Can I claim the credit for "Tuition and Fees" Deduction?

[Andrew]

Situation: My son will be a first year student this
semester at College and will be, of course, listed as
dependent on my return. He paid his fees for college. Can
*I* (the parent) take the deduction (up to $3000 in t/y
2003) when I fill in my return for t/y 2004 next year?

JK Lasser 2004 Your Income Tax book states in section 38.13:
"...the rules at 38.7 for claiming the expenses of a
dependent also apply to the tuition and fees deduction."
Section 38.7 states under "Claiming credit for expenses paid
by your child or other dependent": "A dependent's expenses
are treated as the expenses of the taxpayer claiming an
exemption for the dependent. For example, if your child is
an eligible student and pays qualified expenses, and you
claim an exemption for your child as a dependent on your tax
return, only you can claim a credit for his or her expenses.
Because you claim the child as your dependent, his or her
payment of qualifying expenses is treated as your payment."
So I read this as YES, the parent can claim the credit.

But IRS Publication 970 in Chapter 6 (page 31 in 2004's "Tax
Benefits for Education") states no, no one can take the
credit under those circumstances. There is a chart that
states:

"If your dependent is an eligible student and you claim an
exemption for your dependent, AND your dependent paid all
the qualifying education expenses, then NO ONE is allowed to
take a deduction."

Am I missing something obvious, or if not, who is right? I
would think Lasser is wrong, but how could they be this
inaccurate?

 

[David Woods, EA, ChFC, CLU]

Situation: My son will be a first year student this
semester at College and will be, of course, listed as
dependent on my return. He paid his fees for college. Can
*I* (the parent) take the deduction (up to $3000 in t/y
2003) when I fill in my return for t/y 2004 next year?

JK Lasser 2004 Your Income Tax book states in section 38.13:
"...the rules at 38.7 for claiming the expenses of a
dependent also apply to the tuition and fees deduction."
Section 38.7 states under "Claiming credit for expenses paid
by your child or other dependent": "A dependent's expenses
are treated as the expenses of the taxpayer claiming an
exemption for the dependent. For example, if your child is
an eligible student and pays qualified expenses, and you
claim an exemption for your child as a dependent on your tax
return, only you can claim a credit for his or her expenses.
Because you claim the child as your dependent, his or her
payment of qualifying expenses is treated as your payment."
So I read this as YES, the parent can claim the credit.

But IRS Publication 970 in Chapter 6 (page 31 in 2004's "Tax
Benefits for Education") states no, no one can take the
credit under those circumstances. There is a chart that
states:

"If your dependent is an eligible student and you claim an
exemption for your dependent, AND your dependent paid all
the qualifying education expenses, then NO ONE is allowed to
take a deduction."

Am I missing something obvious, or if not, who is right? I
would think Lasser is wrong, but how could they be this
inaccurate?

Well I suppose it could go either way. The code section for
tuition and fees deduction states that someone claimed as a
dependent cannot claim the deduction. It then states that
eligible expenses are the same as for the educational
credits and cites a specific sub paragraph in that section.
That sub paragraph states that eligible expenses include
those paid for a dependent. There is no mention in the
deduction section about expenses paid BY the dependent. In
the section for the credit it DOES mention dependent paid
expenses as qualifying. However that specific subparagraph
is not referenced by the section for the deduction. Now, is
everything perfectly obscure?

 

[A. G. Kalman]

Situation: My son will be a first year student this
semester at College and will be, of course, listed as
dependent on my return. He paid his fees for college. Can
*I* (the parent) take the deduction (up to $3000 in t/y
2003) when I fill in my return for t/y 2004 next year?

JK Lasser 2004 Your Income Tax book states in section 38.13:
"...the rules at 38.7 for claiming the expenses of a
dependent also apply to the tuition and fees deduction."
Section 38.7 states under "Claiming credit for expenses paid
by your child or other dependent": "A dependent's expenses
are treated as the expenses of the taxpayer claiming an
exemption for the dependent. For example, if your child is
an eligible student and pays qualified expenses, and you
claim an exemption for your child as a dependent on your tax
return, only you can claim a credit for his or her expenses.
Because you claim the child as your dependent, his or her
payment of qualifying expenses is treated as your payment."
So I read this as YES, the parent can claim the credit.

But IRS Publication 970 in Chapter 6 (page 31 in 2004's "Tax
Benefits for Education") states no, no one can take the
credit under those circumstances. There is a chart that
states:

"If your dependent is an eligible student and you claim an
exemption for your dependent, AND your dependent paid all
the qualifying education expenses, then NO ONE is allowed to
take a deduction."

Am I missing something obvious, or if not, who is right? I
would think Lasser is wrong, but how could they be this
inaccurate?

The rules for claiming an education tax credit (Hope
Scholarship or Lifetime learning) allow a taxpayer who is
claiming a dependency exemption to treat the qualified
expenses paid by the dependent as if they were their own.
IRC Section 25A(g)(3).

No such rule exists for the Tuition & Fees Deduction. Only
the taxpayer who actually pays the expense is allowed to
take the deduction. If the person paying the expense is
also the dependent of another taxpayer, then neither the
dependent nor the taxpayer can use those expenses to qualify
for the deduction. Those expenses could still be used by the
taxpayer to claim a tax credit.

So: The chart in Pub 970 for the deduction is correct. I do
not have the Lasser book and can not comment on what it
says. However, if it says something that contradicts the
chart in Pub 970 on page 31, it is wrong.

 

[A. G. Kalman]

Well I suppose it could go either way. The code section for
tuition and fees deduction states that someone claimed as a
dependent cannot claim the deduction. It then states that
eligible expenses are the same as for the educational
credits and cites a specific sub paragraph in that section.
That sub paragraph states that eligible expenses include
those paid for a dependent. There is no mention in the
deduction section about expenses paid BY the dependent. In
the section for the credit it DOES mention dependent paid
expenses as qualifying. However that specific subparagraph
is not referenced by the section for the deduction. Now, is
everything perfectly obscure?

I have to differ with you, David. The relevant rule is in
Sec. 25A(g)(3). There is no reference implied or otherwise
to this rule in Sec. 222. Sec. 222 very explicitly states
that the taxpayer has to pay the expense. Individuals who
may be claimed as a dependent may not take the deduction.
Without the 25A(g)(3) rule, you wouldn't want your dependent
paying the qualifying expense if you plan to take the
deduction rather than the credit.

I will admit that the ordinary taxpayer and professionals
including myself, have to be befuddled by the myriad of
higher education tax benefits and their rules. Clearly,
there is opportunity for our legislators to simplify this
area of taxation.

 

[David Woods, EA, ChFC, CLU]

I have to differ with you, David. The relevant rule is in
Sec. 25A(g)(3). There is no reference implied or otherwise
to this rule in Sec. 222. Sec. 222 very explicitly states
that the taxpayer has to pay the expense. Individuals who
may be claimed as a dependent may not take the deduction.
Without the 25A(g)(3) rule, you wouldn't want your dependent
paying the qualifying expense if you plan to take the
deduction rather than the credit.

I will admit that the ordinary taxpayer and professionals
including myself, have to be befuddled by the myriad of
higher education tax benefits and their rules. Clearly,
there is opportunity for our legislators to simplify this
area of taxation.

Alan,
I think we are referencing the same thing here. §222(d)(1)
refers to §25A(f) for the definition of qualified expenses,
which is what I was trying to convey here. My point which I
think perhaps didn't come out as clearly as intended is that
you get that reference to 25A for qualified expenses, and
buried in 25A is the provision that allows a taxpayer to
treat expenses paid for by the dependent. Common sense but
unfortunately not the literal read of both 222 and 25A would
think they have the same rule for who gets the deduction.