Tuesday, May 10, 2016


Professor Annette Nellen brings up an interesting issue in her recent post “New Rules Can Produce New Problems - AOTC and 1098-T” at 20th CENTURY TAXATION.

As Annette points out, beginning with tax year 2016 –

A 2015 law changes requires an individual to have received a Form 1098-T from the university in order to claim the tax benefit.”

The purpose of this new requirement is to enhance the IRS matching program.

Thankfully, the required 1098-T also must now include an entry in Box 1 to indicate the amount of payments received “from any source” – basically by the student (or the student’s family) or for the student (such as student loan proceeds) for qualified tuition and related expenses during the calendar year.  Previously most colleges only reported the amounts billed – making the majority of Form 1098-Ts as useful at tax time as tits on a bull.  In preparing the tax return I don’t give a rat’s hind quarters how much the college billed – I need to know how much was paid by or for the student.  My clients are, after all, cash-basis taxpayers.

However, the American Opportunity Credit is based on qualified tuition and fees paid during the year, now properly reported on the Form 1098-T, and required books and supplies, which are not reported on the Form 1098-T.

The issue that Annette brings up goes like this –

You cannot claim an American Opportunity Credit for 2016 unless the college issues a Form 1098-T.  If a student who is graduating in May of 2016 was billed, and paid for, Spring 2016 tuition (the student’s final semester) at the end of 2015, then there will be no payments made to the college in 2016 and, I expect, no Form 1098-T issued for 2016.  But the student will still be purchasing books for the Spring 2016 semester in 2016, an expense that is eligible for the AOC.  It looks like the student will be screwed out of a legitimate AOC for 2016, based on qualified book purchases, because no Form 1098-T was issued. 

Annette illustrates the problem with a recent court case.

The problem would be fixed if colleges were required to issue Form 1098-T for all students enrolled at a college at least half-time during the year, regardless of whether or not any tuition or fees were paid.

It also occurs to me that a matching problem might also appear.  Since qualified book and material expense are not reported on a Form 1098-T the amount of expenses, if less than the maximum $4,000, reported on the tax return could be more than the amount reported on the Form 1098-T.  An extra line on the Form 8863 to separately identify tuition and fees per Form 1098 and nor-reported books and materials would fix this potential FU.


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