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AACRAO Memo: TRA Reporting

December 15, 1998

To: AACRAO Members

From: Jerry Sullivan, Executive Director

Subject: Implementation of Hope Scholarship/Lifetime Learning Reporting Requirements

Colleges and universities are fast approaching the deadline for implementing the first-year tax reporting requirements associated with the Hope Scholarship/Lifetime Learning tax credits. These two tax credits, along with several other education-related tax incentives, were enacted into law last year as components of the Taxpayer Relief Act of 1997 (TRA). Hope Scholarships provide for tax credits of up to $1,500 per year for the first two years of post-secondary study toward a degree or certificate. Lifetime Learning tax credits provide up to $1,000 of tax incentives per year for all job-related post-secondary study. Unlike Hope Scholarships, Lifetime Learning tax credits are available for less-than-half-time students, and may be used to offset the costs of non-credit and continuing education courses.

While AACRAO has supported the use of the tax code to deliver education-related benefits to families, we have many concerns about the administrative and financial burdens of the reporting requirements imposed on colleges and universities by the Department of the Treasury. All Washington-based higher education associations have shared this concern. The associations, led by the American Council on Education, have made every effort to minimize the impact of the implementation requirements on institutions, and have indeed been partially successful in persuading the Treasury Department to be more lenient during the first two years of the new programs' availability. The Internal Revenue Service, in a series of notices issued in lieu of regulations, has attempted to reduce the magnitude of the compliance burdens on institution that it initially proposed in the immediate aftermath of the enactment of the 1997 tax law. The most notable concessions made by the IRS include the following:

A two-year postponement of the requirement that institutions report financial data, i.e., the dollar amount of tuition and "qualified" fees and dollar amount of gift aid and tuition waivers.
The waiver of the earlier requirement that institutions generate reports (a new IRS form, 1098-T) to all international students and to all students in non-credit programs.
The waiver of penalties for the first two years, provided that institutions make a good faith effort to implement the requirements.

Regrettably, for the majority of institutions, the progress made thus far with regard to compliance requirements does not significantly alter the likelihood of enormous problems on campus. Having just completed a series of workshops on tax reporting implementation, we believe that the vast majority of institutions will successfully generate the new 1098-T reporting forms with the minimal student demographic information legally required by the IRS. This information consists of the name, address, and social security number of the student, as well as the institution's name and address -- data that students and families already know. Unfortunately, the crucial information that families will need in order to claim the tax credits on their tax returns is the very data that IRS has exempted institutions from supplying for the 1998 and 1999 calendar years, i.e., the dollar amounts of qualified payments and offsetting gift aid.

Given the fact institutions are required to designate a campus contact, and print a name and telephone number, for students and families to call for additional information, we anticipate a large volume of calls in search of the financial data in question. What is more, the calls are likely to be made at the worst possible time for most institutions. The March/April time frame when most families can be expected to focus on their tax returns coincides with peak administrative activity periods for most campuses. Also, the volume of calls will far exceed the number of families actually eligible for the tax credits, because the IRS requires institutions to provide nearly all enrolled students, regardless of their ultimate eligibility for the tax credits, with 1098-T reports.

In our opinion, the best means to avoid disruption and discontent on campus is to approach the implementation of the tax reporting requirements in a manner that distinguishes between mere compliance with the law and voluntary comprehensive implementation. Specifically, every attempt should be made to provide student account data in an effort to preempt the inevitable phone calls. We recognize the difficulties this will entail. The grouping of such data into the two categories of "qualified" and "non-qualified" does not accord with the manner in which institutions have historically maintained payment information. In addition, the calendar year tracking of this information does not fit the academic year billing system of colleges and universities. However, students and their families will need this information, and campuses would be well advised to prepare. Including the financial data as an addendum to the 1098-T, for example, could dramatically reduce the number of phone calls. Another important step in the direction of reducing telephone inquiries would be to provide as much information as possible about eligibility criteria for the tax credits. Informing families who, by virtue of higher income or low tax liability, may not be eligible for tax benefits would reduce the volume of calls. Secure Web-based access to the appropriate student account data would also prove helpful in disseminating information to students and their families.

Despite all this, a large number of phone calls can still be expected. Institutions should evaluate their phone system capacity and ensure the proper training of personnel to handle the estimated increase in volume. Because full implementation of the reporting requirements involves the generation and distribution of financial information, the work to be done on campuses that have only focused on compliance falls outside the scope of most AACRAO members' area of responsibility. Student accounts and systems staff would be the campus officials confronting the greatest burden in the near future, and the National Association of College and University Business Officers has done a lot to work with its members on these problems. Some institutions have opted for outsourcing of the reporting requirements, or will use a vendor-provided call center support. Perhaps the most important action you may be able to take would be to ensure that all campus officials involved in the implementation effort, most especially your president, are aware of the concerns enumerated above.