Amend out of AOC/

[mactoolsix]

We have a client that used American Opportunity credit 2010, 2011, 2012 & 2013. They would like to amend 2011 to Lifetime Learning Credit and then take AOC in 2014.

I haven't been able to find anything that says you can't amend out of AOC.

Has anyone done this?

Thanks,
Mike

[mastertaxguy]

Amend for education credits

1. There have been several postings regarding this issue: that is, amending out of the Hope Opportunity Credit or Lifetime learning credits taken in a prior tax year so as to take advantage of the American Opportunity Credit.
2. Typically this is an issue with a taxpayer or dependent who started in college, say, in 2007 or 08, got one or two years of Hope credit, stopped attending college (baby, job, tour of the Continent, money, jail for a non-drug offense, etc) and then returns to college to finish an undergraduate degree. The A.O.C. refundable aspect is attractive for some.
3. My office has prepared about a dozen of these kinds of returns: amending the prior years (usually, but not always, for a parent who had dependent children in college) and paying back the Hope College credit, with interest, and then having the student (who by now may not be a dependent on the parent's return) claim the new American Opportunity credit with the refundable aspect and of course, higher overall credit for the first four years of college. True, the "years of college" are not erased by an amended tax return but the monetary benefits may out weigh the costs of amended returns and interest on tax repayment.
4. Our experience, while limited, has been that IRS is cashing the checks, and issuing the refund for the A.O.C. on the current returns.
5. When we do them both in the same year, we hold the return with A.O.C. for two months so the amended return (removing the Hope credit) can be processed and in the system.
6. We have not had any experience with any state education credits that had to be repaid.
7. I/we realize many forum readers are not comfortable with this practice. We feel it is no different than amending a prior year return to claim a tuition/fee adjustment (deduction) rather than a Lifetime Learning Credit or 2106 education expense, or vice-versa.
8. No one has yet provided a reference to The Code which prevents a taxpayer amending a return to elect out of an education credit and pay more tax.
9. So, in your scenario, amending out of Lifetime Learning for a later year AOL ASSUMING AOC WOULD BE AVAILABLE (<5 years undergraduate and no undergraduate degree) may make sense.
9. Every situation is different, and every set of facts and circumstances needs to be considered carefully.

[mactoolsix]

We want to thank you for a great response and guidance.

Your detailed answer will be a huge help.

Mike

[mastertaxguy]

Amend for education credits

1. Another one of these situations arrived Friday afternoon in our office.
2. Taxpayer has attended 3 semesters as undergrad in 2003/04 dropped out, and re-entered a 4 year college degree program fall of 2014.
3. Taxpayer was claimed as a dependent on those earlier tax returns by her parents.
4. Both parents died in 2012.
5. Taxpayer is using "inheritance" to finish undergraduate degree.
6. Since her parents have died, we concluded that she only has 2 years of AOC credit available.