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Have You Received a Form 1098-T Penalty Notice?

If you are like most colleges and universities, you have already received your Form 1098-T penalty notice from the IRS. These penalty notices started going out in August to colleges and universities across the country.

Generally, a Form 1098-T must be completed for any individual enrolled for an academic time frame and for whom the college or university bills or receives qualified tuition and related expenses during a calendar year. Seems simple enough, right? Wrong! Form 1098-T forms must include the individual’s correct Taxable Identification Number (TIN) and not all colleges and universities have them. In addition, collecting them can be time consuming and costly.

When institutions do not have a student’s TIN on file from an initial request, such as at application for admission, application for financial aid, or registration, they must subsequently request, on an annual basis, the TIN from the student in writing and must notify the student that the law requires the student to furnish it so that the institution can use it on an information return filed with the IRS (IRS Form W-9S is one way to solicit the information needed).

When the Form 1098-T is filed and TIN numbers are not provided or do not match the IRS’s data, penalty notices are sent out and the burden of proof is back in the institutions hands.

Penalties can be avoided if you have proper documentation in place and the time to accumulate this documentation for the IRS.

First, you must answer the notice within 45 days from the date listed on the notice; if you are asking for an extension to respond to the notice, the request must be received by the Philadelphia Campus Site office listed on the notice by the end of the 45 day period….timing is everything here.

Second, you must gather your documentation to show that there was a reasonable cause and not willful neglect. Reasonable cause means that you must show that your institution acted in a reasonable manner both before and after the failure occurred. Consider having documentation available that shows the following:

  • Initial request of the student’s TIN was made timely; meaning that for the calendar year the student was first billed or paid tuition, the request for TIN was made before December 31st;
  • A subsequent request of the student’s TIN was made annually; meaning that if the student did not provide the TIN during the initial request and the calendar year lapsed, effort was made to obtain the TIN on an annual basis;
  • The solicitation was in writing and clearly notified the student that the law requires the information; and
  • The institution’s Form 1098-T was filed timely and included all other required information.

Advisory Report 2013-1 from NACUBO is available for your reference and is a great report that details out what information reporting is and why it is important; how to maintain compliance with IRS information reporting rules; and what to do after receiving a penalty notice. It also provides templates and sample documents to help your institution request a waiver with a reasonable cause letter or request an extension.

If you have questions with your penalty notices, contact Traci Moon at 989.497.5300 or .