College fees and the gift tax

[momsquad]

<p>Daughter is a freshman, and I'm scrambling to understand the tax code and college expenses. We can pay her tuition and medical insurance without reporting anything to IRS, however as I understand it fees including room & board in excess of $13,000 will have to be reported on a gift tax form 709. We won't have to pay tax, but the fact that we'll need to fill out this form was a surprise. I think this requirement is for funds not in a Coverdell, 529, or custodial account. Do most people who pay tuition "out of pocket" fill out the 709 form, or am I missing something?</p>

[Chedva]

<p>I thought you only had to fill out the forms if the recipient is not a dependent. Maybe I missed something, too?</p>

[mamabear1234]

<p>NO, most parents who pay tuition out of pocket do not fill out that form. Like chedva said, we have never considered paying for dependents’ room and board as taxable. I have always thought that if she is not your dependent, you can pay as much as necessary directly to the school without any gift tax implications. Now you have me thinking maybe that is just for tuition? But if you are paying her expenses, I am thinking she must be your dependent?</p>

<p>Also, you and your spouse could each give her $13,000 a year, so $26,000 total to pay her room and board. (You said ‘we’ in the original post).</p>

[momsquad]

<p>Thank you Mamabear! I forgot married couples get 2X the $13000 exclusion. We are in the clear. It does make sense that a dependent would not be subject to the gift tax rule, since by definition we are paying for her support. However I can’t find this stated in the tax code in the sections on gift tax. I found this comment from an anonymous lawyer on an obscure web site:</p>

<p>

It seems to be an informal rule that education costs, including room
and board, etc., are not looked at as gifts when the parent is paying
them and is claiming the child as a dependent. But you won’t find
that in the actual law.</p>

<p>One indication that education payments are properly subject to gift
tax is that Section 529 plan contributions do count as gifts (they do
qualify as present interest gifts and one can elect to make 10-years’
gifts at once, but that shows they are taxable).
[Instructions</a> for Form 709 (2011)](<a href=“http://www.irs.gov/instructions/i709/ch01.html#d0e280]Instructions”>http://www.irs.gov/instructions/i709/ch01.html#d0e280)

</p>

<p>I assume audits of parents paying college expenses are not common, otherwise a clear answer would have popped up somewhere in the Googlesphere by now. However with college expenses skyrocketing it could be that expenses never previously exceeded the gift tax exclusion cutoff.</p>

<p>Only tuition and medical expenses (including insurance) paid directly to the institution are eligible for exclusion from the gift tax.</p>

[allyphoe]

<p>Dickman v Commissioner, a 1984 Supreme Court case ([FindLaw</a> | Cases and Codes](<a href=“http://caselaw.lp.findlaw.com/scripts/getcase.pl?court=us&vol=465&invol=330]FindLaw”>http://caselaw.lp.findlaw.com/scripts/getcase.pl?court=us&vol=465&invol=330) ), says:

Our laws require parents to provide their minor offspring with the necessities and conveniences of life; questions under the tax law often arise, however, when parents provide more than the necessities, and in quantities significant enough to attract the attention of the taxing authorities. Generally, the legal obligation of support terminates when the offspring reach majority. Nonetheless, it is not uncommon for parents to provide their adult children with such things as the use of cars or vacation cottages, simply on the basis of the family relationship. We assume that the focus of the Internal Revenue Service is not on such traditional familial matters. When the Government levies a gift tax on routine neighborly or familial gifts, there will be time enough to deal with such a case.

</p>