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[Federal Register Volume 65, Number 117 (Friday, June 16, 2000)]
[Proposed Rules]
[Pages 37728-37738]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-13774]

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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1 and 301

[REG-105316-98]
RIN 1545-AW67

Information Reporting for Payments of Qualified Tuition and 
Payments of Interest on Qualified Education Loans; Magnetic Media 
Filing Requirements for Information Returns

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking and requests to videoconference 
the public hearing.

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SUMMARY: This document contains proposed regulations relating to the 
information reporting requirements under section 6050S of the Internal 
Revenue Code for payments of qualified tuition and related expenses and 
interest on qualified education loans, including the filing of 
information returns on magnetic media. The regulations reflect changes 
to the law made by the Taxpayer Relief Act of 1997. The regulations 
provide guidance to eligible educational institutions and insurers 
receiving payments of, or making reimbursements or refunds of, 
qualified tuition and related expenses. The regulations also provide 
guidance to payees receiving interest payments on qualified education 
loans. This document also announces that a public hearing will be held 
on the proposed regulations upon request and that persons outside the 
Washington, DC, area who wish to testify at the hearing may request 
that the IRS videoconference the hearing to their sites.

DATES: Written or electronically generated comments must be received by 
September 14, 2000. Requests to videoconference the hearing to other 
sites must be received by August 15, 2000.

[[Page 37729]]

ADDRESSES: Send submissions to: CC:DOM:CORP:R (REG-105316-98), room 
5226, Internal Revenue Service, POB 7604, Ben Franklin Station, 
Washington, DC 20044. Submissions may be hand delivered Monday through 
Friday between the hours of 8 a.m. and 5 p.m. to: CC:DOM:CORP:R (REG-
105316-98), Courier's Desk, Internal Revenue Service, 1111 Constitution 
Avenue, NW., Washington, DC. Taxpayers may also submit comments 
electronically via the internet by selecting the ``Tax Regs'' option on 
the IRS Home Page, or by submitting comments directly to the IRS 
internet site at http://www.irs.ustreas.gov/prod/tax_regs/regslist.html. The IRS will publish the time and date of the public 
hearing and the locations of any videoconferencing sites in the Federal 
Register.

FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Donna 
Welch, (202) 622-4910; concerning submissions of comments, the hearing, 
and/or to be placed on the building access list to attend the hearing, 
Guy Traynor, (202) 622-7180; concerning the magnetic media filing 
specifications, waivers for filing on magnetic media, and extensions of 
time, contact the Internal Revenue Service, Martinsburg Computing 
Center, (304) 263-8700 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

    The collection of information contained in this notice of proposed 
rulemaking has been submitted to the Office of Management and Budget 
for review in accordance with the Paperwork Reduction Act of 1995 (44 
U.S.C. 3507(d)). Comments on the collection of information should be 
sent to the Office of Management and Budget, Attn: Desk Officer for the 
Department of the Treasury, Office of Information and Regulatory 
Affairs, Washington, DC 20503, with copies to the Internal Revenue 
Service, Attn: IRS Reports Clearance Officer, OP:FS:FP, Washington, DC 
20224. Comments on the collection of information should be received by 
August 15, 2000. Comments are specifically requested concerning:
    Whether the proposed collection of information is necessary for the 
proper performance of the functions of the IRS, including whether the 
information will have practical utility;
    The accuracy of the estimated burden associated with the proposed 
collection of information (see below);
    How the quality, utility, and clarity of the information to be 
collected may be enhanced;
    How the burden of complying with the proposed collection of 
information may be minimized, including through the application of 
automated collection techniques or other forms of information 
technology; and
    Estimates of capital or start-up costs and costs of operation, 
maintenance, and purchase of services to provide information.
    The collection of information in this proposed regulation is in 
Secs. 1.6050S-1 and 1.6050S-2. In general, eligible educational 
institutions and insurers must file a Form 1098-T, ``Tuition Payments 
Statement,'' with the IRS for each individual with respect to whom 
payments of qualified tuition and related expenses were received, or 
reimbursements or refunds of such expenses were made, and furnish an 
information statement to such individual. This collection of 
information is required in order to assist the IRS and taxpayers in 
calculating the amount of any education tax credit allowable under 
section 25A. In addition, payees who receive from any payor interest 
payments aggregating $600 or more on one or more qualified education 
loans must file a Form 1098-E, ``Student Loan Interest Statement,'' 
with the IRS and furnish an information statement to the payor. This 
collection of information is required in order to assist the IRS and 
taxpayers in calculating the amount of any student loan interest 
deduction allowable under section 221. The likely respondents are 
businesses or other for-profit institutions and nonprofit institutions.
    Estimated total annual reporting burden for 1998 for Form 1098-T: 
2,419,438 hours.
    Estimated average annual burden hours per response for Form 1098-T: 
7 minutes.
    Estimated number of responses for 1998 for Form 1098-T: 20,738,039.
    Estimated annual frequency of responses: Once.
    Estimated total annual reporting burden for 1998 for Form 1098-E: 
437,691 hours.
    Estimated average annual burden hours per response for Form 1098-E: 
3 minutes.
    Estimated number of responses for 1998 for Form 1098-E: 8,753,819.
    Estimated annual frequency of responses: Once.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless it displays a valid 
control number assigned by the Office of Management and Budget.
    Books or records relating to a collection of information must be 
retained as long as their contents may become material in the 
administration of any internal revenue law. Generally, tax returns and 
tax return information are confidential, as required by 26 U.S.C. 6103.

Background

1. Information Reporting Requirements

    This document contains proposed amendments to the Income Tax 
Regulations (26 CFR part 1) relating to information reporting 
requirements under section 6050S. The Taxpayer Relief Act of 1997 
(Public Law 105-34 (111 Stat. 788) (TRA '97)) added section 25A of the 
Internal Revenue Code to provide the Hope Scholarship Credit and the 
Lifetime Learning Credit (education tax credits). In general, the Hope 
Scholarship Credit and the Lifetime Learning Credit allow certain 
taxpayers who pay qualified tuition and related expenses to an eligible 
educational institution to claim a nonrefundable credit against their 
Federal income tax liability. On January 6, 1999, the IRS issued 
proposed regulations under section 25A. See 64 FR 794 (1999).
    TRA '97 also added section 221 of the Internal Revenue Code to 
allow certain taxpayers who pay interest on qualified education loans 
to claim a Federal income tax deduction for their interest payments. In 
general, a deduction is allowed for interest payments made during the 
first 60 months in which interest payments are required on a qualified 
education loan. However, no interest deduction is allowed for any 
interest paid before January 1, 1998. On January 21, 1999, the IRS 
issued proposed regulations under section 221. See 64 FR 3257 (1999).
    In addition, TRA '97 added section 6050S of the Internal Revenue 
Code, which requires eligible educational institutions to file 
information returns and to furnish written information statements to 
assist taxpayers and the IRS in determining any education tax credit 
allowable under section 25A. Similarly, section 6050S requires any 
person engaged in a trade or business of making payments to any 
individual under an insurance agreement as reimbursements or refunds of 
qualified tuition and related expenses to file information returns and 
to furnish written information statements. Lastly, section 6050S 
requires certain payees who receive payments of interest on one or more 
qualified education loans to file information returns and to furnish 
written information statements to assist taxpayers and the IRS in 
determining

[[Page 37730]]

any interest deduction allowable under section 221.
    The IRS has published several notices prescribing limited 
information reporting for eligible educational institutions for the 
years 1998, 1999, and 2000. On December 22, 1997, the IRS published 
Notice 97-73 (1997-2 C.B. 335), which describes the information that an 
eligible educational institution must report for 1998. On September 8, 
1998, the IRS published Notice 98-46 (1998-36 I.R.B. 21), which extends 
the application of Notice 97-73 to information returns required under 
section 6050S for 1999. On December 7, 1998, the IRS published Notice 
98-59 (1998-49 I.R.B. 16), which modifies the prior Notices by 
providing that an institution is not required to file information 
returns for students who are: (1) Enrolled during the year only in 
courses for which the student receives no academic credit; or (2) 
nonresident alien students, unless the student requests the institution 
to report. On July 26, 1999, the IRS published Notice 99-37 (1999-30 
I.R.B. 124), which extends the application of Notice 97-73 (as 
modified) to information returns required under section 6050S for 2000.
    In addition, the IRS has published several notices describing the 
information reporting for certain payees who receive interest on 
qualified education loans during the years 1998, 1999, and 2000. On 
January 20, 1998, the IRS published Notice 98-7 (1998-3 I.R.B. 54), 
which describes the information reporting required under section 6050S 
for 1998. On November 16, 1998, the IRS published Notice 98-54 (1998-46 
I.R.B. 25), which modifies Notice 98-7 to reflect a technical change to 
section 221 made by the Internal Revenue Service Restructuring and 
Reform Act of 1998 (Public Law 105-206 (112 Stat. 685)), and extends 
the application of Notice 98-7 (as modified) to information reporting 
required under section 6050S for 1999. On July 26, 1999, the IRS 
published Notice 99-37, which extends the application of Notice 98-7 
(as modified) to information returns required under section 6050S for 
2000.

2. Magnetic Media Requirements

    This document also contains proposed amendments to the Regulations 
on Procedure and Administration (26 part 301) relating to the filing of 
information returns on magnetic media under section 6011(e). Section 
6011(e) authorizes the Secretary to prescribe regulations providing the 
standards for determining which returns must be filed on magnetic 
media. Section 6011(e)(2)(A) provides that the Secretary shall not 
require any person to file returns on magnetic media unless the person 
is required to file at least 250 returns during the calendar year. 
Section 6011(e)(2)(B) provides that, in prescribing regulations, the 
Secretary shall consider the ability of the taxpayer to comply at 
reasonable cost with the requirements of the regulations.

Explanation of Provisions

1. Information Reporting for Payments and Reimbursements or Refunds of 
Qualified Tuition and Related Expenses

    The proposed regulations require an eligible educational 
institution (as defined in section 25A(f)(2) and the regulations 
thereunder) (an institution) that receives payments of qualified 
tuition and related expenses (as defined in section 25A(f)(1) and the 
regulations thereunder) with respect to any individual, or makes 
reimbursements or refunds of such amounts, to file a Form 1098-T with 
the IRS. In addition, the proposed regulations require any person 
engaged in a trade or business of making payments under an insurance 
arrangement as reimbursements or refunds (or other similar amounts) of 
qualified tuition and related expenses (an insurer) to file a Form 
1098-T with the IRS.
    Under the proposed regulations, the following information must be 
reported on Form 1098-T: (a) The name, address, and taxpayer 
identification number (TIN) (as defined in section 7701(a)(41)) of the 
institution or the insurer; (b) the name, address, and TIN of the 
individual with respect to whom payments of qualified tuition and 
related expenses were received, or reimbursements or refunds were made; 
(c) the aggregate amount of payments of qualified tuition and related 
expenses from any source that the institution received with respect to 
the individual during the calendar year; (d) the aggregate amount of 
reimbursements or refunds of qualified tuition and related expenses 
that the institution or insurer made with respect to the individual 
during the calendar year; (e) the aggregate amount of any scholarships 
or grants that the institution processed during the calendar year for 
the payment of the individual's costs of attendance; (f) an indication 
by the institution whether the individual was enrolled for at least 
half of the normal full-time work load for the course of study the 
individual is pursuing for at least one academic period that begins 
during the calendar year; (g) an indication by the institution whether 
the individual was enrolled in a program leading to a graduate-level 
degree, graduate-level certificate, or other recognized graduate-level 
educational credential; and (h) any other information required by Form 
1098-T and its instructions.
    The proposed regulations reserve the requirement in section 
6050S(b)(2)(B) that an institution or insurer obtain and report the 
name, address, and TIN of any taxpayer who will claim the individual 
with respect to whom payments are received, or reimbursements or 
refunds are made, as a dependent for purposes of the deduction 
allowable under section 151 for the taxable year. Thus, under the 
proposed regulations, there is no requirement to obtain and report the 
name, address, and TIN of any taxpayer who will claim the individual as 
a dependent on the taxpayer's Federal income tax return.
    Consistent with the exceptions to required reporting in Notice 98-
59, the proposed regulations provide that an institution or insurer is 
not required to file a Form 1098-T for an individual who is a 
nonresident alien, unless the individual requests that the institution 
or insurer report. In addition, an institution is not required to file 
a Form 1098-T for an individual who is enrolled during the calendar 
year only in courses for which the individual receives no academic 
credit. Under the proposed regulations, the term academic credit means 
credit awarded by an institution for the completion of coursework 
leading toward a post-secondary degree, certificate, or other 
recognized post-secondary educational credential.
    The proposed regulations provide that, in determining the payments 
for qualified tuition and related expenses that an institution must 
report, payments received with respect to an individual from any source 
(except for any scholarship or grant that, by its terms, must be 
applied to expenses other than qualified tuition and related expenses, 
such as room and board) are treated as payments of qualified tuition 
and related expenses up to the total amount billed for such expenses.
    The proposed regulations provide that an institution or insurer 
must furnish an information statement to each individual for whom it is 
required to file a Form 1098-T. The proposed regulations provide that 
the statement must include the information included on the Form 1098-T 
filed with the IRS and a legend that identifies the statement as 
important tax information being furnished to the IRS. The statement 
must include instructions that state that the taxpayer may not be able 
to claim an education tax credit under

[[Page 37731]]

section 25A and the regulations thereunder with respect to the total 
payments of qualified tuition and related expenses reported for the 
calendar year. The instructions must state that the amount of the 
scholarships, grants, reimbursements, or refunds reported for the 
calendar year and other similar amounts not reported (because they are 
not processed by the institution) may reduce the amount of any 
allowable education tax credit for the taxable year or a prior taxable 
year. The instructions must state that the taxpayer should refer to 
relevant IRS forms and publications (such as Form 8863, ``Education 
Credits,'' and Publication 970, ``Tax Benefits for Higher Education'') 
for explanations relating to the eligibility requirements for, and the 
calculation of, any allowable education tax credit.
    The proposed regulations reserve the requirement in section 
6050S(d) that an institution or insurer furnish a statement to any 
taxpayer who will claim the individual with respect to whom payments 
are received, or reimbursements or refunds are made, as a dependent for 
purposes of the deduction allowable under section 151 for the taxable 
year. Thus, under the proposed regulations, there is no requirement to 
furnish a statement to any taxpayer who will claim the individual as a 
dependent on the taxpayer's Federal income tax return.
    The proposed regulations describe the rules for the time and manner 
of filing information returns with the IRS and furnishing information 
statements. Forms 1098-T must generally be filed with the IRS on or 
before February 28 (March 31 if filed electronically) of the year 
following the calendar year in which the payments were received, or 
reimbursements or refunds were made. In general, an institution or 
insurer must furnish an information statement to each individual with 
respect to whom payments of qualified tuition and related expenses were 
received, or reimbursements or refunds were made, on or before January 
31 of the year following the calendar year in which payments were 
received, or reimbursements or refunds were made. Although the 
regulations do not specifically address the issue of electronic 
transmission of information statements, the IRS is currently studying 
the issue. Accordingly, the IRS may address that issue in future 
guidance.
    Under the proposed regulations, an institution or insurer may be 
subject to a penalty under section 6721 for failure to file correct 
Forms 1098-T and a penalty under section 6722 for failure to furnish 
correct information statements. The proposed regulations generally 
follow the rules under section 6724 for waivers of penalties for 
certain failures due to reasonable cause. The regulations also provide 
special rules for soliciting an individual's TIN. An institution or 
insurer that complies with those rules will not be penalized for any 
failure to obtain or include a correct TIN on a Form 1098-T or the 
related information statement.

2. Information Reporting for Payments of Interest on Qualified 
Education Loans

    The proposed regulations require any person engaged in a trade or 
business that receives from any payor interest of $600 or more for any 
calendar year on one or more qualified education loans (as defined in 
section 221(e)(1) and the regulations thereunder) (a payee) to file a 
Form 1098-E with the IRS. Under the proposed regulations, a payee must 
report the name, address, and taxpayer identification number (TIN) of 
the payee; the name, address, and TIN of the payor; and the aggregate 
amount of interest received during the calendar year from the payor. 
The payee may be the lender, the holder of the loan, or the loan 
servicer. The regulations define the payor as the individual carried on 
the books and records of the payee as the borrower on a qualified 
education loan. If there are multiple borrowers, the principal borrower 
indicated on the payee's books and records is treated as the payor for 
purposes of section 6050S.
    Under the proposed regulations, a payee is required to report only 
interest payments received on a qualified education loan during the 
first 60 months in which interest payments are required on the loan. 
The proposed regulations, in general, incorporate the rules of section 
221 and the regulations thereunder to determine the 60-month period for 
which interest payments must be reported. Under the proposed 
regulations, the 60-month period generally begins on the date the 
qualified education loan first enters repayment status. However, for 
qualified education loans made before January 1, 1998, if the payee 
does not know, and does not have reason to know, the date on which the 
loan entered repayment status, then, for information reporting 
purposes, the 60-month period begins on January 1, 1998. For defaulted 
loans made before January 1, 1998, if the payee does not know, and does 
not have reason to know, the date on which the loan entered repayment 
status, then, for information reporting purposes, the 60-month period 
begins on the earlier of the date the loan went into default or January 
1, 1998. If the payee does not know, and does not have reason to know, 
either the date the loan entered repayment status or the default date, 
then, for information reporting purposes, the 60-month period begins on 
January 1, 1998.
    The proposed regulations provide that, in determining the aggregate 
amount of interest payments to be reported by a payee, the term 
interest includes stated interest, loan origination fees (other than 
any fees for services), and capitalized interest as described in 
proposed regulations Sec. 1.221-1(h)(2). However, in order to provide 
payees sufficient time to develop systems to report amounts other than 
stated interest, the proposed regulations do not require payees to 
report loan origination fees and capitalized interest for loans made 
before January 1, 2002.
    The proposed regulations provide rules to determine which loans are 
qualified education loans subject to information reporting under 
section 6050S. The regulations provide that, unless the loan is 
subsidized, guaranteed, financed, or otherwise treated as a student 
loan under a program of the Federal, state, or local government or an 
eligible educational institution, the payee must request and obtain a 
certification from the payor that the loan will be used solely to pay 
qualified higher education expenses. The regulations provide that the 
payee may use Form W-9S, ``Request for Student's Social Security Number 
and Borrower Certification,'' to request and obtain the certification. 
If a payee fails to obtain a required certification, the loan is not 
treated as a qualified education loan for purposes of section 6050S.
    The proposed regulations provide that a payee must furnish an 
information statement to each payor for whom it is required to file a 
Form 1098-E. The proposed regulations provide that the statement must 
include the information included on the Form 1098-E filed with the IRS 
and a legend that identifies the statement as important tax information 
being furnished to the IRS. The statement must include instructions 
that state that, under section 221 and the regulations thereunder, the 
payor may not be able to deduct the full amount of interest reported on 
the statement. The instructions must state that interest payments are 
deductible only during the first 60-months that interest payments are 
required. If the payee reports only stated interest, the instructions 
must state that the payor may be able to deduct additional amounts 
(e.g., certain loan origination fees and capitalized interest) not 
reported on the statement. The instructions must also state that the 
payor should refer to relevant IRS forms

[[Page 37732]]

and publications (such as Publication 970) for explanations relating to 
the eligibility requirements for, and the calculation of, any allowable 
interest deduction on qualified education loans.
    The proposed regulations describe the rules for the time and manner 
of filing information returns with the IRS and furnishing information 
statements to payors. Forms 1098-E must generally be filed with the IRS 
on or before February 28 (March 31 if filed electronically) of the year 
following the calendar year in which the interest payments were 
received. In general, a payee must furnish an information statement to 
the payor on or before January 31 of the year following the calendar 
year in which interest payments were received. Although the regulations 
do not specifically address the issue of electronic transmission of 
information statements, the IRS is currently studying the issue. 
Accordingly, the IRS may address that issue in future guidance.
    Under the proposed regulations, a payee may be subject to a penalty 
under section 6721 for failure to file correct Forms 1098-E and a 
penalty under section 6722 for a failure to furnish correct information 
statements. The proposed regulations generally follow the rules under 
section 6724 for waivers of penalties for certain failures due to 
reasonable cause. The regulations also provide special rules for 
soliciting the payor's TIN. A payee that complies with those rules will 
not be penalized for any failure to obtain or include a correct TIN on 
a Form 1098-E or the related information statement.

3. Requirement to File Information Returns on Magnetic Media

    The proposed regulations amend the regulations under section 
6011(e) to require eligible educational institutions, insurers, and 
payees who are required to file 250 or more Forms 1098-T or 1098-E to 
file on magnetic media. Under Sec. 301.6011-2(a)(1), the term magnetic 
media means any media permitted under applicable regulations, revenue 
procedures, or publications, including magnetic tape, tape cartridge, 
and diskette, as well as other media (such as electronic filing).

Proposed Effective Date

    These regulations are proposed to apply to information returns 
required to be filed, and information statements required to be 
furnished, after December 31, 2001. Taxpayers may rely on these 
proposed regulations for guidance pending the issuance of final 
regulations. If, and to the extent, future guidance is more restrictive 
than the guidance in the proposed regulations, the future guidance will 
be applied without retroactive effect.

Special Analyses

    It has been determined that these proposed regulations are not a 
significant regulatory action as defined in Executive Order 12866. 
Therefore, a regulatory assessment is not required. It has also been 
determined that section 553(b) of the Administrative Procedure Act (5 
U.S.C. chapter 5) does not apply to these regulations. An initial 
regulatory flexibility analysis has been prepared for this notice of 
proposed rulemaking under 5 U.S.C. 603 and is set forth under the 
heading ``Initial Regulatory Flexibility Analysis'' in this preamble. 
Pursuant to section 7805(f), this notice of proposed rulemaking will be 
submitted to the Chief Counsel for Advocacy of the Small Business 
Administration for comment on its impact on small business.

Initial Regulatory Flexibility Analysis

    The collection of information contained in Secs. 1.6050S-1(a) and 
(b) and 1.6050S-2(a) and (c) is needed to assist the IRS and taxpayers 
in determining the amount of any education credit allowable under 
section 25A and the amount of any interest deduction allowable under 
section 221. The objectives of the proposed regulations are to provide 
uniform, practicable, and administrable rules under section 6050S. The 
types of small entities to which the proposed regulations may apply are 
small eligible educational institutions (such as colleges and 
universities), certain insurers who reimburse educational expenses, and 
certain payees who receive payments of interest on qualified education 
loans. As of the end of December 1999, a total of 20,738,039 Forms 
1098-T were filed with the IRS for 1998 and a total of 8,753,819 Forms 
1098-E were filed with the IRS for 1998. The current estimated 
reporting burden is 7 minutes per Form 1098-T and 3 minutes per Form 
1098-E. No special professional skills are necessary for preparation of 
the reports or records. There are no known Federal rules that 
duplicate, overlap, or conflict with these proposed regulations. The 
regulations proposed are considered to have the least economic impact 
on small entities of all alternatives considered.
    Moreover, the proposed regulations requiring filing Forms 1098-T 
and 1098-E on magnetic media impose no additional reporting or 
recordkeeping and only prescribe the method of filing information 
returns that are already required to be filed. Further, these 
regulations are consistent with the statutory requirement that an 
eligible educational institution, insurer, or payee is not required to 
file Forms 1098-T or 1098-E on magnetic media unless required to file 
at least 250 or more returns during the year. Finally, the economic 
impact caused by requiring Forms 1098-T and 1098-E on magnetic media 
should be minimal because most institution's, insurer's, and payee's 
operations are computerized. Even if their operations are not 
computerized, the incremental cost of magnetic media reporting should 
be minimal in most cases because of the availability of computer 
service bureaus. In addition, the existing regulations under section 
6011(e) provide that the IRS may waive the magnetic media filing 
requirements on a showing of hardship. The waiver authority will be 
exercised so as not to unduly burden institutions, insurers, and payees 
lacking both the necessary data processing facilities and access at a 
reasonable cost to computer service bureaus.

Comments and Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any written and electronic comments that 
are submitted timely to the IRS. The IRS and Treasury specifically 
request comments on the clarity of the proposed regulations and how 
they can be made easier to understand. All comments will be available 
for public inspection and copying.
    A public hearing will be scheduled in the Internal Revenue 
Building, 1111 Constitution Avenue, NW., Washington, DC. The IRS 
recognizes that persons outside the Washington, DC, area may also wish 
to testify at the public hearing through videoconferencing. Requests to 
include videoconferencing sites must be received by August 15, 2000. If 
the IRS receives sufficient indications of interest to warrant 
videoconferencing to a particular city, and if the IRS has 
videoconferencing facilities available in that city on the date the 
public hearing is to be scheduled, the IRS will try to accommodate the 
requests.
    The IRS will publish the time and date of the public hearing and 
the locations of any videoconferencing sites in a document in the 
Federal Register.

Drafting Information

    The principal author of the regulations is Donna Welch, Office of 
Assistant Chief Counsel (Income Tax and Accounting). However, other 
personnel from the IRS and the Treasury Department participated in the 
development of the regulations.

[[Page 37733]]

List of Subjects

26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

26 CFR Part 301

    Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income 
taxes, Penalties, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

    Accordingly, 26 CFR parts 1 and 301 are proposed to be amended as 
follows:

PART 1--INCOME TAXES

    Paragraph 1. The authority citation for part 1 is amended by adding 
entries in numerical order to read in part as follows:

    Authority: 26 U.S.C. 7805 * * *

    Section 1.6050S-1 also issued under section 26 U.S.C. 6050S(g).
    Section 1.6050S-2 also issued under section 26 U.S.C. 6050S(g). 
* * *

    Par. 2. Sections 1.6050S-0 through 1.6050S-2 are added to read as 
follows:

Sec. 1.6050S-0  Table of contents.

    This section lists captions contained in Secs. 1.6050S-1 and 
1.6050S-2.

Sec. 1.6050S-1  Information reporting for payments and 
reimbursements or refunds of qualified tuition and related expenses.

    (a) Information reporting requirement.
    (1) In general.
    (2) Exceptions.
    (i) No reporting for nonresident alien individuals.
    (ii) No reporting for individuals enrolled in noncredit courses.
    (A) In general.
    (B) Academic credit defined.
    (C) Example.
    (b) Requirement to file return.
    (1) Form of return.
    (2) Information included on return.
    (i) In general.
    (ii) Requirement to include name, address, and TIN of any 
taxpayer who will claim the individual as a dependent on the 
taxpayer's Federal income tax return. [Reserved]
    (3) Time and place for filing return.
    (i) In general.
    (ii) Return for nonresident alien individual.
    (iii) Extensions of time.
    (4) Use of magnetic media.
    (c) Requirement to furnish statement.
    (1) In general.
    (2) Statement furnished to any taxpayer who will claim the 
individual as a dependent on the taxpayer's Federal income tax 
return. [Reserved]
    (3) Time and manner for furnishing statement.
    (i) In general.
    (ii) Statement to nonresident alien individual.
    (iii) Extensions of time.
    (4) Time and manner for furnishing statement to any taxpayer who 
will claim the individual as a dependent on the taxpayer's Federal 
income tax return. [Reserved]
    (5) Copy of Form 1098-T.
    (d) Special rules.
    (1) Payments received for qualified tuition and related expenses 
determined.
    (i) In general.
    (ii) Example.
    (2) Payments of qualified tuition and related expenses received 
or collected on behalf of an institution.
    (i) In general.
    (ii) Exception.
    (3) Governmental units.
    (e) Penalty provisions.
    (1) Failure to file correct returns.
    (2) Failure to furnish correct information statements.
    (3) Waiver of penalties for failures to include a correct TIN.
    (i) In general.
    (ii) Acting in a responsible manner.
    (iii) Manner of soliciting TIN.
    (4) Requirement to request and obtain TIN of any taxpayer who 
will claim the individual as a dependent on the taxpayer's Federal 
income tax return. [Reserved]
    (5) Failure to furnish TIN.
    (f) Effective date.

Sec. 1.6050S-2  Information reporting for payments of interest on 
qualified education loans.

    (a) Information reporting requirement.
    (1) In general.
    (2) Reporting period.
    (i) In general.
    (ii) Calculation of 60-month period.
    (iii) Transitional rules for reporting on loans made before 
January 1, 1998.
    (b) Definitions.
    (c) Requirement to file return.
    (1) Form of return.
    (2) Information included on return.
    (3) Time and place for filing return.
    (i) In general.
    (ii) Extensions of time.
    (4) Use of magnetic media.
    (d) Requirement to furnish statement.
    (1) In general.
    (2) Time and manner for furnishing statement.
    (i) In general.
    (ii) Extensions of time.
    (3) Copy of Form 1098-E.
    (e) Special rules.
    (1) Transitional rule for reporting of loan origination fees and 
capitalized interest.
    (2) Qualified education loan certification.
    (3) Payments of interest received or collected by one or more 
persons.
    (i) In general.
    (ii) Exception.
    (4) Reporting by foreign persons.
    (5) Governmental units.
    (f) Penalty provisions.
    (1) Failure to file correct returns.
    (2) Failure to furnish correct information statements.
    (3) Waiver of penalties for failures to include a correct TIN.
    (i) In general.
    (ii) Acting in a responsible manner.
    (iii) Manner of soliciting TIN.
    (4) Failure to furnish TIN.
    (g) Effective date.

Sec. 1.6050S-1  Information reporting for payments and reimbursements 
or refunds of qualified tuition and related expenses.

    (a) Information reporting requirement--(1) In general. Except as 
provided in paragraph (a)(2) of this section, any eligible educational 
institution (as defined in section 25A(f)(2) and Sec. 1.25A-2(b)) (an 
institution) that receives payments of qualified tuition and related 
expenses (as defined in section 25A(f)(1) and Sec. 1.25A-2(d)) from any 
source for any calendar year, or that makes reimbursements or refunds 
(or similar payments) of such amounts, and any person engaged in a 
trade or business of making payments under an insurance arrangement as 
reimbursements or refunds (or other similar amounts) of qualified 
tuition and related expenses (an insurer) must--
    (i) File an information return, as described in paragraph (b) of 
this section, with the Internal Revenue Service (IRS) with respect to 
each individual for whom such payments are received, or reimbursements 
or refunds are made; and
    (ii) Furnish a statement, as described in paragraph (c) of this 
section, to each individual described in paragraph (c) of this section.
    (2) Exceptions--(i) No reporting for nonresident alien individuals. 
The information reporting requirements of this section do not apply 
with respect to any individual who is a nonresident alien (as defined 
in section 7701(b) and Sec. 301.7701(b)-3 of this chapter) during the 
calendar year, unless the individual requests the institution or 
insurer to report. If a nonresident alien individual requests an 
institution or insurer to report, the institution or insurer must 
comply with the requirements of this section for the year with respect 
to which the request is made and all years after such request in which 
it receives payments of qualified tuition and related expenses or makes 
reimbursements or refunds of such amounts with respect to such 
individual.
    (ii) No reporting for individuals enrolled in noncredit courses--
(A) In general. The information reporting requirements of this section 
do not apply with respect to any individual who is enrolled during the 
calendar year only in courses for which the individual receives no 
academic credit.
    (B) Academic credit defined. Academic credit means credit awarded 
by an institution for the completion of coursework leading toward a 
post-

[[Page 37734]]

secondary degree, certificate, or other recognized post-secondary 
educational credential.
    (C) Example. The following example illustrates the rules of this 
paragraph (a)(2)(ii):

    Example. Student A, a medical doctor, takes a course at 
University X's medical school. Student A takes the course to fulfill 
State Y's licensing requirement that medical doctors attend 
continuing medical education courses each year. Student A is not 
enrolled in a degree program at University X and takes the medical 
course through University X's continuing professional education 
division. University X does not award Student A credit toward a 
post-secondary degree on an academic transcript for the completion 
of the course but gives Student A a certificate of attendance upon 
completion. Under this paragraph (a)(2)(ii), University X is not 
subject to the information reporting requirements of section 6050S 
and this section for the medical education course taken by Student 
A.

    (b) Requirement to file return--(1) Form of return. Except as 
otherwise provided in this section, an institution or insurer must file 
an information return for each individual with respect to whom payments 
of qualified tuition and related expenses are received, or 
reimbursements or refunds of such amounts are made, during the calendar 
year on Form 1098-T, ``Tuition Payments Statement.'' An institution or 
insurer may use a substitute for Form 1098-T if the substitute form 
complies with applicable revenue procedures relating to substitute 
forms.
    (2) Information included on return--(i) In general. An institution 
or insurer must include on Form 1098-T--
    (A) The name, address, and taxpayer identification number (TIN) (as 
defined in section 7701(a)(41)) of the institution or the insurer;
    (B) The name, address, and TIN of the individual with respect to 
whom payments of qualified tuition and related expenses were received, 
or reimbursements or refunds of such amounts were made;
    (C) The aggregate amount of payments of qualified tuition and 
related expenses from any source that the institution received with 
respect to the individual during the calendar year;
    (D) The aggregate amount of reimbursements or refunds of qualified 
tuition and related expenses that the institution or insurer made with 
respect to the individual during the calendar year;
    (E) The aggregate amount of any scholarships or grants that the 
institution processed during the calendar year for the payment of the 
individual's costs of attendance;
    (F) An indication by the institution whether the individual was 
enrolled for at least half of the normal full-time work load for the 
course of study the individual is pursuing for at least one academic 
period that begins during the calendar year (see Sec. 1.25A-
3(d)(1)(ii));
    (G) An indication by the institution whether the individual was 
enrolled in a program leading to a graduate-level degree, graduate-
level certificate, or other recognized graduate-level educational 
credential; and
    (H) Any other information required by Form 1098-T and its 
instructions.
    (ii) Requirement to include name, address, and TIN of any taxpayer 
who will claim the individual as a dependent on the taxpayer's Federal 
income tax return. [Reserved]
    (3) Time and place for filing return--(i) In general. Except as 
provided in paragraphs (b)(3)(ii) and (iii) of this section, Form 1098-
T must be filed on or before February 28 (March 31 if filed 
electronically) of the year following the calendar year in which 
payments of qualified tuition or related expenses were received, or 
reimbursements or refunds of such amounts were made. An institution or 
insurer must file Form 1098-T with the IRS according to the 
instructions to Form 1098-T.
    (ii) Return for nonresident alien individual. In general, an 
institution or insurer is not required to file a return on behalf of a 
nonresident alien individual. However, if a nonresident alien 
individual requests an institution or insurer to report, the 
institution or insurer must file a return described in paragraph (b)(2) 
of this section with the IRS on or before the date prescribed in 
paragraph (b)(3)(i) of this section, or on or before the thirtieth day 
after the request, whichever is later.
    (iii) Extensions of time. The IRS may grant an institution or 
insurer an extension of time to file returns required in this section 
upon a showing of good cause. See the instructions to Form 1098-T and 
applicable revenue procedures for rules relating to extensions of time 
to file.
    (4) Use of magnetic media. See section 6011(e) and Sec. 301.6011-2 
of this chapter for rules relating to the requirement to file Forms 
1098-T on magnetic media.
    (c) Requirement to furnish statement--(1) In general. An 
institution or insurer must furnish a statement to each individual for 
whom it is required to file a Form 1098-T. The statement must include--
    (i) The information required under paragraph (b)(2) of this 
section;
    (ii) A legend that identifies the statement as important tax 
information that is being furnished to the IRS;
    (iii) Instructions that--
    (A) State that the taxpayer may not be able to claim an education 
tax credit under section 25A and the regulations thereunder with 
respect to the total payments of qualified tuition and related expenses 
reported for the calendar year;
    (B) State that the amount of any scholarships, grants, refunds, or 
reimbursements reported for the calendar year and other similar amounts 
not reported (because they are not processed by the institution) may 
reduce the amount of any allowable education tax credit for the taxable 
year or a prior taxable year;
    (C) State that the taxpayer should refer to relevant IRS forms and 
publications for explanations relating to the eligibility requirements 
for, and calculation of, any allowable education tax credit; and
    (D) Include the name, address, and phone number of the individual 
who is the information contact for the institution or insurer that 
filed the Form 1098-T.
    (2) Statement furnished to any taxpayer who will claim the 
individual as a dependent on the taxpayer's Federal income tax return. 
[Reserved]
    (3) Time and manner for furnishing statement--(i) In general. 
Except as provided in paragraphs (c)(3)(ii) and (iii) of this section, 
an institution or insurer must furnish the statement described in 
paragraph (c)(1) of this section to each individual with respect to 
whom payments of qualified tuition and related expenses were received, 
or reimbursements or refunds were made, on or before January 31 of the 
year following the calendar year in which payments were received or 
reimbursements or refunds were made. If mailed, the statement must be 
sent to the individual's permanent address, or the individual's 
temporary address if the institution or insurer does not know the 
individual's permanent address.
    (ii) Statement to nonresident alien individual. If an information 
return is filed for a nonresident alien individual, the institution or 
insurer must furnish a statement described in paragraph (c)(1) of this 
section to the individual in the manner and on or before the date 
prescribed in paragraph (c)(3)(i) of this section, or on or before the 
thirtieth day after the nonresident alien's request to report, 
whichever is later.
    (iii) Extensions of time. The IRS may grant an institution or 
insurer an extension of time to furnish the statements required in this 
section upon

[[Page 37735]]

a showing of good cause. See the instructions to Form 1098-T and 
applicable revenue procedures for rules relating to extensions of time 
to furnish statements.
    (4) Time and manner for furnishing statement to any taxpayer who 
will claim the individual as a dependent on the taxpayer's Federal 
income tax return. [Reserved]
    (5) Copy of Form 1098-T. An institution or insurer may satisfy the 
requirement of this paragraph (c) by furnishing either a copy of Form 
1098-T and its instructions or another document that contains all of 
the information filed with the IRS and the information required by 
paragraph (c)(1) of this section if the document complies with 
applicable revenue procedures relating to substitute statements.
    (d) Special rules--(1) Payments received for qualified tuition and 
related expenses determined--(i) In general. In determining the 
aggregate amount of payments of qualified tuition and related expenses 
that an institution must report, payments received with respect to an 
individual during the calendar year from any source (except for any 
scholarship or grant that, by its terms, must be applied to expenses 
other than qualified tuition and related expenses, such as room and 
board) will be treated as payments of qualified tuition and related 
expenses up to the total amount billed by the institution for such 
expenses.
    (ii) Example. The following example illustrates the rules of this 
paragraph (d)(1):

    Example. (i) During the 2002 Spring semester, Student C attends 
College X and enrolls in a program leading toward an associate's 
degree. Student C lives on-campus. In December 2001, College X 
charges Student C $2,000 for room and board for the 2002 Spring 
semester. In addition, in December 2001, College X charges Student C 
$4,000 for qualified tuition and related expenses for the 2002 
Spring semester. In December 2001, Student C pays College X $1,500. 
In early January 2002, College X receives and processes a $4,500 
scholarship that may be applied to any of Student C's costs of 
attendance. Assume that there are no other payments during the 
calendar years 2001 and 2002.
    (ii) Under this paragraph (d)(1), for the calendar year 2001, 
College X must report $1,500 for payments of qualified tuition and 
related expenses received during the calendar year 2001. In 
addition, for the calendar year 2002, College X must report:
    (A) $2,500 for payments of qualified tuition and related 
expenses received during the calendar year 2002 ($4,000 total 
charges for qualified tuition and related expenses less the $1,500 
payments received during 2001); and
    (B) $4,500 of scholarships processed during the calendar year 
2002.

    (2) Payments of qualified tuition and related expenses received or 
collected on behalf of an institution--(i) In general. If an 
institution contracts with another person to receive or collect 
payments of qualified tuition and related expenses on its behalf, the 
other person must satisfy the information reporting requirements of 
this section.
    (ii) Exception. If the institution does not provide the other 
person with the information necessary to comply with the reporting 
requirements of this section, the other person must request the 
information necessary to comply with the information reporting 
requirements from the institution. If the institution does not provide 
the other person with the necessary information upon request, the 
institution must satisfy the information reporting requirements of this 
section.
    (3) Governmental units. An institution or insurer that is a 
governmental unit, or an agency or instrumentality of a governmental 
unit, is subject to the information reporting requirements of this 
section and an appropriately designated officer or employee of the 
governmental entity must satisfy the information reporting requirements 
of this section.
    (e) Penalty provisions--(1) Failure to file correct returns. The 
section 6721 penalty may apply to an institution or insurer that fails 
to file information returns required by section 6050S and this section 
on or before the required filing date; that fails to include all of the 
required information on the return; or that includes incorrect 
information on the return. See section 6721, and the regulations 
thereunder, for rules relating to penalties for failure to file correct 
returns. See section 6724, and the regulations thereunder, for rules 
relating to waivers of penalties for certain failures due to reasonable 
cause.
    (2) Failure to furnish correct information statements. The section 
6722 penalty may apply to an institution or insurer that fails to 
furnish statements required by section 6050S and this section on or 
before the prescribed date; that fails to include all the required 
information on the statement; or that includes incorrect information on 
the statement. See section 6722, and the regulations thereunder, for 
rules relating to penalties for failure to furnish correct statements. 
See section 6724, and the regulations thereunder, for rules relating to 
waivers of penalties for certain failures due to reasonable cause.
    (3) Waiver of penalties for failures to include a correct TIN--(i) 
In general. In the case of a failure to include a correct TIN on Form 
1098-T or a related information statement, penalties may be waived if 
the failure is due to reasonable cause. Reasonable cause may be 
established if the failure arose from events beyond the institution's 
or insurer's control, such as a failure of the individual to furnish a 
correct TIN. However, the institution or insurer must establish that it 
acted in a responsible manner both before and after the failure.
    (ii) Acting in a responsible manner. An institution or insurer must 
request the TIN of each individual with respect to whom payments of 
qualified tuition were received, or reimbursements or refunds were 
made, if it does not already have a record of the individual's correct 
TIN. If the institution or insurer does not have a record of the 
individual's correct TIN, then it must solicit the TIN in the manner 
described in paragraph (e)(3)(iii) of this section on or before 
December 31 of each year during which it receives payments of, or makes 
reimbursements of, qualified tuition and related expenses with respect 
to the individual. If an individual refuses to provide his or her TIN 
upon request, the institution or insurer must file the return and 
furnish the statement required by this section without the individual's 
TIN, but with all other required information. The specific solicitation 
requirements of paragraph (e)(3)(iii) of this section apply in lieu of 
the solicitation requirements of Sec. 301.6724-1(e) and (f) of this 
chapter for the purpose of determining whether an institution or 
insurer acted in a responsible manner in attempting to obtain a correct 
TIN. An institution or insurer that complies with the requirements of 
this paragraph (e)(3) will be considered to have acted in a responsible 
manner within the meaning of Sec. 301.6724-1(d) of this chapter with 
respect to any failure to include the correct TIN of an individual on a 
return or statement required by section 6050S and this section.
    (iii) Manner of soliciting TIN. An institution or insurer must 
request the individual's TIN in writing and must clearly notify the 
individual that the law requires the individual to furnish a TIN so 
that it may be included on an information return filed by the 
institution or insurer. An institution or insurer must notify the 
individual that the individual's failure to furnish his or her TIN to 
the institution or insurer may result in a $50 penalty being imposed 
against the individual as authorized by law. A request for a TIN made 
on Form W-9S, ``Request for Student's or Borrower's Social Security 
Number and Certification,'' satisfies the requirements of this 
paragraph (e)(3)(iii). An institution or insurer may establish a

[[Page 37736]]

system for individuals to submit Forms W-9S electronically as described 
in applicable forms and instructions. An institution or insurer may 
also develop a separate form to request the individual's TIN or 
incorporate the request into other forms customarily used by the 
institution or insurer, such as financial aid applications.
    (4) Requirement to request and obtain TIN of any taxpayer who will 
claim the individual as a dependent on the taxpayer's Federal income 
tax return. [Reserved]
    (5) Failure to furnish TIN. The section 6723 penalty may apply to 
any individual who is required (but fails) to furnish his or her TIN to 
an institution or insurer. See section 6723, and the regulations 
thereunder, for rules relating to the penalty for failure to furnish a 
TIN.
    (f) Effective date. The rules in this section apply to information 
returns required to be filed, and information statements required to be 
furnished, after December 31, 2001.

Sec. 1.6050S-2  Information reporting for payments of interest on 
qualified education loans.

    (a) Information reporting requirement--(1) In general. Except as 
otherwise provided in this section, any person engaged in a trade or 
business that, in the course of that trade or business, receives from 
any payor (as defined in paragraph (b)(2) of this section) interest 
payments that aggregate $600 or more for any calendar year on one or 
more qualified education loans (as defined in section 221(e)(1) and 
Sec. 1.221-1(f)(3))(a payee) must--
    (i) File an information return, as described in paragraph (c) of 
this section, with the IRS with respect to the payor; and
    (ii) Furnish a statement, as described in paragraph (d) of this 
section, to the payor.
    (2) Reporting period--(i) In general. The information reporting 
requirements of this section apply only to interest payments received 
on a qualified education loan during the first 60 months in which 
interest payments are required on the loan.
    (ii) Calculation of 60-month period. In general, the 60-month 
period described in paragraph (a)(2)(i) of this section begins on the 
date the qualified education loan first enters repayment status and 
ends 60 months later. However, if the payee knows, or has reason to 
know, of any periods of deferment or forbearance during which the 60-
month period is suspended under the rules described in Sec. 1.221-
1(e)(3), the 60-month period described in paragraph (a)(2)(i) of this 
section is extended by the period of such deferment or forbearance. The 
date on which the qualified education loan first enters repayment 
status is determined under the terms of the loan agreement or, in the 
case of a loan issued or guaranteed under a federal post-secondary 
education loan program, under applicable federal regulations. For 
purposes of reporting under section 6050S and this section for 
refinanced loans and consolidated and collapsed loans, the rules of 
Sec. 1.221-1(h)(1), relating to the date on which the 60-month period 
begins, apply.
    (iii) Transitional rules for reporting on loans made before January 
1, 1998. For qualified education loans made before January 1, 1998, the 
60-month period described in paragraph (a)(2)(i) of this section is 
determined in accordance with the rules of paragraph (a)(2)(ii) of this 
section, except that if the payee does not know, and does not have 
reason to know, the date on which the loan entered repayment status, 
then, for reporting purposes only, the 60-month period begins on 
January 1, 1998. For defaulted loans made before January 1, 1998, if 
the payee does not know, and does not have reason to know, the date on 
which the loan entered repayment status, then, for reporting purposes 
only, the 60-month period begins on the earlier of the date the loan 
went into default or January 1, 1998. If the payee does not know, and 
does not have reason to know, either the date the loan entered 
repayment status or the default date, then, for reporting purposes 
only, the 60-month period begins on January 1, 1998. For purposes of 
this paragraph (a)(2)(iii), a defaulted loan is a loan with respect to 
which required payments of interest and principal have not been made 
when due over a period of time such that the holder has declared the 
loan in default based on its terms and conditions, and, if applicable, 
has sought recourse against the ultimate guarantor of the loan.
    (b) Definitions. The following definitions apply for purposes of 
this section:
    (1) Interest includes stated interest, loan origination fees (other 
than fees for services), and capitalized interest as described in 
Sec. 1.221-1(h)(2). See paragraph (e)(1) of this section for a special 
transitional rule relating to reporting of loan origination fees and 
capitalized interest.
    (2) Payor means the individual who is carried on the books and 
records of the payee as the borrower on a qualified education loan. If 
there are multiple borrowers, the principal borrower on the payee's 
books and records is treated as the payor for purposes of section 6050S 
and this section.
    (c) Requirement to file return--(1) Form of return. A payee must 
file an information return for the payor on Form 1098-E, ``Student Loan 
Interest Statement.'' A payee may use a substitute for Form 1098-E if 
the substitute form complies with the applicable revenue procedures 
relating to substitute forms.
    (2) Information included on return. A payee must include on Form 
1098-E--
    (i) The name, address, and taxpayer identification number (TIN)(as 
defined in section 7701(a)(41)) of the payee;
    (ii) The name, address, and TIN of the payor;
    (iii) The aggregate amount of interest payments received during the 
calendar year from the payor; and
    (iv) Any other information required by Form 1098-E and its 
instructions.
    (3) Time and place for filing return--(i) In general. Except as 
provided in paragraph (c)(3)(ii) of this section, the Form 1098-E must 
be filed on or before February 28 (March 31 if filed electronically) of 
the year following the calendar year in which interest payments were 
received. A payee must file Form 1098-E with the IRS according to the 
instructions to Form 1098-E.
    (ii) Extensions of time. The IRS may grant a payee an extension of 
time to file returns required in this section upon a showing of good 
cause. See the instructions to Form 1098-E and applicable revenue 
procedures for rules relating to extensions of time to file.
    (4) Use of magnetic media. See section 6011(e) and Sec. 301.6011-2 
of this chapter for rules relating to the requirement to file Forms 
1098-E on magnetic media.
    (d) Requirement to furnish statement--(1) In general. A payee must 
furnish a statement to each payor for whom it is required to file a 
Form 1098-E. The statement must include--
    (i) The information required under paragraph (c)(2) of this 
section;
    (ii) A legend that identifies the statement as important tax 
information that is being furnished to the IRS;
    (iii) Instructions that--
    (A) State that, under section 221 and the regulations thereunder, 
the payor may not be able to deduct the full amount of interest 
reported on the statement;
    (B) State that interest payments are deductible only during the 
first 60 months that interest payments are required;
    (C) In the case of qualified education loans made before January 1, 
2002, for which the payee does not report payments of interest other 
than stated

[[Page 37737]]

interest, state that the payor may be able to deduct additional amounts 
(such as certain loan origination fees and capitalized interest) not 
reported on the statement;
    (D) State that the payor should refer to relevant IRS forms and 
publications for explanations relating to the eligibility requirements 
for, and calculation of, any allowable deduction for interest paid on a 
qualified education loan; and
    (E) Include the name, address, and phone number of the individual 
who is the information contact for the payee that filed the Form 1098-
E.
    (2) Time and manner for furnishing statement--(i) In general. 
Except as provided in paragraph (d)(2)(ii) of this section, a payee 
must furnish the statement described in paragraph (d)(1) of this 
section to the payor on or before January 31 of the year following the 
calendar year in which payments of interest on a qualified education 
loan were received. If mailed, the statement must be sent to the 
payor's last known address.
    (ii) Extensions of time. The IRS may grant a payee an extension of 
time to furnish statements required in this section upon a showing of 
good cause. See the instructions to Form 1098-E and applicable revenue 
procedures for rules relating to extensions of time to furnish 
statements.
    (3) Copy of Form 1098-E. A payee may satisfy the requirement of 
this paragraph (d) by furnishing either a copy of Form 1098-E and its 
instructions or another document that contains all the information 
filed with the IRS and the information required by paragraph (d)(1) of 
this section if the document complies with applicable revenue 
procedures relating to substitute statements.
    (e) Special rules--(1) Transitional rule for reporting of loan 
origination fees and capitalized interest. For qualified education 
loans made before January 1, 2002, a payee is not required to report 
payments of loan origination fees and capitalized interest as interest 
under section 6050S and this section.
    (2) Qualified education loan certification. If a loan is not 
subsidized, guaranteed, financed, or is not otherwise treated as a 
student loan under a program of the Federal, state, or local government 
or an eligible educational institution, a payee must request a 
certification from the payor that the loan will be used solely to pay 
for qualified higher education expenses. A payee may use Form W-9S, 
``Request for Student's or Borrower's Social Security Number and 
Certification,'' to obtain the certification. A payee may establish an 
electronic system for payors to submit Forms W-9S electronically as 
described in applicable forms and instructions. A payee may also 
develop a separate form to obtain the payor certification or may 
incorporate certification into other forms customarily used by the 
payee, such as loan applications, provided the certification is clearly 
set forth. If the certification is not received, the loan is not a 
qualified education loan for purposes of section 6050S and this 
section.
    (3) Payments of interest received or collected by one or more 
persons--(i) In general. If a payee contracts with another person to 
receive or collect payments on a qualified education loan on its 
behalf, the other person must satisfy the information reporting 
requirements of this section.
    (ii) Exception. If the payee does not provide the other person with 
information necessary to comply with the information reporting 
requirements of this section, the other person must request the 
information necessary to comply with the information reporting 
requirements from the payee. If the payee does not provide the other 
person with the necessary information upon request, the payee must 
satisfy the information reporting requirements of this section.
    (4) Reporting by foreign persons. A payee that is not a United 
States person (as defined in section 7701(a)(30)) must report payments 
of interest it receives on a qualified education loan only if it 
receives the payment--
    (i) At a location in the United States; or
    (ii) At a location outside the United States if the payee is--
    (A) A controlled foreign corporation (within the meaning of section 
957(a)); or
    (B) A person 50 percent or more of the gross income of which, from 
all sources for the three-year period ending with the close of the 
taxable year preceding the taxable year in which interest payments were 
received (or for such part of the period as the person was in 
existence), was effectively connected with the conduct of a trade or 
business within the United States.
    (5) Governmental units. A governmental unit, or an agency or 
instrumentality of a governmental unit, that receives from any payor 
interest payments that aggregate $600 or more for any calendar year on 
one or more qualified education loans is a payee, without regard to the 
requirement of paragraph (a)(1) of this section that the interest be 
received in the course of a trade or business.
    (f) Penalty provisions--(1) Failure to file correct returns. The 
section 6721 penalty may apply to a payee that fails to file 
information returns required by section 6050S and this section on or 
before the required filing date; that fails to include all of the 
required information on the return; or that includes incorrect 
information on the return. See section 6721, and the regulations 
thereunder, for rules relating to penalties for failure to file correct 
returns. See section 6724, and the regulations thereunder, for rules 
relating to waivers of penalties for certain failures due to reasonable 
cause.
    (2) Failure to furnish correct information statements. The section 
6722 penalty may apply to a payee that fails to furnish statements 
required by section 6050S and this section on or before the prescribed 
date; that fails to include all the required information on the 
statement; or that includes incorrect information on the statement. See 
section 6722, and the regulations thereunder, for rules relating to 
penalties for failure to furnish correct statements. See section 6724, 
and the regulations thereunder, for rules relating to waivers of 
penalties for certain failures due to reasonable cause.
    (3) Waiver of penalties for failures to include a correct TIN--(i) 
In general. In the case of a failure to include a correct TIN on Form 
1098-E or a related information statement, penalties may be waived if 
the failure is due to reasonable cause. Reasonable cause may be 
established if the failure arose from events beyond the payee's 
control, such as a failure of the payor to furnish a correct TIN. 
However, the payee must establish that it acted in a responsible manner 
both before and after the failure.
    (ii) Acting in a responsible manner. A payee must request the TIN 
of each payor if it does not already have a record of the payor's 
correct TIN. If the payee does not have a record of the payor's correct 
TIN, then it must solicit the TIN in the manner described in paragraph 
(f)(3)(iii) of this section on or before December 31 of each year 
during which it receives payments of interest. If a payor refuses to 
provide his or her TIN upon request, the payee must file the return and 
furnish the statement required by this section without the payor's TIN, 
but with all other required information. The specific solicitation 
requirements of paragraph (f)(3)(iii) of this section apply in lieu of 
the solicitation requirements of Sec. 301.6724-1(e) and (f) of this 
chapter for the purpose of determining whether a payee acted in a 
responsible manner in attempting to obtain a correct TIN. A payee that 
complies with the

[[Page 37738]]

requirements of this paragraph (f)(3) will be considered to have acted 
in a responsible manner within the meaning of Sec. 301.6724-1(d) of 
this chapter with respect to any failure to include the correct TIN of 
a payor on a return or statement required by section 6050S and this 
section.
    (iii) Manner of soliciting TIN. A payee must request the payor's 
TIN in writing and must clearly notify the payor that the law requires 
the payor to furnish a TIN so that it may be included on an information 
return filed by the payee. A payee must notify the payor that the 
payor's failure to furnish his or her TIN to the payee may result in a 
$50 penalty being imposed against the individual as authorized by law. 
A request for a TIN made on Form W-9S, ``Request for Student's or 
Borrower's Social Security Number and Certification,'' satisfies the 
requirements of this paragraph (f)(3)(iii). A payee may establish a 
system for payors to submit Forms W-9S electronically as described in 
applicable forms and instructions. A payee may also develop a separate 
form to request the payor's TIN or incorporate the request into other 
forms customarily used by the payee, such as loan applications.
    (4) Failure to furnish TIN. The section 6723 penalty may apply to 
any payor who is required (but fails) to furnish his or her TIN to a 
payee. See section 6723, and the regulations thereunder, for rules 
relating to the penalty for failure to furnish a TIN.
    (g) Effective date. The rules in this section apply to information 
returns required to be filed, and information statements required to be 
furnished, after December 31, 2001.

PART 301--PROCEDURE AND ADMINISTRATION

    Par. 3. The authority citation for part 301 continues to read in 
part as follows:

    Authority: 26 U.S.C. 7805 * * *

    Par. 4. Section 301.6011-2 is amended by:
    1. Revising the first sentence of paragraph (b)(1).
    2. Revising paragraph (g)(1).
    3. Adding paragraph (g)(3).
    The revisions and additions read as follows:

Sec. 301.6011-2  Required use of magnetic media.

* * * * *
    (b) Returns required on magnetic media. (1) If the use of Form 
1042-S, 1098 series, 1099 series, 5498, 8027, W-2G, or other form 
treated as a form specified in this paragraph (b)(1) is required by the 
applicable regulations or revenue procedures for the purpose of making 
an information return, the information required by the form must be 
submitted on magnetic media, except as otherwise provided in paragraph 
(c) of this section. * * *
* * * * *
    (g) Effective dates. (1) Except as otherwise provided in paragraph 
(g)(2) or (g)(3) of this section, this section applies to returns 
required to be filed after December 31, 1986.
* * * * *
    (3) This section applies to returns on Forms 1098-T and 1098-E 
required to be filed after December 31, 2001.

Robert E. Wenzel,
Deputy Commissioner of Internal Revenue.
[FR Doc. 00-13774 Filed 6-15-00; 8:45 am]
BILLING CODE 4830-01-U
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