An Education on Education Credits

I had a member, Jane, who received a notice from the IRS questioning her claims for education credits for her two children, Peter and Mary. Mary was a freshman in college and Peter had just graduated. Jane had filed her taxes like she always did, claiming the American Opportunity Credit (AOC), as her children were both going to school to obtain a baccalaureate degree as required by the credit.  Unfortunately, Jane fell into one of the pitfalls that occurs with this particular education credit: A four-year degree spans across five tax years, and yet the AOC is only available for four tax years. For Jane, this meant the spring semester of Peter’s senior year did not qualify for the AOC.

Jane contacted TaxAudit, worried that she would lose all her education credits. I reviewed her situation and advised Jane that she would not lose all the credits! We would request a change of her son’s AOC to the Lifetime Learning Credit (LLC).  It is a lesser credit, so Jane would owe a little money back to the IRS, but not the $5,000 originally listed as due. In the end, the IRS accepted the change of AOC to LLC and Jane only ended up owing $535 rather than the original $5,000!

Jane was happy about the dramatic reduction in the tax bill and said, “I got an education on education credits. Thanks!”


**Some names and identifying details have been changed to protect the privacy of the individuals.