8867 and documentation

[dtlee]

Our IRS Liaison spoke at a local update class and said that they are sending compliance teams to visit tax offices on the due diligence requirements for refundable credits. He inferred, without stating openly, that this is a 'revenue generator' for the IRS as much as compliance checks. That means fines are going to be handed out for the slightest omission from their idea of compliance. Good luck with the idea that you're not going to document anything, and tell the board how that goes when you get your visit.

I have posted before about the revenue requirements expected to be achieved based on the South Korean Trade Agreement. This is not being done to ensure that accurate returns are prepared or the requirement would be imposed on individuals as well as on paid preparers who actually sign returns. This is being done to drive revenue and the IRS has specific targets that must be met regardless of how desperately we try to comply. I am periodically outraged that none of our organizations have used their government liaisons to ask Congress to stop targeting honest preparers who sign returns.

[Twin Turbo Z]

Lets hope Trump gets rid of EIC and the CTC.

[taxmandan]

Due diligence

I know most of my clients, have been in some homes, go to church with some. Do i still have to ask for some type of documentation? Always have been diligent about asking questions on situtions i wasn't sure about, but does personal knowledge count for anything?

Our IRS Liaison spoke at a local update class and said that they are sending compliance teams to visit tax offices on the due diligence requirements for refundable credits. He inferred, without stating openly, that this is a 'revenue generator' for the IRS as much as compliance checks. That means fines are going to be handed out for the slightest omission from their idea of compliance. Good luck with the idea that you're not going to document anything, and tell the board how that goes when you get your visit.

[Rapid Robert]

Why would the 1098-T be required to claim the AOC?

Because the Trade Preferences Extension Act of 2015 made it the law. From TheTaxBook: "Under the new law, a taxpayer cannot claim an education credit or the tuition and fees deduction unless the taxpayer receives the information statement (Form 1098-T, Tuition Statement) from the educational institution that furnishes the required information. This rule is effective for tax years beginning after June 29, 2015 (2016 tax year for calendar year taxpayers)."

The taxpayer (or dependent) may have been billed by the University in December 2015 for the Spring semester. If they paid the tuition in January 2016, there will be no 1098-T for 2016 yet the taxpayer is entitled to the credit on the 2016 tax return.

Why would there not be a 2016 1098-T showing amounts paid in Box 1? Oh yeah, that's right, the IRS caved in on penalties for not issuing the legally required form.

[nwtaxlady]

This situation is common.

Why would the 1098-T be required to claim the AOC?

The taxpayer (or dependent) may have been billed by the University in December 2015 for the Spring semester. If they paid the tuition in January 2016, there will be no 1098-T for 2016 yet the taxpayer is entitled to the credit on the 2016 tax return.

I come across this situation all the time. I have one right now. So do they get the credit on their 2016 for the amount they paid in January 2016?

What are we to do in this situation? In the past (I haven't checked this year's) my software had a box to check if 1098-T was not received. Then also a box to check if received a 1098-T for prior year with Box 2 & Box 7 completed. So I would check both of those.

So for due diligence for this year.... would that count because they DID receive (in prior year) a 1098-T for that tuition that was paid in 2106?

[ttbtaxes]

Why would the 1098-T be required to claim the AOC?

The taxpayer (or dependent) may have been billed by the University in December 2015 for the Spring semester. If they paid the tuition in January 2016, there will be no 1098-T for 2016 yet the taxpayer is entitled to the credit on the 2016 tax return.

[Lion]

Thank you to Doug for sharing your comprehensive chart.

[dtlee]

What if the tuition billed is $10,000 and the room and board is also $10,000. Mom and dad pay $10,000 and Junior also pays $10,000. Who paid the tuition? (The statement from the college won't say.)

Not sure who the student is in this example nor which tax benefit we are talking about, but if this is for Junior's education and

• Junior is filing his own tax return for the benefit, it does not matter who paid it for the American Opportunity Credit, the Lifetime Learning Credit, or the Tuition and Fees Deduction.
• Mom and Dad are filing their joint tax return for the benefit and claiming Junior as a dependent, it does not matter who paid it for the American Opportunity Credit or the Lifetime Learning Credit; only for the Tuition and Fees Deduction.

Since this thread is about the 8867, which only applies to the American Opportunity Credit, I would say it does not matter who paid the tuition in your example.

[DonPriebe]

A payment statement from the college may not settle it.

What if the tuition billed is $10,000 and the room and board is also $10,000. Mom and dad pay $10,000 and Junior also pays $10,000. Who paid the tuition? (The statement from the college won't say.)

[dtlee]

Don,

I agree with the comment about silliness for long-term clients and think you were off to a reasonable start with with your questions with the possible exception of this one:

Is Johnnie your qualifying child....

I have been teaching about the definition of Qualifying Children since 2005 and, while I think many paid professionals know a large portion of the concept, many of them and even the IRS gets things quite confused up at times. I created this chart years ago to try to keep the concepts straight:

https://app.box.com/s/6yjsmmttu926glwjen3mxwk7ii4cab7f

I know of no client who can recite even 5% of the rules for Qualifying Children since there are five different definitions for the five different benefits each with multiple parts and for Johnnie to be the taxpayer's Qualifying Child, there may also be tiebreaker rules that are likewise confusing, especially if the Qualifying Child happens to be a younger sibling.

For this to be constructive criticism, I should offer a suggestion for repairing this, but I do not really know of one. The phrase "Qualifying Child" is tossed around by the IRS like it is a simple concept, but I have found no simple way of asking a taxpayer if the child is a Qualifying Child...I need to ask the questions about residence, marital status, age, support, citizenship and try to convince myself that there is no other taxpayer living in the home that might be able to claim either the child or the taxpayer as a Qualifying Child. I apologize for not being able to offer anything more than a concern that no answer to that question from most taxpayers would be of any value unless you spent the time to educate them about the Qualifying Child rules first (which is really not a good option).

[mactoolsix]

Thanks Bill - I had just located this when you posted!

Mike

[TaxGuyBill]

I think Robert is saying we still may get 1098-Ts with an amount in box 2 because the IRS delayed the requirement for box 1 (again).

https://www.irs.gov/pub/irs-drop/a-16-17.pdf


From Macuser's link:

"Specifically, the proposed regulations ... unless an exception applies, no education tax credit is allowed unless the taxpayer (or the taxpayer’s dependent) receives a Form 1098–T."

and

"Accordingly, a taxpayer who meets the requirements in § 1.25A–1(f) regarding the Form 1098–T requirement to claim the credit and who can substantiate payment of qualified tuition and related expenses may
include these unreported expenses in the computation of the amount of the education tax credit allowable for the taxable year even though the expenses are not reported on a Form 1098–T."

[mactoolsix]

Your tax update is pretty out of date. About a year ago, IRS waived penalties for tax year 2016 (filed in early 2017) for schools issuing 1098-T. More recently, they did it again for tax year 2017 (to be filed in early 2018).

So while the law did indeed change, there is no consequence to the issuer for not following it. Expect to still see a lot of 1098-T with only Box 2 this year and next. You still need the 1098-T to claim the credit, even if it's nearly useless in some cases.

Robert - Interesting that this is from the WCPE just taken about 4 weeks ago.
So you are saying we don't need a paid amount in box 1 of the 1098-T?

Do you have a reference or cite of the ruling that changed this?

Here is the link to the reference

https://www.gpo.gov/fdsys/pkg/FR-2016-08-02/pdf/2016-18032.pdf

Explanation of Provisions - bottom of page 3 to page 4
However I see it does not specify the amount paid must be shown on the 1098-T (as was indicated in the seminar)

Thanks.

[Rapid Robert]

As I understand it, the qualifying amount paid must be shown on the 1098-T. No more relying on the taxpayers records, canceled checks or statements."

Your tax update is pretty out of date. About a year ago, IRS waived penalties for tax year 2016 (filed in early 2017) for schools issuing 1098-T. More recently, they did it again for tax year 2017 (to be filed in early 2018).

So while the law did indeed change, there is no consequence to the issuer for not following it. Expect to still see a lot of 1098-T with only Box 2 this year and next. You still need the 1098-T to claim the credit, even if it's nearly useless in some cases.

[mactoolsix]

I am going to insist on complete paperwork to figure the AOC unless the tuition paid box is used on the 1099-T.

As I understand it, the qualifying amount paid must be shown on the 1098-T. No more relying on the taxpayers records, canceled checks or statements.

From WCPE
"Higher education information reporting is to include qualified amounts actually paid after Dec. 31, 2015. The provision strikes “or the aggregate amount billed” from the law.

AND

"Beginning in 2016, taxpayers will not be allowed to claim the American Opportunity Tax Credit or the Lifetime Learning Credit under §25A, or the tuition deduction under §222,
unless the taxpayer has received a Form 1098-T from the educational institution."

Mike