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Educational institutions get penalty relief for PATH Act tuition reporting change

Ann. 2016-17, 2016-20 IRB

IRS has announced that it will not impose penalties under Code Sec. 6721 or Code Sec. 6722 on eligible educational institutions required to file Forms 1098-T, Tuition Statement, for the 2016 calendar year, if the institution reports the aggregate amount billed for qualified tuition and related expenses on Form 1098-T instead of the aggregate amount of payments received. This penalty relief was granted in light of a law change made late last year by the Protecting Americans from Tax Hikes (PATH) Act of 2015 (P.L. 114-113), which eliminated the option of reporting the billed amount for expenses paid after Dec. 31, 2015. This relief is limited to 2016 Forms 1098-T required to be filed by eligible educational institutions by Feb. 28, 2017 (or Mar. 31, 2017, if filed electronically).

Background. Code Sec. 6050S(a)(1) and Code Sec. 6050S(d) generally require eligible educational institutions to file information returns (Form 1098-T) with IRS and furnish written statements to taxpayers relating to qualified tuition and related expenses paid by, or on behalf of, students. Reg. § 1.6050S-1(b)(5) provides that information returns required underCode Sec. 6050S must be filed by February 28 (or March 31 if filed electronically) of the year following the calendar year to which such returns relate. Under Code Sec. 6050S(d), written statements required under that section must be furnished to recipients by January 31 of the year following the calendar year for which such statements are furnished.

Code Sec. 6050S(b)(2) specifies the contents of the information return. Under pre-PATH Act law, former Code Sec. 6050S(b)(2) allowed eligible educational institutions to report either the aggregate amount of payments received for qualified tuition and related expenses or the aggregate amount billed for such tuition and expenses. However, the option to report amounts billed was eliminated as part of the PATH Act. As amended by the PATH Act, effective for expenses paid after Dec. 31, 2015, Code Sec. 6050S(b)(2) requires eligible educational institutions to report the aggregate amount of payments received for qualified tuition and related expenses during the calendar year from, or on behalf of, a student.

Code Sec. 6721 imposes a penalty on an eligible educational institution that fails to file correct and/or timely information returns with IRS. Code Sec. 6722 imposes a penalty on an educational institution that fails to furnish correct and/or timely written statements to the student. Under Code Sec. 6724(a), the penalty under Code Sec. 6721 or Code Sec. 6722 may be waived if it is shown that the failure was due to reasonable cause and not due to willful neglect.

Issue. Following the enactment of the PATH Act, numerous eligible educational institutions informed IRS that implementation of the law change will require computer software reprogramming and other changes that cannot be implemented in time to meet the applicable filing and furnishing due dates for Form 1098-T for calendar year 2016.

No penalty for 2016 Forms 1098-T. In light of this issue, IRS will not impose penalties under Code Sec. 6721 or Code Sec. 6722 with respect to 2016 Forms 1098-T solely because the eligible educational institution reports the aggregate amount billed for qualified tuition and related expenses for the 2016 calendar year. Thus, eligible educational institutions will continue to have the option of reporting either the amount of payments of qualified tuition and related expenses received or the amount of qualified tuition and related expenses billed for the 2016 calendar year without being subject to penalties. Institutions should refer to the instructions for the 2016 Form 1098-T for further guidance for reporting of these amounts.

This penalty relief does not apply to other failures subject to a penalty under Code Sec. 6721 or Code Sec. 6722.

References: For penalty for failure to file correct information returns, see FTC 2d/FIN ¶  V-1803  ; United States Tax Reporter ¶  67,214  ; TaxDesk ¶  861,033  ; TG ¶  71703  .