[Federal Register Volume 67, Number 82 (Monday, April 29, 2002)]
[Rules and Regulations]
[Pages 20901-20907]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-9931]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1, 301, and 602

[TD 8992]
RIN 1545-AW67


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

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final and temporary regulations.

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SUMMARY: This document contains regulations relating to the information 
reporting requirements under section 6050S for payments of interest on 
qualified education loans, including the filing of information returns 
on magnetic media. The final regulations reflect changes to the law 
made by the Taxpayer Relief Act of 1997. The regulations provide 
guidance to payees receiving interest payments on qualified education 
loans.

DATES: Effective date: These regulations are effective April 29, 2002.
    Applicability date: For date of applicability, see Sec. 1.6050S-
3(g).

FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Donna 
Welch, (202) 622-4910; and 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 these final regulations 
has been reviewed and approved by the Office of Management and Budget 
in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
3507(d)) under control number 1545-1678. Responses to this collection 
of information are mandatory.

[[Page 20902]]

    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 Budget and Management.
    The estimated burden for the reporting in these regulations is 
reflected in the burden for Form 1098-E.
    Estimated total annual reporting burden for 2000 for Form 1098-E: 
483,098 hours.
    Estimated number of responses for 2000 for Form 1098-E: 9,661,965.
    Estimated average annual burden hours per response for Form 1098-E: 
3 minutes.
    Comments concerning the accuracy of this burden and suggestions for 
reducing this burden should be sent to the Internal Revenue Service, 
Attn: IRS Reports Clearance Officer, W:CAR:MP:FP:S, Washington, DC 
20224, and 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.
    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

    This document contains 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 221 of the Internal Revenue Code 
(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, as enacted by TRA '97, 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 (REG-
116826-97) under section 221. See 64 FR 3257 (1999). Section 221 was 
amended by the Economic Growth and Tax Relief Reconciliation Act of 
2001 (Public Law 107-16 (115 Stat. 38)) to eliminate the limitation on 
the number of months during which interest paid on a qualified 
education loan is deductible, effective for interest paid after 
December 31, 2001, and to allow a deduction for voluntary payments of 
interest.
    TRA '97 also added section 25A of the Code to provide the Hope 
Scholarship Credit and the Lifetime Learning Credit (education tax 
credit). In general, the education tax credit allows 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 (REG-106388-01) under section 25A. See 64 FR 794 
(1999).
    In addition, TRA '97 added section 6050S of the Code. Section 6050S 
was amended by the Internal Revenue Service Restructuring and Reform 
Act of 1998 (Public Law 105-206 (112 Stat. 685) (RRA '98)) and Public 
Law 107-131 (115 Stat. 2410). In general, 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 any interest deduction allowable under section 221. In 
addition, section 6050S 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 (as well as other tax benefits for higher 
education expenses). See H.R. Conf. Rept. No. 599, 105th Cong., 2d 
Sess., pp. 319-320 (1998). 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.
    Section 6050S(b) provides that the information return filed by 
payees who receive payments of interest on qualified education loans 
must contain: (1) The name, address, and taxpayer identification number 
(TIN) of the individual with respect to whom payments of interest on 
qualified education loans were received; (2) the aggregate amount of 
interest received for the calendar year from such individual; and (3) 
such other information as the Secretary may prescribe.
    The IRS has published several notices describing the information 
reporting requirements for payees who receive interest on qualified 
education loans during the years 1998, 1999, 2000, and 2001. See Notice 
98-7 (1998-3 I.R.B. 54), Notice 98-54 (1998-46 I.R.B. 25), Notice 99-37 
(1999-30 I.R.B. 124), and Notice 2000-62 (2000-51 I.R.B. 587).
    A notice of proposed rulemaking under section 6050S (REG-105316-98) 
was published in the Federal Register (65 FR 37728) on June 16, 2000, 
addressing the information reporting requirements for eligible 
educational institutions and insurers and payees who receive interest 
on qualified education loans. A public hearing was held on the proposed 
regulations on February 13, 2001. The IRS received written and 
electronic comments responding to the notice of proposed rulemaking.
    The IRS and the Treasury Department have determined that the 
proposed regulations in Sec. 1.6050S-1 addressing the information 
reporting requirements for eligible educational institutions and 
insurers should be withdrawn and that new proposed regulations should 
be issued. The IRS will issue proposed regulations in Sec. 1.6050S-1 in 
a separate document. The proposed regulations in Sec. 1.6050S-2 
addressing the information reporting requirements for payees who 
receive payments of interest on qualified education loans are adopted 
as amended by this Treasury decision and redesignated as Sec. 1.6050S-
3. The comments received in connection with these regulations and the 
revisions are discussed in the ``Explanation of Provisions and Summary 
of Comments'' of this preamble.
    Temporary regulations (66 FR 10191) and a notice of proposed 
rulemaking by cross reference (REG-107186-00) (66 FR 10247) under 
section 6050S were published in the Federal Register on February 14, 
2001. Those regulations allow eligible educational institutions and 
payees who receive interest on qualified education loans to furnish 
information statements electronically to students and borrowers, 
respectively, if certain requirements are met. The temporary 
regulations for eligible educational institutions were designated as 
Sec. 1.6050S-1T, and the temporary regulations for payees were 
designated as Sec. 1.6050S-2T. The IRS and the Treasury Department have 
determined that those regulations should be finalized in a separate 
document. However, this Treasury decision redesignates Sec. 1.6050S-1T 
and Sec. 1.6050S-2T as Sec. 1.6050S-2T and Sec. 1.6050S-4T, 
respectively.

Explanation of Provisions and Summary of Comments

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

    The proposed regulations require any person engaged in a trade or 
business

[[Page 20903]]

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, ``Student Loan Interest Statement,'' 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 final regulations retain 
these rules. As explained in the preamble to the proposed regulations, 
a payee may be the lender, the holder of the loan, or the loan 
servicer.
    Consistent with TRA '97, the proposed regulations provide that a 
payee is required to report interest payments received on a qualified 
education loan during only the first 60 months in which interest 
payments are required on the loan. The Economic Growth and Tax Relief 
Reconciliation Act of 2001 repealed the limitation on the number of 
months during which interest paid on a qualified education loan is 
deductible, effective for interest paid after December 31, 2001. 
Therefore, the final regulations eliminate the 60-month reporting 
period, so that payees must continue to report annually interest 
payments on qualified education loans.

A. Section 221  Comments

    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 the 
regulations under section 221. Several commentators requested that 
other fees, such as insurance, be treated as deductible interest for 
purposes of section 221. In addition, several commentators requested 
clarification of, or changes to, the manner in which payments are 
allocated to interest, the definition of qualified education loans, and 
the ability to estimate capitalized interest. These comments were not 
considered in these regulations, which address only the information 
reporting requirements for interest payments on qualified education 
loans under section 221, but the comments will be considered in 
finalizing the regulations under section 221.

B. Reporting of Interest Received or Collected By One or More Persons

    Section 6050S(f) requires that, in the case of any person who 
receives any amount on behalf of another person, only the first person 
receiving the amount is required to comply with the information 
reporting requirements. Based on section 6050S(f), the proposed 
regulations provide that if a payee contracts with another person to 
receive or collect interest payments on a qualified education loan on 
its behalf, the other person must comply with the information reporting 
requirements. Commentators requested clarification of how this rule 
would apply if a payee contracts with multiple parties, such as a 
billing service and a collection agent. Other commentators requested 
clarification of the rule for noncontractual arrangements and how the 
rule would apply if the person receiving the payments does not 
ordinarily possess the payor information required to file information 
returns (e.g., a lock-box agent, a bankruptcy trustee, or a collection 
agency). The commentators suggested that the regulations provide that 
if a person collects or receives payments on a qualified loan on behalf 
of another person (whether or not a formal contract exists), the person 
collecting or receiving the payments must satisfy the reporting 
requirements, unless the other person does not possess the information 
needed to comply with the reporting requirements. This recommendation 
is consistent with the provisions of section 6050H and the regulations 
thereunder; therefore, the final regulations adopt this recommendation.

C. Forms 1098-E Filed by Third-Party

    Several commentators requested that the final regulations permit a 
payee to contract with a third party to file Forms 1098-E, ``Student 
Loan Interest Statement,'' and to furnish the information statements. 
The general instructions to Form 1099 and Form 1098 allow a filing 
agent if certain requirements are met. Therefore, the final regulations 
do not need to adopt this recommendation.

D. Information Statement

    Several commentators requested that the final regulations eliminate 
the requirement that a payee furnish certain instructions to a payor 
with the information statement. The commentators explained that the 
instructional language implies that the payee is able to provide tax 
assistance. The instructions that a payee is required to furnish with 
the information statement alert the payor to the limitations on the 
deductibility of reported interest. In addition, the instructions 
clearly state that the payor should refer to the IRS forms and 
publications for information regarding the deductibility of reported 
interest. Therefore, the final regulations do not eliminate the 
required instructions; however, the regulations clarify that the payor 
should refer to the IRS forms and publications, and not the payee, for 
tax information.
    The proposed regulations provide that the information statement 
must include the name, address, and phone number of the individual who 
is the information contact for the payee that filed the Form 1098-E. It 
is often not feasible for payees to identify a specific individual as 
the information contact. Therefore, the final regulations provide that 
the information statement must include the name, address, and phone 
number of an office or department of the payee as the information 
contact.

E. Payment Adjustments After Returns Filed

    Other commentators requested that the final regulations provide 
specific rules for reporting interest payment adjustments made after 
information returns have been filed with the IRS. The commentators 
stated that requiring reporting of adjustments to interest previously 
reported would be overly burdensome. The final regulations do not need 
to include specific rules because additional interest payments received 
in a subsequent year that relate to interest payments reported in a 
prior year are reportable in the year of receipt. Further, a payee is 
not required to report reimbursements or refunds of interest payments 
previously reported. However, a payee should file corrected information 
returns to report interest payments that were incorrectly reported in a 
prior year.

F. Effective Date of Regulations and Continuation of Notice 98-7 for 
the Calendar Year 2002

    The proposed regulations provide that the regulations will apply to 
information returns required to be filed, and information statements 
required to be furnished, after December 31, 2001. Several comments 
were received on the proposed effective date. Several commentators 
recommended that the final regulations apply to new loans made on or 
after January 1 of the year that is 24 months after publication of the 
final regulations and that loans made before that date remain subject 
to the requirements in Notice 98-7, as modified. Other comments 
requested a period of at least 12 months after publication of final 
regulations to make programming changes to implement required reporting 
with respect to loan origination fees and capitalized interest.

[[Page 20904]]

    Further comments requested that the reporting requirements in 
Notice 98-7, as modified, continue for information returns required to 
be filed, and information statements required to be furnished, for 
interest payments received during calendar year 2002 (for which the 
returns and statements are required to be filed and furnished in 2003). 
In general, the final regulations do not impose any significant 
reporting requirement beyond the reporting currently required by Notice 
98-7, as modified, and Form 1098-E. However, in response to comments, 
the IRS and the Treasury Department extend Notice 98-7, as modified, 
for the calendar year 2002. Therefore, the final regulations apply to 
information returns required to be filed, and information statements 
required to be furnished, after December 31, 2003 (for interest 
payments received during calendar year 2003). In addition, in order to 
provide additional time for payees to implement reporting of loan 
origination fees and capitalized interest, the final regulations 
provide that a payee is not required to report payments of such amounts 
as interest for qualified education loans made before January 1, 2004.

2. Requirement To File Information Returns on Magnetic Media

    The final regulations amend the regulations under section 6011(e) 
to require payees who are required to file 250 or more Forms 1098-E to 
file on magnetic media.

Special Analyses

    It has been determined that this Treasury decision is 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. A final 
regulatory flexibility analysis has been prepared for the collection of 
information in this Treasury decision. This analysis is set forth in 
this preamble under the heading ``Final Regulatory Flexibility 
Analysis.'' Pursuant to section 7805(f), the proposed regulations 
preceding these regulations were submitted to the Chief Counsel for 
Advocacy of the Small Business Administration for comment on its impact 
on small business.

Final Regulatory Flexibility Analysis

    The collection of information contained in Sec. 1.6050S-3 is needed 
to assist the IRS and taxpayers in determining the amount of any 
interest deduction allowable under section 221. The objectives of these 
regulations are to provide uniform, practicable, and administrable 
rules under section 6050S. The types of small entities to which the 
regulations may apply are certain payees (e.g., a lender, a holder of 
the loan, or a loan servicer) who receive interest payments of $600 or 
more on qualified education loans.
    There are no known Federal rules that duplicate, overlap, or 
conflict with these regulations. The regulations are considered to have 
the least economic impact on small entities of all alternatives 
considered.
    Moreover, the regulations requiring filing Forms 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 a payee is not required to file Forms 
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-E on magnetic media should be minimal because most 
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 payees lacking both the necessary 
data processing facilities and access at a reasonable cost to computer 
service bureaus.

Drafting Information

    The principal author of the regulations is Donna Welch, Office of 
Associate Chief Counsel (Procedure and Administration), Administrative 
Provisions and Judicial Practice Division. However, other personnel 
from the IRS and the Treasury Department participated in the 
development of the regulations.

List of Subjects

26 CFR Part 1

    Income tax, Reporting and recordkeeping requirements.

26 CFR Part 301

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

26 CFR Part 602

    Reporting and recordkeeping.

Adoption of Amendments to the Regulations

    Accordingly, 26 CFR parts 1, 301, and 602 are amended as follows:

PART 1--INCOME TAX

    Paragraph 1. The authority citation for part 1 is amended by 
removing the entry for ``Section 1.6050S-1T'' and by adding entries in 
numerical order to read in part as follows:

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

    Section 1.6050S-3 also issued under 26 U.S.C. 6050S(g).
    Section 1.6050S-4T also issued under 26 U.S.C. 6050S(g). * * *


    Par. 2. Sections 1.6050S-1T and 1.6050S-2T are redesignated as 
Secs. 1.6050S-2T and 1.6050S-4T, respectively, and amended by revising 
the section headings to read as follows:


Sec. 1.6050S-2T  Electronic furnishing of information statements for 
qualified tuition and related expenses (temporary).

* * * * *


Sec. 1.6050S-4T  Electronic furnishing of information statements for 
payments of interest on qualified education loans (temporary).

* * * * *

    Par. 3. Sections 1.6050S-0 and 1.6050S-3 are added to read as 
follows:


Sec. 1.6050S-0  Table of contents.

    This section lists captions contained in section 6050S.


Sec. 1.6050S-2T  Electronic furnishing of information statements for 
qualified tuition and related expenses.

(a) Electronic furnishing of statements.
(1) In general.
(2) Consent.
(i) In general.
(ii) Change in hardware or software requirements.
(iii) Example.
(3) Required disclosures.
(i) In general.
(ii) Paper statement.
(iii) Scope and duration of consent.
(iv) Post-consent request for a paper statement.
(v) Withdrawal of consent.
(vi) Notice of termination.
(vii) Updating information.
(viii) Hardware and software requirements.
(4) Format.
(5) Posting.
(6) Notice.
(i) In general.
(ii) Undeliverable electronic address.

[[Page 20905]]

(iii) Corrected statements.
(7) Retention.
(b) Effective date.


Sec. 1.6050S-3  Information reporting for payments of interest on 
qualified education loans.

(a) Information reporting requirement in general.
(b) Definitions.
(1) Interest.
(2) Payor.
(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-4T  Electronic furnishing of information statements for 
payments of interest on qualified education loans.

(a) Electronic furnishing of statements.
(1) In general.
(2) Consent.
(i) In general.
(ii) Change in hardware or software requirements.
(iii) Example.
(3) Required disclosures.
(i) In general.
(ii) Paper statement.
(iii) Scope and duration of consent.
(iv) Post-consent request for a paper statement.
(v) Withdrawal of consent.
(vi) Notice of termination.
(vii) Updating information.
(viii) Hardware and software requirements.
(4) Format.
(5) Posting.
(6) Notice.
(i) In general.
(ii) Undeliverable electronic address.
(iii) Corrected statements.
(7) Retention.
(b) Effective date.


Sec. 1.6050S-3  Information reporting for payments of interest on 
qualified education loans.

    (a) Information reporting requirement 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 the 
regulations thereunder) (a payee) must--
    (1) File an information return, as described in paragraph (c) of 
this section, with the Internal Revenue Service with respect to the 
payor; and
    (2) Furnish a statement, as described in paragraph (d) of this 
section, to the payor.
    (b) Definitions. The following definitions apply for purposes of 
this section:
    (1) Interest. Interest includes stated interest, loan origination 
fees (other than fees for services), and capitalized interest as 
described in the regulations under section 221. See paragraph (e)(1) of 
this section for a special transitional rule relating to reporting of 
loan origination fees and capitalized interest.
    (2) Payor. 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 Internal Revenue 
Service according to the instructions to Form 1098-E.
    (ii) Extensions of time. The Internal Revenue Service 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 Internal Revenue Service;
    (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) In the case of qualified education loans made before January 1, 
2004, for which the payee does not report payments of interest other 
than stated 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;
    (C) State that the payor should refer to relevant Internal Revenue 
Service forms and publications, and should not refer to the payee, for 
explanations relating to the eligibility requirements for, and 
calculation of, any allowable deduction for interest paid on a 
qualified education loan; and
    (D) Include the name, address, and phone number of the office or 
department of the payee that is the information contact for the payee 
that filed the Form 1098-E.

[[Page 20906]]

    (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. If furnished electronically, the statement 
must be furnished in accordance with the applicable regulations.
    (ii) Extensions of time. The Internal Revenue Service 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 Internal Revenue Service 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, 2004, 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 the 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. Except as otherwise provided in paragraph 
(e)(3)(ii) of this section, if a person collects or receives payments 
of interest on a qualified education loan on behalf of another person 
(e.g., a lender), the person collecting or receiving the interest must 
satisfy the information reporting requirements of this section. In this 
case, the reporting requirements do not apply to the transfer of 
interest to the other person.
    (ii) Exception. If the person collecting or receiving payments of 
interest on a qualified education loan on behalf of another person 
(e.g., a lender) does not possess the information needed to comply with 
the information reporting requirements of this section, the other 
person 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) 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 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

[[Page 20907]]

the law requires the payor to furnish a TIN so that it may be included 
on an information return filed by the payee. 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, 2003.

PART 301--PROCEDURE AND ADMINISTRATION

    Par. 4. The authority citation for part 301 continues to read in 
part as follows:

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


    Par. 5. 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, 1098-E, 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 (3) of this section, this section applies to returns required 
to be filed after December 31, 1986.
* * * * *
    (3) This section applies to returns on Form 1098-E required to be 
filed after December 31, 2003.

PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT

    Par. 6. The authority citation for part 602 continues to read as 
follows:

    Authority: 26 U.S.C. 7805.

    Par. 7. In Sec. 602.101, paragraph (b) is amended by removing the 
entry for ``1.6050S-1T'', and adding two new entries in numerical order 
to the table to read as follows:


Sec. 602.101  OMB Control numbers.

* * * * *
    (b) *  *  *

------------------------------------------------------------------------
                                                          Current OMB
 CFR part or section where identified and  described      control No.
------------------------------------------------------------------------
 
                  *        *        *        *        *
1.6050S-3............................................          1545-1678
1.6050S-4T...........................................          1545-1729
 
                  *        *        *        *        *
------------------------------------------------------------------------


 Robert E. Wenzel,
Deputy Commissioner of Internal Revenue.
    Approved: April 8, 2002.
Mark Weinberger,
Assistant Secretary of the Treasury.
[FR Doc. 02-9931 Filed 4-26-02; 8:45 am]
BILLING CODE 4830-01-P