Americorp

[Bill Tubbs]

Taxpayer, about 19yo, worked in 2007 for Americorp (May - Aug 07) and earned $2000. In Feb 2008 she had the $2000 applied to her tuition. She received a 1099 for 2008 for $2000. She had a paper in her packet from Americorp that this $2000 is taxable in the year that she was paid, 2008 in this case. But, my question is regarding constructive receipt: couldn't we argue that it should be taxable in 2007 since that is when it was earned, and her account was credited with that amount in 2007, and that when it was disbursed (2008) shouldn't matter?

Any thoughts?
Bill

[travis bickle]

Here is what the service says

Taxpayer, about 19yo, worked in 2007 for Americorp (May - Aug 07) and earned $2000. In Feb 2008 she had the $2000 applied to her tuition. She received a 1099 for 2008 for $2000. She had a paper in her packet from Americorp that this $2000 is taxable in the year that she was paid, 2008 in this case. But, my question is regarding constructive receipt: couldn't we argue that it should be taxable in 2007 since that is when it was earned, and her account was credited with that amount in 2007, and that when it was disbursed (2008) shouldn't matter?

Any thoughts?
Bill

in terms of constructive receipt --
“Income although not actually reduced to a taxpayer's possession is constructively received by him in the taxable year during which it is credited to his account, set apart for him, or otherwise made available so that he may draw upon it at any time, or so that he could have drawn upon it during the taxable year if notice of intention to withdraw had been given. However, income is not constructively received if the taxpayer's control of its receipt is subject to substantial limitations or restrictions.” [Treas. Reg. § 1.451-2(a)]

It seems to me she hits this definition, because she would have had to have told the company what to do with the income at some point in time -- i.e., apply it to tuition -- so, she should thereby have control of that income.

Are there other incomes for 2007? Other educational expenses? Since they 1099'ed her, does she have offsettting expenses? If the tuition is business related should she call it a business expense on Sch C?

[Gene V]

in terms of constructive receipt --
“Income although not actually reduced to a taxpayer's possession is constructively received by him in the taxable year during which it is credited to his account, set apart for him, or otherwise made available so that he may draw upon it at any time, or so that he could have drawn upon it during the taxable year if notice of intention to withdraw had been given. However, income is not constructively received if the taxpayer's control of its receipt is subject to substantial limitations or restrictions.” [Treas. Reg. § 1.451-2(a)]

It seems to me she hits this definition, because she would have had to have told the company what to do with the income at some point in time -- i.e., apply it to tuition -- so, she should thereby have control of that income.

Are there other incomes for 2007? Other educational expenses? Since they 1099'ed her, does she have offsettting expenses? If the tuition is business related should she call it a business expense on Sch C?

However, income is not constructively received if the taxpayer's control of its receipt is subject to substantial limitations or restrictions

I think she would fall under this last sentence. If the income was a Education award- which
is what Americorp usually gives, then the only way she could get the income is sign up at some qualified education institution or have Americorp pay her qualified student loan. Otherwise, she would not get the money.
IMO

[OtisMozzetti]

in terms of constructive receipt --
...
It seems to me she hits this definition, because she would have had to have told the company what to do with the income at some point in time -- i.e., apply it to tuition -- so, she should thereby have control of that income.
...

Be careful what you wish for when using this sort of reasoning; it can bite both directions.

There would be no certainty that the money ever would be applied to tuition. For example, she might get a full-ride scholarship, or employer reimbursements, for the rest of her life. Or she might drop out for any of many possible reasons and never have any tuition bills to pay.

[newbie]

I was trying to find an exception to the tuition reimbursement being taxed at all but am having no luck. Seems it would be more like a scholarship wouldn't you think? You do not get the money unless you go to school and then you get a certain amount to reimburse you for tuition. If you don't go to school you don't get anything - if I'm understanding this correctly.

Just got a 2007 IRS notice from a client overseas for 1099MISC income he did not report.

[travis bickle]

sorry for my misunderstanding

I was trying to find an exception to the tuition reimbursement being taxed at all but am having no luck. Seems it would be more like a scholarship wouldn't you think? You do not get the money unless you go to school and then you get a certain amount to reimburse you for tuition. If you don't go to school you don't get anything - if I'm understanding this correctly.

Just got a 2007 IRS notice from a client overseas for 1099MISC income he did not report.

your original post said SHE EARNED THE MONEY.

this post now says it is TUITION REIMBURSEMENT.

funny how different words mean different things, eh?

[newbie]

your original post said SHE EARNED THE MONEY.

this post now says it is TUITION REIMBURSEMENT.

funny how different words mean different things, eh?

Maybe it's my misunderstanding, the way I understand the Americorp to work is the taxpayer "works" in exchange for the room and board while working and tuition reimbursement when they are finished with the service and start college. So it is earned in the sense they provided community service but if they don't go to school they don't get tuition reimbursed or any form of payment, like "restricted wages"?

If I turned the thread in a different direction, I'm sorry, that wasn't my intent.

[Bill Tubbs]

Thanks

Thanks guys for all your thoughts. Looks like the constructive receipt argument won't work here. Guess the only consolation prize here would be to make sure the parents included the $2000 that Americorp paid as tuition for Hope Credit. After all, if it is taxable income to the student, then that amount would qualify as tuition paid by student.

Thanks again,
Bill

[Corduroy Frog]

What to do...

Unless there is a compelling reason to report this in 2007, I would tell the client that Americorp is essentially reporting 2008, and has turned the information in to Uncle Sam for the student to report in 2008.

There may be reasons to second-guess Americorp, but unless the client wishes to pay you to wage a time-consuming letter-writing crusade involving not only Americorp but possibly the IRS as well, the prudent thing to do is to report the income in 2008.

I also disagree that the $2000 automatically qualifies for education credit or tuition adjustment. It shouldn't even offset the amounts paid for qualified expenses. The 1099-T should be used for education credits (to the extent it is correct).

[Lion]

Fiscal Year

Maybe AmeriCorp is on a fiscal year. Would that explain the discrepancy in the year reported?

[Gene V]

Maybe this will explain it.
From there web site.
The Segal AmeriCorps Education Award, unlike most other forms of scholarships and
fellowships, is subject to federal tax in the year the Trust pays the voucher.

http://www.americorps.gov/for_individuals/benefits/benefits_ed_award_taxes.asp