Taxable Scholarship

[Lion]

Client/adult son graduated college May 2021. 2021 Form 1098-T shows nothing in Boxes 1 and 2, Scholarships of $33,949. Mother sent me son's statement from student financial services which lists the scholarship, grant, and refund in 2021. Tuition was last listed in 2020 by Yale. Mother said the YaleSFS accountant told her that I have to be FLEXIBLE and apply the evidence of tuition paid in 2020 to net the 2021 scholarship! I don't find "flexible" in the tax code. Mother took son's draft return to her friend who has an accountant that said son should not owe $4,000+ in tax. I'm sleep deprived and tired of mother bossing me around for TWO days when I have tax returns to prepare. Am I wrong? Am I right? What responsibility do I have to prepare the son's return the way the mother insists is logical and fair. I've been an EA too long to think of tax law as fair; it's just the law. But mother is playing the Marine going off to die in Afghanistan can't die owing $4,000+ card, and I'm in tears and shaking and need to move on to other returns now. Rant over.

[TaxGuyBill]

Tuition was last listed in 2020 by Yale..

It may have been listed as "billed" in 2020, but it seems like if the 2021 scholarships paid for the tuition. It seems like Yale may need to improve their statements from financial services. Assuming that is the case, that means the tuition was actually PAID in 2021, which would reduce (or eliminates) the taxable scholarships.

However, with it being paid in 2021, be aware that COULD affect any 2020 educational credits.

[rbynaker]

1098-T forms are notoriously unreliable. If Yale thinks they received $33,949 in scholarships in 2021 but charged nothing in 2021 for tuition I'd love for them to tell me what happened to that money! In reality it likely went to cover tuition that was billed in 2020 but paid in 2021 and not reported correctly. Maybe they have it all being applied to room & board?

Whenever I encounter these messes, I have the student/parent get full financial account transcripts (my last big mess was with Stanford, funny how these "prestigious" schools can't seem to hire anyone who can get their computers to correctly fill out a 1098-T form!) Then I do my best to make sense of it in Excel (but they don't make it easy!) Some things are reported in multiple years, some things are not reported at all, it's a mess. 2021 was a nightmare with prorated COVID refunds for schools that shut down. It's really an art as much as a science at this point. For the most part you can allocate things in the most taxpayer friendly manner, you just can't double dip.

Rick

[Lion]

I had the mother get the son's statement. Tuition was clearly labeled 11/20/2020 and was on the 2020 Form 1098-T and reduced his 2020 scholarship and reduced his 2020 tax liability. His 2021 statement shows an unknown payment for $1,300 (Covid?), scholarship, Pell grant, and $5,000 refund. Only 2021 expenses on the statement are $100 in fees. Mother does have documentation for $600 spent on books, paper, and a printer.

Would you amend 2020 to move tuition to 2021 instead?

[rbynaker]

Sounds like a can of worms to unravel. I would guess the same systemic problem has been happening every year since enrollment so it may be that everything is wrong. So your snowball rolls back to 2020, 2019, etc.

Are there educational credits in play? Or are we just trying to figure out the amount of taxable scholarships?

[Lion]

This year (and last) it's taxable scholarship. Earlier years gave mother AOC. I'm sure they won't file amended returns.

[Rapid Robert]

"What responsibility do I have to prepare the son's return the way the mother insists is logical and fair."

You don't have any responsibility at all to someone who is not the taxpayer. In my engagement letter, I reserve the right to withdraw if the taxpayer does not agree with my recommendations about positions to be taken on the tax return (which after all, I have to sign off on also). Although cutting it close (conversation ideally would have been had a few weeks ago), you can still disengage and send them to H&R Block.

Also the Afghanistan thing is probably bogus, since virtually all U.S. military were withdrawn over a year ago.

[Lion]

"Xxxx will state what was covered for 2021 tuition and what his tax burden is for the Yale income. He will sign. You fill in the numbers he provides. Thank you"