Tuition credit

[oceanlovin'ea]

This situation is a little different than any I have seen on the board or in examples, so I am asking for some opinions.

Father paid tuition for spring semester in January. In February or March they found out son wasn't attending classes and was flunking out of school. Was having a lot of problems and it seemed best to bring him home and take him out of school. So technically he was NOT in school for part of 5 months of the year.

If he did not work after he came home and earn more than $3700, father can still claim him as a dependent. (I'm not sure if he worked any or not. He is going to go into military)

Can father still take the tuition credit? He paid the money. Will it just depend on claiming the son on the tax return?

If son worked and earned more than $3700, he will file own return and claim himself. I think he can take the education credit on his return, can't he?

Thanks

Linda, EA

[Koss]

Definition of Student

You need to find out when the kid withdrew from his classes.

He may not have actually withdrawn.

If he remained enrolled for the entire semester, and he was full-time based on the number of credit hours, then he was in fact a full-time student during 2011, for purposes of the definition of a qualifying child.

Even if he did withdraw, he is still considered a full-time student if he was enrolled for some part of five months. So the date on which he withdrew is critical.

It is irrelevant whether he actually attended the classes.

I'm going to assume the kid was over age 19 but under 24 at the end of the year.

Based on what you find out, you have three possible fact patterns:

(1) Full-time student. Child's income is irrelevant. He's a qualifying child if the support test is met. Dad claims child and takes education credit. Child can file his own return and indicate that he is claimed as a dependent.

(2) Not a full-time student. Income under $3700. Child is a qualifying relative. Dad still gets to claim the child as a dependent, and take the education credit. (But no EIC.) Child can file his own return and indicate that he is claimed as a dependent.

(3) Not a full-time student. Income of $3700 or more. Child is not a dependent of his parents. Child files his own return and takes the education credit.

According to Publication 17,

You can claim an education credit for qualified education expenses not refunded when a student withdraws.

I don't think five months is a requirement for the American Opportunity Credit.

Pub. 17 says that to claim the AOC, the student must be enrolled at least half time for at least one academic period beginning during the tax year. So the courseload has to be at least half-time. But it doesn't say that the student actually has to finish the term. Quite to the contrary, it says you can claim the credit even if the student withdraws.

I haven't run into this in a while, so maybe we need to look into it a bit further. But on the surface, it is pretty clear to me that if he was full-time, the AOC is still available, even if he withdrew during the third or fourth month of enrollment.

The question is whether is he is a dependent, because that will determine who can claim the credit.

BMK

[Koss]

Definition

The AOC is an extension and modification of the Hope Credit. The terms of the AOC are buried in the American Recovery and Reinvestment Act of 2009, which I can't find right now. But the rules mirror the Hope Credit with respect to the full-time requirement. Here's the relevant language from IRC 25A:

Credit allowed for year only if individual is at least 1/2 time student for portion of year

The Hope Scholarship Credit under subsection (a)(1) shall not be allowed for a taxable year with respect to the qualified tuition and related expenses of an individual unless such individual is an eligible student for at least one academic period which begins during such year.

Eligible student

For purposes of this subsection, the term “eligible student” means, with respect to any academic period, a student who—

(A) meets the requirements of section 484(a)(1) of the Higher Education Act of 1965 (20 U.S.C. 1091 (a)(1)), as in effect on the date of the enactment of this section, and
(B) is carrying at least 1/2 the normal full-time work load for the course of study the student is pursuing.

If the student enrolls in a full-time courseload, but withdraws and doesn't finish the academic period (and does not enroll again for another academic period later in the same calendar year), has the student been enrolled "for at least one academic period"?

I think so. I concede that it is ambiguous.

Mathematically, one could argue that a student who enrolls but withdraws, and does not finish the term, has not been enrolled for one academic period. Rather, they were enrolled for some portion of one academic period, i.e., less than one complete academic period.

On this reasoning, the date of withdrawal is irrelevant. If the student dropped out during the sixth month of the term, just a week or two before final exams, they were still enrolled for less than one academic period, so the AOC cannot be claimed.

They would still be able to take the Tuition and Fees Deduction or the Lifetime Learning Credit.

That's not how I would do the return.

I don't think the law envisioned fractional enrollment periods. Either the student was enrolled or they weren't enrolled. If they were enrolled full-time and paid the fees, and the fees were not refunded, then they were enrolled for that period, even if they withdrew before the end of the term.

This interpretation is supported by the citation I provided from Publication 17.

BMK

[Gary2]

If he remained enrolled for the entire semester, and he was full-time based on the number of credit hours, then he was in fact a full-time student during 2011, for purposes of the definition of a qualifying child.

Just one caution: While we often use the term semester for all academic periods, some schools work on a quarter system, which could just be January through March or April, or sometimes February through April or May (or even Dec-Feb, but that doesn't fit the original post). None of these periods would meet the requirements for a qualifying child 19 and older, but they would still meet the requirements of the AOC. On the other hand, if the academic period began January 31, and ended May 1, it would meet the qualifying child requirements.

[oceanlovin'ea]

Didn't work

Just got email from the dad. Son did not work at all in 2011. So he can claim him as dependent and take education credit.

I am glad. Bad enough that they paid the tuition for nothing. At least they can get a credit.

Thanks, Burton

Linda, EA

[JohnH]

Well, SOMEBODY got an education.
Unfortunately, it wasn't the son.

[oceanlovin'ea]

Hard as you try sometimes you just don't know what your kids are doing or thinking.....or if they ARE thinking.

I'm not sure if the parents steered him toward a profession he wasn't really interested in or if he just couldn't handle the college scene. Parents are good people, though

Linda, EA