Sad dependency story

[Kram BergGold]

Client was ill in 2010. Her 20 yr old daughter left school in Jan and never returned in 2010. $9,000 of tuition was not returned (the 1098-T does not have the at least 1/2 time student box checked). The daughter earned $6,000 in 2010. The way I see it my client loses H of H, the exemption and the tuition credit. Any other views?

[BP.]

The way I see it my client loses . . . the tuition credit. Any other views?

For at least the tuition:

http://www.irs.gov/pub/irs-pdf/p970.pdf

p. 9 & p. 21 & p. 38- Expenses eligible for (respective) credit or deduction if not refunded when student withdraws.

[Koss]

Education Credit

The education credit can still be claimed, even though the student withdrew. On that point I agree with BP.

But Mark's client can't claim the education credit if the student was not her dependent. And the student was not her dependent if she was not a full time student under age 24, because she made too much money.

The student can claim the education credit. And part of it will be refundable.

BMK

[Kram BergGold]

Thanks

Thanks to both of you. I never thought of having the kid claim the AOC to get the refundable part.

[Kram BergGold]

Does not work

The child earned just under 7k from work. The child lived with Mom in an apartment that cost $20,000 a year that the Mom paid for . So kid did not provide over 1/2 of support from working. Alas Koss' suggestion was too good to be true.

[death&taxes]

Review Dependency Rules!

Even though Mom may have paid more than 1/2 support in her expensive apartment, daughter can not be claimed as a dependent as she is over 19, not a full time student for 5 months of the year and Earned over $3,650 - She flunks the Gross Income Test.

So daughter claims herself and education credits.

[Gary2]

If the daughter can't be claimed as a dependent, she may still not be able to get the refundable part of the AOC because of the kiddie tax/AMT type rules.

However, was the daughter enrolled in the school? I believe there's nothing in there about actually showing up for classes. It's conceivable she never formally dropped the classes (which might explain the lack of refund), in which case she may still qualify as a dependent.

Don't focus on the 1098-T box. Some schools simply don't bother checking it. Also, check if she was enrolled elsewhere at a school that qualifies for dependency purposes without issuing a 1098-T.

[Jesse]

However, was the daughter enrolled in the school? I believe there's nothing in there about actually showing up for classes. It's conceivable she never formally dropped the classes (which might explain the lack of refund), in which case she may still qualify as a dependent.

I did very slight research just to satisfy my curiosity, as I too was wondering if being enrolled for 5 months would be equivalent to actually showing up for class. Actually a parent would not necessarily know - the school will not give access to information pertaining to the student as they are an adult. I did not find anything to confirm or deny.

[Koss]

Education Credit

I don't understand why it "does not work."

If the student meets the criteria to be a qualifying child, then the parent gets all the perks: HOH, dependency exemption, Child Tax Credit, and even EIC, if her income is low enough.

If the student doesn't meet the criteria to be a qualifying child, then I don't see how you are reaching the conclusion that she cannot claim the refundable education credit.

This all seems to hinge on the question of whether she was a full-time student. I think the part about how she withdrew is causing a lot of confusion. Everyone agrees that because the tuition was paid and not refunded by the school, that the education credit is available. The question is to whom.

If she was only enrolled for one quarter, then she was definitely not a full-time student, because that would less than five months. If she was enrolled for one semester, then that usually covers "some part of each of any five calendar months of the year." No regular college or university can cram a semester into four calendar months. If it's a private, for-profit, technical or trade school, then maybe they did. But the other criteria for a full-time student is they have to be taking a full-time courseload, as defined by the school (e.g., 12 credit hours at many schools).

The question that arises is this: Even though she withdrew, the education credit can still be claimed. But since she withdrew in January, she definitely was not a full time student for five months of the year.

So I don't see how she could possibly meet the criteria for a qualifying child. And she can't be a qualifying relative because her income is too high.

I don't understand what is disqualifying her from claiming the education credit for herself.

BMK

[Gary2]

The question that arises is this: Even though she withdrew, the education credit can still be claimed. But since she withdrew in January, she definitely was not a full time student for five months of the year.

The base note doesn't say "withdrew", it says "left school." To me, "withdrawing" means going to the registrar and formally notifying them that the student is dropping out of classes. "Leaving school" could be anything, such as moving back home while still technically enrolled in the program. That's the critical issue.

I don't understand what is disqualifying her from claiming the education credit for herself.

The other issue has to do with the refundable part of the AOC. A 20-year old student who otherwise meets the qualifications to take the AOC is not eligible for the refundable part of the AOC if that student has at least one living parent and the student's earned income was less than half their support.

[Koss]

Okay, wait a minute...

This all hinges on whether the student was "enrolled at least half time for at least one academic period beginning during the calendar year." That is one of the requirements for the American Opportunity Credit.

But Mark said that the 1098-T does not have a check mark in the box for "at least half time."

This definitely merits further investigation. 1098-T forms are often inaccurate in general. But in this case, the school may have left that box unchecked because the student withdrew fairly early in the term.

But she was enrolled. There's no question about that. If she was enrolled in enough hours to be at least half-time, then she can claim the AOC, regardless of how that form is filled out.

BMK

[Jesse]

If under age 24 the earned income must be greater than 1/2 of their support to receive the refundable AOC.

[Koss]

Student

Jesse wrote:

If under age 24 the earned income must be greater than 1/2 of their support to receive the refundable AOC.

That restriction is only applicable if the girl was a full-time student.

To solve this riddle, Mark needs to determine whether she was a full-time student, and, if she was not, whether she was at least half-time.

BMK

[Koss]

Under 24 and Full-Time?

Gary2 wrote:

The base note doesn't say "withdrew", it says "left school." To me, "withdrawing" means going to the registrar and formally notifying them that the student is dropping out of classes. "Leaving school" could be anything, such as moving back home while still technically enrolled in the program. That's the critical issue.

That's an interesting point. If she did indeed formally withdraw in January, and never returned, as Mark said, then one could argue that she was not a full time student for at least five months of the year. That means she's not a qualifying child of her mother.

If she did not formally withdraw, but simply stopped attending classes, then one could argue that she was in fact a full time student, but that hinges on how many credit hours she was taking.

Gary2 wrote:

The other issue has to do with the refundable part of the AOC. A 20-year old student who otherwise meets the qualifications to take the AOC is not eligible for the refundable part of the AOC if that student has at least one living parent and the student's earned income was less than half their support.

This is not an accurate synopsis of the rules. It's more complicated than that. The rules you are referring to have an OR operation embedded within an AND operation. Here's the text in question:

Part III Refundable American Opportunity Credit
Line 13

If you were under age 24 at the end of 2010 and the conditions listed below apply to you, you cannot claim any part of the American opportunity credit as a refundable credit on your tax return. Instead, your allowed credit, which is figured in Part IV, will be used to reduce your tax as a nonrefundable credit only.

You do not qualify for a refund if 1(a, b, or c), 2, and 3 below apply to you.
1. You were:
a. Under age 18 at the end of 2010, or
b. Age 18 at the end of 2010 and your earned income (defined below) was less than one-half of your support (defined later), or
c. A full-time student over age 18 and under age 24 at the end of 2010 and your earned income (defined below) was less than one-half of your support (defined later).
2. At least one of your parents was alive at the end of 2010.
3. You are not filing a joint return for 2010.

If you meet these conditions, check the box next to line 13, skip line 14, and enter the amount from line 13 on line 15.

The Elephant in the Room

What's nagging at me is the fact that I think we are dealing with two very different definitions of student here. The definition of student for purposes of a qualifying child is clearly not the same definition of student that is used for the American Opportunity Credit.

I think it is entirely possible that the girl in question meets the definition of a student that is at least half-time, which would allow her to claim the credit for herself, but that she does not meet the definition of a full time student. This means that she is not her mother's qualifying child, and she is not prohibited from claiming the refundable credit under the rules cited above.

BMK

[Gary2]

This is not an accurate synopsis of the rules. It's more complicated than that. The rules you are referring to have an OR operation embedded within an AND operation.

Yep, you're correct. And although you didn't explicitly say so, I think we're in agreement that the initial AOC criterion for being a qualifying student, i.e., enrolled at least half time for at least one academic period in a degree program, is not the same as the full-time student status in the section you quoted concerning the refundable part of the credit.

I think the only reliable way to resolve the issue here is to check the student's detailed course transcript. That should, hopefully, reveal which months the student was enrolled in which courses, including any official dates of withdrawal. Even then, some schools simply refuse to give a formal definition of "full-time."