Scholarship question relating to support

[Tax Prep by Deb]

Hey everyone I need your input.

I have a client who is 19 years old and is really smart.  Because he is so smart he received all kinds of scholarships and grants last year.  His education expense is $13471 but he received 36571.  He comes from a family that makes less than 20,000 so as you can imagine gets EIC big time.  My question is does this scholarship money get counted in towards him supporting himself over 50% or do I forget about this money and keep him on his parents return?

Anyway to make some of this scholarship money go away?

[SaraEA]

The support test does not apply to EITC, so the parents can still list him on their return.  Be sure to review the Bursar's financial transcript...it could be that some of that scholarship money came in to pay for the spring semester tuition, so the son may have less taxable scholarships.

[Tax Prep by Deb]

I have the Bursar's financial transcript and unfortunately it all pertains to 2017.  He received it for spring/summer/fall/winter all dated 2017 and applied to academic year 2017.  Going back to the original question though, does he take his own exemption or does it still go with the parents?  Everything I read said not to count scholarship as support.  So if that's the case he can't take his own exemption correct?

[Pacun]

List him on the parents return and check  "not claiming this dependent this year", then EIC will flow accordingly. He will file as single and claiming his own exemption.

[jklcpa]

1 hour ago, Tax Prep by Deb said:

I have the Bursar's financial transcript and unfortunately it all pertains to 2017.  He received it for spring/summer/fall/winter all dated 2017 and applied to academic year 2017.  Going back to the original question though, does he take his own exemption or does it still go with the parents?  Everything I read said not to count scholarship as support.  So if that's the case he can't take his own exemption correct?

If he is a full time student, sec 152(f)(5) allows for special treatment of scholarships of a qualifying child that is "a child of the taxpayer" that allows the scholarship to be excluded from the support test.  

This article from the Journal of Accountancy describes the section pretty well, starting in paragraph 3 where it says:

Quote

Section 152(f)(5) prescribes a special treatment for scholarships with regard to the support tests. If the recipient is a full time student at a qualifying educational organization as defined in section 170(b)(1)(A)(ii) and “a child of the taxpayer” (section 152(f)(5)(A)), any scholarship is excluded from the support tests. For this purpose, a child of the taxpayer is defined as a son, daughter, stepson, stepdaughter, eligible foster child, a legally adopted child or an individual placed with the taxpayer for adoption (section 152(f)(1)). Descendants of these individuals are not included, even though they are in the relationship tests for QCs and QRs.

With that in mind and if he is a full time student, if he didn't provide more than 1/2 his own support, and if all the other tests are met, he will still be a qualifying child of his parents and they should claim him as their dependent.

 

[Tax Prep by Deb]

2 hours ago, jklcpa said:

If he is a full time student, sec 152(f)(5) allows for special treatment of scholarships of a qualifying child that is "a child of the taxpayer" that allows the scholarship to be excluded from the support test.  

This article from the Journal of Accountancy describes the section pretty well, starting in paragraph 3 where it says:

With that in mind and if he is a full time student, if he didn't provide more than 1/2 his own support, and if all the other tests are met, he will still be a qualifying child of his parents and they should claim him as their dependent.

 

That was my take as well.  He will remain on parents and will have to pay because of the taxable part of his scholarship.  To bad it couldn' be used to offset the cost of living while going to school!