The IRS has granted educational institutions an additional one-year reprieve from penalties if they fail to provide information on the amounts actually paid to the institution for the year in question on Form 1098-T and rather provide information solely on the amounts billed to the student. No penalties will be assessed against institutions that report tuition billed rather than tuition paid on Forms 1098-T for 2017 per Announcement 2016-42.
Announcement 2016-17 originally provided a one year reprieve for 2016 Forms 1098-T from the law change enacted as part of the Protecting Americans from Tax Hikes Act of 2015.
As part of a package of provisions meant to reign in unauthorized claims for the American Opportunity Tax Credit and Lifetime Learning Credit, the Congress removed the option for educational institutions to report the amounts billed for tuition to a student on Form 1098-T in lieu of reporting the amounts actually paid by the student during the year. The credits in question are only available for amounts actually paid during the year in question, though not surprisingly many taxpayers simply used the amount on that form to claim the credit, even if the actual payment was made in a different year.
The IRS justifies this additional extension of time by noting:
Representatives of eligible educational institutions have informed the IRS that despite diligent efforts on the part of eligible educational institutions and their software providers, the changes to accounting systems, software, and business practices that eligible educational institutions must make to implement section 212 of PATH cannot be accomplished in time to apply these changes for calendar year 2017. To report the amount of payments received for calendar year 2017, eligible educational institutions must adopt a new payment application methodology beginning January 1, 2017. However, software vendors and service providers in this field do not yet have a solution in place implementing this new methodology.
For that reason, the IRS granted the following relief (which is a virtual copy/paste of the identical language found in Announcement 2016-17):
In light of this, the IRS will extend the relief from penalties under sections 6721 and 6722, as described in Announcement 2016-17, to 2017 Forms 1098-T. Eligible educational institutions, therefore, will continue to have the option of reporting either the amount of payments of qualified tuition and related expenses received in Box 1 of Form 1098-T or the amount of qualified tuition and related expenses billed in Box 2 of Form 1098-T for the 2017 calendar year without being subject to penalties. Institutions should refer to the instructions for the 2017 Form 1098-T for further guidance for reporting these amounts. This penalty relief does not apply to any other failure subject to a penalty under section 6721 or 6722.
While the relief may make life easier for educational institutions, it will complicate matters for tax professionals who need to comply with the expanded due diligence rules under IRC §6695(g) that will impose a $500 penalty on preparers who fail to meet due diligence requirements documenting qualification for the American Opportunity Credit beginning with 2016 returns. It will simply complicate the lives of taxpayers claiming the credit who face a potential two-year bar on claiming the credit if the American Opportunity Credit is improperly claimed (such as by using the billed rather than paid amount for tuition) on their tax return.
The reporting only of amounts actually paid on Form 1098-T would have simplified the matter of confirming eligibility to claim the credit just as the due diligence penalty and two-year bar on claiming the credit rules expanded to cover this credit. However now advisers will need to not only ask about payments (as they have in the past, being unable to rely on the Form 1098-T), but may need to obtain other evidence to meet this rule for 2016 returns—and taxpayers who simply copy numbers form the Form 1098-T may find themselves at risk to losing the credit in the future.