News

May 1, 2002

The Internal Revenue Service has proposed new rules that reflect simplified reporting requirements -- sought by college lobbyists and prescribed in legislation that Congress passed in December -- for the Hope and Lifetime Learning tax credits.

The proposed regulations, which were published in Monday's Federal Register, replace rules proposed in June 2000 and incorporate changes that Congress made in approving the measure. The Hope and Lifetime Learning benefits allow students or parents to claim up to $1,500 of certain college expenses as a credit against taxes they otherwise would owe.

The new rules would eliminate a 1997 requirement, which was never fully put into effect, that colleges report to the Internal Revenue Service the name, address, and Social Security number of anyone who could claim a student as a dependent for tax purposes. College officials have argued that collecting that information would be extremely complex while not doing much to help federal officials prevent fraud.

Colleges also would receive more flexibility under the new regulations in reporting financial information. The proposal would allow institutions to report to the IRS either the total amount of college-related expenses charged to each student, or the total amount of payments each student had made to the institution. That change means that many colleges will not have to overhaul their computing or accounting systems, as some officials had feared they would have to do under the original requirements. Those rules would have forced institutions to report how much students paid for certain expenses, like tuition, separately from their total bills.

The proposed rules also make a few smaller changes and clarifications that were not required by Congress. Some of those provisions would exempt colleges from giving the IRS reports on certain students who are not eligible to receive the tax credits because their education costs are fully covered by scholarships or by an employer, or because they are taking only noncredit courses.

The new rules are set to take effect for college expenses paid or billed during the 2003 calendar year that must be reported on federal tax forms that are filed in 2004.

The IRS is accepting public comments on the regulations until July 29. A public hearing has been scheduled for 10 a.m. on August 13 at the Internal Revenue Building in Washington. Requests to speak at the hearing must be received by July 23.

Meanwhile, the IRS also released final regulations related to a tax benefit for people paying back college loans. Those rules, which also were published in Monday's Federal Register,, reflect tax-policy changes Congress agreed to last spring that eliminated a 60-month limit on the amount of time that borrowers could deduct the interest paid on their student loans from their taxable income. The rules spell out how entities that receive interest payments from student-loan borrowers must report those funds.

The full text of the announcement can be found on The Chronicle of Higher Education chronicle.com.