Grandma paying tution revisited

[Kram BergGold]

I have been thinking more about my previous post as to who gets the exemption for a child whose Grandma paid $40,000 of college expenses. We all agreed the $40,000 was a gift and for education credits is treated as if the grandaughter made the payment. But for the support test is this treated as an item the daughter provided or the grandmother. In the following example from an IRS publication on exemptions, mmutiple people provided support and there is no mention of a gift being made to the Mom. Even though I would think if the amounts provided were over $12,000 a gift tax return would be due. So maybe for the support test expenses paid with gifts are not provided by the donee but by the donor for the support test?



Multiple Support Agreement
You can claim an exemption under a multiple support agreement for someone related to you or for someone who lived with you all year as a member of your household.

Example 1.

You, your sister, and your two brothers provide the entire support of your mother for the year. You provide 45%, your sister 35%, and your two brothers each provide 10%. Either you or your sister can claim an exemption for your mother. The other must sign a statement agreeing not to take an exemption for your mother. The one who claims the exemption must attach Form 2120, or a similar declaration, to his or her return and must keep the statement signed by the other for his or her records. Because neither brother provides more than 10% of the support, neither can take the exemption and neither has to sign a statement.

Example 2

[Kram BergGold]

Grandma is treated as proviving support

I called NATP research. They say for purposes of dependency Grandma is treated as providing the support so the parents get the exemption.

[dtlee]

I am having trouble with this as well, buy I agree with the response you got from the NATP....

I believe that the payment to the college is support provided by Grandma for the purposes of determining dependency. I believe it is a "gift" she provided, although not a taxable one.

The IRS says the following about this (publication 950 and elsewhere):

There are some exceptions to the tax rules on gifts. The following gifts generally are not taxable and do not count against the annual limit:
.
.
.

• Tuition or Medical Expenses that you pay directly to an educational or medical institution for someone's benefit

I think that Grandma's payments are paid by Grandma not by the student from a support perspective although they are considered paid by the student from a Tuition & Fees deduction or Education Credit perspective.

[David1980]

I think dtlee is absolutely right. It is a gift, but because it meets an exception no gift tax return is required (assuming grandma made the payment directly to the school and didn't give the kid the money necessary to pay the school.)

I don't see the age of the student. Assuming they're under 24 the multiple support agreement thing doesn't apply, student would be qualifying child and under qualifying child rules the only support test that matters is that the student did not provide over half their own support.

And if the student meets the qualifying child rules for someone then can't qualify as a qualifying relative for others. So most likely qualifying child of parents means they can't be a qualifying relative of grandma.

[travis bickle]

Please recheck Pub 970

I think that Grandma's payments are paid by Grandma not by the student from a support perspective although they are considered paid by the student from a Tuition & Fees deduction or Education Credit perspective.

page 14 concerning the "Education Credit perspective".

You are correct that in the originally posited situation the student is considered to have paid the institution, BUT, continuing to read on page 14, it says "If you claim an exemption on your tax return for the student, you are considered to have paid the expenses.

So, that is another exception, Situations -
(1) Grandma pays the tab, Mom/Dad claim child = Mom/Dad get Education Credit;
(2) Grandma pays the tab, NO ONE CLAIMS child = child gets Education Credit.

Mark -- is your situation an actual one with your client, or are you positing tax theory questions?

[dtlee]

page 14 concerning the "Education Credit perspective".

You are correct that in the originally posited situation the student is considered to have paid the institution, BUT, continuing to read on page 14, it says "If you claim an exemption on your tax return for the student, you are considered to have paid the expenses.

So, that is another exception, Situations -
(1) Grandma pays the tab, Mom/Dad claim child = Mom/Dad get Education Credit;
(2) Grandma pays the tab, NO ONE CLAIMS child = child gets Education Credit.

Mark -- is your situation an actual one with your client, or are you positing tax theory questions?

Right Travis, I try to keep things simpler in my mind.

In my mind such payments are always deemed paid by the child and are treated exactly like any other payments the child makes towards education.

For the credits, anything paid by the child is deemed paid by the parents if they claim the exemption but not for the deduction (adjustment).

So your scenarios are correct that the payment is treated as paid by the parents who claim the child regardless of whether the student paid for it out of a loan or his/her own funds or via Grandma.

In the situation where the Tuition & Fees Deduction (Adjustment) is desired
(1) Grandma pays the tab, Mom/Dad claim child = No one can claim the deduction (adjustment)
(2) Grandma pays the tab, NO ONE CLAIMS child = child can claim the deduction (adjustment)

But now we are highjacking this thread again.

[Lion]

More common

The more common situation I've seen concerns the divorce decree written before UDC:
1.) Dad pays the tuition
2.) Mom claims the child
3.) Mom claims the education credit
4.) Dad gets no deductions re child he supports 100%