Refundable Part of American Opportunity Credit

[Jesse]

TTB page 12-2:
Exceptions: Taxpayers subject to kiddie tax are not allowed refundable credit for:
*Students age 19-23 who did not provide more than half their support with earned income.

Pub 970:
Refundable Part of American Opportunity Credit

You do not qualify for a refund if items 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 below), 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 below).

2. At least one of your parents was alive at the end of 2010.

3. You are filing a return as single, head of household, qualifying widow(er), or married filing separately for 2010.

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Yesterday I attended a seminar sponsored by IRS and the instructor said if a child was a full-time student between the ages of of 18 and 24 and the had at least on parent alive they would not qualify for the refundable portion of the AOC.

I specifically asked if the child has earned income greater than 1/2 of their support and used it to provide for their support, they cannot be claimed as a dependent on their parents return, wouldn't they be eligible for the refundable portion?

His response was "no" and referred me to irs.gov. The way I read the pub reference is #1 a., b. or c would not apply to a student 19 to 23 years of age if they provided more than 1/2 their own support with their own earned income.

Am I reading this wrong or is the IRS rep incorrect.

[appelman]

I think you are right.

One way to look at it is the student has to be free of the kiddie tax provisions.

[Kram BergGold]

IRS wrong

You seemed surprised that the IRS person would give incorrect advice. Why?

[FEDUKE404]

Surprise surprise surprise!!

You seemed surprised that the IRS person would give incorrect advice. Why?

AMEN to that!

I was always amazed when in my "younger" days I would never bother the IRS folks unless I had a serious problem which I could not resolve on my own.

So, I trundle on down to the local IRS office, take a number, and after I pose my question the FIRST thing the "expert" does is pull out a Publ 17, turn to the index, and start looking around. After that I might be posed a few questions, usually read to me from the Publ 17, and it quickly became very obvious that I already knew more about the topic than the person on the other side of the counter.

All tax people acknowledge the fact that there is a lot they do not know, and they should be willing to learn from others whenever the need arises. Hence my frequent reading/posting on the TTB boards!

FE

[Jesse]

You seemed surprised that the IRS person would give incorrect advice. Why?

I wouldn't be surprised if it was by phone or email, but for live instruction I would like to think it would be someone with more training and experience.

I still believe I am correct so if the student does provide more than 1/2 of their own support from earned income sources the student does not meet #1 and by meeting only #2 & #3 it does not disqualify a student from the refundable portion of the American Opportunity.

Anyone disagree?

[Gary2]

It's not necessary that the student provide their own support from their earned income (or at all). It's only necessary that their earned income be more than half their support (and that they not be claimed as a dependent, along with the other requirements).

This is relatively rare, because tuition and other expenses count as support, while student loans, which are usually treated as support provided by the student, aren't earned income.

As for the instructor getting this wrong, while I do expect instructors to be better qualified, the context of a verbal exchange at a seminar makes it easy to misunderstand the question. When looking at written questions and documentations, you get to read and reread as much as necessary, but it's rare that an instructor would take a long question and ask for it to be repeated slowly, so that it can be broken down into pieces. In this case, I would have asked the question simply "Isn't there an exception if the student has earned income more than half their support", leaving out all the other points as unnecessary to the question.