Form 1098-T

[JG EA]

I'm having trouble understanding this information. (Just so you know why I'm having trouble - besides being thick - is because we got my client's daughter's POA to get the daugther's information. My client is trying to claim her as a dependent for 2009. Neither has filed for 2009.)
All the daughter had was a little W-2, 2000.00 and a 1098T.
On the Form it showed (approx):
Qualified Tuition 0
Scholarships and grants 11000.00
Billed Amounts for Q Tuition 19645.00

I also have a statement from the college for beginning January balance as zero, and it shows 12000.00 in charges, 14000.00 in payments (with 2695.00 paid by the daughter's loan), The rest are paid by scholarships and grants and a credit balance at the end of January 2009.

Do I have enough here and just can't see it? Can I assume that the zero amount on the year-end 1098T is because the daughter didn't pay anything herself?

[solomon]

The Form you have is meaningless (for a credit) without the amount paid on it. Use school records and client records. The TIGTA concurs.

http://www.treas.gov/tigta/press/press_11192009.htm

[FEDUKE404]

Basically ignore it

The Form 1098-T is one of the most useless documents ever to cross a tax accountants desk. For all intents and purposes it is virtually worthless. (There also have been other board discussions on this topic.)

I assume the "Qualified Tuition" you mentioned as zero is actually "Payments Received for Qualified Tuition" ?? Most schools now report the billed, and not the paid, amount.

In the simplest of situations, on the surface you would perhaps have qualified expenses of $19,645 reduced by the $11k scholarship, leaving a net for the various credits of $8645. (LOAN amounts are still considered "payments" by the student.)

There are two problems of major importance. 1) You need to determine when the bills were actually paid (now you see the problem with "billed"), and 2) You need to see what period(s) the scholarships were used for. It is not unusual for scholarship money for fall 2009 and spring 2010 semesters (both "billed" and likely "paid" during 2009) to not process until 2010. That means in theory for a new student you could have a 2009 Form 1098-T with a large number for billed/paid expenses and ZERO scholarship money, although of course that is not how you would prepare the 2009 tax credits. Conversely, at a later time you might receive a Form 1098-T with minimal qualifying expenses and a large scholarship payment.

You did not mention if the student is/was a freshman. If not, this lag time could be a distinct factor.

BOTTOM LINE: Basically ignore the Form 1098-T and work with the real facts.

FE

[Gary2]

I also have a statement from the college for beginning January balance as zero, and it shows 12000.00 in charges, 14000.00 in payments (with 2695.00 paid by the daughter's loan), The rest are paid by scholarships and grants and a credit balance at the end of January 2009.

A statement that covers only the month of January won't be much more useful than the 1098-T. Even if you know there were no other tuition charges for the remainder of the year, you still have to wonder about that balance. Was it given back to the student, the loan company, or the scholarship source, or applied towards other charges?

If the school reported an amount in box 1 instead of box 2, with no adjustments reported in any of boxes 4, 6, or 10, would people consider that reliable enough to use? Personally, I don't know why the IRS even permits box 2 on the form.

[FEDUKE404]

Another issue re "billed"

....If the school reported an amount in box 1 instead of box 2, with no adjustments reported in any of boxes 4, 6, or 10, would people consider that reliable enough to use? Personally, I don't know why the IRS even permits box 2 on the form.

Something reported as "paid" vs "billed" would be an improvement, but I would still ask for background information. Hopefully the pieces would fit together better from the viewpoint of a tax accountant. A somewhat reasonable comparison would be to automatically use what is on a doctor's invoice (day of service) vs what the taxpayer eventually paid once all insurance/writedowns had occurred.

My guess is there is less burden on the schools to go with "billed" as tracking various payments might be a challenge to them. A lot of spring tuition bills are actually paid during the last couple of weeks of December, when many schools are on reduced staff due to the holidays et al.

Actually I have first-hand knowledge of the issues involved. My own "college student" paid the spring tuition in mid-December, but the expected scholarship was delayed and funds did not appear until mid-January. You guessed it: The Form 1098-T had a large amount for qualifying expenses with NO scholarship amount reported (school said they worked those on calendar year reporting), but the same form for the following year showed double the amounts of scholarships (two years worth) actually received.

I can only imagine how the IRS folks have to work through this disaster known as Form 1098-T!

FE

[taxmom34]

a few years ago when i had a client who had college student with a 1098T and he brought in school invoice , i compared the numbers and it didn't jive, so, i never go by the amounts reported on 1098T. I have a question to preparers, "have any of you with college credits get correspondence from IRS questioning what the college reported and what you reported on return?" in other words, is IRS ignoring these numbers as we are?
didn't colleges that first year just send out the 1098T and check the box "full time student", they should go back to that.

[JG EA]

Thanks for all the very helpful replies. I have asked for a full year's statement from the college. The dependent is in her late twenties. I will feel better for both the dependency and the credit to have exact numbers. I'm pretty sure the client did support her daughter even taking in the daughter's loans into account. But what if the loans are higher than I think? And what if the tuition wasn't paid somehow? That kind of thing. I was so confused and couldn't make any decisions so I really appreciate the help here.

[taxmom34]

someone can correct me if i'm wrong, but isn't scholarships considered used first when figuring payment

[FEDUKE404]

Payment allocations

someone can correct me if i'm wrong, but isn't scholarships considered used first when figuring payment

So far as I know, you are correct (absent any "verbiage" in the college paperwork that, for whatever reason, might state otherwise by allocating what scholarship money goes where).

It has been my experience that many colleges will provide scholarships/grants only up to the amount of the "qualifying expenses" so as not to create potential taxable income issues. Loans will support any leftovers.

Of course, those receiving a "full ride" scholarship usually don't complain too much about losing the tax credits and/or generating some taxable income.

FE