|
Posted by Alan on February 5, 2008, 7:40 pm
Please log in for more thread options Frank S. Duke, Jr. wrote:
> in article C3CA753D.D3D6F%dukefs@one.net, Frank S. Duke, Jr. at
> dukefs@one.net wrote on 2/2/08 10:02 PM:
>
>> Parent requested withdrawal of $38,000 from 529 plan to pay tuition for her
>> daughter at the Univ. of MI. Basis was about $18,000 and the rest was gain.
>> The parent requested the check in her name so the 1099-Q was issued in her
>> name and SSN. She has no offsetting educational expenses but her daughter
>> has $38,000 in tuition and room and board.
>>
>> Is this just an administrative issue? Can I ignore this income on the
>> parentıs return and treat it like it was reported on the daughterıs return?
>> If the expenses had actually been the parentıs expenses and they offset the
>> taxable part of the 1099-Q, nothing would appear on the return.
>
> I guess I should have gone to the code in the first place. When you read
> it, the whole issue becomes clear. 529(c)(3)(B)(i) says that "In-kind
> distributions. No amount shall be includible in gross income under
> subparagraph (A) by reason of a distribution which consists of providing a
> benefit to the distributee which if paid by the distributee would constitute
> payment for a qualified higher education expense...."
>
> 529(c)(3)(B)(iv) Treatment of distributions - Any benefit furnished to a
> designated beneficiary under a qualified tuition program shall be treated as
> a distribution to the beneficiary for the purposes of this paragraph.
>
> I interpret that to mean that the owner can take the distribution as long as
> he or she uses it for the educational expenses of the beneficiary.
>
> I have further concluded that:
> 1. The reporting process is a farce and provides the IRS with no information
> for tax enforcement or audit. The 1099Q reports a broader set of
> educational expenses than the 1098T so there can be no matching between the
> 529 plan disbursements and the 1098T report.
> 2. Since the 529 withdrawal can be made by the plan owner instead of the
> beneficiary, there is no requirement that the TINs on the two forms be the
> same, making them impossible to match.
> 3. The 1098T is only used to report receipt of tuition and fees for
> calculating the education adjustment and the Hope and Lifetime Learning
> Credit.
> 4. If tax is due, because the funds were not spent for education, it is up
> to the taxpayer to own up to it and report them appropriately on line 21 of
> the form 1040 and then calculate the penalty.
> 5. MAJOR CAUTION - If a taxpayer gives you a 1099Q in the name of the plan
> owner instead of the beneficiary and you enter it into Intuit ProSeries (and
> perhaps other software), the default position is to calculate the tax based
> on the 1099Q and compute the penalty as though it was taxable. The only way
> to eliminate the tax and penalty is to enter educational expenses equal to
> or greater than the distribution. Your only choices on a joint return are
> expenses of the spouse and taxpayer. If you conclude that the child was the
> one with the expenses and leave this blank, you will pay the tax. If the
> 1099Q is issued in the name of the beneficiary who actually had the
> expenses, it works. Either way, if the expenses are adequate to cover the
> distribution, nothing appears in the tax return that you actually file.
> 6. Question - So what does the IRS do with the 1099Q. If they get one, they
> know there was a distribution that was potentially taxable but they don't
> have anything to tell them the taxpayer actually had educational expenses.
> The only thing they know is that the taxpayer did not report any. Was it
> because they had sufficient qualified expenses or because they took the
> money spent it in Las Vegas and just did not report it. Some control, huh?
>
> This is my best understanding of how all this works based on the last two
> days of research. Does anyone have a different take on it? Comments would
> be welcome. In my 12 years in the business, I have only seen 3 of these
> 1099Qs. I guess we will be seeing a lot more in the future.
>
> All freely provided advice guarantee correct or double your money back
>
> Frank S. Duke, Jr. CPA
> Cincinnati, OH USA
>
The 1098-T is also a farce. I haven't seen even one this tax
season that was usable. Each one showed the amount billed. When I
asked how much was actually paid... they weren't sure. When I
asked whether the State of NM or an Indian Tribe/Pueblo granted
them a scholarship or paid the tuition the answer was yes. Box 5
was blank.
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
| 
Yahoo! 
Google 
Windows Live 
del.icio.us 
digg 
Netscape 
XML Sitemap