IRS penalty notices to colleges, universities for missing or incorrect student TINs 

September 12:  Colleges and universities report recently receiving IRS notices with proposed penalty assessments relating to missing or incorrect taxpayer identification numbers (TINs) reported on Forms 1098-T for calendar year 2011.

IRS Notice 972CG

Although Notice 972CG, Notice of Proposed Civil Penalty, has been issued by the IRS for many years, it appears that this is the first year when Form 1098-T was included in the IRS automated penalty program (which imposes a $100 penalty for each missing or incorrect TIN).

In general, Form 1098-T, Tuition Statement, is filed by colleges and universities to report payments received (or amounts billed) for qualified tuition and related expenses. The IRS form helps students and the IRS determine eligibility for education tax credits such as the Hope and Lifetime Learning Credit.

Many of the proposed penalties relate to incorrect TINs that stem from students having supplied an incorrect social security number on their enrollment form, which the school then incorporated into its 1098-T reporting database. The lack of a valid TIN on Form 1098-T inhibits the IRS’s ability to verify tax credits claimed on tax returns by students.

Penalty waiver

Those receiving a proposed penalty notice have 45 days to respond to the IRS and request a waiver of the penalty. Such penalties can be waived if the taxpayer/filer can establish that the reporting failures were due to reasonable cause and not willful neglect. Treasury regulations under Code section 6724 define circumstances that constitute reasonable cause as including a filer’s good faith reliance on information furnished by (in this case) the student.

It is also critical that all required TIN solicitations were performed by the school in its effort to obtain a valid TIN from the student. Necessary procedures for requesting TINs from students for purposes of Form 1098-T reporting are contained in the regulations under section 6050S.

Taxpayers/filers unable to respond within the 45-day time period provided can generally request, and obtain, a 30-day extension from the IRS.

KPMG observation

Although this may be the first year that many colleges and universities have received a proposed penalty notice, tax professionals believe it will likely not be the last, as the incorrect TINs identified in the 2011 calendar year notice may well appear in next summer’s notice related to calendar year 2012 reporting failures.

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