T.C. Summary Opinion 2014-115
UNITED STATES TAX COURT
JOHN MARK FERM AND BRENDA KAY FERM, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 19107-13S. Filed December 30, 2014.
John Mark Ferm and Brenda Kay Ferm, pro sese.
Jeremy J. Eggerth and John C. Schmittdiel, for respondent.
SUMMARY OPINION
MARVEL, Judge: This case was heard pursuant to the provisions of section
74631 of the Internal Revenue Code in effect when the petition was filed.
1
Unless otherwise indicated, all section references are to the Internal
Revenue Code as amended and in effect for the tax year at issue, and all Rule
references are to the Tax Court Rules of Practice and Procedure.
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Pursuant to section 7463(b), the decision to be entered is not reviewable by any
other court, and this opinion shall not be treated as precedent for any other case.
In a notice of deficiency dated June 13, 2013, respondent determined a
Federal income tax deficiency of $3,662 for petitioners’ 2011 taxable year after
they filed an amended return. After concessions by respondent,2 the only issue
remaining is whether petitioners are entitled to an American opportunity credit in
an amount greater than that allowed by respondent.
Background
Some of the facts have been stipulated and are so found. The stipulated
facts and facts drawn from stipulated exhibits are incorporated herein by this
reference. Petitioners, who are married to each other, resided in Minnesota when
they filed the petition.
Petitioner wife’s daughter, H.A., graduated from high school in June 2010
and subsequently enrolled in North Hennepin Community College. She began
2
The notice of deficiency disallowed a dependency exemption deduction for
petitioner husband’s minor child E.F. After trial respondent conceded this issue in
his status report. The notice of deficiency also disallowed petitioners’ claimed
child tax credit as a computational adjustment on the basis of respondent’s
disallowance of the dependency exemption deduction. Although respondent’s
status report does not mention the child tax credit, the Court assumes that
respondent no longer disputes the credit as a result of respondent’s concession of
the dependency exemption deduction.
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classes in the fall 2010 semester. For the spring 2011 semester, which began in
early January, H.A.’s account statement from the college shows charges for the
following:
Item Amount
Resident tuition $2,113.16
Parking 44.80
Student life fee 70.00
Technology fee 84.00
MSCSA 4.34
Professional development
Occ/professional course fees 50.00
The statement also shows that three payments were made toward the spring
2011 charges: $2,150.85 received on December 28, 2010; $50 received on
January 3, 2011; and $165.45 received on May 6, 2011. Petitioners made these
payments on H.A.’s behalf by taking distributions from their qualified tuition
program account, also known as a section 529 plan account, and then remitting
payments to the college with a debit/credit card.
Petitioners, who are cash method taxpayers, timely filed a joint Form 1040,
U.S. Individual Income Tax Return, for taxable year 2011. On April 1, 2013,
respondent received from petitioners a Form 1040X, Amended U.S. Individual
Income Tax Return, for the 2011 taxable year, reflecting adjustments made as a
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result of respondent’s examination. On their Form 1040X petitioners claimed an
American opportunity credit of $2,1073 for H.A.’s education expenses.4
On June 13, 2013, respondent sent petitioners a notice of deficiency
disallowing the American opportunity credit for lack of payment verification. On
August 19, 2013, petitioners timely filed a petition in this Court disputing
respondent’s disallowance of the credit. At trial respondent conceded $157 of the
claimed credit. The remaining amount is in dispute.
Discussion
I. Burden of Proof
Generally, the Commissioner’s determinations in a notice of deficiency are
presumed correct, and the taxpayer bears the burden of proving that the
determinations are erroneous. See Rule 142(a); Welch v. Helvering, 290 U.S. 111,
115 (1933). The burden of proof shifts to the Commissioner, however, if the
3
Of the $2,107, $843 was claimed as a refundable credit and $1,264 was
claimed as a nonrefundable credit. See sec. 25A(i)(6).
4
On the original return, petitioners claimed education credits associated with
petitioner husband’s child J.F. Petitioners then amended their return, removing
the dependency exemption deduction and the education credits associated with
J.F. as a result of respondent’s examination. The remaining American opportunity
credit is attributable solely to H.A.’s education expenses.
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taxpayer produces credible evidence with respect to any factual issue relevant to
ascertaining the taxpayer’s liability for any tax imposed by subtitle A or B of the
Code and the taxpayer satisfies the requirements of section 7491(a)(2).5 Sec.
7491(a)(1).
Petitioners do not contend that section 7491(a)(1) applies, and the record
does not permit us to conclude that they satisfied the section 7491(a)(2)
requirements. Accordingly, the burden of proof does not shift to respondent.
II. American Opportunity Credit
For 2011, section 25A permits qualified taxpayers an American opportunity
credit6 of: (1) 100% of qualified tuition and related expenses that the taxpayer
5
“‘Credible evidence is the quality of evidence which, after critical analysis,
the court would find sufficient upon which to base a decision on the issue if no
contrary evidence were submitted (without regard to the judicial presumption of
IRS correctness).’” Higbee v. Commissioner, 116 T.C. 438, 442 (2001) (quoting
H.R. Conf. Rept. No. 105-599, at 240-241 (1998), 1998-3 C.B. 747, 994-995).
6
The American opportunity credit is a modified version of the Hope
Scholarship Credit in effect for taxable years 2009 to 2012. See sec. 25A(i). The
credit is available only to taxpayers who paid qualified expenses related to
education furnished to eligible students. See sec. 25A(f), (i). Eligible students, in
addition to other requirements, should have been enrolled at an eligible
educational institution in a program leading toward a postsecondary degree,
certificate, or other recognized postsecondary educational credential. See sec.
1.25A-3(d), Income Tax Regs. Further, the credit is limited to taxpayers whose
modified adjusted gross income falls below a certain threshold. See sec.
25A(i)(4). Respondent does not dispute that H.A. is an eligible student or that
(continued...)
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paid during the taxable year for education furnished during any academic period
beginning in that taxable year up to $2,000, plus (2) 25% of so much of qualified
tuition and related expenses so paid as exceeds $2,000 but does not exceed $4,000.
Sec. 25A(i)(1). The statute defines “qualified tuition and related expenses” to
include tuition and fees at an eligible educational institution that the taxpayer, the
taxpayer’s spouse, or the taxpayer’s dependent attends, as well as course materials.
Sec. 25A(f)(1), (i)(3). The credit cannot be applied to expenses involving sports,
games, or hobbies unless this education is part of the student’s degree program.
Sec. 25A(f)(1)(B). Moreover, student activity fees, athletic fees, insurance
expenses, and other expenses not related to an academic course of instruction are
not creditable expenses unless the fees are a required condition of the student’s
attendance or enrollment and are not inherently personal. Sec. 25A(f)(1)(C); sec.
1.25A-2(d)(1), (3), Income Tax Regs. (stating that personal expenses such as
insurance and medical costs are not qualified even if the fee must be paid to the
educational institution as a requisite of enrollment or attendance).
Although petitioners have provided sufficient evidence to show that they
paid the charges from North Hennepin Community College for H.A.’s benefit,
6
(...continued)
petitioners meet the income threshold.
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respondent disallowed all but $157 of the claimed credit associated with these
expenses. Respondent contends that (1) petitioners paid $2,150.85 of the charges
in the 2010 taxable year, and (2) not all of the charges were “qualified tuition and
related expenses”.
Generally, the American opportunity credit is allowed only when payment is
made in the same year that the academic period begins. Sec. 1.25A-5(e)(1),
Income Tax Regs. For cash method taxpayers, such as petitioners, qualified
education expenses are treated as paid in the year in which the expenses are
actually paid. Id. Section 25A(g)(4) contemplates the scenario where, as here, a
taxpayer prepays qualified tuition and related expenses during one taxable year for
an academic period that begins during the first three months of the following
taxable year. In that instance, section 25A(g)(4) provides that the academic period
is treated as beginning during the taxable year in which payment was made. This
provision therefore requires taxpayers to claim the credit with respect to the
taxable year that the expenses were paid when the academic period begins in
January, February, or March of the following year.7 See secs. 1.25A-3(e), 1.25A-
5(e)(2)(i), Income Tax Regs.
7
This assumes the taxable year follows the calendar year. See sec. 1.25A-
5(e)(2)(i), Income Tax Regs.
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The regulations provide an example of this principle: “In December 1998,
Taxpayer A, a calendar year taxpayer, pays College Z $1,000 in qualified tuition
and related expenses to attend classes during the 1999 Spring semester, which
begins in January 1999. Taxpayer A may claim an education tax credit only in
1998 for payments made in 1998 for the 1999 Spring semester.” Sec. 1.25A-
5(e)(2)(ii), Income Tax Regs. (emphasis added); see also sec. 1.25A-3(e), Income
Tax Regs. Respondent does not dispute that petitioners paid qualified tuition and
related expenses on December 28, 2010, for the academic period beginning
January 2011. Petitioners were therefore entitled to an American opportunity
credit with respect to this payment, if at all, for taxable year 2010. See sec.
25A(g)(4); sec. 1.25A-5(e)(2)(ii), Income Tax Regs. Neither the statute nor the
regulations permit a cash method taxpayer an American opportunity credit with
respect to a year other than the taxable year in which the payment was actually
made. Accordingly, petitioners are not entitled to a credit for taxable year 2011
with respect to the December 28, 2010, payment of $2,150.85.
Petitioners made two payments in taxable year 2011: a payment of $50
received on January 3, 2011, and a payment of $165.45 received on May 6, 2011.
Respondent concedes that petitioners are entitled to a credit of $157 with respect
to these payments. The remaining $58.45 is in dispute.
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Respondent disallowed this amount as purportedly not paid toward qualified
tuition and related expenses. The account statement from North Hennepin
Community College shows charges for parking, a student life fee, a technology
fee, “MSCSA”, and “Professional Development Occ/Professional Course Fees”8 as
well as tuition charges. Petitioners’ payments were not allocated among the
charges. Petitioners have not shown that those fees were necessary for enrollment
or attendance at North Hennepin Community College or that the 2011 payments
were applied solely to qualified tuition and related expenses. See sec. 25A(f)(1);
sec. 1.25A-2(d)(2) and (3), Income Tax Regs.; see also Rule 142(a); Welch v.
Helvering, 290 U.S. at 115. Accordingly, petitioners are not entitled to an
American opportunity credit for the 2011 taxable year in an amount greater than
the amount respondent allowed.
We realize that the statutory requirements may seem to work a harsh result
in a case such as this where a four-day delay in making the December 28, 2010,
payment would have engendered a different result. However, the Court must
apply the statute as written and follow the accompanying regulations when
consistent therewith. Michaels v. Commissioner, 87 T.C. 1412, 1417 (1986). We
8
The record does not indicate what “MSCSA” or “Professional
Development Occ” stands for.
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have considered the parties’ remaining arguments, and to the extent not discussed
above, conclude those arguments are irrelevant, moot, or without merit.
To reflect respondent’s concessions and the foregoing,
Decision will be entered
under Rule 155.