The IRS has granted educational institutions a 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. Announcement 2016-17 provides this short term relief 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 notes that they had received comments from educational institutions regarding this provision:
Following the enactment of PATH, numerous eligible educational institutions informed the 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.
For that reason, the IRS granted the following relief:
In light of this, the IRS will not impose penalties under section 6721 or 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 any other failure subject to a penalty under section 6721 or 6722.
While the relief may make life easier for educational institutions, it may 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.
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 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.