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1098-T Issue


Crank

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Client received a 1098-T for his daughter's second year of college.  The "Billed Tution" Box 2 is 41,100.  The "Scholarships" Box 5 is 41,400.  The problem is Box 2 contains tuition billed (2 semesters) in 2016 while Box 5 contains scholarships received for 3 semesters in 2016.  Spring 2017 scholarships were counted in late 2016.  So this looks like the student not only got a full ride for 2016 but actually had taxable income of $300 (41,400 - 41,100).  This also excludes the TP from taking the American Opportunity Tax Credit for 2016.

The school says there is nothing they can do and "That is just how they posted".  Has anyone every run into this before.  Is there anyway to adjust the the 1098-T without triggering an issue since it wont match what the school submitted.  Im thinking that this issue will resolve it self in the fifth calendar year of school thus allowing the family to receive the 4 years of the AOC to which they are entitled.  However the additional taxable income this year bothers me too.

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You also need a statement from the Bursar's Office of charges and payments, *and* the clients' proof of payments made (to show it was parents who paid, and not Uncle Joe or whoever).  That will give you the info needed to put in the proper charges and get the proper credit amount.  You might also want to attach those other two as pdf's to the return.

But just the 1098-T is utterly insufficient for proper calculation of those credits.  And far too many of them are candidates for the Great American Novel, as well.

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I have been dealing with this for 5 years with my kids.  We have them download the transactions on their account every year and keep them for backup in the file to show actual payment dates and dates the scholarships were applied to the charges.  The transaction history page is really helpful.

Tom
Newark, CA

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Agree with my esteemed colleagues.  You might as well chuck the 1098T.  Keep proof of everything, cause even though it is worthless, IRS may send a letter cause they don't think the student had net expenses.  Just happened to one of mine.  Paid more in 2015 than was billed in 2015.  (Paid expenses billed in Nov 2014 in Jan 2015.  You count them in the year paid.) 

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1 hour ago, Catherine said:

You also need a statement from the Bursar's Office of charges and payments, *and* the clients' proof of payments made (to show it was parents who paid, and not Uncle Joe or whoever). 

Can Uncle Joe not pay it and the student or parent use it?  Not that Uncle Joe would do that, but I figured it would be ok.

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I do have the Bursar's transaction sheets.  The Billed amount is correct for 2016.  The scholarships are the problem.  They applied 2017 scholarships ( in addition to the 2016 scholarships) in late 2016.  Therefore there is a year of billing and a year and a half of scholarships applied to 2016 which makes the scholarships exceed the billed amounts.  They say they cant do anything about when the scholarships are applied but I think thats bull.  They are applied manually and come from the school directly so its not like they get them from somewhere else.  I really have no idea what to do about this.  The school is wrong in my opinion and the TP is not a happy camper missing the credit he deserves and getting taxable income to boot.

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22 minutes ago, Crank said:

I do have the Bursar's transaction sheets.  The Billed amount is correct for 2016.  The scholarships are the problem.  They applied 2017 scholarships ( in addition to the 2016 scholarships) in late 2016.  Therefore there is a year of billing and a year and a half of scholarships applied to 2016 which makes the scholarships exceed the billed amounts.  They say they cant do anything about when the scholarships are applied but I think thats bull.  They are applied manually and come from the school directly so its not like they get them from somewhere else.  I really have no idea what to do about this.  The school is wrong in my opinion and the TP is not a happy camper missing the credit he deserves and getting taxable income to boot.

Let me be the first to apologize for totally missing the issue.  And I, of all people, hate when that happens, too!

Are the 2017 scholarships labeled 2017?  I would think you'd have a good argument for ignoring them for 2016, regardless, but could win the argument easier if they're labeled 2017.

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No apologies necessary.  The scholarships are listed on the Spring 2017 Term Statement but the effective date is listed as 12/8/16.

It looks like this has been screwed up since the student started college in Fall 2015.  For example The Spring 2016 statement has billing applied in 2015 and scholarships applied in 2016 so no doubt last years 1098-T didnt follow the calendar year but we had no way of knowing that last year. I dont have the beginning Fall 2015 Statement but from the l statements I do have it looks like 2105 included tuition & scholarships for 2015 plus tuition for the Spring 2016 semester.  Hence, the screwed up from the beginning.

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Forget when the scholarships were applied by the school's software.  Most of these bursar's records are a nightmare to read.  Drill down to what the parents actually paid for tuition and fees in 2016.  And forget the 1098T.  I have been to several IRS liaison meetings where agents told us exactly that--the IRS does not consider the numbers valid and will not rely on them as proof of anything.  Request the records for 2015 and re-do that return to see if anything changed using real figures.  With that much in tuition, I doubt it.

The culprit is that "amount billed" box, which never should have been on the form.  When the form was first required, the schools whined that they couldn't possibly calculate the amount paid for only qualified tuition and fees in the two years lead time they had.  So the IRS said they only had to report the amount billed (useless info).  For 2016 they were mandated to report the amount paid, but they still weren't ready (what, 15 years later?) so got an additional year reprieve.  Next year our problems will be over.

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Agree, go back to 2015 and do both years correctly.  Yeah, the amount billed has always made me laugh, and it includes billing for part of the next year.   It's so screwed up.  I do believe IRS looks at it for some purposes, however.  My client I mentioned earlier got a letter because she paid amounts billed in 2014 in 2015.  They picked right up on the fact that payments exceeded billing.  Complete PITA for a credit of $292.  I faxed letter with the Bursar's statement showing payments.  Probably get the all clear by the time the kid's children go to college.  Hope the 1098T is usable by then.

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Forgive me if I'm wrong, but I think IRS gave the educational institutions another free ride for the 2016 tax year as it had been the year where they were coming down on the institutions and making them report on a calendar year basis rather than their school year.  As usual, IRS relented and now have set 2017 as the new deadline for calendar year reporting.  If my memory serves me correctly, then IRS will be well aware that the 1098-T's aren't worth squat for 2016 other than proving that a person was a student for the Fall Semester of 2016 at least.......

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9 minutes ago, Cathy said:

... then IRS will be well aware that the 1098-T's aren't worth squat for 2016 other than proving that a person was a student for the Fall Semester of 2016 at least.......

And maybe getting that EIN.  For God's sake, we gotta be sure our worthless form comes from a legit institution, not a pretend institution.  So our useless number there might appear to have some cred. 

It's really ironic that our institutions of higher learning can't be trusted to do a little bookkeeping.  I mean c'mon.

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10 hours ago, Cathy said:

As usual, IRS relented

Ever notice how they relent when it's a case of big institutions with entire departments dedicated to accounting that get the "relented" - but when it's poor schmucks like preparers and/or the general public, we just have to deal and if it's too much too soon with too little notice well that's just too doggone bad.  Grrr..... :angry:

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I can see why the colleges don't want to do bookkeeping on a calendar basis when they are on a fiscal year.  But, they have to do calendar year for their own payroll.  They are not unfamiliar with calendar year reporting!  I try to get the financial transcript from the beginning of the calendar year that includes the freshman year to match up "due" to "paid" and then highlight when by parent or student loan as opposed to scholarship/grant.

Sometimes, it works out best for the student to have taxable scholarship money on her return at a low tax rate in order for the parents to claim education benefits at their higher tax rate -- but that's a separate topic than the messed up reporting that colleges do.

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Well, the TP seems to be getting nowhere with the Bursar's office and an amended 1098-T.  I am/was hesitant about putting in the correct calendar year numbers on the return and having them not match the 1098-T that IRS received from the institution, but it looks like that's the only way to try and straighten this out and do what's correct.  Can the TP expect a letter from the IRS, or a reduced refund, if the TP filed 1098-T doesn't match IRS records?

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The 1098-T just tells you the person was a student.  Your client, usually via a bursar statement and their own cancelled checks and letters re what the scholarships/grants apply to, must provide you with payment amounts and dates.  Report what actually happened and keep your notes/documents/whatever.  Do you think the IRS can interpret the 1098-T with their crystal ball any better than you can?!

Tell your client that the IRS cannot interpret the 1098-T in isolation, and not to be alarmed if a letter arrives from them.  Just notify you immediately so they can provide additional information under your guidance if the IRS asks.

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Crank, I really think it is okay to ignore the 1098T.  The IRS does.  And, like Lion says, tell your client to expect an audit notice.  We have lots of AOC audits, mainly because the IRS does not trust the 1098Ts either.  (Last summer we had 6 or 8.)  IRS does not match the numbers on the T to the return because they (rightfully) don't believe them.  I wonder now that we preparers have to do due diligence for the AOC, if the audits will decrease or maybe increase (so they can fine us).  Add up how much the tuition and fees were, subtract the scholarships applied to the relevant semesters, and use that amount as the amount paid.

In Ultratax, if you enter a number in the "amount paid" box, you don't enter anything else (amount billed, scholarships).  The program works with the correct, defensible, number you entered.  No it doesn't match the T, but it's correct.

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On 2/3/2017 at 9:21 AM, Catherine said:

Ever notice how they relent when it's a case of big institutions with entire departments dedicated to accounting that get the "relented" - but when it's poor schmucks like preparers and/or the general public, we just have to deal and if it's too much too soon with too little notice well that's just too doggone bad.  Grrr..... :angry:

Catherine, you are positively correct on that observation!  The idea that they are  "educational institutions" intimidates them to the point to where they get what they want...how in the world are they to argue or disagree with them without the educated beings making them look like the people they really are (not that bright)?

 

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