Question about Lifetime Learning Credit

[grichard79]

Hi there...I'm new, so please go easy on me if I should have posted this as a follow-on to another message (looks like this topic hasn't come up in about a year). Last year, there was a discussion on here of the Lifetime Learning Credit (LLC) and its application in the year the student graduates and gets a job--it touched on the question I need to ask but didn't fully answer it. My spouse's school sent him a 1098-T this year reflecting as "amounts billed" during 2008 the full amount of my spouse's Jan-May 2009 tuition. I know and they know, though, that all the loan transactions covering the Jan-May 2009 semester didn't finalize until Jan of this year.

HERE'S WHY THIS MATTERS--I'm concerned b/c my spouse's LLC is useless to us this year but would be quite helpful if he gets a job this year and has some income for his 2009 return. In other words, I'd like to be in a position for him to claim the amounts actually paid this year on his 2009 return. I'm worried the school will not send him a 1098-T for this year, though, as, again, the one they sent this year wrapped it all up and included the amounts paid by loans settling in the new year.

Does anyone know what we'll have to go through to rectify this next year? Can you claim the credit w/o a 1098-T if you have documentation that the loan payments cleared in the new year, regardless of what the 1098-T from the previous year says (obviously, one could not double dip and claim amounts for 2 years, but, again, we can't do a thing with it this year)?

Any help here would be so very much appreciated. I've poked around the Net but haven't found anything speaking to this question.

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[schwab]

Here are some relevant excerpts from page 20 of IRS Publication 970. You may want to read over section three of that document to get more information.

What Expenses Qualify
Generally, the credit is allowed for qualified education expenses paid in 2008 for an academic period beginning in 2008 or in the first 3 months of 2009.

For example, if you paid $1,500 in December 2008 for qualified tuition for the Spring 2009 semester beginning in January 2009, you may be able to use that $1,500 in figuring your 2008 credit.

Paid with borrowed funds.
You can claim a lifetime learning credit for qualified education expenses paid with the proceeds of a loan. You use the expenses to figure the lifetime learning credit for the year in which the expenses are paid, not the year in which the loan is repaid. Treat loan payments sent directly to the educational institution as paid on the date the institution credits the student’s account.
​

So everything is obviously off by a year, but the example holds. It looks like the tax code is on your side, and you'll have other records (bursar and loan statements) showing that you paid 2009 tuition, but perhaps not a 1098-T. I'd call the bursar or financial aid office to see if they could help. Perhaps they could reissue the 1098-T?

 

[dragonfly99]

This irks me so much.
Your school should be able to do this right.
My med school always did...I mean they knew to officially bill/show the 4th year students' tuition for spring semester being pain in the year of graduation. It's so simple and you'd think they could get it right, considering the tax credit applies to most all the graduating students.

 

[grichard79]

Thanks, all. I couldn't agree more that this is annoying. It's clear that schools take the easy way out and use the "amount billed" option b/c it's easier to pull that info and frees them from having to issue a 1098-T to graduated students. You'd think they would realize, though, how much this can screw with people who are graduating and actually able to make use of the credit for the first time during their year of graduation.

Thanks so much for the code reference--I'll give it a good luck. I agree that the law appears to be on our side so long as we have documentation that could stand in for a 1098-T in the face of an audit.

If anyone has further info or first-hand info to share, please do let me know. Thanks so much, all!

 

[dpmd]

Actually, you guys are interpreting the tax code incorrectly. It is saying that even if you paid last month or this month for the academic year that began in 2008 you can claim it on the 2008 taxes (where it won't do you any good). The school will likely not be sending you a 1098T for the remainder of the amount that funded after 2009 because in their mind the bill was due in december and they floated you the money until the loans came in. You could try to document that you didn't pay it until january of 2009 (although technically you didn't pay it-the lender did), and you might not trip an audit, but if you did, they may decide that you were not eligible to take that credit because it was considered part of the 2008 academic year. My school did this to me as well. They refused to change the 1098-T, and I decided I didn't want to risk the audit (I had some self employment income and some other stuff that I thought might make someone take closer look). Do what you want, but understand that it is a risk.

 

[TMP-SMX]

Technically, the LLC should be claimed in 2008 if paid for the academic year starting in 2008 or in the first three months of 2009. Though the language is still kind of fuzzy and could be interpreted as the only thing that has bearing is when it is paid and this is primary vs. when the academic year actually begins. It does say, "Generally, the credit is allowed for qualified education expenses paid in 2008..." Where does that leave qualified expenses paid in 2009 for the 2008-2009 year? It doesn't say a thing about it on the publication. It also says, "Treat loan payments sent directly to the educational institution as paid on the date the institution credits the student's account."

So your thoughts on that it should actually be paid in December doesn't really matter. The Publication also says that the amount on the 1098-T may not be correct and you have leeway to use the correct numbers as needed so it is not the end-all with the final say. You can easily prove when your tuition was credited to your account and claim it on the 2009 taxes if desired. Use the July/August disbursement for the full 2008 credit and the January disbursement for the full 2009 credit. I don't think there is anything to fear from this.

From Pub 970:
"The lifetime learning credit is based on qualified education expenses you pay for yourself, your spouse, or a dependent for whom you claim an exemption on your tax return. Generally, the credit is allowed for qualified education expenses paid in 2008 for an academic period beginning in 2008 or in the first 3 months of 2009."

 

[Sol Rosenberg]

Whether you can claim it as 2008 or 2009 depends upon how your school handles installments/billing. There is no doubt that all of my tuition for 2008 - 2009 was legally paid in 2008, because full payment is due in Aug. However, you can opt to pay in installments. If you do this (most do) my school has us sign a promissory note for the installment payments, so it is like my school is loaning us the money for the installment payments at 0% interest. Therefore, the payments that I (or my lender) makes in 2009 are just repaying the "loan" that the school gave us. This is pretty much what dpmd was saying, as well. Check your paperwork to make sure that this isn't the case for you before you decide to try to shift things around.

All that said, your chances of being audited (especially with a very low AGI) are abyssmally low. The last statistic that I heard was that overall about 1.5% of returns were actually audited.

 

[grichard79]

For all the thoughtful responses. This is a lot to think about, but we have the whole year to do so. I have been able to get a statement from the bursar's office confirming that all loan funds were received and credited in 2009, not 2008 (someone pointed out above that technically that means that the lendors paid this year, not us; however, my understanding is that is a distinction without a difference for the LLC--as amounts paid with student loans are treated the same as payments made out of pocket). I will decide next year when it's time to file if the benefit outweighs the risk of audit...do let me know if other thougths occur to any of you later this year.

Thanks!