I hate letters from the IRS!
We subscribe to the USPS system that tells you in the morning what mail should arrive that day. Among the mail pieces I do not look forward to are letters from the IRS. Generally, they contain a demand for payment of something - typically some small penalty for late filing in my case. But, you just never know until you open the envelope.
Yesterday, I saw that yet another IRS missive was coming to my mailbox. This time, though, it had my late parents' names on it. I filed their 2020 1040 on October 15, 2021, after getting the automatic filing extension. Problem was that their papers were in disarray. Most records of their farm expenses were missing. It's understandable. My Mom had severe Alzheimer's and they were both 96 years old when they died.
So, I did my best to figure out their taxes, and lacking documentation for much of their deductible expenses, paid more taxes for them than they would have owed if I had the information. That's OK, though. I didn't mind, really. What they left covered it with no problem. So, I figured that IRS letter was going to end up with me looking for additional documentation that doesn't exist and trying to explain.
Not so. The letter was a notification of some tax credit for the 2018 tax year. $1000. But, there was a catch. My parents didn't file that year, because they didn't have to. Their medical expenses far exceeded the income from the farm they owned. So, their accountant just didn't file at all.
The IRS, however, told me that I had to file their 2018 1040 to get that $1000. In the letter it said that if I did not file, that $1000 would not be paid. Well, I have zero paperwork for 2018, and their accountant died of COVID-19, so that's the end of that. I will shrug that off, because there is no possibility of my filing without the required records.
The IRS knows they died. I sent along their death certificates and a cover letter to that effect with the 2020 filing. I explained the lack of records due to their age and just paid what Turbo Tax told me they owed. It should probably have been nothing. But...papers...I didn't have them.
Will that be the end of this? I doubt it. I expect a few more IRS letters addressed to my late parents. The IRS, like the honey badger, don't care.
Oh, well...
= new reply since forum marked as read
income for 2018 taxes. But I had, and sent in some stuff to prove it. I got replies in February and May and August all saying they need more time (in the meantime penalties and interest are piling up) Finally on August 23, a little more than 9 months from the beginning, I finally got a letter saying they have closed the case. (so nothing owed)
Just tiresome and a little scary to have this hanging over one's head for 9 months with penalties and interest accumulating. And wondering how in the heck this got flagged as a problem in the first place. And the proof wasn't bulletproof, they were vague in what was missing "taxable retirement income" but the missing amount matched some IRA Required Minimum distributions which I had declared.
Edited title: November 2020, not November 2000 
Form 1098-T is the one colleges and universities use to report payments RECEIVED for tuition (and other qualified expenses) during the calendar year (= tax year). The student or parents (if student is a dependent) must then use the Form 1098-T to complete Form 8863 to claim the Lifetime Learning Credit or Tuition and Fees Deduction on their income tax return. Of course, the amounts on the 1098-T forms the colleges and universities file with the IRS and furnish to the students need to be correct for the student or parents to properly complete the Form 8863. The IRS can assess stiff penalties if the colleges and universities file and/or furnish incorrect 1098-T forms. And even stiffer penalties if the IRS finds there is an intentional disregard of IRS tax reporting requirements.
Prior to Tax Year 2018, colleges and universities could use a method that allowed them to report tuition (and other qualified expenses) BILLED on an academic year basis (i.e., Fall term - Spring term). This was a problem because two tax years were crossed and it was confusing for students/parents and caused the IRS major headaches. So after years of the colleges and universities resisting the IRS' push for them to change over to the payments RECEIVED during the calendar year method (i.e., Spring term - Fall term), the IRS forced them to switch starting with the 2018 Form 1098-T. That ended up being a complete cluster F*** because the colleges and universities relied solely on an outside national association (the same one that whined to the IRS about it being too much of a burden for its membership to switch methods) for Form 1098-T reporting guidance instead of going straight to the IRS.
Here's the March 2020 final correspondence I sent to the arrogant and condescending Assistant Counsel at my child's college after going up the willfully ignorant chain of command in the Student Financial Services department (all identifying info removed):
Dear Mr. [Assistant Counsel],
Seriously? This is the official response from XYZ College? All it proves is you, too, are unqualified to communicate with me regarding IRS Form 1098-T reporting requirements. Selectively quoting from IRS Publication 970 to bolster your cohorts' delusional take on Form 1098-T reporting is laughable, albeit a stunning example of the Dunning-Kruger Effect in an institutional setting.
XYZ College is the FILER, not the recipient, of Form 1098-T. As such, the only instructions you should be quoting and following to the letter are the ones in the attached IRS publications: 2019 General Instructions for Certain Information Returns and 2019 Instructions for Forms 1098-E and 1098-T. (I have also attached my colorful, easy-to-understand 2019 Form 1098-T Instruction Manual if you find the IRS publications too daunting.)
I realize the Student Financial Services staff is dependent on Ellucian-Banner and, in turn, Ellucian-Banner receives its Form 1098-T reporting instructions (more like, interpretations) from the National Association of College and University Business Officers. However, it is the IRS that is the ultimate authority here and the only authority to be consulted when serious problems with the way Form 1098-T reporting is being done (past and present) are brought to XYZ College's attention.
In my expert analysis, the NACUBO has made a mess out of the transition from Box 2 to Box 1 reporting (and it has been vigorously resisting the IRS's enforcement of the Box 1 method for years). In its October 15, 2018 advisement to member colleges and universities, NACUBO Provides Customizable 1098-T Letter (to students and families), the NACUBO included blatantly false Box 1 reporting information, "...we will report in Box 1 the amount of QTRE you paid during the year." It should have stated "...we will report in Box 1 the amount of QTRE we received from all sources during the year." Even the blank sample 2018 Form 1098-T included with the NACUBO's sample letter states, "Payments received for QTRE," in Box 1!
There is absolutely no excuse for the NACUBO to get it so wrong in its various publications. On top of that, it promotes a very dismissive attitude toward the IRS among its membership and with Ellucian-Banner. The NACUBO is the source of the Box 1 confusion, not the IRS. The only change the IRS wanted colleges and universities to make is to report on a calendar year basis (Spring Term to Fall Term) instead of on an academic year basis (Fall Term to Spring Term) to avoid crossing two tax years and the resultant confusion that method created.
Instead of spending your time crafting letters that make you look foolish (e.g., it is impossible for my child's 2019 Form 1098-T Box 1 amount to be correct because it does not include the scholarships and grants reported in Box 5 and using "semesters billed" in your table heading when "billed" applies only to the Box 2 reporting method), I suggest you will better serve XYZ College by vetting the NACUBO's Form 1098-T Information Reporting "guidance" and customizable letters to students for accuracy and compliance with IRS tax reporting requirements. After all, it is not the NACUBO nor Ellucian-Banner that are subject to the penalties assessable under IRC 6721 and IRC 6722. https://www.irs.gov/irm/part20/irm_20-001-007r
I have attached a listing of the correct amounts (in green) that XYZ College should have reported on my child's 2015, 2016, 2017 (2 options), 2018 (2 options based on option selected for 2017) and 2019 Form 1098-Ts. I expect XYZ College to furnish CORRECTED Form 1098-Ts for all five tax years immediately. My child's mailing address through December 31, 2019 was [ ].
In case you still doubt my vastly superior tax reporting knowledge and expertise, I have attached two sets of my work memos detailing direct communications I had with the IRS. In both cases, the IRS representatives were more than willing to be helpful. XYZ College would do well to follow suit and straighten out the mess the NACUBO has put it in.
Sincerely,
[ARPad95 followed by the 4-letter acronym that signifies I'm highly educated in the financial services industry]
Suprisingly (and timely considering MineralMan's post), just yesterday I received an audit notice from the New York State Department of Taxation and Finance stating I owe $243.59 for Tax Year 2019:
Our records indicate the student received scholarships, grants, or both, greater than qualifying tuition expense. You reported college tuition expenses of $5,463.00 for [my child's name]. We allowed college tuition expenses of $0.00.
I wasn't expecting New York State to be ahead of the IRS on this matter, but no problem. The State is going to get every piece of documentation I received, I wrote and that supports my very correct position on this and I'll continue waiting patiently for the IRS to eventually "knock on the door."
Here are the essential IRS instructions for Form 1098-T that these mid to large size institutions of higher learning could not figure out on their own because 1098-T reporting is outsourced and the NACUBO is relied on to "instruct" them instead of the IRS:
Box 1 - Enter the total amount of payments received for qualified tuition and related expenses from all sources during the calendar year. The amount reported is not reduced by scholarships and grants reported in box 5.
Box 5 - Enter the total amount of any scholarships or grants that you administered and processed during the calendar year for the payment of the student’s costs of attendance. Scholarships and grants generally include all payments received from third parties (excluding family members and loan proceeds).
I bet you can easily figure out what amounts should have gone in Box 1 (hint: no math skills required) and Box 5 of the 2019 Form 1098-T based on my child's 2019 Spring semester when my child was a senior and did not live on campus (i.e., no payments were made to the college for room & board):
XYZ College 2019 Spring Term tuition only = $21,989.00
Payments received by XYZ College for tuition during calendar year 2019:
Source 1 Scholarships = $13,676.00
Source 2 Grants = $2,850.00
Source 3 Federal Direct Student Loans = $2,721.00
Source 4 Balance due and paid by parent = $2,742.00
This is the what the college reported to the IRS on my child's 2019 Form 1098-T:
Box 1 = $3,251.38 (very incorrect oddball amount and totally laughable because at the very least it's supposed to include Box 5 amount)
Box 5 = $16,526.00 (correct)
The end result of this was that XYZ College reported to the IRS that it received only $3,251.38 in tuition payments on behalf of my child. Therefore, the scholarships and grants reported in Box 5 that exceeded the tuition amount reported in Box 1 by $13,274.62 are considered taxable income and made me ineligible to claim the education expenses deduction I was entitled to on my 2019 income tax return!
On top of that I had to deal with the arrogantly incompetent and ignorant college staff members involved in 1098-T reporting in the Student Financial Services office and the Assistant Counsel who responded to me out-of-the-blue as an intimidation tactic to get me to go away. And all they did by stupidly ignoring me and all of my requests for a CORRECTED 2019 Form 1098-T was open up a big ol' can of worms because the college's incorrect Form 1098-T reporting goes way back. That's why I can't wait for the IRS to send me an audit letter so this college and all of the other ones who have brushed off parents and students when it comes to Form 1098-T reporting can finally get their collective selves heavily penalized by the IRS. It would be a HUGE windfall for the US Treasury!
By the way, I was once the expert responsible for 1099 tax reporting (several different forms including one that is a whole lot more complicated then the comparatively simple 1098-T) for a life insurance company so I know whereof I speak. 
