IRS Waiving Penalties for 1098-T Forms Filed Incorrectly or Missing TINs

August 31, 2015

Prepared by: Michelle Cravez (mcravez@wpllc.net)

On June 29, Congress passed new trade legislation that included an amendment that eased 1098-T penalties on institutions of higher education and others for failing to properly report student taxpayer ID numbers (TIN), such as social security numbers. While this provision goes into effect for statements originating after December 31, 2015, schools have reported receiving IRS Notices of penalties for failing to provide accurate information on 1098-T forms filed from previous tax years. On Friday, the IRS announced it will drop penalties for tax years 2012, 2013 and 2014 and described the process to follow to have penalties waived.

The Taxpayer Relief Act of 1997 requires schools to file a 1098-T form for any student where a reportable transaction was made to help the taxpayer and IRS in determining a taxpayer’s eligibility for education tax credits. Since 2011, schools can be fined up to $100 for each information return document sent to the IRS with missing or incorrect TINs. Colleges and universities voiced their concerns over these penalties as many report they are unable to obtain TINs from students or that they unknowingly receive an incorrect TIN. The National Association of College and University Business Offices (NACUBO) and other higher education organizations fought hard against what they believe were unjust penalties, and their efforts have proven successful with the passage of the legislation and the most recent IRS announcement.

In 2014, the IRS said it would waive 1098-T fees for the tax year 2011 only. However, last week’s announcement confirms that the agency will also be granting such relief for tax years 2012, 2013, and 2014.

The IRS announcement reads as follows:

“Relief for these three years is being given in light of recent legislation that provides relief to educational institutions from future penalties for missing or incorrect TINs if the educational institution certifies under penalty of perjury that it has complied with regulations governing solicitation of payee TINs. Although this legislation permits this certification, it does not remove the requirement to properly solicit payee TINs.

For tax year 2012, each educational institution that was previously assessed such penalty will receive a letter from the IRS informing them of the IRS’ decision. Affected institutions that do not receive a letter by Oct. 1, 2015, should respond to the IRS using the original penalty assessment notice. The IRS is not assessing penalties for incorrect or missing TINs for tax years 2013 and 2014.”

As mentioned above, the recently enacted Trade Preferences Extension Act of 2015, creates a safe harbor for eligible higher education institutions from IRS penalty notices for missing taxpayer identification numbers and requires certain taxpayers claiming education tax benefits to possess a valid 1098-T.

The new law reads:

“No penalty shall be imposed under section 6721 or 6722 solely by reason of failing to provide the TIN of an individual on a return or statement required by section 6050(S)(a)(1) if the eligible educational institution required to make such return contemporaneously makes a true and accurate certification under penalty of perjury (and in such form and manner as may be prescribed by the Secretary) that it has complied with standards promulgated by the Secretary for obtaining such individual’s TIN.”

This provision goes into effect for statements furnished after December 31, 2015.