On July 22, President Clinton gave his approval to a bill that includes modifications to the reporting requirements for educational institutions for Hope and Lifetime Learning tax credits. The changes to the Taxpayer Relief Act were included in the IRS Restructuring and Reform Act of 1998 (HR 2676) passed by the House on June 25 and just recently by the Senate.
Institutional Reporting Requirements
The change to Internal Revenue Code section 6050S clarifies the reporting
of qualified tuition and related expenses. Institutions will be required
to report the aggregate amount of qualified tuition and related expenses,
grant amounts received for payment of costs of attendance that was processed
through the institution, and the aggregate amount of refunds and reimbursements
paid by the institution. The conference report language makes it clear
that qualified tuition and related expenses should be reported without
adjustments for nontaxable grant aid. Many institutions were concerned
that regulations would require institutions to apply grants to specific
expenses in order to report a net amount on Form 1098-T.
Student Loan Interest Deductibility
The bill modifies Section 221 of the Internal Revenue Code to clarify
the provision related to the deductibility of student loan interest.
The bill provides that the student loan interest deduction may be claimed
only by a taxpayer who is legally obligated to make the interest payments
pursuant to the terms of the loan. The provision is effective for interest
payments due and paid after December 31, 1997, on any qualified education
loan. Further, the bill stipulates that, in the case of multiple loans
which are refinanced by, or serviced as, a single loan and in the case
of loans incurred before the date of enactment, the Secretary shall
prescribe what constitutes the 60 months each loan is eligible for the
deduction of interest paid.
The conference report, which does not have the force of law but does provide agencies with insight into congressional intent, also addresses several other issues that have concerned the higher education community, as follows:
Definition of qualified tuition and related expenses
The conferees urge Treasury to conform the definition to that used in
section 472(1) of the Higher Education Act, to the extent possible.
This is the definition of tuition and fees that is used as part of the
calculation of cost of attendance. Exceptions in the statutory language
of Code section 25A for expenses relating to sports, games, or hobbies,
and nonacademic fees will still apply.
Delay until regulations issued. The change to section 6050S is effective for tax years beginning on or after January 1, 1999. Under IRS Notice 97-73, institutions are not required to report any financial information for 1998. The conference report directs that the effective date on regulations should allow educational institutions sufficient time to implement additional reporting requirements, and that no reporting beyond that specified in Notice 97-73 should be required until final regulatory guidance is available.
Exemptions
The conferees also note that Treasury has the authority to exempt institutions
from reporting on certain categories of students, such as "non-degree
students enrolled in a course for which academic credit is not granted
by the institution," as long as the exemptions do not compromise
compliance objectives.
Reporting on parents
The conference report does not address institutions' concerns about
reporting on the person who will claim the student as a dependent except
to urge that any modernization of IRS computer systems include the capacity
to match dependents' taxpayer identification numbers to the taxpayers'
returns. Efforts to seek statutory relief from reporting on parents
were stymied by the extremely high cost to the federal government associated
with the elimination of this requirement.