Form 1098-T

I tried to see if this problem was addressed before on this board. Client received 1098-t for 2012 $ 40000 in box 2- $20000 in box 5 ( scholarship)---full time student-box 7 ( inc 1st quarter 2013) was checked. Box 2 is the amount billed in 2012. For 2013 1098-T Box 1 is blank - box 2 is zero- Box 5 has scholarship $ 10000. I was originally under the impression that no educational tuition would be allowable for 2013----But the client stated he paid $ 6000 in 2013. Now I do understand that the determining factor is what tuition was paid by the client over the scholarship. Why isn't this info provided by the 1098? Ethically it would seem a printout by the university should be requested. The instructions for the 1098 seem to indicated that the university should not be contacted. Should any explanation be given on the return-----some sort of reonconciliation?

For Form 1098-T, the schools have an "out" where they can report what was billed, instead of tracking what was paid and when. This very much comes into play for Spring semesters when payments can be made in Jan but were billed the Dec before.

You should make it your standard procedure to request that the parents and/or students get you a printout from the "student's account" which will show the specific billing items and the specific payment dates & amounts. That will actually give you what you need for the tax return. (Be sure you understand what each item on the account is -some are deductible fees & tuition and some may be non-deductible items like room & board.) You don't have to actually request this from the University - it is something already available to the student.

Think of the 1098-T as merely an indicator that you need more information, not that the 1098-T actually gives you what you need.

I have seen on a few Forms 1098-T that the school provided the details from the student's account as a page 2. But most people don't know to also download page 2 (if there is one) when they get the 1098-T online.

"For Form 1098-T, the schools have an "out" where they can report what was billed, instead of tracking what was paid and when."

Agree with the excellent sumamary by Joan TB. I have heard the colleges complained to the IRS that filing in box 1 would be to burdensome and as a result got relief by being required to only fill in box 2. If the client return gets looked at by the AUR, they will request proof of payment before granting the education credit or deduction, so getting the college transaction record is a must.

And last year we began to get IRS letters regarding this if the tuition was reported in box 2. Get the account transcript from the University. I really wish the IRS would force the schools to provide us with the necessary info in the first place!

This board is great. Thanks so much for the replies.

My daughter received a CP2000 notice. Here is the problem: The school completed box 2 (tuition billed). But the school entered $0 in every other box. In effect they told the IRS that my daughter PAID $0 in tuition (box 1). Understandably the CP2000 notice indicates that the IRS records do not agree to what was reported on the tax return.

Go figure. The Treasury basically tells the Institutions that, on a tax reporting document, they can do whatever they want, even if those figures don't comport with how things are required to be reported on a 1040. And then, the IRS comes back with a Notice stating the obvious: "Your tax return numbers do not jive with the meaningless 1098-T that we allowed the Institution to file."

Seriously. I mean you talk about a waste and a burden shifting of resources...basically, the schools win by getting their way and shift the burden onto the IRS and the student.

Agree with Chris - it is so lame! Perhaps we can take this on as our group's project. Each of us write a congressman or start a petition or something! It is just such a waste of everybody's time and it would not be that hard for the Universities to provide the amounts actually paid!

I can think of a reason why providing the amounts actually PAID on the 1098-T will cause problems. The University has no way to confirm WHO paid. They can only confirm date & amount. What about divorced parents? What about the benevolent relative who pays? Knowing who paid what & when makes a difference. You KNOW that if a 1098-T was received with $xxx in the "amount paid" box, that the TP would automatically want that on their return without looking at WHO actually paid what & when. (They already want this with the "amount billed" box.) I can see why the Universities went the "amount billed" route.

None of those are the reasons why it is what it is. The reason is as Weiss states it. The common denominator to all of this is the student and the student has an SSN and the doc should be issued in the student's name and SSN. Then all the IRS would have to do is trace the 1098 to the tax return wherein said student's education benefits are being claimed. There's already a spot for the student's info on the 8863. The IRS could very easily see if more than the 1098-T amount was being claimed for the same student.

There's a bunch of reporting already out there for "payments received," like a 1098 mortgage interest statement, which is issued to the borrower, regardless of who actually pays the interest.

It is just such a waste of everybody's time and it would not be that hard for the Universities to provide the amounts actually paid!

Sounds like a misunderstanding about using Form 1098-T. The schools DO provide the information to the student, which is all the tax preparer needs. Personally I am uninformed about why IRS asks for all sorts of information and skips other stuff, but my ignorance doesn't mean IRS is being arbitrary. I assume IRS has a perfectly valid purpose for this well established procedure which dates back to before some students were even born.

Not quite. Many 1098T's are issued on a billed basis, not a paid basis, which is meaningless to a cash basis taxpayer.

Two years ago we began asking our clients to get the actual account transcript. It was often not easy (nor quick) to get and then when we got it, not always easy to understand.

Once again agree with Chris above. The idea that it is a problem knowing who actually made the payment is no different than a mortgage 1098 showing the total amount paid.

My understanding is that when the 1098T first came out the schools argued that it would be to difficult to comply. Well computer systems have changed a great deal since then and it would not be hard to show the total tuition actually paid for the year, the total scholarships received, and if any of the money was used for the first semester starting after the end of the year.

And think about it. If us tax pros are struggling with this what about the folks trying to do it on their own?

And now that you got me up on my soap box there should be some way to reconcile 529 plan distributions on the 1040 so we don't get letters regarding them!

For the 529 issue, I show the whole thing as one income item on Line 21...then the whole thing as a negative, separate Line 21 entry as well. And then I e-file.

Chris - great idea but I wonder if IRS e-file actually picks up the details of line 21. We have reported COD income that way but still received a CP 2000.

Lacerte tells me that separate Line 21 inputs get transmitted separately as part of the e-file record.