Sharon H. Bob, Ph.D.
Higher Education Specialist on Policy and Regulation
Drinker Biddle & Reath LLP

Many new tax benefits for adults who want to return to school and for parents who are sending or planning to send their children to college will be available due to the balanced budget signed into law in August, 1997. These tax cuts effectively make the first two years of college universally available, and they will give many more working Americans the financial means to go back to school if they want to choose a new career or upgrade their skills. When fully phased in, 12.9 million students are expected to benefit -- 5.8 million under the "HOPE Scholarship" tax credit, and 7.1 million under the Lifetime Learning tax credit.

Up to a $1,500 "HOPE Scholarship" tax credit for students starting college

The "HOPE Scholarship" tax credit helps make the first two years of college or vocational school universally available. Students will receive a 100% tax credit for the first $1,000 of tuition and required fees and a 50% credit on the second $1,000. This credit is available for tuition and required fees less grants, scholarships, and other tax-free educational assistance and will be available for payments made after December 31, 1997 for college enrollment after that date. A high school senior going into his or her freshman year of college in September, 1998, for example, could be eligible for as much as a $1,500 HOPE tax credit.

This credit is phased out for joint filers who have between $80,000 and $100,000 of adjusted gross income, and for single filers who have between $40,000 and $50,000 of adjusted gross income. The credit can be claimed in two years for students who are in their first two years of college or vocational school and who are enrolled on at least a half-time basis in a degree or certificate program for any portion of the year. The taxpayer can claim a credit for his own tuition expense or for the expenses of his or her spouse or dependent children.

A married couple with an adjusted gross income of $60,000 has two children in college at least half-time, one at a community college with a tuition of $2,000 and the other a sophomore at a private college with tuition of $11,000. Using the HOPE Scholarship tax credit, this couple would have their taxes cut by as much as $3,000.

The Lifetime Learning tax credit

This tax credit is targeted to adults who want to go back to school, change careers, or take a course or two to upgrade their skills and to college juniors, seniors, graduate and professional degree students. A family will receive a 20% tax credit for the first $5,000 of tuition and required fees paid each year through 2002, and for the first $10,000 thereafter. Just like the "HOPE Scholarship" tax credit, the Lifetime Learning tax credit is available for tuition and required fees less grants, scholarships, and other tax-free educational assistance; families may claim the credit for amounts paid on or after July 1, 1998 for college or vocational school enrollment beginning on or after July 1, 1998. The maximum credit is determined on a per-taxpayer (family) basis, regardless of the number of post-secondary students in the family, and is phased out at the same income levels as the "HOPE Scholarship" tax credit. Families will be able to claim the Lifetime Learning tax credit for some members of their family and the "HOPE Scholarship" tax credit for others who qualify in the same year.

A homemaker, whose family has an adjusted gross income of $70,000, wants to attend a graduate teacher training program at a public university ($3,500 tuition) after being out of college for 20 years. Using the Lifetime Learning credit, her family's income taxes would be cut by as much as $700.

A married couple has an adjusted gross income of $32,000. The husband who is working as an automobile mechanic decides to go back to a local technical college to take some computer classes in the hope of getting a different job. He will pay a tuition of $1,200. Using the Lifetime Learning credit, this family would have their taxes cut by as much as $240.

Parents and grandparents can create education IRAs and make penalty-free withdrawals from other IRAs

Beginning January 1, 1998, taxpayers may withdraw funds from an IRA, without penalty, for their own higher education expenses or those of their spouse, child, or even grandchild. In addition, for each child under age 18, families may deposit $500 per year into an Education IRA in the child's name. Earnings in the Education IRA will accumulate tax-free and no taxes will be due upon withdrawal if the money is used to pay for post-secondary tuition and required fees (less grants, scholarships, and other tax-free educational assistance), books, equipment, and eligible room and board expenses. Once the child reaches age 30, his or her Education IRA must be closed or transferred to a younger member of the family.

A taxpayer's ability to contribute to an Education IRA is phased out when the taxpayer is a joint filer with an adjusted gross income between $150,000 and $160,000, or a single filer with an adjusted gross income between $95,000 and $110,000. There are a few restrictions. A student, for example, who receives the tax-free distributions from an Education IRA may not, in the same year, benefit from the "HOPE Scholarship" or Lifetime Learning tax credits.

Greater flexibility for families saving in qualified State tuition plans

When a family uses a qualified State-sponsored tuition plan to save for college, no tax is due in connection with the plan until the time of withdrawal as a result of a law passed last year. This year's change in law allows families to use these plans to save not only for tuition but also for certain room and board expenses for students who attend on at least a half-time basis. Tuition and required fees paid with withdrawals from a qualified State tuition plan are eligible for the "HOPE Scholarship" tax credit and Lifetime Learning tax credit. These benefits are available on January 1, 1998.

Paying back student loans at a lower cost

For many college graduates, one of their first financial obligations is to repay their student loans, which average about $13,500 per student. The new student loan interest deduction will reduce the burden of the repayment obligation by allowing students or their families to take a tax deduction for interest paid in the first 60 months of repayment on student loans. The deduction is available even if an individual does not itemize other deductions.

The maximum deduction is $1,000 in 1998, $1,500 in 1999, $2,000 in 2000, and $2,500 in 2001 and beyond. It is phased out for joint filers with adjusted gross income between $60,000 and $75,000, and single filers with adjusted gross income between $40,000 and $55,000. The deduction is available for all educational loans, including loans made to students, parents, guaranteed student loans, and loans from private lenders, made before August of 1997 when the new student loan interest deduction became law but only to the extent that the loan is within the first 60 months of repayment.

A senior graduates from college and finds a job paying $25,000 a year (and has no other income). The student has a total student debt of $12,000 and is in the 15% federal income tax bracket. The monthly payment for this student's loans is $148. The total amounts of payments for the first year is $1,776, over half of which is interest ($960) which can be deducted under the new law. The student's maximum tax benefit can be calculated by multiplying $960 by 15%: for a tax savings of $144.

Going to school while you work

The new tax law extends Section 127 of the tax code for three years. Section 127 allows workers to exclude up to $5,250 of employer-provided education benefits from their income. The assistance must be for undergraduate courses beginning prior to June 1, 2000. This provision will enable many Americans to pursue their goals of lifelong learning.

Community service loan forgiveness

This provision excludes from income student loan amounts forgiven by non-profit, tax-exempt charitable or educational institutions for borrowers who take community-service jobs that address unmet community needs. For example, a recent graduate who takes a low-paying job in a rural school will not owe any additional income tax if in recognition of this service her college or another charity forgives a loan it made to her to help pay her college costs. This provision applies to loans forgiven after August 5, 1997.

The balanced budget bills signed by President Clinton include many other provisions that will help all of the young people in America grow and learn and help families navigate through these changing times. The new tax law includes a provision to encourage computer donations to schools. The balanced budget agreement protects and advances President Clinton's top domestic priorities, such as expansion of Head Start, and an increase in the maximum Pell grant for college to $3,000. All of these benefits and tax cuts have one goal: to give parents the support they need to give their children a first class education and hope for the future. For information on additional student aid programs that will help meet the costs of college and lifelong learning for you, your children and grandchildren, please call 1-800-4FED-AID. For information on the importance of getting ready for college early, especially middle school students, call 1-800-USA-LEARN.

(This is an informational guide produced by the Department of Education; for detailed tax information and instruction please consult your IRS tax forms and publications to see if you qualify.)

http://www.ed.gov/updates/97918tax.html Last Updated -- April 14, 1999, (kdw)

IRS NOTICES PROVIDING GUIDANCE FOR THE TAXPAYER RELIEF ACT OF 1997, AS AMENDED BY THE IRS RESTRUCTURING AND REFORM ACT OF 1998

The IRS has issued a series of Notices to provide educational and lending institutions with guidance in implementing the TRA97, as amended in RRA98:

• IRS Notice 97-60 provides general guidance on the education tax incentives in the Taxpayer Relief Act of 1997. 1997-46-I.R.B. 8
• IRS Notice 97-73 provides information reporting requirements for the Hope Scholarship and Lifetime Learning tax credits. 1997-51-I.R.B. 16
• IRS Notice 98-7 provides information reporting requirements for the student loan interest deduction. 1998-3-I.R.B. 54
• IRS Notice 98-46 extends the 1998 educational reporting requirements as contained in IRS Notice 97-73 to the 1999 tax year. 1998-36-I.R.B. 21
• IRS Notice 98-54 extends the 1998 information reporting requirements as contained in IRS Notice 98-7 to the 1999 tax year. This Notice also provides that no information is required with respect to "mixed loans" in light of RRA of 1998. 1998-46-I.R.B. 25
• IRS Notice 98-59 modifies IRS Notice 97-73 and IRS Notice 98-46 by indicating that IRS will not require an eligible educational institution to file information with respect to students who are enrolled during the year only in courses for which the student receives no academic credit from the institution. In addition, institutions are not required to file information returns for 1998 or 1999 (and now 2000) with respect to nonresident alien students, unless requested to do so by the student. 1998-49-I.R.B. 16
• IRS Notice 99-37 extends the 1999 educational reporting requirements as contained in IRS Notice 97-73, as modified by Notice 98-46 and Notice 98-59, to the 2000 tax year, and extends the information reporting requirements as contained in IRS Notice 98-7, as modified by Notice 98-54, to the 2000 tax year. 1999-30-I.R.B. 124

As a resource for college and university administrators, the National Association of College and University Business Officers (NACUBO) has established a Web site, which includes all of the IRS Notices, as well as other relevant information.

On January 6, 1999, the IRS published a Notice of Proposed Rulemaking relating to Hope Scholarship and Lifetime Learning Credit NPRM, which provides binding guidance for taxpayers until there are final regulations. Final regulations are still scheduled for 2000. On January 21, 1999, the IRS published a Notice of Proposed Rulemaking relating to the deduction for interest paid on qualified loans, which provides binding guidance for taxpayers until there are final regulations. Final regulations are still scheduled for 2000. On June 16, 2000, the Internal Revenue Service (IRS) published a Notice of Proposed Rulemaking relating to the information reporting requirements under section 6050S of the Internal Revenue Code for payments of qualified tuition and related expenses and interest on qualified loans. The proposed regulations would apply to information returns to be filed, and information statements to be furnished after December 31, 2001. The regulations reflect changes to the law made by the Taxpayer Relief Act of 1997, as amended. The following is a summary of the proposed regulations:

§1.6050S-1 Information Reporting for Payments and Reimbursements or Refunds of Qualified Tuition and Related Expenses

The proposed regulations require an eligible educational institution (as defined in section 25A(f)(2)) (an institution) that receives payments of qualified tuition and related expenses (as defined in section 25A(f)(1) and the regulations) with respect to any individual, or makes reimbursements or refunds of such amounts, to file a Form 1098-T with the IRS. In addition, the proposed regulations require any person engaged in a trade or business of making payments under an insurance arrangement as reimbursements or refunds (or other similar amounts) of qualified tuition and related expenses (an insurer) to file a Form 1098-T with the IRS.

Under the proposed regulations, the following information must be reported on Form 1098-T: (a) The name, address, and taxpayer identification number (TIN) (as defined in section 7701(a)(41)) of the institution or the insurer; (b) the name, address, and TIN of the individual with respect to whom payments of qualified tuition and related expenses were received, or reimbursements or refunds were made; (c) the aggregate amount of payments of qualified tuition and related expenses from any source that the institution received with respect to the individual during the calendar year; (d) the aggregate amount of reimbursements or refunds of qualified tuition and related expenses that the institution or insurer made with respect to the individual during the calendar year; (e) the aggregate amount of any scholarships or grants that the institution processed during the calendar year for the payment of the individual's costs of attendance; (f) an indication by the institution whether the individual was enrolled for at least half of the normal full-time work load for the course of study the individual is pursuing for at least one academic period that begins during the calendar year; (g) an indication by the institution whether the individual was enrolled in a program leading to a graduate-level degree, graduate-level certificate, or other recognized graduate-level educational credential; and (h) any other information required by Form 1098-T and its instructions.

The proposed regulations reserve the requirement in section 6050S(b)(2)(B) that an institution or insurer obtain and report the name, address, and TIN of any taxpayer who will claim the individual with respect to whom payments are received, or reimbursements or refunds are made, as a dependent for purposes of the deduction allowable under section 151 for the taxable year. Therefore, under the proposed regulations, there is no requirement to obtain and report the name, address, and TIN of any taxpayer who will claim the individual as a dependent on the taxpayer's Federal income tax return, although the IRS reserves the right to require it.

Consistent with the exceptions to required reporting in Notice 98-59, the proposed regulations provide that an institution or insurer is not required to file a Form 1098-T for an individual who is a nonresident alien, unless the individual requests that the institution or insurer report. In addition, an institution is not required to file a Form 1098-T for an individual who is enrolled during the calendar year only in courses for which the individual receives no academic credit. Under the proposed regulations, the term "academic credit" means credit awarded by an institution for the completion of coursework leading toward a post-secondary degree, certificate, or other recognized post-secondary educational credential. (NOTE: These changes were made as a result of the IRS Restructuring and Reform Act of 1998 and should be supported.)

The proposed regulations provide that, in determining the payments for qualified tuition and related expenses that an institution must report, payments received with respect to an individual from any source (except for any scholarship or grant that, by its terms, must be applied to expenses other than qualified tuition and related expenses, such as room and board) are treated as payments of qualified tuition and related expenses up to the total amount billed for such expenses. The proposed regulations provide that an institution or insurer must furnish an information statement to each individual for whom it is required to file a Form 1098-T on or before January 31 of the year following the calendar year in which the payments are received. The statement must include the information included on the Form 1098-T filed with the IRS on or before February 28 of the year following the calendar year in which payments are made (March 31 if filed electronically) and a legend that identifies the statement as important tax information being furnished to the IRS. The statement must include instructions that state that the taxpayer may not be able to claim an education tax credit under [Page 37731] section 25A and the regulations with respect to the total payments of qualified tuition and related expenses reported for the calendar year because the amount of the scholarships, grants, reimbursements, or refunds reported for the calendar year and other similar amounts not reported (because they are not processed by the institution) may reduce the amount of any allowable education tax credit for the taxable year or a prior taxable year. The instructions must state that the taxpayer should refer to relevant IRS forms and publications (such as Form 8863, "Education Credits," and Publication 970, "Tax Benefits for Higher Education") for explanations relating to the eligibility requirements for, and the calculation of, any allowable education tax credit.

§1.6050S-2 Information Reporting for Payments of Interest on Qualified Education Loans

The proposed regulations require any person engaged in a trade or business that receives from any payor interest of $600 or more for any calendar year on one or more qualified education loans (as defined in section 221(e)(1) and the regulations) (a payee) to file a Form 1098-E with the IRS.

Under the proposed regulations, a payee must report the name, address, and taxpayer identification number (TIN) of the payee; the name, address, and TIN of the payor; and the aggregate amount of interest received during the calendar year from the payor. The payee may be the lender, the holder of the loan, or the loan servicer. The regulations define the "payor" as the individual carried on the books and records of the "payee" as the borrower on a qualified education loan. If there are multiple borrowers, the principal borrower indicated on the payee's books and records is treated as the payor for purposes of section "Interest" includes stated interest, loan origination fees, and capitalized interest. (NOTE: Capitalized interest is generally interest which has accrued during a period which is excluded from the 60-month period (i.e., in-school, grace, forbearance, and deferment periods). As a result, a borrower who deducts capitalized interest will receive a deduction not only for the interest that accrued during the first 60 months of repayment, but also for the interest that accrued prior to the 60-month period or during periods that were excluded from the 60-month period. Permitting capitalized interest to be deducted causes inequitable treatment between borrowers who choose to pay interest outside the 60-month period and borrowers who allow interest to be capitalized and should not be allowed. Further, origination fees and guarantee fees represent fees for service and should not be deductible.)

Under the proposed regulations, a payee is required to report only interest payments received on a qualified education loan during the first 60 months in which interest payments are required on the loan. The proposed regulations, in general, incorporate the rules of section 221 and the regulations to determine the 60-month period for which interest payments must be reported. Under the proposed regulations, the 60-month period generally begins on the date the qualified education loan first enters repayment status. However, for qualified education loans made before January 1, 1998, if the payee does not know, and does not have reason to know, the date on which the loan entered repayment status, then, for information reporting purposes, the 60-month period begins on January 1, 1998.

For defaulted loans made before January 1, 1998, if the payee does not know, and does not have reason to know, the date on which the loan entered repayment status, then, for information reporting purposes, the 60-month period begins on the earlier of the date the loan went into default or January 1, 1998. If the payee does not know, and does not have reason to know, either the date the loan entered repayment status or the default date, then, for information reporting purposes, the 60-month period begins on January 1, 1998. The proposed regulations provide that, in determining the aggregate amount of interest payments to be reported by a payee, the term interest includes stated interest, loan origination fees (other than any fees for services), and capitalized interest as described in proposed regulations Sec. 1.221-1(h)(2). However, in order to provide payees sufficient time to develop systems to report amounts other than stated interest, the proposed regulations do not require payees to report loan origination fees and capitalized interest for loans made before January 1, 2002.

The proposed regulations provide rules to determine which loans are qualified education loans subject to information reporting under section 6050S. The regulations provide that, unless the loan is subsidized, guaranteed, financed, or otherwise treated as a student loan under a program of the Federal, state, or local government or an eligible educational institution, the payee must request and obtain a certification from the payor that the loan will be used solely to pay qualified higher education expenses. The regulations provide that the payee may use Form W-9S, "Request for Student's Social Security Number and Borrower Certification," to request and obtain the certification. If a payee fails to obtain a required certification, the loan is not treated as a qualified education loan for purposes of section 6050S.

The proposed regulations provide that a payee must furnish an information statement to each payor for whom it is required to file a Form 1098-E on or before January 31 of the year following the calendar year in which the interest payments were received. The proposed regulations provide that the statement must include the information included on the Form 1098-E filed with the IRS on or before February 28 (March 31 if filed electronically) of the year following the calendar year in which the interest payments were received and a legend that identifies the statement as important tax information being furnished to the IRS. The statement must include instructions that state that, under section 221 and the regulations, the payor may not be able to deduct the full amount of interest reported on the statement because the interest payments are deductible only during the first 60-months that interest payments are required. If the payee reports only stated interest, the instructions must state that the payor may be able to deduct additional amounts (e.g., certain loan origination fees and capitalized interest) not reported on the statement. The instructions must also state that the payor should refer to relevant IRS forms [Page 37732] and publications (such as Publication 970) for explanations relating to the eligibility requirements for, and the calculation of, any allowable interest deduction on qualified education loans.

INFORMATION REPORTING RELATING TO QUALIFIED TUITION AND RELATED EXPENSES FOR THE HOPE SCHOLARSHIP AND LIFETIME LEARNING CREDITS

Excerpt from Notice 97-73, reporting guidance for 1998 tax year, with modifications based on Notice 98-59. Reporting requirements extended to 1999 tax year with Notice 98-46 and to 2000 tax year with Notice 99-37.

Information Reporting Relating to Qualified Tuition and Related Expenses

Section 6050S(a) requires eligible educational institutions that receive payments of qualified tuition and related expenses or make reimbursements or refunds of qualified tuition and related expenses to submit an annual information report to the IRS with respect to each student on whose behalf the payments are received or the reimbursements or refunds are made.

Section 6050S(b) provides that the return of information must be in the form prescribed by the Secretary and contain:

(1) the name, address and taxpayer identification number (TIN) of the individual with respect to whom the qualified tuition and related expenses were received or the reimbursement or refund was paid;
(2) the name, address, and TIN of any individual certified by the individual named in the first item as the taxpayer who will claim that individual as a dependent;*
(3) the aggregate amount of qualified tuition and related expenses required for the enrollment of a student (not including certain expenses relating to expenses relating to sports, games, or hobbies, or nonacademic fees);
(4) any grant amount (whether or not excludable from income) received by such individual for payment of costs of attendance and processed through the institution during the applicable calendar year;
(5) the aggregate amount of reimbursements or refunds (or similar amounts) paid to such individual during the calendar year; and
(6) such other information as the Secretary may prescribe. Consistent with Sec. 472(1) of the HEA

*The June 16, 2000 NPRM reserves the requirement that the identity of the taxpayer be reported.

Section 6050S(d) provides that every person required to make an information return under Section 6050S(a) shall furnish to each individual whose name is required to be included in the return a written statement showing the name, address, and phone number of the reporting person's information contact, and the aggregate amounts required to be included in the return.

For purposes of providing these information reports, an eligible educational institution should provide reports on students who are enrolled in the institution for any academic term beginning in 1998. An institution should determine its enrollment for each term as of any of the following three dates:

a. 30 days after the first day of the academic term;
b. a date during the term on which enrollment data must be collected for purposes of the Integrated Postsecondary Education Data System administered by the Department of Education; or
c. a date during the term on which the institution must report enrollment data to the State, the institution's governing board or some other external governing body.

An institution should provide a single information report for each student on whose behalf qualified tuition and related expenses have been received in a tax year (i.e., 1998, 1999, 2000) even if the institution receives more than one payment on that student's behalf during the tax year.

Information Required for Tax Years 1998, 1999, and 2000

Eligible educational institutions required under this notice to file information returns for tax years 1998, 1999, and 2000 must properly complete Form 1098-T, Tuition Payments, for each student with respect to whom information reporting is required. For tax years 1998, 1999, and 2000, a properly completed Form 1098-T filed with the Service must include:

(1) the name, address, and TIN of the eligible educational institution;
(2) the name, address, and TIN of the individual with respect to whom payments of qualified tuition and related expenses were received during tax years 1998, 1999, and 2000;
(3) an indication as to whether the individual named in the second item was enrolled for at least half the full-time academic workload during any academic period commencing in tax years 1998, 1999, and 2000; and
(4) an indication as to whether the individual named in the second item was enrolled exclusively in a program or programs leading to a graduate-level degree, graduate-level certificate, or other recognized graduate-level educational credential.

When To File

The information returns required under Section 6050S for tax year 1998 must have been sent to the IRS by March 1, 1999 and, for tax years 1999 and 2000, must be sent to the IRS by February 28, if filed on paper or by magnetic media, or by March 31, if filed electronically.

Manner of Filing

Eligible educational institutions may file the information returns required by Section 6050S for tax years 1998, 1999, and 2000 on paper or by magnetic media. As a general rule, anyone filing more than 250 W-2, 1099 or 1098-T forms must file the Federal copy (copy A) on some type of magnetic media or file electronically with the IRS. NOTE: Institutions are not required to file Forms 1098-T on magnetic media regardless of the number of forms an institution files until regulations are adopted. However, IRS encourages an institution to file on magnetic media if possible.

Statements To Be Provided To Students

Each eligible educational institution must provide each student with respect to whom an information return is filed a statement containing the same information that is provided to the IRS on the information return required by Section 6050S. In addition, the statement provided to the student must contain the phone number of the individual serving as information contact at the eligible educational institution that made the return. The statement with respect to qualified tuition and related expenses paid in tax year 1998 must have been provided to the student by February 1, 1999 and, for tax years 1999 and 2000, by January 31. The statement may be a copy of Form 1098-T or an acceptable substitute statement.

INFORMATION REPORTING RELATING TO STUDENT LOAN INTEREST

Excerpt from Notice 98-7, reporting guidance for 1998 tax year, with modifications and extension to 1999 tax year with Notice 98-54 and to 2000 tax year with Notice 99-37.

Section 6050S(a) requires information reporting by any person engaged in a trade or business who, in the course of that trade or business, receives from any individual interest aggregating $600 or more for any calendar year on 1 or more qualified education loans. Only the person first receiving the payment of interest is required to make the information report regarding the interest received on the loan.

Section 6050S(b) provides that the return of information must be in the form prescribed by the Secretary and contain:

(1) the name, address, and taxpayer identification number (TIN) of the individual with respect to whom interest was received;
(2) the name, address, and TIN of any individual certified by the individual named in the first item as the taxpayer who will claim that individual as a dependent for purposes of the deduction under §151 for any taxable year ending with or within the year for which the information return is filed;*
(3) the aggregate amount of interest received for the calendar year with respect to the individual named in the first item; and
(4) such other information as the Secretary may prescribe.

*The June 16, 2000 NPRM reserves the requirement that the identity of the taxpayer be reported.

Section 6050S(d) provides that every person required to make an information return under Section 6050S(a) must also furnish to each individual whose name is required to be included in the return a written statement showing the name, address, and phone number of the reporting person's information contact, and the aggregate amounts required to be included in the return.

(6) Covered Period. For loans other than consolidated loans, collapsed loans, and defaulted loans, the covered period begins on:

(a) the date on which the loan went into repayment status if the payee knows or has reason to know that date; or
(b) January 1, 1998, if the payee does not know and does not have reason to know that date.

For consolidated loans and collapsed loans, the covered period begins on:

(a) the most recent date on which any of the loans subject to consolidation or collapse went into repayment status, if the payee knows or has reason to know that date; or
(b) January 1, 1998, if the payee does not know and does not have reason to know that date.

For defaulted loans, the covered period begins on:

(a) the date the loan went into repayment status if the payee knows or has reason to know that date;
(b) the date the loan went into default, if the payee knows or has reason to know that date and does not know or have reason to know the date the loan went into repayment status; or
(c) January 1, 1998, if the payee does not know and does not have reason to know the dates the loan went into repayment status or default.

The covered period ends on the date that is 60 months after the date on which the period starts or, if later, the last day of the month in which the 60-month date occurs. However, if the payee knows or has reason to know of any periods of grace, deferment, or forbearance during the covered period, the covered period is extended by the number of months the loan was subject to grace, deferment, or forbearance.

(7) Covered Student Loan. A covered student loan is a loan with a covered period ending during or after 1998 that is either:

(a) subsidized, guaranteed, financed, or otherwise treated as a student loan under a program of the federal, state, or local government or an institution of postsecondary education, or
(b) certified by the payor as a student loan.

Notice 98-54 also provides that no information is required with respect to "mixed loans" in light of RRA of 1998. This provision is effective as if included in the TRA of 1997, and applies to interest payments due and paid after 12/31/97. A "qualified education loan" means any indebtedness incurred by the taxpayer solely to pay qualified education expenses.

Information Required for Tax Years 1998, 1999, and 2000.

Payees required under this notice to file information returns for tax years 1998, 1999, and 2000 must properly complete Form 1098-E, Student Loan Interest Payments, for all student loan accounts that contain one or more covered student loans ("student loan account"). A payee may file a separate Form 1098-E for each student loan account of the payor, or a single Form 1098-E for all student loan accounts of the payor.

For tax years 1998, 1999, and 2000, a properly completed Form 1098-E filed with the IRS must include:

(1) the name, address, and TIN of the payee;
(2) the name, address, and TIN of the payor; and
(3) the aggregate amount of interest received during tax years 1998, 1999, or 2000 with respect to the student loans in the account or accounts included on the return.

When To File

The information returns required under Section 6050S for tax year 1998 must have been sent to the IRS by March 1, 1999 and, for tax years 1999 and 2000, information must be sent to the IRS by February 28, if filed by paper or by magnetic media, or by March 31, if filed electronically.

Manner of Filing

The regulations under Section 6011 will be amended to require any person required to file 250 or more Forms 1098-E for tax years 1998, 1999, and 2000 to file those returns by magnetic media or electronically. NOTE: Institutions are not required to file Forms 1098-E on magnetic media regardless of the number of forms an institution files until regulations have been adopted. However, the IRS encourages you to file on magnetic media if you can.

Statements To Be Provided to Payors

The payee must provide each payor a statement containing the same information that is provided to the IRS on the information return required by Section 6050S. In addition, the statement provided to the payor must contain a phone number for the individual serving as information contact of the payee. The statement must also notify the payor that the amount of interest reported as paid may differ from the amount of interest that the payor may be able to claim as a deduction. The statement must have been provided to the payor by February 1, 1999 tax year 1998, or by January 31, for tax years 1999 and 2000. The statement may be a copy of Form 1098-E (or an acceptable substitute statement).

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