This post originally appeared at THE WANDERING TAX PRO - but I thought the topic appropriate for my return to posting here at TTP.
This past tax season has once again proven that IRS information return 1098-T, which is supposed to provide information for claiming the various education tax benefits, is as useful as tits on a bull.
Box 1 of the 1098-T is for payments received “from any source” for qualified tuition and related expenses. This is the information I need. However in the years that this form has been in use I have only seen an entry in this box once – and it was incorrect. It showed only the payments received directly from the student (actually the student’s parents).
Box 2 is for amounts billed for qualified tuition and related expenses. This is the box that is always filled in. To be honest, I don’t care a rat’s hind quarters how much was “billed”. My clients are cash-basis taxpayers – I need to know what was paid during the calendar year, not what was billed.
Colleges will generally bill students for the semester beginning in January of the following year at the end of the current year. So the amount in Box 2 usually includes this amount. But parents or students do not always pay this amount until the following year.
In my instructions to clients I ask for not only the Form 1098-T, but also “all the ‘Bursar’s Reports’ for the year”. Often a student can access his/her financial account history online, and I ask parents to provide me with a print-out of this report.
Thankfully some colleges and universities will provide a supplement to the Form 1098-T mailing that itemizes the various charges and payments made for the year by date, which is extremely helpful. But unfortunately not all.
This past tax season I received a Form 1098-T for a student who had graduated in 2011. Box 1 and Box 2 were both empty, but there was an amount for scholarships and grants in Box 5. Upon questioning the taxpayer I discovered that there were indeed payments made for qualified tuition and fees in calendar year 2011. These payments had been billed in 2010, and were included in Box 2 of the 2010 Form 1098-T.
I further learned that the student did not receive any scholarships or grants from anyone in 2010 or 2011. The amount reported by the school in Box 5 was a payment for tuition and fees made via a student loan. The school really FU-ed – the amount reported in Box 5 should have been reported in Box 1! As a result I was able to claim one of the tuition tax benefits. If I had relied on the Form 1098-T I would have claimed nothing.
If the IRS is going to have a Form 1098-T with a Box 1 asking for payments made from all sources for the calendar year then it should require educational institutions issuing the form to include an entry in Box 1. Why have this box on the form if it is not required to be used? And, based on the above experience, perhaps the schools should be required to identify the amounts reported in Box 5 by source somewhere on the return.
Of course I do believe that there should be no tuition tax benefits on the Form 1040. These benefits should be distributed as direct student financial aid and administered via the FAFSA.
Thank you for allowing me to rant. Do other tax preparers feel as I do about the Form 1098-T?