related expenses that were reported for a prior
calendar year.
(v) Payments received for qualified tuition and related expenses
determined.
(vi) Reimbursements or refunds of payments for qualified tuition
and related expenses determined.
(vii) Examples.
(3) Information reporting requirements for institutions that elect
to report amounts billed for qualified tuition and related expenses.
(i) In general.
(ii) Information included on return.
(iii) Reportable amounts billed for qualified tuition and related
expenses during calendar year determined.
(iv) Separate reporting of reductions made to amounts billed for
qualified tuition and related expenses that were reported for a prior
calendar year.
(v) Examples.
(4) Requirements for insurers.
(i) In general.
(ii) Information included on return.
(5) Time and place for filing return.
(i) In general.
(ii) Return for nonresident alien individual.
(iii) Extensions of time.
(6) Use of magnetic media.
(c) Requirement to furnish statement.
(1) In general.
(2) Time and manner for furnishing statement.
(i) In general.
(ii) Statement to nonresident alien individual.
(iii) Extensions of time.
(3) Copy of Form 1098-T.
(d) Special rules.
(1) Enrollment determined.
(2) Payments of qualified tuition and related expenses received or
collected by one or more persons.
(i) In general.
(ii) Exception.
(3) Governmental units.
(e) Penalty provisions.
(1) Failure to file correct returns.
(2) Failure to furnish correct information statements.
(3) Waiver of penalties for failures to include a correct TIN.
(i) In general.
(ii) Acting in a responsible manner.
(iii) Manner of soliciting TIN.
(4) Failure to furnish TIN.
(f) Effective date.
* * * * *
Par. 3. Section 1.6050S-1 is added to read as follows:
Sec. 1.6050S-1 Information reporting for qualified tuition and related
expenses.
(a) Information reporting requirement--(1) In general. Except as
provided in paragraph (a)(2) of this section, any eligible educational
institution (as defined in section 25A(f)(2) and the regulations
thereunder) (an institution) that enrolls (as determined under
paragraph (d)(1) of this section) any individual for any academic
period (as defined in the regulations under section 25A), and any
person that is engaged in a trade or business of making payments under
an insurance arrangement as reimbursements or refunds (or other similar
amounts) of qualified tuition and related expenses (as defined in
section 25A(f)(1) and the regulations thereunder) (an insurer) must--
(i) File an information return, as described in paragraph (b) of
this section, with the Internal Revenue Service (IRS) with respect to
each individual described in paragraph (b) of this section; and
(ii) Furnish a statement, as described in paragraph (c) of this
section, to each individual described in paragraph (c) of this section.
(2) Exceptions--(i) No reporting by institution or insurer for
nonresident alien individuals. The information reporting requirements
of this section do not apply with respect to any individual who is a
nonresident alien (as defined in section 7701(b) and Sec. 301.7701(b)-3
of this chapter) during the calendar year, unless the individual
requests the institution or insurer to report. If a nonresident alien
individual requests an institution or insurer to report, the
institution or insurer must comply with the requirements of this
section for the calendar year with respect to which the request is
made.
(ii) No reporting by institutions for individuals enrolled only in
noncredit courses--(A) In general. The information reporting
requirements of this section do not apply with respect to any
individual who is enrolled during the calendar year only in courses for
[[Page 20930]]
which no academic credit is offered by the institution.
(B) Academic credit defined. Academic credit means credit offered
by an institution for the completion of coursework leading toward a
post-secondary degree, certificate, or other recognized post-secondary
educational credential.
(C) Example. The following example illustrates the rules of this
paragraph (a)(2)(ii):
Example. Student A, a medical doctor, takes a course at
University X's medical school. Student A takes the course to fulfill
State Y's licensing requirement that medical doctors attend
continuing medical education courses each year. Student A is not
enrolled in a degree program at University X and takes the medical
course through University X's continuing professional education
division. University X does not offer Student A credit toward a
post-secondary degree on an academic transcript for the completion
of the course but gives Student A a certificate of attendance upon
completion. Under this paragraph (a)(2)(ii), University X is not
subject to the information reporting requirements of section 6050S
and this section for the medical education course taken by Student
A.
(iii) No reporting by institutions for individuals whose qualified
tuition and related expenses are waived or are paid with scholarships.
The information reporting requirements of this section do not apply
with respect to any individual whose qualified tuition and related
expenses are waived in their entirety or are paid entirely with
scholarships.
(iv) No reporting by institutions for individuals whose qualified
tuition and related expenses are covered by a formal billing
arrangement--(A) In general. The information reporting requirements of
this section do not apply with respect to any individual whose
qualified tuition and related expenses are covered by a formal billing
arrangement between an institution and the individual's employer.
(B) Formal billing arrangement defined. A formal billing
arrangement means an arrangement in which the institution bills only
the employer for education furnished by the institution to an
individual who is the employer's employee and the institution does not
maintain a separate financial account for that individual.
(b) Requirement to file return--(1) In general. Institutions may
elect to report either the information described in paragraph (b)(2) of
this section, or the information described in paragraph (b)(3) of this
section. Once an institution elects to report under either paragraph
(b)(2) or (3) of this section, the institution must use the same
reporting method for all calendar years in which it is required to file
returns, unless permission is granted to change reporting methods.
Paragraph (b)(2) 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),
an adjustment made to payments received means a reimbursement or
refund. Paragraph (b)(3) requires institutions to report, among other
information, the amounts billed during the calendar year for qualified
tuition and related expenses. Institutions must report separately
adjustments made during the calendar year that relate to amounts billed
for qualified tuition and related expenses that were reported for a
prior calendar year. For purposes of paragraph (b)(3), an adjustment
made to amounts billed means a reduction in charges. Insurers must
report the information described in paragraph (b)(4) of this section.
(2) Information reporting requirements for institutions that elect
to report payments received for qualified tuition and related
expenses--(i) In general. Except as provided in paragraph (a)(2) of
this section, an institution reporting payments received for qualified
tuition and related expenses must file an information return with the
IRS on Form 1098-T, ``Tuition Payments 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 or
during a prior calendar year and for whom a reportable transaction
described in paragraph (b)(2)(ii) of this section is made during the
calendar year. An 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) Information included on return. An institution reporting
payments received for qualified tuition and related expenses must
include on Form 1098-T--
(A) The name, address, and taxpayer identification number (TIN)(as
defined in section 7701(a)(41)) of the institution;
(B) The name, address, and TIN of the individual who is, or has
been, enrolled by the institution;
(C) The amount of payments of qualified tuition and related
expenses from any source that the institution received with respect to
the individual during the calendar year;
(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;
(E) The amount of any scholarships or grants for the payment of the
individual's costs of attendance that the institution administered and
processed during the calendar year;
(F) The amount of any reimbursements or refunds of qualified
tuition and related expenses made during the calendar year with respect
to the individual that relate to payments of qualified tuition and
related expenses that were reported by the institution for a prior
calendar year;
(G) The amount of any reductions to the amount of scholarships or
grants for the payment of the individual's costs of attendance that
were reported by the institution with respect to the individual for a
prior calendar year;
(H) An indication by the institution 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);
(I) An indication by the institution whether the individual was
enrolled in a program leading to a graduate-level degree, graduate-
level certificate, or other recognized graduate-level educational
credential; and
(J) Any other information required by Form 1098-T and its
instructions.
(iii) Reportable amount of payments received for qualified tuition
and related expenses during calendar year determined. The amount of
payments received for qualified tuition and related expenses with
respect to an individual during the calendar year that is reportable on
Form 1098-T is determined by netting the amount of payments received
(as defined in paragraph (b)(2)(v) of this section) for qualified
tuition and related expenses during the calendar year against any
reimbursements or refunds (as defined in paragraph (b)(2)(vi) of this
section) made during the calendar year that relate to payments received
for qualified tuition and related expenses during the same calendar
year.
(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
[[Page 20931]]
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
shall not be 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 as payments of
qualified tuition and related expenses up to the total amount billed by
the institution for such expenses. 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 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 such 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) Examples. The following examples illustrate the rules in this
paragraph (b)(2):
Example 1. (i) In early August 2003, University X bills enrolled
Student A $10,000 for tuition and $6,000 for room and board for the
2003 Fall semester. In late August 2003, Student A pays $11,000 to
University X. In early September 2003, Student A drops to half-time
enrollment for the 2003 Fall semester. In late September 2003,
University X credits $5,000 to Student A's account, reflecting a
$5,000 reduction in charges for qualified tuition and related
expenses. In late September 2003, University X applies the $5,000
positive account balance toward current charges.
(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 the current year charges for qualified tuition and related
expenses were reduced by $5,000. Under paragraph (b)(2)(iii) of this
section, University X is required to net the $10,000 tuition payment
received during 2003 against the $5,000 reimbursement or refund of
payments received for qualified tuition and related expenses during
2003. Therefore, Institution X is required to report $5,000 of
payments received for qualified tuition and related expenses during
2003.
Example 2. (i) The facts are the same as in Example 1, except
that Student A pays the full $16,000 in late August 2003. In late
September 2003, 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 the current year
charges for qualified tuition and related expenses were reduced by
$5,000. Under paragraph (b)(2)(iii) of this section, University X is
required to net the $10,000 tuition payment received during 2003
against the $5,000 reimbursement or refund of payments received for
qualified tuition and related expenses during 2003. Therefore,
Institution X is required to report $5,000 of payments received for
qualified tuition and related expenses during 2003.
Example 3. (i) The facts are the same as in Example 1, except
that Student A is enrolled full-time, and, in early September 2003,
Student A decides to live at home with her parents. In late
September 2003, 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 there is no
reduction in charges for qualified tuition and related expenses.
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 2003.
Example 4. (i) In early December 2003, College Y bills enrolled
Student B $10,000 for tuition and $6,000 for room and board for the
2004 Spring semester. In late December 2003, Student B pays $16,000.
In mid-January 2004, after the 2004 Spring semester classes begin,
Student B drops to half-time enrollment. In mid-January 2004,
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. In early August
2004, College Y bills Student B $10,000 for tuition and $6,000 for
room and board for the 2004 Fall semester. In early September 2004,
College Y applies the $5,000 positive account balance toward Student
B's $16,000 bill for the 2004 Fall semester. In late September 2004,
Student B pays $6,000 towards the charges.
(ii) Reporting for calendar year 2003. Under paragraph (b)(2)(v)
of this section, the $16,000 payment in December 2003 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)(iii) of this section, College Y is required to
report $10,000 of payments received for qualified tuition and
related expenses during 2003. In addition, College Y is required to
indicate that the payments reported for 2003 relate to an academic
period that begins during the first three months of the next
calendar year.
(iii) Reporting for calendar year 2004. Under paragraph
(b)(2)(vi) of this section, the $5,000 credited to Student B's
account is treated as a reimbursement or refund of qualified tuition
and related expenses, because the charges for qualified tuition and
related expenses were reduced by $5,000. Under paragraph (b)(2)(iv)
of this section, the $5,000 reimbursement or refund of qualified
tuition and related expenses must be separately reported on Form
1098-T because it relates to payments of qualified tuition and
related expenses reported by College Y for 2004. Under paragraph
(b)(2)(v) of this section, the $5,000 positive account balance that
is applied toward charges for the 2004 Fall semester is treated as a
payment. Therefore, College Y received total payments of $11,000
during 2004 (the $5,000 credit plus the $6,000 payment). Under
paragraph (b)(2)(v) of this section, the $11,000 of total payments
are treated as a payment of qualified tuition and related expenses
up to the $10,000 billed for such expenses. Therefore, for 2004,
College Y is required to report $10,000 of payments received for
qualified tuition and related expenses during 2004 and a $5,000
refund of payments of qualified tuition and related expenses
reported for 2003.
(3) Information reporting requirements for institutions that elect
to report amounts billed for qualified tuition and related expenses--
(i) In general. Except as provided in paragraph (a)(2) of this section,
an institution reporting amounts billed for qualified tuition and
related expenses must file an information return on Form 1098-T with
respect to each individual enrolled (as determined in paragraph (d)(1)
of this section) for an academic period beginning during the calendar
[[Page 20932]]
year or during a prior calendar year and for whom a reportable
transaction described in paragraph (b)(3)(ii) of this section is made
during the calendar year. An institution may use a substitute Form
1098-T if the substitute form complies with applicable revenue
procedures relating to substitute forms.
(ii) Information included on return. An institution reporting
amounts billed for qualified tuition and related expenses must include
on Form 1098-T--
(A) The name, address, and taxpayer identification number (TIN)(as
defined in section 7701(a)(41)) of the institution;
(B) The name, address, and TIN of the individual who is, or has
been, enrolled by the institution;
(C) The amount billed for qualified tuition and related expenses
with respect to the individual during the calendar year;
(D) An indication by the institution whether any amounts billed 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;
(E) The amount of any scholarships or grants for the payment of the
individual's costs of attendance that the institution administered and
processed during the calendar year;
(F) The amount of any reductions in charges made during the
calendar year with respect to the individual that relate to amounts
billed for qualified tuition and related expenses that were reported by
the institution for a prior calendar year;
(G) The amount of any reductions to the amount of scholarships or
grants for the payment of the individual's costs of attendance that
were reported by the institution with respect to the individual for a
prior calendar year;
(H) An indication by the institution 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);
(I) An indication by the institution whether the individual was
enrolled in a program leading to a graduate-level degree, graduate-
level certificate, or other recognized graduate-level educational
credential; and
(J) Any other information required by Form 1098-T and its
instructions.
(iii) Reportable amounts billed for qualified tuition and related
expenses during calendar year determined. The amount billed for
qualified tuition and related expenses with respect to an individual
during the calendar year that is reportable on Form 1098-T is
determined by netting the amounts billed for qualified tuition and
related expenses during the calendar year against any reductions in
charges for qualified tuition and related expenses made during the
calendar year that relate to amounts billed for qualified tuition and
related expenses during the same calendar year.
(iv) Separate reporting of reductions made to amounts billed for
qualified tuition and related expenses that were reported for a prior
calendar year. An institution must separately report on Form 1098-T any
reductions in charges made during the current calendar year that relate
to amounts billed for qualified tuition and related expenses that were
reported by the institution for a prior calendar year. Such reductions
shall not be netted against amounts billed for qualified tuition and
related expenses during the current calendar year.
(v) Examples. The following examples illustrate the rules in this
paragraph (b)(3):
Example 1. (i) In early August 2003, University X bills enrolled
Student A $10,000 for tuition and $6,000 for room and board for the
2003 Fall semester. In late August 2003, Student A pays $11,000 to
University X. In early September 2003, Student A drops to half-time
enrollment for the 2003 Fall semester. In late September 2003,
University X adjusts Student A's account and reduces the tuition
charges by $5,000 to reflect half-time enrollment. In late September
2003, University X applies the $5,000 account balance toward current
charges.
(ii) Under paragraph (b)(3)(iii) of this section, University X
is required to net the $10,000 amount of tuition billed during 2003
against the $5,000 reduction in charges for qualified tuition and
related expenses during 2003. Therefore, Institution X is required
to report $5,000 in amounts billed for qualified tuition and related
expenses during 2003.
Example 2. (i) The facts are the same as in Example 1, except
that, in addition, in early December 2003, College X bills Student A
$10,000 for tuition and $6,000 for room and board for the 2004
Spring semester. In late December 2003, Student A pays $16,000. In
mid-January 2004, after the 2004 Spring semester classes begin,
Student A drops to half-time enrollment. In mid-January 2004,
College X credits $5,000 to Student A's account, reflecting a $5,000
reduction in charges for qualified tuition and related expenses, but
does not issue a refund check to Student A. In early August 2004,
College X bills Student A $10,000 for tuition and $6,000 for room
and board for the 2004 Fall semester. In early September 2004,
College X applies the $5,000 positive account balance toward Student
A's $16,000 bill for the 2004 Fall semester. In late September 2004,
Student A pays $6,000 toward the charges.
(ii) Reporting for calendar year 2003. Under paragraph
(b)(3)(iii) of this section, College X is required to report $15,000
amounts billed for qualified tuition and related expenses during
2003 ($5,000 for the 2003 Fall semester and $10,000 for the 2004
Spring semester. In addition, College X is required to indicate that
some of the amounts billed for qualified tuition and related
expenses reported for 2003 relate to an academic period that begins
during the first three months of the next calendar year.
(iii) Reporting for calendar year 2004. Under paragraph
(b)(3)(iv) of this section, the $5,000 reduction in charges for
qualified tuition and related expenses must be separately reported
on Form 1098-T because it relates to amounts billed for qualified
tuition and related expenses that were reported by College X for
2003. Under paragraph (b)(3)(iii) of this section, College X is
required to report $10,000 in amounts billed for qualified tuition
and related expenses during 2004.
(4) Requirements for insurers--(i) In general. Except as otherwise
provided in this section, an insurer must file an information return
for each individual with respect to whom reimbursements or refunds of
qualified tuition and related expenses are made during the calendar
year on Form 1098-T. An insurer 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) Information included on return. An insurer must include on
Form 1098-T--
(A) The name, address, and taxpayer identification number (TIN) (as
defined in section 7701(a)(41)) of the insurer;
(B) The name, address, and TIN of the individual with respect to
whom reimbursements or refunds of qualified tuition and related
expenses were made;
(C) The aggregate amount of reimbursements or refunds of qualified
tuition and related expenses that the insurer made with respect to the
individual during the calendar year; and
(D) Any other information required by Form 1098-T and its
instructions.
(5) Time and place for filing return--(i) In general. Except as
provided in paragraphs (b)(5)(ii) and (iii) 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, or amounts were billed, 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 to Form 1098-T.
(ii) Return for nonresident alien individual. In general, an
institution or insurer is not required to file a return on
[[Page 20933]]
behalf of a nonresident alien individual. However, if a nonresident
alien individual requests an institution or insurer to report, the
institution or insurer must file a return described in paragraph (b) of
this section with the IRS on or before the date prescribed in paragraph
(b)(5)(i) of this section, or on or before the thirtieth day after the
request, whichever is later.
(iii) Extensions of time. The IRS may grant an institution or
insurer an extension of time to file returns required in this section
upon a showing of good cause. See the instructions to Form 1098-T and
applicable revenue procedures for rules relating to extensions of time
to file (see Sec. 601.601(d)(2) of this chapter).
(6) Use of magnetic media. See section 6011(e) and Sec. 301.6011-2
of this chapter for rules relating to the requirement to file Forms
1098-T on magnetic media.
(c) Requirement to furnish statement--(1) In general. An
institution or insurer must furnish a statement to each individual for
whom it is required to file a Form 1098-T. The statement must include--
(i) The information required under paragraph (b) of this section;
(ii) A legend that identifies the statement as important tax
information that is being furnished to the IRS;
(iii) Instructions that--
(A) State that the statement reports either total payments received
by the institution for qualified tuition and related expenses during
the calendar year, or total amounts billed 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, or amounts billed, for qualified tuition and related expenses
reported for the calendar year;
(C) State that the amount of any scholarships or grants reported
for the calendar year and other similar amounts not reported (because
they are not administered and processed by the institution) may reduce
the amount of any allowable education tax credit for the taxable year;
(D) 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 institution with respect to the individual for
a prior calendar year may affect the amount of any allowable education
tax credit for the prior calendar year;
(E) State that the amount of any reimbursements or refunds of
qualified tuition and related expenses reported by an insurer may
reduce the amount of an allowable education tax credit for a taxable
year;
(F) State that the taxpayer should refer to relevant IRS forms and
publications, 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
(G) Include the name, address, and phone number of the office or
department within the institution or insurer that is the information
contact for the 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) and (iii) 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, or amounts
were billed, 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 the
applicable regulations.
(ii) Statement to nonresident alien individual. If an information
return is filed for a nonresident alien individual, the institution or
insurer must furnish a statement described in paragraph (c)(1) of this
section to the individual in the manner and on or before the date
prescribed in paragraph (c)(2)(i) of this section, or on or before the
thirtieth day after the nonresident alien's request to report,
whichever is later.
(iii) Extensions of time. The IRS may grant an institution or
insurer an extension of time to furnish the statements required in this
section upon a showing of good cause. See the instructions to Form
1098-T and applicable revenue procedures for rules relating to
extensions of time to furnish statements (see Sec. 601.601(d)(2) of
this chapter).
(3) Copy of Form 1098-T. An institution or insurer may satisfy the
requirement of this paragraph (c) by furnishing either a copy of Form
1098-T and its instructions or another document that contains all of
the information filed with the IRS and the information required by
paragraph (c)(1) of this section if the document complies with
applicable revenue procedures relating to substitute statements (see
Sec. 601.601(d)(2) of this chapter).
(d) Special rules--(1) Enrollment determined. An institution may
determine its enrollment for each academic period under its own rules
and policies for determining enrollment or as of any of the following
dates--
(i) 30 days after the first day of the academic period;
(ii) A date during the academic period on which enrollment data
must be collected for purposes of the Integrated Post Secondary
Education Data System administered by the Department of Education; or
(iii) A date during the academic period on which the institution
must report enrollment data to the State, the institution's governing
body, or some other external governing body.
(2) Payments of qualified tuition and related expenses received or
collected by one or more persons--(i) In general. Except as otherwise
provided in paragraph (d)(2)(ii) of this section, if a person collects
or receives payments of qualified tuition and related expenses on
behalf of another person (e.g., an institution), the person collecting
or receiving payments must satisfy the information reporting
requirements of this section. In this case, the reporting requirements
do not apply to the transfer of the payments to the institution.
(ii) Exception. If the person collecting or receiving payments of
qualified tuition and related expenses on behalf of another person
(e.g., an institution) does not possess the information needed to
comply with the information reporting requirements of this section, the
other person must satisfy the information reporting requirements of
this section.
(3) Governmental units. An institution or insurer that is a
governmental unit, or an agency or instrumentality of a governmental
unit, is subject to the information reporting requirements of this
section and an appropriately designated officer or employee of the
governmental entity must satisfy the information reporting requirements
of this section.
(e) Penalty provisions--(1) Failure to file correct returns. The
section 6721 penalty may apply to an institution or
[[Page 20934]]
insurer that fails to file information returns required by section
6050S and this section on or before the required filing date; that
fails to include all of the required information on the return; or that
includes incorrect information on the return. See section 6721, and the
regulations thereunder, for rules relating to penalties for failure to
file correct returns. See section 6724, and the regulations thereunder,
for rules relating to waivers of penalties for certain failures due to
reasonable cause.
(2) Failure to furnish correct information statements. The section
6722 penalty may apply to an institution or insurer that fails to
furnish statements required by section 6050S and this section on or
before the prescribed date; that fails to include all the required
information on the statement; or that includes incorrect information on
the statement. See section 6722, and the regulations thereunder, for
rules relating to penalties for failure to furnish correct statements.
See section 6724, and the regulations thereunder, for rules relating to
waivers of penalties for certain failures due to reasonable cause.
(3) Waiver of penalties for failures to include a correct TIN--(i)
In general. In the case of a failure to include a correct TIN on Form
1098-T or a related information statement, penalties may be waived if
the failure is due to reasonable cause. Reasonable cause may be
established if the failure arose from events beyond the institution's
or insurer's control, such as a failure of the individual to furnish a
correct TIN. However, the institution or insurer must establish that it
acted in a responsible manner both before and after the failure.
(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 (e)(3)(iii) of this section on or before
December 31 of each year during which it receives payments, or bills
amounts, for 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 required information. The specific solicitation
requirements of paragraph (e)(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 (e)(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.
(iii) Manner of soliciting TIN. An institution or insurer must
request the individual's TIN 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 or insurer. A request for a TIN made on Form W-9S,
``Request for Student's or Borrower's Social Security Number and
Certification,'' satisfies the requirements of this paragraph
(e)(3)(iii). An institution or insurer may establish a system for
individuals to submit Forms W-9S electronically as described in
applicable forms and instructions. An institution or insurer may also
develop a separate form to request the individual's TIN or incorporate
the request into other forms customarily used by the institution or
insurer, such as admission or enrollment forms or financial aid
applications.
(4) Failure to furnish TIN. The section 6723 penalty may apply to
any individual who is required (but fails) to furnish his or her TIN to
an institution or insurer. See section 6723, and the regulations
thereunder, for rules relating to the penalty for failure to furnish a
TIN.
(f) Effective date. The rules in this section apply to information
returns required to be filed, and information statements required to be
furnished, after December 31, 2003.
PART 301--PROCEDURE AND ADMINISTRATION
Par. 4. The authority citation for part 301 continues to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 5. Section 301.6011-2 is amended by:
1. In paragraph (b)(1), first sentence, add the language ``1098-
T,'' immediately after the language ``1098-E,''.
2. Revising paragraph (g)(3).
The revision reads as follows:
Sec. 301.6011-2 Required use of magnetic media.
* * * * *
(g) * * *
(3) This section applies to returns on Forms 1098-E and 1098-T
filed after December 31, 2003.
Robert E. Wenzel,
Deputy Commissioner of Internal Revenue.
[FR Doc. 02-9932 Filed 4-26-02; 8:45 am]
BILLING CODE 4830-01-P