Part of the PATH Act of 2015 requires educational institutions to issue Forms 1098-T showing the amount PAID for qualified tuition and related expenses beginning with the calendar year 2016 forms. As many of you know the Forms 1098-T for 2016 did not all show the amounts paid but only showed the amounts billed, just as in prior years. Here’s the latest.
Many years ago Form 1098-T came into existence. The education institutions were told they had to report the amounts paid during the year. Many institutions told IRS they had difficulty doing this so IRS gave them extra time to get their software set up. Then IRS gave them the option of reporting the amounts either when paid (Form 1098-T, box 1) or when billed (Form 1098-T, box 2). IRS has stated many times that the amount shown in box 2 is NOT sufficient proof the amount paid during the year and taxpayer should obtain records showing how much was PAID to the institution during the applicable year. IRS examiners focused on the amount on the Forms 1098T regardless of which box the amount was in and denied credits when the amount on the form did not match the amount claimed on the tax return.
Since PATH Act of 2015 requires the institutions to show the amounts PAID, many tax professionals have expressed happiness that the institutions will now have to provide information that will be more likely to match with the real amount of tuition paid during the year. Hopefully this will result in less improper, and often automatic, IRS denials.
Yet again many institutions have told IRS they cannot get their computer software reprogrammed in order to show the amount PAID by the due date of the Form 1098-T. Again IRS is providing the institutions with relief.
In Announcement 2016-17 IRS stated it would not impose penalties on institutions with respect to Forms 1098-T required to be filed and furnished for the 2016 calendar year if the institution reports on the Forms 1098-T the total amount BILLED for qualified tuition and related expenses.
In Announcement 2016-42 IRS states it will not impose penalties on institutions with respect to Forms 1098-T required to be filed and furnished for the 2017 calendar year if the institution reports on the Forms 1098-T the total amount BILLED for qualified tuition and related expenses.
This means, again, many of the Forms 1098-T our clients receive for the 2017 calendar year will NOT have the amounts PAID. We should remind our clients they still need to have documentation showing the amounts paid to the school and not to rely on the Forms 1098-T.
This text has been shared with you courtesy of: David & Mary Mellem, EAs & Ashwaubenon Tax Professionals, 920-496-1065 (920-496-9111).
