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Schools Target Trouble Spots in Tuition Reporting Regs

OCT. 31, 2016

Schools Target Trouble Spots in Tuition Reporting Regs

DATED OCT. 31, 2016
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[Editor's Note: The IRS received many substantially similar letters, including .]

 

Date: October 31, 2016

 

 

To:

 

Internal Revenue Service (IRS), Comments to Proposed 1098-T

 

Regulations issued July 2016 (IRS REG-131418-14)

 

 

From:

 

State of Florida University System (SUS) --

 

Institutional Committee on Finance and Accounting (ICOFA)

 

 

University of Florida

 

 

University of South Florida

 

 

University of Central Florida

 

 

University of West Florida

 

 

University of North Florida

 

 

Florida Polytechnic University

 

 

Florida State University

 

 

Florida International University

 

 

Florida A & M University

 

 

New College of Florida

 

 

Florida Gulf Coast University

 

 

Florida Atlantic University

 

 

RE: ICOFA Comments to Proposed 1098-T Regulations issued July 2016

 

The above listed universities provide the following in response to the Treasury and the IRS's request for comments in the Preamble to Proposed Regulations (08/02/2016. Fed. Reg. Vol. 81, No. 148, p. 50657).

Exception for reporting nonresident alien students:

The IRS requested comments about the exception to reporting for students who are nonresident aliens, including how an institution determines that a student is a nonresident alien and experience administering the existing exception. [Existing Treas. Reg. 1.60508-1(a)(2)(i)]

The determination of whether a student is a nonresident alien requires considerable time and effort in applying the substantial presence test (SPT). The majority of the universities do not exclude nonresident alien students from Form 1098-T reporting. Many of these students do not have a social security number (SSN) or an individual tax identification number (ITIN) and thus do not provide the number when requested, resulting in Forms 1098-T filed with no tax identification number (TIN).

 

Comment: One possibility may be the elimination of reporting for students who do not provide a TIN when requested. If that is adopted it would be beneficial to specify the TIN must be provided on or before the last day of the applicable calendar year to eliminate the need for institutions to file corrected Forms 1098-T in the event TINs are provided after forms have been filed with the IRS. It would be helpful to clarify the acceptable documentation that the university should retain for acceptable proof the TIN was requested by the university, such as a copy of the emails sent to each student requesting completion and return of the W9 S form.

 

Retaining Exception for noncredit courses

The IRS requested comments about whether the exception for noncredit courses should be retained and, if so, whether there should be any changes to the exception. [Existing Treas. Reg. 1.60508-1(a)(2)(ii)]

SUS institutions do not maintain information about students enrolled in noncredit courses in the same student accounting systems as traditional degree-seeking students; thus, it would be difficult to include noncredit students in the 1098-T reporting process. Noncredit courses offered by the SUS include general continuing education courses as well as those tailored to continuing education requirements for medical and accounting professionals. Information on individuals enrolled in these courses is maintained by the department or area responsible for overseeing the activity.

 

Comment: Reporting on noncredit courses would require significant effort to identify all the courses being offered around campus, collect reporting information for each participant and determine how to generate Forms 1098-T for participants who are not enrolled in credit courses and not included in the student accounting system. SUS institutions are all in support of retaining the exception for noncredit courses.

 

Other Exceptions to Reporting

The IRS requested comments for elimination of other exceptions to the reporting [Existing Treas. Reg. 1.60508-1(a)(2)(iii) and (iv)]

The proposed regulations eliminate the exclusions for reporting when qualified tuition and related expenses (QTRE) are paid entirely by scholarships and reporting when QTRE is paid under a formal billing arrangement. Some SUS institutions do not eliminate students from reporting in either of these circumstances as it is difficult to eliminate students whose QTRE is entirely waived or paid by scholarships and arrangements with third parties may not meet the definition of a formal billing arrangement [defined in Treas. Reg. 1.60508-1(a)(2)(iv)(B)], as a separate billing account is maintained for all enrolled students. These institutions may have arrangements where tuition is billed to an employer, government entity or third party.

 

Comment: Clarification regarding reporting for amounts billed to third parties would be helpful as the term applies to a variety of arrangements. Specifically, should Box 1 amount reflect $0 if tuition was paid by a third party billing arrangement or should that amount be reported in Box 5 as a scholarship or grant? Box 5 reporting may cause confusion in many cases such as when an employer provides non-taxable benefits to an employee pursuant to an IRC Sec. 127 Educational Assistance Program or the education qualifies for exclusion as a job-related Sec. 132 working condition fringe benefit. In addition, some third party billing arrangements are with prepaid tuition plans which are not scholarships and should not be reported in Box 5.

 

Determining Payments for QTRE

The IRS requested comments on rules for determining the amount of payments received for QTRE, including alternative approaches and recommendations for addressing other issues that should be covered by these rules. [Proposed Regulation 1.60508-1(b)(2)(J)(v)]

SUS institutions maintain one account for each student where charges for QTRE, housing, parking fees, parking tickets, library fines, health insurance, athletic fees, technology fees, student activity fees are posted. At the majority of the SUS institutions, student payments, scholarships, loans and other aid are credited to the student account according to each institutions application of payment policy to cover expenses and the remainder is refunded to the student. In the case of scholarships or grants that limit payments to room, board or books directly charged by students an amount equal to those charges is posted to the student account.

At some institutions the individual making the payment to the student account is allowed a choice of which charges they would like their payments to be posted toward. These payments are sometimes received prior to when any other financial aid is received and the payment can cover the total amount of QTRE. This causes disconnect between the application of payment process and the refunding language in the proposed regulation. One set of rules for all institutions will not address the various factors contributing to the reporting of payments of QTRE.

Comment: Examples currently in the proposed regulations outlined below are confusing and do not appear to follow the general rules.

Proposed Regulation 1.60508-1(b)(2)(v) provides:

 

Payments received for QTRE determined. For purposes of determining the amount of 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 QTRE, such as room and board) payments are treated first as payments of QTRE up to the total amount billed by the institution for QTRE for enrollment during the calendar year, and then as payments of expenses other than QTRE fore enrollment during the calendar year. Payments received with respect to an amount billed for enrollment during an academic period beginning in the first 3 months of the following calendar year in which the payment is made are treated as payment of QTRE in the calendar year during which the payment is received by the institution. 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.

Comment: Application of payments in Proposed Regulation 1.60508-1(b)(2)(vii) Example 5 does not follow the general rule as stated here. Recommend restating the general rule to apply application of payments on a semester basis.

 

Proposed Regulation 1.60508-1(b)(2)(vi) provides:

 

Reimbursements of refunds of payments for QTRE determined. For purposes of determining the amount of reimbursements or refunds made of payments received for QTRE, any reimbursement or refund made with respect to an individual during a calendar year (except for any refund of a scholarship or grant that, by its terms, was required to be applied to expenses other than QTRE, such as room and boardj is treated as a reimbursement or refund of payments for QTRE up to the amount of any reduction in charges for QTRE. 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.

 

Proposed Regulation 1.60508-1(b)(2)(vii):

 

Example 3. (i) The facts are the same as in Example 1 of this paragraph (b)(2)(vii), except that Student A is enrolled full-time, and, in early September 2016, Student A decides to live at home with her parents. In late September 2016, 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 QTRE up to the $10,000 billed for QTRE. Under paragraph (b)(2)(vi) of this section, the $1,000 refund is not treated as reimbursement or refund of payments for QTRE because University X has reduced room and board charges for the 2016 fall semester, rather than reducing charges for QTRE for the 2016 fall semester. Therefore, under paragraph (b)(2)(iii) of this section, University X is required to report $10,000 of payments received for QTRE during 2016 on a 2016 Form 1098-T.

Comment: The only exception in 1.60508-1(b)(2)(vi) is for a "scholarship or grant"; however, this example is making an exception based on how university applied the refund to the student account.

 

Proposed Regulation 1.60508-1(b)(2)(vii):

 

Example 5. (i) Student C enrolls in College Z as a full-time student the 2016 fall semester and the 2017 spring semester. Student C was not enrolled in, and did not attend, any institution of higher education prior to the 2016 fall semester. In August 2016, College Z sends a bill to Student C for $11,000 for the 2016 fall semester. In December 2016, College Z sends a bill to Student C for $11,000 for the 2017 spring semesters. QTRE billed for each semester is $6,000 and room and board billed for each semester is $5,000. In September 2016, College Z receives a payment of $11,000 which is applied toward the amount billed for Student C's attendance during the 2016 fall semester. In December 2016, College Z receives a payment of $4,500 which is applied toward the amount billed for Student Cs attendance during the 2017 spring semester. In February 2017, College Z receives a payment of $6,500, the remainder of the amount billed for enrollment during the 2017 spring semester, (ii) On the 2016 Form 1098-T, College Zreports the payment of $10,500 of QTRE determined as follows: $6,000 for the payment received in September 2016 with respect to the amount billed for QTRE for the 2016 fall semester and $4,500 for the payment received in December 2016 with respect to the amount billed for QTRE for the 2017 spring semester. On the 2017 Form 1098-T, College Z reports the payment of $1,500 of QTRE received in February 2017 with respect to the amount billed for QTRE for the 2017 spring semester.

Comment: Example is not following rule in 1.60508-1(b)(2)(v) that all payments received are applied first to QTRE. College billed $12K QTRE in 2016 thus, 2016 Form 1098-T would show $12K QTRE paid. Example is only allowing $6K for fall 2016 and $4,500 for following year which appears to be applying the rules on a semester rather than calendar year basis as provided in the general rule. SUS institutions agree with the logic of the example applying payments on a semester basis and recommend the general rule agree.

 

Time Needed to Implement System Changes

Once the proposed regulations are finalized, SUS institutions will need significant time to implement changes to information reporting systems. Internal programming and modification of third party systems (that must be modified by external parties) will be required. This will cause additional costs to institutions. A minimum of 18 months after the date proposed regulations are finalized will be needed to incorporate changes into existing systems.

The members of the Inter-Institutional Committee on Finance & Accounting appreciate the opportunity to comment on these changes. Please contact me (850-474-2642), Anne Jetmundsen (813-233-2398) or Jeffrey Djerlek (850-474-2759) for further information or clarification.

Sincerely,

Colleen M. Asmus

 

ICOFA Chair
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