IRS explains student and higher education institution reporting requirements, credits and deductions

WASHINGTON – The Internal Revenue Service issued frequently asked questions today on how students and higher education institutions should report pandemic-related emergency financial aid grants.

Students
Emergency financial aid grants made by a federal agency, state, Indian tribe, higher education institution or scholarship-granting organization (including a tribal organization) to a student because of an event related to the COVID-19 pandemic are not included in the student’s gross income. 

Also, students should not reduce an amount of qualified tuition and related expenses by the amount of an emergency financial aid grant. If students used any portion of the grants to pay for qualified tuition and related expenses on or before December 31, 2020, they may be eligible to claim a tuition and fees deduction or the American Opportunity Credit or Lifetime Learning Credit on their 2020 tax return. See Education FAQs.

The tuition and fees deduction is not available for tax years beginning after December 31, 2020. For additional information on these credits and the tuition and fees deduction, see Publication 970, Tax Benefits for Education.

Higher Education Institutions
Because students don’t include emergency financial aid grants in their gross income, higher education institutions are not required to file or furnish Forms 1099-MISC reporting the grants made available by the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) or the COVID-related Tax Relief Act (COVID Relief Act) and do not need to report the grants in Box 5 of Form 1098-T. 

But any amounts that qualify for the tuition and fees deduction or the American Opportunity Credit or Lifetime Learning Credit are considered “qualified tuition and related expenses” and trigger the reporting requirements of Internal Revenue Code section 6050S.  Higher education institutions must include qualified tuition and related expenses paid by emergency financial aid grants awarded to students in Box 1 of Form 1098-T. 

WASHINGTON – As work continues on issuing millions of Economic Impact Payments to Americans, the Internal Revenue Service and Treasury Department announced today that they anticipate payments will begin to be issued this weekend to Social Security recipients and other federal beneficiaries who do not normally file a tax return, with the projection that the majority of these payments would be sent electronically and received on April 7.

After receiving data from the Social Security Administration on Thursday, March 25, the IRS began the multi-step process to review, validate, and test tens of millions of records to ensure eligibility and proper calculation of Economic Impact Payments. If no additional issues arise, the IRS currently expects to complete that work and to begin processing these payment files at the end of this week. Because the majority of these payments will be disbursed electronically – through direct deposits and payments to existing Direct Express cards – they would be received on the official payment date of April 7. 

Many federal beneficiaries who filed 2019 or 2020 returns or used the Non-Filers tool last year were issued Economic Impact Payments, if eligible, during the last three weeks. The update today applies to Social Security, Supplemental Security Income (SSI), and Railroad Retirement Board (RRB) beneficiaries who did not file a 2019 or 2020 tax return or did not use the Non-Filers tool.

“IRS employees are working tirelessly to once again deliver Economic Impact Payments to the nation’s taxpayers as quickly as possible,” said IRS Commissioner Chuck Rettig. “Our teams immediately began processing data we received last week for federal benefit recipients. We know how important these payments are, and we are doing everything we can to make these payments as fast as possible to these important individuals.”

The Get My Payment tool is updated for eligible individuals once their payment is processed. The IRS notes that the Get My Payment tool on IRS.gov will not be updated until the weekend of April 3-4 with information for federal beneficiaries expecting payments next week.

The IRS continues to review data received for Veterans Affairs (VA) benefit recipients and expects to determine a payment date and provide more details soon. Currently, the IRS estimates that Economic Impact Payments for VA beneficiaries who do not regularly file tax returns could be disbursed by mid-April. VA beneficiary payment information will be available in the Get My Payment tool at a future date.

Federal benefit payments automatic; no action for most

Most Social Security retirement and disability beneficiaries, railroad retirees and recipients of veterans benefits who are eligible for an Economic Impact Payment do not need to take any action to receive a payment. These payments will be automatic. Like the previous Economic Impact Payments, Social Security and other federal beneficiaries will generally receive this third payment the same way that they receive their regular benefits.

Some federal benefit recipients may need to file a 2020 tax return, even if they don't usually file, to provide information the IRS needs to send payments for any qualified dependent. Eligible individuals in this group should file a 2020 tax return to be considered for an additional payment for their qualified dependent as quickly as possible.

Some federal benefit recipients already have received an Economic Impact Payment

The IRS emphasizes that federal benefit recipients in these groups who file tax returns already started to receive Economic Impact Payments earlier this month, along with other taxpayers.

Because some federal benefit recipients do not file tax returns, the IRS did not have in its tax systems the current information needed to generate the Economic Impact Payments. Last year, the IRS took the unprecedented step to receive and review data from other federal agencies and use that data to deliver payments automatically to these recipients.  This action – which had never occurred in previous stimulus efforts – minimized risk and burdens for the American public during the pandemic. Due to regular changes in the federal benefits population, the IRS needed to receive updated information this month from other government agencies. With these critical updates, eligible federal benefit recipients who don’t normally file an income tax return will get a payment automatically in the next few weeks.

Making these automatic payments to federal beneficiaries involves a complex, multi-step process to handle recipient data from the other agencies. For the first round of Economic Impact Payments last year, recipients in these groups received payments within four to six weeks after the CARES Act was signed into law. For the American Rescue Plan signed March 11, the IRS projects that it is on track to deliver Economic Impact Payments to federal beneficiaries at the same or faster speed.

More details on this third round of Economic Impact Payments and federal benefit recipients will be available soon on IRS.gov.

Other work continues on Economic Impact Payments; watch mail for checks, EIP Cards

In addition to work for federal benefit recipients, the IRS also continues to prepare and deliver additional Economic Impact Payments for other eligible individuals – as well as deliver tax refunds.

For those receiving payments in the mail, the IRS urges these taxpayers to continue to watch their mail for these payments, which could include a paper Treasury check or a special prepaid debit card called an EIP Card.

Taxpayers should note that the form of payment for the third Economic Impact Payment, including for some Social Security and other federal beneficiaries, may be different than earlier stimulus payments. More people are receiving direct deposits, while those receiving payments in the mail may receive either a paper check or an EIP Card – which may be different than how they received their previous Economic Impact Payments.

Special reminder for those who don't normally file a tax return

People who don't normally file a tax return and don't receive federal benefits may qualify for these Economic Impact Payments. This includes those experiencing homelessness, the rural poor, and others. For those eligible individuals who didn't get a first or second Economic Impact Payment or got less than the full amounts, they may be eligible for the 2020 Recovery Rebate Credit, but they’ll need to file a 2020 tax return. See the special section on IRS.gov: Claiming the 2020 Recovery Rebate Credit if you aren't required to file a tax return.

Free tax return preparation is available for qualifying people.

The IRS reminds taxpayers that the income levels in this new round of Economic Impact Payments have changed. This means that some people won't be eligible for the third payment even if they received a first or second Economic Impact Payment or claimed a 2020 Recovery Rebate Credit. Payments will begin to be reduced for individuals making $75,000 or above in Adjusted Gross Income ($150,000 for married filing jointly). The payments end at $80,000 for individuals ($160,000 for married filing jointly); people with Adjusted Gross Incomes above these levels are ineligible for a payment.

Individuals can check the Get My Payment tool on IRS.gov to see the payment status of these payments. Additional information on Economic Impact Payments is available on IRS.gov.

WASHINGTON – The Internal Revenue Service today warned of an ongoing IRS-impersonation scam that appears to primarily target educational institutions, including students and staff who have “.edu” email addresses.

The IRS’ phishing@irs.gov has received complaints about the impersonation scam in recent weeks from people with email addresses ending in “.edu.” The phishing emails appear to target university and college students from both public and private, profit and non-profit institutions.

Taxpayers who believe they have a pending refund can easily check on its status at “Where’s My Refund?” on IRS.gov. 

The suspect emails display the IRS logo and use various subject lines such as “Tax Refund Payment” or “Recalculation of your tax refund payment.” It asks people to click a link and submit a form to claim their refund.

The phishing website requests taxpayers provide their:

People who receive this scam email should not click on the link in the email, but they can report it to the IRS. For security reasons, save the email using “save as” and then send that attachment to phishing@irs.gov or forward the email as an attachment to phishing@irs.gov. The Treasury Inspector General for Tax Administration (TIGTA) and IRS Criminal Investigation have been notified.

Taxpayers who believe they may have provided identity thieves with this information should consider immediately obtaining an Identity Protection PIN. This is a voluntary opt-in program. An IP PIN is a six-digit number that helps prevent identity thieves from filing fraudulent tax returns in the victim’s name. 

Taxpayers who attempt to e-file their tax return and find it rejected because a return with their SSN already has been filed should file a Form 14039, Identity Theft Affidavit, to report themselves as a possible identity theft victim. See Identity Theft Central to learn about the signs of identity theft and actions to take. 

Revenue Procedure 2021-18 provides an automatic procedure for a State or local government in which an empowerment zone is located to extend the empowerment zone designation made under section 1391(a) of the Internal Revenue Code (Code).  Specifically, this revenue procedure provides that a State or local government that nominated an empowerment zone is deemed to extend until December 31, 2025, the termination date designated by that State or local government in its empowerment zone nomination (designated termination date), as described in section 1391(d)(1)(B).  This revenue procedure further provides the procedure for such State or local government to decline this deemed extension of its designated termination date.

Revenue Procedure 2021-18 will be in IRB: 2021-15, dated 04/12/2021.

Announcement 2021-7 notifies taxpayers that amounts paid for personal protective equipment for the primary purpose of preventing the spread of the Coronavirus Disease 2019 are amounts paid for medical care under § 213(d) of the Internal Revenue Code.  As a result, the announcement confirms that these amounts are qualified medical expenses eligible to be paid or reimbursed without being included in gross income under health flexible spending arrangements (health FSAs), Archer medical savings accounts (Archer MSAs), health reimbursement arrangements (HRAs), or health savings accounts (HSAs).  In addition, the announcement notifies administrators of group health plans regarding the ability to make certain plan amendments pursuant to the announcement.

Announcement 2021-7 will appear in IRB 2021-15, dated April 12, 2021.

WASHINGTON — The Internal Revenue Service issued Announcement 2021-7 today clarifying that the purchase of personal protective equipment, such as masks, hand sanitizer and sanitizing wipes, for the primary purpose of preventing the spread of coronavirus are deductible medical expenses.

The amounts paid for personal protective equipment are also eligible to be paid or reimbursed under health flexible spending arrangements (health FSAs), Archer medical savings accounts (Archer MSAs), health reimbursement arrangements (HRAs), or health savings accounts (HSAs).

For more information on determining what is deductible, see Can I Deduct My Medical and Dental Expenses? and Publication 502, Medical and Dental Expenses.

Revenue Procedure 2021-17 provides issuers of qualified mortgage bonds, as defined in § 143(a) of the Internal Revenue Code (Code), and issuers of mortgage credit certificates, as defined in § 25(c), with (1) the nationwide average purchase price for residences located in the United States, and (2) average area purchase price safe harbors for residences located in statistical areas in each state, the District of Columbia, Puerto Rico, the Northern Mariana Islands, American Samoa, the Virgin Islands, and Guam.

Revenue Procedure 2021-19 provides guidance with respect to the United States and area median gross income figures for use by issuers of qualified mortgage bonds under § 143(a) of the Internal Revenue Code and issuers of mortgage credit certificates under § 25(c) (collectively, “issuers”) in computing the income requirements under § 143(f).  This revenue procedure provides that issuers must use either (1) the income figures the Department of Housing and Urban Development (“HUD”) released most recently or (2) the income figures HUD released immediately prior to the income figures HUD released most recently, determined as of the date a mortgage loan or mortgage credit certificate is committed to a mortgagor.  This revenue procedure also provides a 90-day transition period, following the release of the HUD income figures in a current calendar year, for issuers to use the income figures HUD released during the second calendar year prior to the current calendar year.  The Department of the Treasury and the IRS have decided to publish this revenue procedure as permanent guidance consistent with comments received and to cease publishing annual revenue procedures providing income figures for purposes of computing the income requirements of § 143(f).

Both Revenue Procedure 2021-17 & 19 will be in IRB: 2021-15, dated April 12, 2021.

WASHINGTON — The Internal Revenue Service’s Criminal Investigation Division (IRS-CI) marks the one-year anniversary of the Coronavirus Aid, Relief and Economic Security (CARES) Act by pledging its continued commitment to investigating COVID-19 fraud.

Over the last year, IRS-CI has been combatting COVID-19 fraud related to the Economic Impact Payments, Paycheck Protection Program (PPP) and Employee Retention Credit. The agency has investigated more than 350 tax and money laundering cases nationwide totaling $440 million. These investigations covered a broad range of criminal activity, including fraudulently obtained loans, credits and payments meant for American workers, families, and small businesses.

“Criminals have tried funding their lavish lifestyles with money intended to provide Americans relief during one of the most difficult times in recent history”, said Jim Lee, Chief of IRS Criminal Investigation. “We have investigated cases of criminals flaunting stolen money to buy fancy cars, boats and pay for luxury apartments while families and businesses struggle to make ends meet. IRS-CI special agents have done an extraordinary job identifying millions in stolen money and our work is far from over. We will not cease until every fraudulently obtained dollar is accounted for and the individuals behind the schemes are prosecuted to the fullest extent of the law.”

IRS-CI encourages the public to share information regarding known or suspected fraud attempts against any of the programs offered through the CARES Act. To report a suspected crime, taxpayers may visit IRS.gov.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law on March 27, 2020, to provide emergency financial assistance to millions of Americans suffering the economic effects of the COVID-19 pandemic. One source of relief provided by the CARES Act was the authorization of up to $349 billion in forgivable loans to small businesses for job retention and certain other expenses, through the Paycheck Protection Program. In April 2020, Congress authorized over $300 billion in additional funding, and in December 2020, another $284 billion.

The Paycheck Protection Program allows qualifying small businesses and certain other organizations to receive loans with a maturity of two to five years and an interest rate of 1%. Businesses must use PPP loan proceeds for payroll costs, interest on mortgages, rent and utilities. The PPP allows the interest and principal to be forgiven if businesses spend the proceeds on these expenses within a set time period and use at least a certain percentage of the loan towards payroll expenses.

To learn more about COVID-19 scams and other financial schemes visit IRS.gov. Official IRS information about COVID-19 and Economic Impact Payments can be found on the Coronavirus Tax Relief page, which is updated frequently.

WASHINGTON — The Joint Chiefs of Global Tax Enforcement (J5) brought together investigators, cryptocurrency experts and data scientists in a coordinated push to track down individuals and organizations perpetrating tax crimes around the world this week. 

The event, known as ‘The Challenge,’ includes experts from each country with the mission of optimizing data from a variety of open and investigative sources available to each country, including offshore account information. Using various analytical tools, members of each country were put into teams and tasked with generating leads and finding tax offenders using cryptocurrency based on the new data available to them through The Challenge.  Working within existing treaties, real data sets from each country were brought to the challenge to make connections where current individual efforts would take years to make those same connections.

The Challenge was first hosted in 2018 by the Fiscal Intelligence and Investigation Service (FIOD) in Utrecht in 2018 and brought together leading data scientists, technology experts and investigators from all J5 countries in a coordinated push to track down those who make a living out of facilitating and enabling international tax crime. The following year, the U.S. hosted a second “Challenge” in Los Angeles focused on cryptocurrency.

“While a great deal of preparation goes into these events, the Challenges are by no means a rehearsal for us,” said Jim Lee, Chief, IRS Criminal Investigation. “As evidenced from the last couple of years, these Challenges result in real enforcement actions taken by the J5. They serve as an opportunity to continue to share information and further develop leads, but they also jumpstart investigations. I expect we will see results from this Challenge in the months and years to come.”

This year the challenge focused on Financial Technology (FINtech) companies. FINtech companies invent new and innovative financial solutions, mainly making use of the digital opportunities the internet offers. Many FINtech companies develop and market new financial products and payment possibilities like cryptocurrency, payment processing platforms like PayPal, crowdfunding loans, and insurance. With these products, FINtech companies are competing with large traditional financial institutes like banks and insurance companies and profits in the billions of dollars are not unheard of.

“In a fast-changing digital world, the J5 also must adjust and change,” said Niels Obbink, General Director of FIOD. “During this challenge, experts have worked hard to focus on the legal opportunities countries have to start J5 investigations aimed at FINtech companies.”

Many FINtech companies have adopted compliance regulations and are partnering with governments and law enforcement in prohibiting financial crime. However, due to the online nature of the products, the novelty and the lack of regulation and compliance in some areas, the FINtech industry can be used by tax avoiders and money launderers to commit crimes. 

All FINtech companies have one attribute in common: they trade in intangible online assets and services. Because of that intangible nature, they can trade from anywhere in the world, only limited by the availability of the Internet. Government regulation on cryptocurrency and financial services have led to the need for FINtech companies having a physical presence in particular countries or areas.

This year the J5 challenge was held virtually due to the COVID-19 pandemic. While international collaboration of this magnitude benefits from in-person interaction, the team was able to engage with each other through virtual platforms. Because of the virtual nature of the event and the time differences between the countries, the Challenge was split into multiple phases. In the first phase of the challenge, legal experts of the five countries discussed the fiscal, compliance and criminal options that each country had regarding FINtech companies. During the second phase, the five countries developed a list of specific companies where leads suggested criminal behavior. By the conclusion of the Challenge, each country identified specific companies that will be a part of their investigations.

This year’s Challenge followed a virtual February meeting of all five J5 Chiefs where each country reiterated their dedication to the alliance and expressed excitement about the operational results to come. In early March, the Chief Executive Officer and an associate of Sky Global were indicted on charges that they participated in a criminal enterprise that facilitated the transnational importation and distribution of narcotics through the sale and service of encrypted communications devices. Earlier this week, a ten-count indictment was returned by a federal grand jury in Brooklyn charging Jason Peltz with securities fraud, money laundering, tax evasion and a variety of other offenses. Both cases were worked under the umbrella of the J5.

The J5 was formed in 2018 after a call to arms from the OECD Taskforce on Tax Crime and has been working together to gather information, share intelligence and conduct coordinated operations, making significant progress in each country’s fight against transnational tax crime.  The J5 includes the Australian Taxation Office (ATO), the Canada Revenue Agency (CRA), the Dutch Fiscal Information and Investigation Service (FIOD), Her Majesty’s Revenue and Customs (HMRC) from the UK and the Internal Revenue Service Criminal Investigation Division (IRS-CI) from the US.

Please visit the J5 website for more information about the J5.

WASHINGTON – Today, the Internal Revenue Service, the U.S. Department of the Treasury and the Bureau of the Fiscal Service announced they are disbursing approximately 37 million payments in the second batch of Economic Impact Payments from the American Rescue Plan. This brings the total disbursed payments from the American Rescue Plan to approximately 127 million payments worth approximately $325 billion.

As announced on March 12, Economic Impact Payments will continue to roll out in batches to millions of Americans in the coming weeks.

The second batch of payments includes direct deposits, as well as paper checks and debit cards being sent through the mail. Here is additional information on the second batch of payments:

As announced last week, the first batch of payments was mostly sent by direct deposit. Here is additional information on the first batch of payments:

Additional batches of payments will be sent in the coming weeks as direct deposits and through the mail as paper checks or debit cards. The vast majority of all Economic Impact Payments will be issued by direct deposit. No action is needed by most taxpayers.

Many federal beneficiaries who filed 2019 or 2020 returns or used the Non-Filers tool were included in these first two batches of payments, if eligible. For federal beneficiaries who did not file a 2019 or 2020 tax return or did not use the Non-Filers tool, the IRS is working directly with the Social Security Administration, the Railroad Retirement Board, and the Veterans Administration to obtain updated 2021 information to ensure that as many people as possible are sent fast, automatic payments. More information about when these payments will be made will be provided on IRS. gov as soon as it becomes available.

Individuals can check the “Get My Payment” tool on IRS.gov to see the payment status of these payments. Additional information on Economic Impact Payments is available on IRS.gov.