Scholarship income & AOC confusion...could you help me please?

Paying for College
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<p>Madison85, I understand how that was kind of humorous. I will heed your warning & take tax advice descriminately. Although, I do appreciate anyone making an effort to help me figure this out.</p>

<p>I really didn’t think I could claim AOC for 2011 because everything (tuiton, fees, room, board & books) was completely covered by scholarships & then she actually had excess money too. Nobody had to make any kind of payments to the college. Wouldn’t there had to have been a personal check or loan disbursement made/sent to the college to claim AOC for 2011. All of her pending loans for fall2011 & spring 2012 were cancelled. She didn’t need them. I feel strongly about not borrowing money when not actually needed.</p>

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<p>If you amend your daughter’s return and she reports $4,000 of scholaships as taxable (the actual amount may be higher as the room/board and refund are taxable too), then you can amend your return and take the AOC.</p>

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<p>No, Madison - since there was no loan, check or <em>anything</em> paid to the school to cover ANY expenses, including room or board, nor was there any money paid out of the student’s or parent’s pocket for required books/materials/supplies, there are no funds to be applied toward the AOC. As the OP has stated several times, EVERYTHING was completely covered by scholarships.</p>

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<p>OP, the grandfather’s check for $4000+, <em>by itself</em>, is enough to qualify you for the full AOC for 2012, since it was paid in 2012.
See this thread, which I started in the wee hours of this morning, which gives the relevant info (and other important points about the AOC) from Pub. 970:
<a href=“http://talk.collegeconfidential.com/financial-aid-scholarships/1456859-important-parts-irs-pub-970-consider-re-aocredit.html[/url]”>http://talk.collegeconfidential.com/financial-aid-scholarships/1456859-important-parts-irs-pub-970-consider-re-aocredit.html&lt;/a&gt;&lt;/p&gt;

<p>(I’m going to do another thread about the thorny issues surrounding the 1098T and taxable scholarships later, and will also try to address your numbers directly in this thread later.)</p>

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<p>MomCat2: I disagree: when the student claims the scholarship money as taxable income, the parent can use those funds in effect for claiming the AOC since ‘double benefit’ has been avoided. Please refer to Publication 970.</p>

<p><a href=“http://www.irs.gov/pub/irs-pdf/p970.pdf[/url]”>http://www.irs.gov/pub/irs-pdf/p970.pdf&lt;/a&gt;&lt;/p&gt;

<p>See Chapter 2, page 12
No Double Benefit Allowed
You cannot do any of the following:
Claim a credit based on qualified education expenses paid with tax-free educational assistance, such as a scholarship, grant, or assistance provided by an employer. </p>

<p>Also See Table 2-1
Were the same expenses paid with tax-free educational assistance, such
as a scholarship, grant, GI Bill, or assistance provided by an employer? (No)</p>

<p>Also see the examples on page 12, especially Example 2:
Example 2. The facts are the same as in Example 1, except that Joan reports her entire scholarship as income. Because Joan reported the entire $2,000 scholarship in her income, she does not need to reduce her qualified education expenses. Joan is treated as having paid $3,000 in qualified education expenses.</p>

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<p>Well Here are all the ugly details for anyone who is up to the challenge:
Sorry if it’s messy, it was the best I could do.</p>

<pre><code> SPRING 2012
</code></pre>

<p>12/14/2011 Class of 1976 Scholarship -$900.00
12/14/2011 Academic Scholarship -$500.00
12/14/2011 Pell Grant -$900.00
12/14/2011 President’s Scholarship -$8,500.00
12/14/2011 PA State Grant -$2,174.00
01/05/2012 OSS - VFW Post 2006 Scholarship -$1,000.00
01/05/2012 OSS - Evelyn Wood Scholarship -$112.50
01/05/2012 OSS - RM Eldred Scholarship -$250.00
01/16/2012 OSS Spring/Clough Scholarship -$6,070.00
Total Scholarships/grants $ 20,406.50 </p>

<p>01/06/2012 UG - FT Tuition $14,575.00
01/06/2012 Info Tech Fee $200.00
01/06/2012 Activity Fee $380.00
Total Tuition/fees $15,155.00</p>

<p>01/06/2012 Double Room $2,480.00
01/06/2012 Dine Titan 7 $1,970.00
Total Room/Board $4,450.00</p>

<p>01/10/2012 Received a refund of $801.50
01/16/2012 Textbooks bought $148</p>

<pre><code>FALL 2012
</code></pre>

<p>07/11/2012 President’s Scholarship -8,500.00
07/11/2012 June Kreiling Scholarship -$900.00
07/11/2012 Academic Scholarship -$500.00
07/11/2012 Pell Grant -$550.00
07/11/2012 PA State Grant -$2,174.00
08/15/2012 PATH Grant $250.00
08/15/2012 OSS/Ruby Marsh Eldred Scholarship -$250.00
Total Scholarships/grants $13,124.00</p>

<p>08/15/2012 Payment on Account/TAP529 -$4,598.00</p>

<p>08/20/2012 UG - FT Tuition $15,160.00
08/20/2012 Info Tech Fee $200.00
08/20/2012 Activity Fee $395.00
Total Tuition/fees $15,755.00</p>

<p>08/20/2012 Double Room $2,580.00
08/20/2012 Dine Flex 1070 $2,055.00
Total Room/board $4,635.00</p>

<p>08/21/2012 Subsidized Stafford loan -$2,228.00
08/21/2012 Unsub Stafford loan -$990.00
Total loans $3,218.00</p>

<p>10/12/2012 Received a refund of $550.00
08/29/2012 Textbooks bought $1,048</p>

<pre><code> SPRING 2013
</code></pre>

<p>12/10/2012 PA State Grant -$2,174.00
12/10/2012 President’s Scholarship -$8,500.00
12/10/2012 Pell -$550.00
12/10/2012 Academic Scholarship -$500.00
12/10/2012 June Kreiling Scholarship -$900.00
12/10/2012 PATH Grant -$250.00
01/05/2013 OSA - Ruby Marsh Eldred Scholarship -$250.00
Total Scholarships/Grants $13,124.00</p>

<p>12/31/2012 Payment on Account (Personal check-grandpa) -$4,048.00</p>

<p>01/02/2013 UG - FT Tuition $15,160.00
01/02/2013 Info Tech Fee $200.00
01/02/2013 Activity Fee $395.00
Total Tuition/fees $15,755.00</p>

<p>01/02/2013 Double Room $2,580.00
01/02/2013 Dine Flex 1070 $2,055.00
Room/Board $4,635.00</p>

<p>01/09/2013 Subsidized Stafford loan -$2,228.00
01/09/2013 Unsub Stafford loan -$990.00
Total loans $3,218.00</p>

<p>No refund this semester
01/14/2013 Textbooks bought $147</p>

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<p>Madison, you forgot the fact that is the same from example 1, that Joan had other college expenses to shift the scholarship to. When all college expenses are covered by scholarships, the facts of example 1 aren’t the same.</p>

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<p>OP - no time right now for a lengthy analysis of your numbers (will try later), but you are right to break it down by the school term, rather than the calendar year, to figure how much of the scholarships are taxable, even for the amounts of scholarship credited at the end of the year for a term beginning the following January. Ignore the 1098 T - what matters is how much of the scholarship went to pay for tuition/books <strong>for the school term for which the scholarship was given</strong>. The IRS doesn’t care exactly when the scholarship was credited to the account - it only cares about what the funds were used for. If used to pay for tuition/books, they aren’t taxable, if for R&B or other expenses they ARE taxable.</p>

<p>The issue of educational tax credits is different - here it matters <strong>when expenses were PAID</strong> - if paid by check, this is when the check was mailed; if electronically, then when the payment was made; if a loan, then when the loan was credited to the student’s account. Pub. 970 specifically spells this out in its sections about the different educational tax credits and deductions.</p>

<p>But when it comes to taxable scholarships/grants, NOWHERE in Pub. 970 or anywhere else that I can find does the IRS specify that the date on which a scholarship was disbursed or credited to the account makes any difference. The only thing that matters is for what purpose the funds were USED - tuition/books nontaxable, other uses taxable.</p>

<p>I’ve been researching for various sources to cite here, and am not yet done. BUT - I can definitely say this:
IGNORE THE 1098T - what matters is YOUR OWN RECORDS (OP, you’re way ahead of the curve on this one!) - what payments you made (doesn’t apply to the OP for 2011, but will apply to OP for 2012 and to most readers of this forum) and when, your child’s Financial Aid award, records of any outside scholarships, the student’s account statements from the school to show when any loans were credited to the account and to show what payments you made, and records of what was paid for required books/materials/supplies.</p>

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<p>I’m seeing the following:</p>

<p>2012 Scholarships received: $33,430.50
2012 Expenses Paid(including books, not including Grandpa’s payment): $32,106</p>

<p>Grandpa’s payment preceded charges being posted for spring 2013 but I don’t think that matters. With Grandpa’s payment, 2012 expenses paid are $36,154, exceeding scholarships.</p>

<p>I would think you should have received a 1098T since Grandpa’s payment was credited in 2012. The school wouldn’t know about the book costs, but even subtracting that, QEE that the school knows about exceeds scholarships. It would be interesting to know why the school didn’t think they needed to send one. And now it just occurred to me and this is one of the issues with the 1098T. The school probably reports Box 2, amounts billed, not Box 1, amounts paid, so they aren’t counting Grandpa’s payment. </p>

<p>I’m not sure about the refund on 1/10/12. Was that for scholarship money from 2011? That was a check to your daughter, not a credit to the bill that reduced your payments, correct? How about the 10/12/12 refund, a check?</p>

<p>It looks like there are $2723.50 more QEE than scholarships. There also appears to be enough R&B to shift about 1300 of the scholarships to/make taxable for your D, and also to absorb the 529 payment amount.</p>

<p>I set up two dummy returns in Taxact, a parent and a student one. I’m going to run these numbers through them and see what it says.</p>

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<p>I’ll be very interested in seeing sources concerning the scholarships. Every where in Pub 970 it’s very clear that it is talking about payments made and scholarships received in the tax year. What other date could a scholarship possibly be considered received other than when it is credited to the account?</p>

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<p>OP and annoyingdad - (briefly -have spent a few hours working on a lengthy post about the virtually worthless 1098T and taxable scholarship issues, which I’ll hopefully post later tonight)
The $3218 in loans credited to the account in 2012 also qualify toward the AOC (also grandpa’s payment, as I noted above), so there is no need to do any shifting around of funds to add to your daughter’s taxable income for 2012). See my post here <a href=“http://talk.collegeconfidential.com/financial-aid-scholarships/1456859-important-parts-irs-pub-970-consider-re-aocredit.html[/url]”>http://talk.collegeconfidential.com/financial-aid-scholarships/1456859-important-parts-irs-pub-970-consider-re-aocredit.html&lt;/a&gt; , which quotes the pertinent portions of Pub. 970.</p>

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<p>AnnoyingDad - regarding amending 2011: I cannot find anything in the code or regulations stating that there must be sufficient college-related expenses that are not qualified education expenses to ‘shift’ the $4,000 to in order to claim the AOC.</p>

<p>MomCat2 - that was covered in posts #4 and #5 a few pages back. (Grandpa’s payment and AOC for 2012).</p>

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<p>Quote MomCat2
“The IRS doesn’t care exactly when the scholarship was credited to the account - it only cares about what the funds were used for. If used to pay for tuition/books, they aren’t taxable, if for R&B or other expenses they ARE taxable”.</p>

<p>MomCat2, This clears up tons for me. Thank you so much for your most previous post. It is such a releif to hear. That is what I had figured last year when I did the 2011 Tax Returns & did them the way I did. I, too, could not find anything saying that the date the Scholarships & Grants were credited made any difference as long as they were being applied to Tuition for the semester they applied too.</p>

<p>Annoyingdad, Yes, both of the refunds were checks issued to my daughter. Ooops, my mistake, the refund that I had dated for 1/10/12 was an error, looking at it again I found that the date she received the check was 1/27/12. I can’t edit the post though, it won’t allow me to. What does R&B stand for? I can’t thank you enough for your help and patience. I don’t think the college considered Grandpa’s payment when they figured the 1098T. On the billing website for the college there is this statement: "FOR TAX PURPOSES: Transactions for Spring semester 2013 will be reported on your 2013 1098-T form.</p>

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<p>Sorry, growells - I use “R&B” to stand for Room & Board. (not “rhythm and blues”! :slight_smile: )</p>

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<p>The OP posted the billed amounts. She mentioned the ways the billed amounts were paid including the loans. The loan amounts can’t be added to the billed amounts(the loan didn’t increase expenses), they were just one qualified way the billed amounts were paid. So I still don’t see $4000 QEE without shifting some of the scholarship amount.</p>

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<p>This is coming down to a disagreement about when scholarships can be considered received. Since the OP is siding with applying the scholarships by school year rather than tax year, which I believe is the correct way to do it until shown otherwise, I’m going to bow out of this thread.</p>

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<p>I agree - exhausting!</p>

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<p>annoyingdad - re: your post #30 –
In the section of Pub. 970 that specifically deals with the taxability of scholarships (chapter 1, I think it is) do you see anything that indicates any concern on the part of the IRS about Scholarship income needing to be used in the same <em>calendar</em> year in which it was received/credited to the account, otherwise it is taxable? I don’t. Rather, it’s all about WHAT the scholarship is used for, nothing about whether the year in which the scholarship was disbursed matches up with the year of the academic term for which the funds were used for tuition (ie, the term for which the scholarship was intended)</p>

<p>In a situation where the school posts the tuition and Rm&Brd bills for the spring semester of 2012 (which began in Jan. 2012) in December 2011, but doesn’t post the scholarships/grants for that same term until January or February, then in the student’s senior year one ends up with the ludicrous situation where the 1098T for the year in which the student graduates shows ONLY scholarships, but NO amount billed (and no amount was paid, either, if the payment due date was in December. Let’s say tuition was $20K for the final term of senior year (due in Dec of the previous calendar year), and the student received a $12K scholarship for the term which showed up on the account in January. $8K was paid by the parents in Dec. for the remainder of the bill. Did the student receive a scholarship in excess of tuition? - clearly NOT- the scholarship was for only 60% of that term’s tuition - but the virtually worthless 1098T will show scholarship of $12K and tuition of ZERO. Did the scholarship go for room and board or other expenses? – no, it went for tuition, even though that tuition was billed a month or so earlier. The tuition and the scholarship were both for education received in the Spring 2012 term, so there should be no taxable income here.</p>

<p>Because of the frequent mismatch between 1098T numbers and academic terms, particularly in light of the crazy senior year scenario discussed above, a fair number of CC parents have realized the uselessness/craziness of the 1098T and are using their own records to match up scholarships and tuition with the academic term to which they apply. Here is a thread about that, including useful links to earlier threads on the issue: <a href=“http://talk.collegeconfidential.com/financial-aid-scholarships/875081-scholarships-taxable.html[/url]”>http://talk.collegeconfidential.com/financial-aid-scholarships/875081-scholarships-taxable.html&lt;/a&gt;&lt;/p&gt;

<p>A Conference by the Nat’l Association of College and University Business Officers, giving guidance on the preparation of 1098-Ts by colleges:
<a href=“Page not Found”>Page not Found; says not once but twice:

</p>

<p>Also these quotes, from a forum frequented by tax preparers: 1)

[Form</a> 1098T - Scholarship/Grant taxable?](<a href=“Form 1098T - Scholarship/Grant taxable? - TMI Message Board”>Form 1098T - Scholarship/Grant taxable? - TMI Message Board)
And 2)

[Form</a> 1098-T](<a href=“Form 1098-T - TMI Message Board”>Form 1098-T - TMI Message Board)</p>

<p>Yes, <em>for the purpose of the AOC</em>, date of payment (made by the parent, student, another person or via a loan) matters, as the IRS makes clear in Chapter 2 of Pub. 970. But when determining the taxable portion of scholarships, it makes sense to match up scholarships and tuition to the academic terms for which they apply - looking at what the scholarship is USED for.</p>

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<p>Annoyingdad, I’m sorry if you disagree, I really did think a lot about your method. I just understand that my daughter would be in the ludicrous situation of having something like $16,000 -$17,000 scholarship income in 2011 if I subscribed to the method of applying the scholarships by tax year rather than school year since she wasn’t billed for Spring 2012 tuiton/expenses/R&B until January 2012 but a lot of her Spring 2012 scholarships were credited to her account in December 2011. Thereby, forcing me to attempt to apply them to her Fall2011 tuition(her 1st semester of her freshman year) which was already paid by other scholarships.</p>

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<p>MomCat2, Since my daughter had an excessive amount of Scholarships/grants in Spring 2012 but the scholarships/grants terms stated that they were only to be applied to the 2011/2012 school year, must I subtract just the QEE for Spring 2012 from the Spring 2012 Scholarships/grants to find the taxable part for Spring 2012 & then repeat this for the Fall2012 & add the results together or do I just lump ALL the Spring & Fall 2012 QEE & Scholarships together?</p>

<p>Method 1: $20,407(SpringSCH/grants) - $15,303(SpringQEE) = $5,104(SpringTaxable SCH) & then $13,124(FallSCH/grants) - $16,803(FallQee) = $0(FallTaxable SCH) giving my daughter basically $5,104 to claim as Total 2012 Scholarship Income.</p>

<p>or</p>

<p>Method 2: $$33,531(2012 SCH/grants) - $32,106(2012 QEE) = $1,425 Total 2012 Scholarship Income.</p>