Charitable Contributions vs. Tuition

[calcpa5]

I have a client whose children attend private school. Tuition is $20,000 per year per kid. If you take total school costs divided by the number of children that attend the school, the actual per student cost is $17,000. The issue is approximately 20% of the students are on scholarship and the extra $3,000 is a forced contribution to these other kids tuition payments. I know tuition is not deductible and forced payments are also not deductible, but I beleive that situation only applies when actual tuition costs are less than actual tuition paid.

Anybody ever run into this situation before?

[MAMalody]

You see it all the time. The "additional" over costs is still tutiton and not a contribution. Those "additional" funds are where the schools generate reserves when the tuition does not cover all expenses and those emergencies that come up.

Mike

[calcpa5]

Clarification

This is not related to generating reserves. The question is about allocating tuition between what it costs to educate your own child and the portion of your tuition that goes to educating other peoples children who receive a scholarship.

I spoke with the school and approximately 20% of the cost of tuition goes to pay for other kids to attend the school. So my client should be able to deduct 20% of their kids tuition as a charitable contribution.

[Dervis]

Charitable contribution

This is not related to generating reserves. The question is about allocating tuition between what it costs to educate your own child and the portion of your tuition that goes to educating other peoples children who receive a scholarship.

I spoke with the school and approximately 20% of the cost of tuition goes to pay for other kids to attend the school. So my client should be able to deduct 20% of their kids tuition as a charitable contribution.

If you can get the school to give you a receipt for a charitable contribution (assuming it was over $250, you'd need a receipt), then go ahead and take the deduction. Without a receipt, no deduction allowed.

[erchess]

Another Example

I occasionally do pro bono preparation or representation on referral from an IRS Approved Tax Help Clinic about two and a half hours away from me by car. That fact does not mean that any part of what my clients pay me is a deductible contribution to the Clinic.

Look at it another way - If your client does not consider the tuition money a good investment in his kids' futures he can choose another private school or even public school. I personally believe that kids of all socioeconomic backgrounds benefit from rubbing shoulders with kids from other socioeconomic backgrounds.

[FEDUKE404]

I see no contribution here

This is not related to generating reserves. The question is about allocating tuition between what it costs to educate your own child and the portion of your tuition that goes to educating other peoples children who receive a scholarship.

I spoke with the school and approximately 20% of the cost of tuition goes to pay for other kids to attend the school. So my client should be able to deduct 20% of their kids tuition as a charitable contribution.

This situation is no different from the "normal" tuition you might pay if the school gave no scholarships and everyone then paid the same (lower) amount if they wanted to attend the school. You are paying the overall costs of the education as established by the school and included in the broad category "tuition." Many schools, especially the private ones, are now giving tuition reductions to some students whose presence they want on their campus. Even state-supported schools will now frequently waive the "non-resident" surcharge for a student they really want to attend, for whatever reason. The lucky student gets no "scholarship" but instead a tuition consideration. It's all a cost of doing business for the school. My own child has been offered "in-state" tuition at a major public university in a nearby state.

The school is playing word games with you. As another poster said, IF you can get a receipt from the school saying that you made a contribution of $X and gained no personal benefit from such a contribution, by all means go for it. That is the only possible way your "contribution" would pass IRS muster.

You could always make a separate deductible contribution to their scholarship fund, but I seriously doubt if your own tuition costs would then be decreased by 20%.

FE

[outwest]

I agree..

no matter how the school spends the money, or the discounts given elsewhere. If the kid can't go to class without the $20k payment, it's tuition.

As an aside, there are a lot of court cases where some have tried to give scholarship donations to a school where (purely by coincidence) their kid is the recipient of one of the scholarships. (wink, wink). I'd guess this would make the school reluctant to call any of this a donation.

Doug

[FEDUKE404]

Creative donating

As an aside, there are a lot of court cases where some have tried to give scholarship donations to a school where (purely by coincidence) their kid is the recipient of one of the scholarships. (wink, wink). I'd guess this would make the school reluctant to call any of this a donation.

Doug

That is an interesting end-run. If it's done properly (donation document from the school with "no personal benefit" verbiage) and the potential scholarship income to the student is also reported by the school to the IRS, it might fly. Heck, maybe "Daddy" wanted to get some good seats at the athletic events, although the 80% deduction rule might hurt him there.

Of course, I have one client who is "employed" on the athletic staff of a small college. He pays no tuition (master's program), receives no W2, and claims no education (LLC) expenses. Apparently such an arrangement is quite common, per the bursar of the college, who would not discuss a lot of specifics with me due to the privacy laws.

FE

[OldJack]

I spoke with the school and approximately 20% of the cost of tuition goes to pay for other kids to attend the school. So my client should be able to deduct 20% of their kids tuition as a charitable contribution.

Logic is not tax law. If you could find some tax support for such a position you could take the deduction. Truth is, there is no authority for such a position and you would look foolish on an IRS audit.

[Davc]

Interesting concept. Since 2/3 of the states general fund goes to education and I have no kids I'll take 2/3 of my state income taxes as a charitable contribution when it lowers my overall liability. And of course part of my property taxes can be treated the same way.

[FEDUKE404]

You forgot one!

Interesting concept. Since 2/3 of the states general fund goes to education and I have no kids I'll take 2/3 of my state income taxes as a charitable contribution when it lowers my overall liability. And of course part of my property taxes can be treated the same way.

And don't forget to deduct all those medical expenses you incurred for the cost of Medicaid.

FE