In Uncategorized on 05/15/2015 at 16:51

No, this is not about a voyage back down the river of time, when Gael Greene’s Sex and the College Girl was hot stuff, around 1964.  Ah, the days of my wasted youth–but let’s get back to taxes.

And who else should be telling the college dating story (as it applies to income taxation) but STJ Lewis (“A Name That Will Live In My Heart Forever”) Carluzzo, in yet another of his inimitable designated off-the-benchers, Stanley V. McClain & Sonia N. McClain, Docket No. 4732-14S, filed 5/15/15.

I’m sorry that, early in this blog’s career, I slighted the small-claimers. Like the children in a much more exalted setting, of theirs is the kingdom.

Stan was a student at ITT Technical institute, and a beneficiary of the Section 25A education credit largesse by virtue of his studentry. Like so many now groaning under the burden of undischargeable student loan debt but receiving certain political solicitude, Stan borrowed the bucks for that first year of ITT tutelage.

But though his tuition was charged in Year One, the lender didn’t come across until Year Two.

Stan takes his 25A credit for Year One, but IRS claims “wrong year. The magic date is when the institution of higher whatever gets and books the diñero, not when y’all were charged for it.”

Trial techniques aren’t of the best, so STJ Lew makes do. “Petitioners’ … return has not been admitted into evidence but the parties proceeded at trial as though petitioners claimed an educational credit totaling $2,500 on that return, as we do likewise. According to the notice, a copy of which is attached to respondent’s answer, petitioners are not entitled to the credit because ITT ‘did not verify’ the education credit claimed on petitioners’ return.” Order, at pp. 4-5.

Although there is the usual bar protecting this particular tax giveaway, everyone agrees Stan jumped it cleanly. But for the Treas. Reg. 1.25A-5(e)(3) hurdle, he’d be good to go.

For those of us unfamiliar with this wrinkle, here it is. “An education tax credit may be claimed for qualified tuition and related expenses paid with the proceeds of a loan only in the taxable year in which the expenses are paid, and may not be claimed in the year the load is repaid. Loan proceeds disbursed directly to an eligible education institution will be treated as paid on the date the institution credits the proceeds to the student’s account.” Order, at pp. 5-6. (Should read “loan is repaid.”)

Stan’s loan certainly fits that box, so STJ Lew says “This portion of the regulation certainly supports the position that respondent has taken in this matter.” Order, at p. 6.

So it looks like Stan is SOL (and I don’t mean Statute of Limitations).

But don’t underestimate STJ Lew.

“The last sentence of the regulation, however, goes on to state, ‘If the taxpayer does not know the date the institution credits the student’s account, the taxpayer must treat the qualified tuition and related expense as paid on the last day for payment prescribed by the institution’. The use of the word ‘must’ in the last sentence of the regulation suggests that under the circumstances there described, the rule is mandatory and supercedes [sic] the disbursement rules stated earlier in the regulation. We think it reasonable to fix the time of the taxpayer’s ‘knowledge’, or lack thereof, as of the date the taxpayer’s return is filed.” Order, at pp. 6-7.

It gets better.

“The trial exhibits showing the date petitioner’s student loans were credited to his account is dated Apiol [sic] 30, 2015, which was the date this matter was tried. Apparently the document was faxed to respondent’s counsel by ITT shortly before the trial started. There is no showing that petitioner was previously aware of the date the loan proceeds were credited to his account, and from his presentation we are satisfied that he was not. In the words of the regulation we are satisfied that petitioner did not know the date that his student loan proceeds were credited to his account as of the date his return was filed. Petitioner credibly testified that the policy of ITT was that a student could not begin classes until the student’s tuition was paid.” Order, at p. 7.

Stan started classes in the year for which he took the credit. Stan wins.

So remember, preparers, college dating is important when your taxpayers want the Section 25A credit.

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