IRS Cracks Down on Form 1098-T Errors
If a student supplies a college or university with an incorrect taxpayer ID number (TIN) and the school, in good faith, uses that TIN when it reports tuition payments to the IRS via Form 1098-T, who is ultimately responsible for the error?
According to the IRS, the institution of higher education is. And while the government has levied penalties on colleges and universities for these errors in the past, now it appears to be taking a more aggressive approach: Recently many schools have received IRS Notice 972CG, assessing automatic penalties on their organization for incorrect or incomplete Forms 1098-T.
Complicating matters, some schools may voluntarily file Forms 1098-T for foreign students who lack a TIN. The instructions say a Form 1098-T isn’t required in these cases unless requested, so this voluntary report can be a contributing factor in the IRS’s penalty assessments. What’s more, because these penalties haven’t always been enforced in the past, schools may not be proactively and repeatedly asking students for their TINs, resulting in incomplete Forms 1098-T.
From the IRS’s perspective, it’s a matter of verification. The IRS relies on Form 1098-T to help it determine which students are eligible for a variety of education-related tax credits, such as the Hope and Lifetime Learning Credit. Invalid or missing TINs hinder the IRS’s ability to process those determinations.
However, from a higher education institution’s perspective, it’s a potentially challenging liability to wrestle with. Fortunately, there may be ways to ease the impact.
Penalty Waivers Available
When colleges and universities collect students’ TINs, they rely on that data in good faith. And even though the IRS appears to be penalizing institutions for the sometimes poor quality of that data, Treasury Department regulations offer a remedy: If your school can establish that the reporting failures were due to reasonable cause (in this case good-faith information) and not willful neglect, you can request a waiver of penalties associated with Notice 972CG.
Filers have 45 days from the date of the Notice 972CG to respond to the IRS and request a waiver of the penalty, but you can also request a 30-day extension.
We’re Here to Help
If your college or university has received Notice 972CG from the IRS, Moss Adams can help you respond to the IRS and navigate the waiver process. In the meantime, for more information about penalties associated with Form 1098-T, please contact your Moss Adams tax professional.