Paying College Tuition In Wrong Tax Year Eliminates A $2,100 Credit For The Taxpayer.

The petitioner's step-daughter graduated high school in 2010 and enrolled in college later that fall.  For the 2011 spring semester, the college billed the step-daughter $2,113.16 for tuition and $253.14 for various fees.  The petitioner paid $2,150.85 of the amount on behalf of his step-daughter on December 28, 2010, by taking a distribution from his I.R.C. Sec. 529 account plan and remitting the payments to the college via a debit/credit card.  The petitioner and his spouse filed a joint return for 2011 on which they claimed an American Opportunity Tax Credit (AOTC) of $2,107 for the step-daughter's college expenses.  The IRS disallowed all but $157 of the AOTC (the $157 amount was actually paid in 2011).  The Tax Court upheld the IRS disallowance of the AOTC.  While the petitioner paid AOTC-eligible expenses and was not subject to the AOTC income phase-out limitations, the court noted that the statute at issue (I.R.C. Sec. 25A) only allows the credit to be claimed when payment is made in the same year that the academic period begins.  Here, the petitioner paid the expenses in 2010 for an academic period that began in 2011.  Thus, the AOTC could not be claimed on the 2011 return.  While I.R.C. 25A(g)(4) allows for prepayment of tuition in the immediate prior tax year for an academic semester that begins in the first quarter of the next year, that statute only allowed the petitioner to claim the AOTC in 2010 and not 2011.  The court also determined that the petitioner was not eligible for an AOTC for the amounts paid in 2011 because they failed to establish that those amounts were necessary for enrollment or attendance at the college or that the payments were applied solely to qualified tuition and related expenses, requirements to claim the AOTC.  Ferm v. Comr., T.C. Sum. Op. 2014-115. 

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