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I have a single mom and college son who is a dependent/full-time student. Son finished sophomore year at Yale and has a 1098-T with scholarships in excess of tuition; I know how to handle that. And, a 1099-Q but lots of non-tuition costs to cover the small earnings. Son did not work during 2019.

My question is that he also took a summer certificate (not degree) program at Dartmouth. This had $11,000 tuition, $7,000 scholarships/financial aid, and still $4,000 that mom paid out of pocket. Dartmouth tells us they do NOT issue a 1098-T when it's not a degree program. Can I claim LLC on mom's tax return?

All other items are on son's return, right? His name is on the 1098-T and 1099-Q. His name is also on the Dartmouth documentation, but mom paid.

There is NO education credit on the son's return at this time. Can mom use the $4,000 she paid for the LLC on her return?

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You know sometimes these colleges get on my last nerve. The 1098-T is an important form. While I always recommend seeing receipts and statements from the bursar's office the 1098-T is important. If the son has not claimed himself and has no education credits on his return, mom should be able to claim the AOC because the son has not completed the first four years of school according to your post. If the son is over 24 and mom and he still qualifies as a dependent on mom's return then you should be able to claim the LLC. I am saying this without knowing all of the detail so I could be incorrect based on the circumstances.

 

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I was nervous about claiming AOC without a 1098-T, so was going to claim LLC instead.

I'm not, as you said, trying to claim education credits on son's return AND on mom's, just on one -- and it's more beneficial to mom and son is definitely her dependent (under 24, full-time student, didn't have a job in 2019, lives at home when not in dorm, I'm preparing both returns so I KNOW son is NOT claiming himself, etc.) and mom paid the R&B and books/supplies/equipment (music major) and the Dartmouth balance due while the scholarships took care of most things at Yale except for health insurance and books/supplies/equipment and a chunk of R&B, which we're using to cover the 529 earnings.

I have all the bursar's statements and the Yale 1098-T. But, Dartmouth says no 1098-T.

We used AOC on son's return his freshman year/fall semester. Last year, scholarships were too great for any education credits. 2019 would be the same except for the extra semester at Dartmouth with less generous scholarships, so I want to use whichever credit on whichever return it does the most good.

1. Is it OK to use the Dartmouth tuition on mom's return when the Yale taxable scholarship and the 529 distribution are on son's?

2. Is it OK to use the AOC without a 1098-T?

Mom is the type of client who will stress out over an IRS letter.

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The instructions to form 8863 cover certain circumstances when the college or university doesn't have to issue a 1098-T and says that it is possible to use those expenses for the education credits, and it lists what other documentation would be required.  Expect the IRS to question the credit without a 1098-T from the second school.

cbslee is correct  - no AOC for non-degree programs

As for your questions - 

#1 - yes, sometimes it works like this. If the 529 is in the son's name, he reports the distribution on his return, and whoever claims the dependent with the education expenses claims the credit.  In this case, it would be the lifetime learning credit.
No double dip on this - the same qualified education expenses can't be used for the credit and to offset the 529 distribution.   The education credit on mom's return probably gives a bigger tax benefit that the offset to the 529, so apply the expenses toward the credit on mom's return first before using any against the 529 on the son's return.   The last one I had like this, the parents income was so high that all education credit would have phased out so all of it went toward reducing the 529 on the child's return.

#2 - see my answer at the start of this post. 

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Thank you, Judy and gentlemen. I have so few of these. Kids have aged out or parents have income too high.

I had read something about AOC not being available but misremembered why not; it's the lack of a degree program and not the lack of a 1098-T. Son has R&B much higher than 529 distribution, so that takes care of those earnings. And, his excess scholarship is not a big hit at his low tax rate.

Just reading everything I can about using the Dartmouth tuition for mom, especially without a 1098-T. She paid plenty out of pocket to maximize the LLC. No double dipping; no expenses being used to gain more than one benefit. And, no LLC (or AOC) on son's return this year (AOC only on mom's 2017 return). I warned mom she might receive an IRS matching letter looking for a Dartmouth 1098-T. But, we have Dartmouth's invoice that breaks out tuition, scholarships/financial aid, and mom's payments; and we have mom's canceled checks ($1,000 deposit and $3,000 final payment). We have only Dartmouth's verbal assertion that they are not required to issue a 1098-T due to the program not qualifying toward a degree. Have I done my due diligence?

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I have so few of these. Kids have aged out or parents have income too high. And, I had read something about AOC not being available but misremembered why not; it's the lack of a degree program and not the lack of a 1098-T. Son has R&B much higher than 529 distribution, so that takes care of those earnings. And, his excess scholarship is not a big hit at his low tax rate. Just reading everything I can about using the Dartmouth tuition for mom, especially without a 1098-T. She paid plenty out of pocket to maximize the LLC. No double dipping; no expenses being used to gain more than one benefit. And, no LLC (or AOC) on son's return this year (AOC only on mom's 2017 return). I warned mom she might receive an IRS matching letter looking for a Dartmouth 1098-T. But, we have Dartmouth's invoice that breaks out tuition, scholarships/financial aid, and mom's payments;and we have mom's canceled checks ($1,000 deposit and $3,000 final payment). We have only Dartmouth's verbal assertion that they are not required to issue a 1098-T due to the program not qualifying toward a degree. Have I done my due diligence?

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I didn't hit Submit on the above until I noticed it sitting there just now!

Jim makes a good point. I'll ask. But, I think I'll worry more about the lack of a 1098-T if we want to use the AOC than if we use the LLC. Yes?

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No matter which way you go, your client is going to receive a AUR letter when there is no 1098-T to match the claimed credit.  The LLC should be relatively easy to defend with only proof of payment.   So, you should be advising your client of the options and, if the claim is rejected, it will result in penalties and interest.

However, the AOC will be more difficult.  You would have to get a letter from the dean's office at Yale that the Dartmouth courses were accepted as part of the Yale program leading to a degree.   The IRS could also argue that the summer course was not a full time course.  Dartmouth Summer offer three hours and it looks like the son, from what was paid, took 2 hours  (the Dartmouth website provides the tuition by hours).  

Without a 1098-T from Dartmouth,  the return will have to be paper filed where it is more likely to be flagged for audit.

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I agree. I had the son calling Dartmouth and then Yale. I laid out the options to mother and to son together, including the IRS matching tuition credits with Form 1098-T. My suggestion is LLC for mother, because I know we can defend, more likely than not successfully. I think the mother is leaning toward NOT taking the Dartmouth tuition on either return, to NOT receive an IRS letter. I'm running numbers for the multiple scenarios this afternoon, so they can have full information to make a decision. Paper filing is a good point, Max. I don't know if mailing one set of returns will matter to them, but having the returns handled by a person along with more likelihood of being flagged for audit probably will cause them to NOT use the Dartmouth tuition.

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Most clients do not want to get a letter from the IRS.   It creates anxiety in them even before they open it.   Even if you tell them ahead of time and that you will handle the matter if it arises, they will find a way to blame you as the return preparer.   Also, knowing that they may not get a letter for more than a year could create long term anxiety to such a degree that the client will call you and ask if the return can be changed so as not to claim the credit.

 

 

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Heard back from my client with answers to my questions. Not surprised that she does NOT want to take any education credit for her son's summer program at Dartmouth. She IS going to use direct debit for the first time to pay her IRS balance due, because of the mail backlog. I give her payment vouchers and envelopes for her ES payments, but I'll also give her the IRS's DirectPay link and the CT link in case she wants to pay those online this year.

Thank you all for discussing this with me. It helped me enormously to get it straight in my own head and then be able to lay out her options and what she could expect, explain it all to a very sweet violin teacher.

Stay well.

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Good decision.  Pub 970 does state, "However, you may claim the credit if the student doesn't receive a Form 1098-T because the student's ed-ucational institution isn't required to furnish a Form 1098-T to the student under existing rules (for example, if the stu-dent ... is enrolled in courses for which no aca-demic credit is awarded). If a student's educational institu-tion isn't required to provide a Form 1098-T to the student, you may claim the credit without a Form 1098-T if you oth-erwise qualify, can demonstrate that you (or a dependent) were enrolled at an eligible educational institution, and can substantiate the payment of qualified tuition and rela-ted expenses."  However, the pub also states "The course must be either part of a post-secondary degree program or taken by the student to ac-quire or improve job skills."  Since your student has no job, it looks like no LLC.

A bit of trivia:  A number of years ago an anonymous donor gave the Yale School of Music a huge endowment to assure that all future music students would pay no tuition.  What a beautiful bequest!  Musicians even with world-class training at places like Yale do not have much chance of making big bucks right out of school like graduates with, say, MBAs or STEM degrees.  To relieve them of the burden of student loans is truly a lifetime gift.  There has been much speculation over the donor's identity.  I think s/he was a highly successful musician (Ringo Starr?  Cher?) who knows what it was like.

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I guess my young client is one of the beneficiaries of that generous donor to the Yale School of Music.

By the way, the Dartmouth/Tuck Business School program was an intensive program in business for music majors to prepare them for the business of music performance. So, I would've argued, if my client had wanted to take the LLC, that it was to acquire job skills. But, I laid out all the issues for her, and she decided against it.

The knowledge on this site is amazing.

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