Switched Keys

I know that title sounds childish, but it is meant to get attention. Last year I confronted someone at Tax-Aide corporate headquarters about a spreadsheet on the support website that limited the amount of scholarships by the amount of the taxpayer's own money spent on qualified education expenses. The tax code and IRS regulations do not mention any own money requirement. So, I discussed this in a series of email exchanges about the law and IRS regulations.

After a half dozen emails, we couldn't agree. I followed up with a blog entry here that traces the argument. That entry, Education Credits: Tax-Aide Has It Wrong, was one of the most popular blog entries last year. I also mentioned the debate over the "own money" philosophy in my book anonymously. Book plug goes here: http://www.tylerhosting.com/dbell/books/etc.html

In the end, apparently I won the argument. This year the new Tax-aide worksheet for preparers has no mention of own money, and maximizes AOTC much like my own AOTC Worksheet. It includes but doesn't separately show excess scholarships but it does show separate lines for books and course materials which mine didn't. The summary for the AOTC even shows AOTC expenses and Taxable scholarships for different scenarios, including

• Use $2,000 toward AOC
• Max AOC
• Min AGI

Also displayed with the summary was an optional parameter, "No more than this for taxable scholarship" which could be very useful. This could be the amount of income below filing threshold for a student, or the amount that maintains income for the current EITC credit, or the amount below a certain tax bracket, i.e. 25% for taxpayers. The last two years, keeping the income low to qualify for a ACA exemption is another concern.

At the very bottom of the sheet were twin sections for student and parent that help to maximize the net benefit when a student has to include scholarships in income to enable the parent to claim more of the credit. Their spreadsheet was also more universal since it has additional columns for the Lifetime Learning Credit and the tuition deduction.

The only problem I had was getting the spreadsheet to open. It failed to open what appeared to be attached files, but finally did open. I am using Excel 2007. I also had to unprotect it to get it to work. However, that enabled me to enter data in all (formula) cells when you should only be able to enter data in non-calculated blue cells. It's an easy fix, though.

Still, I have to say, when it comes to education credit aids, they actually win this round. The Tax-Aide support site also refers to an on-line education benefit calculator as an aid to calculating tax credits, but that one is a little too complicated for me, and I generally like complex things. It's new, so I'm sure it will get better as it ages.

I was also encouraged this year to see that scholarship inclusion was a noticeable part of the training materials in Tax-Aide this year, and appeared to have a more coverage in the training materials and Pub 4012. I'm still waiting for IRS to resolve the payee statement discrepancy that I mention in the entry Education Credit Alert.