Education Credit Questions - Order of Applying Scholarships & Grants to Expenses

[gfizer]

I think I have read something about this somewhere but I'm tired and I can't think so here goes....

 

Clients have a son in his first year of college and they qualify for American opportunity credit.  Expenses were as follows:  $3985 Tuition and $3625 Room & Board.  Student received $3832 in scholarships and grants and the rest was paid partly through a student loan and partly by the parents. 

 

Can scholarships and grants first be applied to room and board which would then leave qualified education expenses of $3,778 for purposes of figuring AOC or do the scholarships and grants first have to be applied to tuition?

 

[NECPA in NEBRASKA]

I do know that it depends on how the scholarship reads. Some are only for tuition, books and fees, thus they can not be applied to room and board.

[Lee B]

Wouldn't it depend on what the scholarships were for?The scholarships that I have seen specify what they can used for.

Also if you can get a detailed print out of the student's college account, it might help,

if it shows shows what funds paid for what charges.

Unfortunately some colleges use a balance forward approach, which won't be of any help.

[Richcpaman]

If you read the IRS publications, your client loses.  If you read the Tax Court Decision, your client wins.

 

Use the Tax Court Decisions.

 

The Tax Court said that you can apply the scholarships in what ever order you like.

 

Rich

[grmy2h]

http://www.treasury.gov/connect/blog/Documents/Pell%20AOTC%204%20pager.pdf

[Lee B]

If you read the IRS publications, your client loses.  If you read the Tax Court Decision, your client wins.

 

Use the Tax Court Decisions.

 

The Tax Court said that you can apply the scholarships in what ever order you like.

 

Rich

 

Tax Court decisions are not controlling authority. The IRS decides whether to follow the decision or not.

 

I don't know what case you're referring to. If the IRS agreed with the decision and is following it then you're in

 

good shape. But since the IRS Pubs are saying otherwise, I assume that means that the service does not

 

agree with the TC decision, in which case you don't really have substantial authority.

Edited March 4, 2015 by cbslee

[Jack from Ohio]

Tax Court decisions are not controlling authority. The IRS decides whether to follow the decision or not.

 

I don't know what case you're referring to. If the IRS agreed with the decision and is following it then you're in

 

good shape. But since the IRS Pubs are saying otherwise, I assume that means that the service does not

 

agree with the TC decision, in which case you don't really have substantial authority.

Pubs are not substantial authority.  Go with the tax court decision.  If audited, the tax court ruling will win.

[NECPA in NEBRASKA]

I would think that you would want to consider how it may affect the student's FAFSA application by including more taxable income. It may not affect too many, but I have several student client's that would not want to have much more taxable income added to their tax return and possibly not get another Pell Grant or other financial aid.