Notice 2006-72

Part III. Administrative, Procedural, and Miscellaneous
Information Reporting for
Qualified Tuition and Related
Expenses
Notice 2006–72
This notice contains questions and answers that provide guidance on the information reporting requirements for qualified tuition and related expenses under section 6050S of the Internal Revenue Code
(Code).
BACKGROUND
The Taxpayer Relief Act of 1997 (Public Law 105–34 (111 Stat. 788)) added section 6050S to the Code. In general, section
6050S requires any eligible educational
institution (institution) to file information
returns and to furnish information statements to assist taxpayers and the Service
in determining the amount of qualified
tuition and related expenses (qualified expenses) for which an education tax credit
is allowable under section 25A (as well as
other tax benefits for higher education expenses). Congress amended section 6050S
in the Internal Revenue Service Restructuring and Reform Act of 1998 (Public
Law 105–206 (112 Stat. 685)) and Public
Law 107–131 (115 Stat. 2410) (simplification of reporting requirements relating
to higher education tuition and related
expenses). As amended for calendar years
beginning after December 31, 2002, section 6050S requires institutions to report
either the aggregate amount of payments
received, or the aggregate amount billed,
for qualified tuition and related expenses
(qualified expenses) during the calendar
year with respect to each individual enrolled (a student) for any academic period.
See Rev. Proc. 2005–50, 2005–32 I.R.B.
272 (consent to change method of reporting payments received or amounts billed).
Institutions must separately report adjustments (i.e., refunds or reimbursements
of payments if an institution elects to report payments received, or reductions in
charges if an institution elects to report
amounts billed) made during the calendar
year with respect to a student that relate
to payments received, or amounts billed,
for qualified expenses that the institution reported for a prior calendar year. In

2006–36 I.R.B.

addition, institutions must report the aggregate amount of scholarships or grants
for the payment of a student’s costs of attendance that the institution administered
and processed during the calendar year.
Institutions must separately report reductions made during the calendar year to the
amount of scholarships or grants that the
institution reported for a prior calendar
year.
On December 19, 2002, the Treasury
Department and the Service issued final
regulations under section 6050S describing the information reporting requirements
for institutions. See T.D. 9029, 2003–1
C.B. 403 [67 FR 77678] (Dec. 19, 2002).
The final regulations are applicable for information returns required to be filed with
the Service, and information statements required to be furnished to students, after December 31, 2003. For prior years, institutions were not required to include dollar
amounts relating to qualified expenses or
scholarships and grants on information returns and information statements.
Section 1.6050S–1(b)(2)(iii) of the
Income Tax Regulations (regulations)
provides that the amount of payments
received for qualified expenses is determined by netting the amount of payments
received for qualified expenses during
the calendar year against any reimbursements or refunds of qualified expenses
made during the calendar year that relate to payments received for qualified
expenses during the same calendar year.
Section 1.6050S–1(b)(3)(iii) provides that
the amount billed for qualified expenses
is determined by netting the amount billed
for qualified expenses during the calendar
year against any reductions in charges for
qualified expenses made during the calendar year that relate to amounts billed
for qualified expenses during the same
calendar year.
Institutions are required to report the
following information on Form 1098–T,
“Tuition Statement,” for calendar years
2006 and after:
(1) The name, address, and taxpayer
identification number (TIN) of the institution;
(2) The name, address, and TIN of the
student;

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(3) The amount of payments received
(Box 1), or the amount billed (Box 2),
for qualified expenses during the calendar
year;
(4) An indication whether an institution
has changed its method of reporting (Box
3);
(5) The amount of any reimbursements
or refunds of qualified expenses made during the calendar year that relate to payments received for qualified expenses that
the institution reported for a prior calendar year, or the amount of any reductions
in charges made during the calendar year
that relate to amounts billed for qualified
expenses that the institution reported for a
prior calendar year (Box 4);
(6) The amount of any scholarships or
grants that the institution administered and
processed during the calendar year (Box
5);
(7) The amount of any reductions to
scholarships or grants that the institution
reported for a prior calendar year (Box 6);
(8) An indication whether any amounts
billed, or payments received, for qualified
expenses reported for the calendar year relate to an academic period that begins during the first three months of the following
calendar year (Box 7);
(9) An indication whether the student
was enrolled at least half-time for at least
one academic period that began during the
calendar year (Box 8); and
(10) An indication whether the student
was enrolled in a graduate-level degree
program during the calendar year (Box 9).
For rules on when a student may
claim an education tax credit, see section 1.25A–5(e).
DISCUSSION
Q–1.
Must an institution report
amounts billed, or payments received,
for a student who is not enrolled for an
academic period during the calendar year
when the institution bills the student, or
receives payment, for qualified expenses,
if the student will be enrolled for the first
time for an academic period during the
following calendar year?
A–1. No. Section 6050S(b)(2)(A) of
the Code provides that institutions shall
report only for students who are enrolled
for an academic period beginning during

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the calendar year (or enrolled for an academic period in a prior calendar year) and
for whom a transaction which is required
to be reported is made during the calendar year. This rule applies whether the
institution elects to report amounts billed
(see section 1.6050S–1(b)(3) of the regulations) or elects to report payments received
(see section 1.6050S–1(b)(2)).
Section 1.6050S–1(d)(1) of the regulations permits an institution to determine
the enrollment status of a student for each
academic period under its own rules and
policies, or as of any of the following
dates:
(1) 30 days after the first day of the
academic period;
(2) A date during the academic period
on which enrollment data must be collected for purposes of the Integrated Post
Secondary Education Data System administered by the Department of Education; or
(3) A date during the academic period
on which the institution must report enrollment data to the State, the institution’s
governing body, or some other external
governing body.
Q–2. Must an institution report for high
school students attending classes at the
institution prior to graduation from high
school?
A–2. An institution must report for any
student if the institution considers the student to be enrolled and a transaction for
which reporting is required is made during
the year with respect to the student.
Q–3. Must an institution report if a student is not enrolled for an academic period
during the calendar year in which the institution makes an adjustment to amounts
that the institution reported for a prior year
in which the student was enrolled? For example, Student A was enrolled for an academic period during calendar year 2005.
During 2005, Institution X bills Student A
$3,000 for qualified expenses and reports
these amounts in Box 2. In 2005, after the
tuition bill is sent, Student A reduces his
courseload. During calendar year 2006,
Institution X credits Student A’s account
with $200, reflecting a $200 reduction in
charges for 2005. Student A is not enrolled
for any academic period during calendar
year 2006.
A–3. Yes. Section 6050S(b)(2)(A)
of the Code and section 1.6050S–1(b)(2)
and (b)(3) of the regulations provide that
an institution must report for each stu-

September 5, 2006

dent enrolled for an academic period in a
prior year (or enrolled for an academic period beginning during the calendar year)
for whom an adjustment as described in
sections 1.6050S–1(b)(2)(ii)(F) or (G) or
1.6050S–1(b)(3)(ii)(F) or (G) is made during the calendar year. Accordingly, for
calendar year 2006, Institution X must report in Box 4 the $200 adjustment made
to amounts reported in Box 2 for calendar
year 2005, even though Student A is not
enrolled for an academic period during calendar year 2006.
Q–4. If an institution is not required to
report because an exception to reporting
under 1.6050S–1(a)(2) of the regulations
applies to a category of students, may an
institution nevertheless choose to report?
A–4. Yes. An institution that is not
required to report because an exception
to reporting applies to a category of students may nevertheless choose to report.
Section 1.6050S–1(a)(1) of the regulations
does not preclude optional reporting.
Q–5. Must an institution report if the
regulations provide an exception to reporting for a category of students (other than
non-resident alien individuals) and a student within that category requests the institution to report for a calendar year?
A–5. No. An institution is not required to report if an exception under section 1.6050S–1(a)(2)(ii)-(iv) of the regulations applies to a category of students and
a student within that category requests that
the institution report for a calendar year.
Q–6. In what circumstances must an
institution report with respect to a student
who is a non-resident alien individual?
A–6. Section 1.6050S–1(a)(2)(i) of the
regulations provides that no reporting is required for non-resident alien individuals,
unless the non-resident alien individual requests the institution to report for a calendar year. If a student who is a non-resident alien individual requests that the institution report for a calendar year, the institution must report with respect to that student, unless another exception under section 1.6050S–1(a)(2) applies. If a non-resident alien individual falls within a category of students covered by an exception
under section 1.6050S–1(a)(2)(ii)-(iv) of
the regulations for the calendar year, the
institution is not required to report, even if
the student requests the institution to report
for the calendar year. See Q&A–5, above.

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Q–7. The regulations provide an exception to reporting if a student’s qualified
expenses are covered by a “formal billing
arrangement.” What is a formal billing arrangement, and who may be a payor under
a formal billing arrangement?
A–7. Section 1.6050S–1(a)(2)(iv)(B)
of the regulations provides that a formal
billing arrangement is an arrangement in
which the institution: (1) bills only an employer or a governmental entity for education that the institution furnishes to a student and (2) does not maintain a separate
financial account for the student. Where
an employer is billed for a student’s qualified expenses, the student must be an employee of the employer. Similar agreements with other institutional third party
payors will also qualify as formal billing
arrangements if the Service so determines
in further published guidance or in a ruling
or determination issued to the participants.
Q–8. What amounts must an institution
report in Box 5 as scholarships or grants?
A–8. Section 6050S(b)(2)(B)(ii) of the
Code provides that an institution must report the amount of any grants that the institution administered and processed during the calendar year for the payment of the
student’s costs of attendance. A student’s
costs of attendance may include both qualified expenses (such as tuition and required
fees) and non-qualified expenses (such as
room and board). The institution should
report these amounts in Box 5. A qualified tuition reduction described in section
117(d) of the Code is not a scholarship or
grant, and accordingly, should not be reported in Box 5; but such a reduction is
relevant in determining the net amount reported in Box 2 if the institution elects to
report amounts billed.
Whether an institution reported scholarship or grant amounts in Box 5 is not
considered in determining amounts to be
reported as payments received (Box 1) or
as amounts billed (Box 2) for qualified
expenses. An institution that elects to
report payments received for qualified expenses generally must include the amount
of scholarships and grants in Box 1, except any scholarship or grant that by its
terms must be applied to expenses other
than qualified expenses, such as room and
board (see section 1.6050S–1(b)(2)(v) of
the regulations). An institution that elects
to report amounts billed for qualified

2006–36 I.R.B.

expenses may not reduce the amount reported in Box 2 by scholarships or grants.
Q–9. The regulations require an institution to report separately any reimbursements or refunds of qualified expenses (if
an institution reports payments received)
or any reductions in charges (if the institution reports amounts billed), and any reductions to scholarships, made during the
calendar year that relate to amounts the institution reported for a prior calendar year.
Does “a prior calendar year” refer to any
prior calendar year for which reporting
was required, or only the immediately preceding calendar year for which reporting
was required?
A–9. The separate reporting requirement in section 6050S(b)(2)(B)(iii) of the
Code applies to any prior calendar year
for which reporting was required, and not
only to the immediately preceding calendar year.
Q–10. Must an institution that voluntarily reported dollar amounts for calendar
years before 2003 report with respect to
adjustments in a later calendar year that relate to qualified expenses and scholarships
or grants reported for calendar years before
2003?
A–10. The reporting of adjustments in
a later calendar year that relate to qualified expenses and scholarships or grants
reported for calendar years before 2003 is
voluntary, as was the original reporting.
Q–11. If an institution elects to report
amounts billed, how must the institution
report increases in certain charges and reductions in other charges for the calendar
year if the increases and reductions relate
to amounts reported for a prior calendar
year? For example, in December 2005,
an institution bills $1,000 for tuition and
$50 for required fees for the 2006 Spring
term that will begin in January 2006. In
January 2006, the institution bills an additional $200 for tuition for the 2006 Spring
term and reduces the charges for the previously billed required fees by $10 for the
2006 Spring term. In August 2006, the
institution bills $1,000 for tuition for the
2006 Fall term. How must the institution
report for calendar year 2005 and calendar
year 2006?
A–11. Section 6050S of the Code
requires reporting based on transactions
that occur during a calendar year. This
includes transactions which may relate to
an academic period in a prior calendar

2006–36 I.R.B.

year. Section 1.6050S–1(b)(3)(ii)(c) of
the regulations provides that an institution
that elects to report amounts billed for
qualified expenses must report the amount
billed for qualified expenses with respect
to the student during the calendar year.
Accordingly, for calendar year 2005, the
institution must report $1,050 in Box 2.
For calendar year 2006, the institution
must aggregate the $200 billed for the
2006 Spring term and the $1,000 billed for
the 2006 Fall term and report $1,200 in
Box 2. In addition, as provided in section
1.6050S–1(b)(3)(iv), the institution must
separately report in Box 3 the $10 reduction in charges made during calendar year
2006 that relates to amounts previously
reported in Box 2 for calendar year 2005.
Q–12. If an institution elects to report
payments received for qualified expenses,
must an institution report payments for
qualified expenses that it receives with respect to a student during the calendar year
if the payment relates to an academic period that began during a prior calendar
year?
A–12. Yes. Under section 1.6050S–
1(b)(2) of the regulations, the institution
must report all payments of qualified expenses received during the calendar year,
even if one or more of the payments relate
to an academic period that began during a
prior calendar year.
Q–13. If an institution elects to report
amounts billed for qualified expenses, how
must the institution report amounts billed
for qualified expenses during one calendar
year if the institution administers and processes a scholarship or grant in the following calendar year for the same qualified expenses? For example, an institution bills
$1,000 for qualified expenses for the 2006
Spring term in December 2005. In January
2006, the institution administers and processes a scholarship for the same qualified
expenses for the 2006 Spring term.
A–13. Section 6050S of the Code
requires reporting based on transactions that occur during a calendar year.
For calendar year 2005, under section
1.6050S–1(b)(3)(i) of the regulations, the
institution must report in Box 2 the $1,000
billed during the calendar year in Box
2. For calendar year 2006, under section 1.6050S–1(b)(3)(ii)(E), the institution
must report in Box 5 the scholarship it
administered and processed during 2006
for the 2006 Spring term, even though

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the scholarship relates to amounts billed
during calendar year 2005 for the same
academic period. In addition, because
scholarships or grants are not reductions
in charges, they are not included in the
amount reported in Box 4 as adjustments
to amounts reported in Box 2 for calendar
year 2005.
Q–14. Should an institution include any
negative numbers on Form 1098–T?
A–14. No. Section 1.6050S–1(b)(1)
of the regulations provides that, for purposes of section 1.6050S–1(b)(2), an
adjustment to payments received means
a reimbursement or refund. In addition,
section 1.6050S–1(b)(1) provides that,
for purposes of section 1.6050S–1(b)(3),
an adjustment to amounts billed means a
reduction in charges. Any adjustments to
amounts billed or payments received (as
applicable) reported for a prior year, and
any reductions to scholarships or grants
reported for a prior year, reflect downward adjustments. These adjustments are
reported as positive numbers in Box 4 or
Box 6, respectively.
Q–15. Must an institution report adjustments made during a calendar year if the
adjustment relates to amounts not reported
for a prior calendar year because an exception to reporting applied for the prior calendar year?
A–15. No. Under section 6050S(b)
(2)(B)(iii) of the Code, an institution must
report adjustments made during a calendar year that relate to amounts that were
reported for a prior calendar year. If an
amount was not reported for a prior calendar year because an exception to reporting
applied for the prior calendar year, a related adjustment need not be reported under this section.
Q–16. Can an adjustment made during
a calendar year exceed the amounts billed
or payments received (as applicable) for
qualified expenses that an institution reported for the immediately preceding calendar year?
A–16. Adjustments made during a
calendar year may relate to amounts previously reported for multiple prior calendar
years. In this situation, the adjustments
may exceed the amount reported for the
immediately preceding calendar year. For
example, an institution reported $5,000
billed for qualified expenses for calendar
year 2004 and $4,000 billed for calendar
year 2005. In calendar year 2006, the in-

September 5, 2006

stitution reduces the charges for 2004 by
$2,000 and reduces the charges for 2005
by $3,000. In this situation, for calendar year 2006, the institution must report
$5,000 in Box 4 as adjustments made during the calendar year that relate to amounts
reported for prior calendar years, which
exceeds the amount reported as billed in
the preceding calendar year.
Q–17. Why does Form 1098–T include
Box 8, the “half-time indicator?”
A–17.
Section 25A of the Code
provides, among other things, that the
Hope Scholarship Credit is allowable for
amounts paid for qualified expenses only
for students enrolled at least half-time for
one academic period that begins during
the calendar year. Box 8 provides the
Service with an indication that the Hope
Scholarship Credit may be allowable for
the student’s qualified expenses.
Q–18. When should an institution
check Box 8?
A–18. An institution should check
Box 8 if for at least one academic period
that began during the calendar year the
student was enrolled for at least one-half
of the normal full-time work load for the
course of study the student is pursuing.
The standard for what is half of the normal
full-time work load is determined by each
institution, but the standard may not be
lower than the standard established by the
U.S. Department of Education. See section 1.25A–3(d)(1)(ii) of the regulations.
Q–19. Should an institution check Box
8 if a student is not enrolled at least halftime during the calendar year when the institution bills, or receives payments, for
qualified expenses, but the student will be
enrolled at least-half time in the following
calendar year?
A–19. No. If a student is not enrolled
at least half-time for at least one academic
period that begins during the calendar year
for which reporting is required, the institution should not check Box 8.
Q–20. Why does Form 1098–T include
Box 9, the “graduate-level indicator?”
A–20. Section 25A of the Code provides, among other things, that the Hope
Scholarship Credit is allowable only for
qualified expenses of a student who has not
completed the first two years of post-secondary education; however, the Lifetime
Learning Credit is available beyond the
first two years of post-secondary education. Box 9 assists the Service in mon-

September 5, 2006

itoring compliance with respect to a student’s eligibility for the Hope Scholarship
Credit or the Lifetime Learning Credit. If
Box 9 is checked, the Service is alerted to
the fact that the Hope Scholarship Credit
is not allowable for the student’s qualified
expenses because the student is beyond the
first two years of post-secondary education
and that the Lifetime Learning Credit may
be allowable.
Q–21. When should an institution
check Box 9?
A–21. An institution should check Box
9 if the student was enrolled as a graduate
student during the calendar year.
Q–22. Should an institution check Box
9 if a student is not a graduate student during the calendar year when the institution
bills, or receives payment, for qualified expenses, but the student will be a graduate student during the following calendar
year?
A–22. No. The institution should not
check Box 9 unless the student is enrolled
as a graduate student for at least one academic period during the calendar year for
which reporting is required.
Q–23. What telephone number must
an institution include on the information
statement furnished to the student?
A–23. Section 1.6050S–1(c)(1)(iii)(G)
of the regulations requires institutions to
include the telephone number of the information contact of the institution (i.e., not
the institution’s general telephone number). The institution information contact
must be an individual, or a department,
that can answer questions about the information statement. The institution may not
list only the institution’s general telephone
number. In addition, an institution may include information of a third-party service
provider who may also answer questions
about the information statement.
DRAFTING INFORMATION
The principal author of this notice is
Karen E. Briscoe of the Office of Associate
Chief Counsel (Procedure & Administration). For further information regarding
this notice, contact Mrs. Briscoe at (202)
622–4910 (not a toll-free call).

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Weighted Average Interest
Rate Modification
Notice 2006–75
This notice provides guidance as to the
determination of the weighted average interest rate and the resulting permissible
range of interest rates used to calculate current liability for the purpose of the additional funding requirements under § 412(l)
of the Internal Revenue Code (Code) and
the minimum full funding limitation of
§ 412(c)(7)(E), and the corresponding requirements and limitation under sections
302(c)(7)(E) and 302(d) of the Employee
Retirement Income Security Act of 1974
(ERISA), as in effect for plan years beginning in 2006 and 2007. This notice implements changes to the rules regarding those
interest rates that were enacted by § 301 of
the Pension Protection Act of 2006, Pub.
L. No. 109–280 (PPA ’06).
BACKGROUND
Section 412 of the Code, and the corresponding requirements of section 302 of
ERISA, set forth minimum funding standards that apply to certain plans. Title I
of PPA ’06, enacted on August 17, 2006,
makes extensive changes to the rules of
§ 412 of the Code and section 302 of
ERISA, generally applicable to plan years
beginning on or after January 1, 2008. In
addition, section 301 of PPA ’06 makes
certain changes to the minimum funding
rules that apply to earlier plan years. For
purposes of this notice, all references to
§ 412 refer to § 412 of the Code without
regard to the amendments made by Title I
of PPA ’06.
PRIOR LAW
Under § 412(b)(5)(A), the funding standard account (and items therein) must be
charged or credited with interest at the appropriate rate consistent with the rate or
rates of interest used under the plan to determine costs.
Section 412(b)(5)(B) provides special
rules for the interest rate that is used to
determine a plan’s current liability for
purposes of § 412(l) and for purposes of
the minimum full funding limitation under
§ 412(c)(7)(E). In general, that interest
rate must fall within a specified corridor
based on the weighted average of the rates

2006–36 I.R.B.