AOC Question

[lenboush]

I have some bad news for a client and was wondering if anyone might have any ideas of any way around the issue.

The client’s dependent started college in September, 2016. For 2016, they paid for the fall semester in July, 2016 and paid for the upcoming Spring semester in December, 2016. They were able to receive the full $2500 AOC in 2016.

For 2017, they paid for the Fall semester in July, 2017 and paid for the Spring semester on January 2, 2018, thus only half of the tuition for the year was paid in 2017.

Since the fall semester was not paid until 1/2/18, their Scholarships and grants far exceed the qualified expenses paid in 2017. The student ends up with taxable income of over $11,000. NOTE: It is a very expensive private college but the student had tons of scholarships and grants. If the Spring tuition had been paid on December, 2017, however, there would have been no taxable income.

Is there any chance that anyone has any ideas for any way to mitigate this situation?

[lenboush]

First, get the relevant Forms 1098-T for the years involved.
Second, get reliable documents (bursar's records?) of what was paid and when.
Third, track the "origin" of the scholarship payments and match what specific and qualifying expenses they did and/or would have offset.

You should be able to make the facts fit the situation, and not be governed by what appears on the darn Forms 1098-T. But be VERY careful of separating "qualifying" expenses from the mixture!

I have found it is not unusual for colleges to be "slow" in crediting scholarships to student accounts, namely year #1 Form 1098-T has no scholarships shown (but better ALLOW for such on any tax credits!), and year "graduation" shows a scholarship amount but zero qualifying expenses "billed." (The student had the same, exact scholarship amount for each semester.)

It should be noted that, even if you get all this mess straightened out, the "late" 01/02/2018 payment can likely muck up any potential/expected 2017 education credits. First battle is to remove/reduce any taxable scholarship income (likely to the student?) and then get the education credits correct.

Good luck!

FE

I believe I have done pretty much exactly all of what you suggested. I do this with all of my education credit clients. The issue for this client is that the college posted the payment for the spring semester on 1/2/18 from the proceeds of a student loan making the payments for qualified education expenses to appear far less than they were. It would not have been a problem if they had done the same thing the previous January but the didn't. I even had the client call the college to request a change in the post date to 12/31/17 but they (not surprisingly) would not do that. I'm pretty sure we're stuck with the situation the way it is but was grasping for straws on behalf of the client.

[Treasur2]

Have you done some "playing with the numbers"? What happens if this student files by him/herself with this income? Can he/she? Does the student have any income from another source?