AOTC credit and TESU residency waiver

[BrianFallon]

Not tax advice. For entertainment and discussion purposes only.

TESU should mail or provide via download a 1098-T. If the residency fee waiver qualifies, it should be included on that form. If anybody has received this already with the residency waiver included, this would answer the question.

However, the rules for the AOTC, Student loan interest deduction, and Liftetime Learning Credit, etc are different. For example:

For AOTC only, expenses for books, supplies and equipment the student needs for a course of study are included in qualified education expenses even if it is not paid to the school.
(https://www.irs.gov/credits-deductions/i...d-expenses)

I raise this example because some expenses qualify under AOTC, but not Lifetime Learning Credit, etc. It is also important to note that not all fees are deductible, even if required and or paid directly to the school.

The residency-waiver fee is interesting because it is technically not mentioned specifically, nor are graduation fees. The bigger issue is that not everyone is required to pay them -- leading me to believe that a residency-waiver fee (an anomaly, really) would not be covered. However, I'm not sure if these fees typically get reported on the the 1098-T forms anyway because perhaps the rules were never meant to split such hairs -- you expect people to pay what they need to in order to graduate.

If TESU got the okay from the IRS to include this on the form at one point, I would think it would be fair game. If I had to guess, I would say that it does NOT qualify, but I could see an argument being made. Consider how this is different from SSAF fees and Enrollment fees at Excelsior. Seems unfair that those similar fees could (potentially) qualify, where TESU's do not. This also makes it murky because the fee at TESU is almost a delayed enrollment fee required for graduation. Though, it technically only applies to some people ...

Anyway, my guess would be that the TESU residency fee would not be included as part of tuition and fees. Curious what has happened in the past. Also, it's interesting and another consideration for anyone needing a tax break for these fees.

To your example of the Excelsior enrollment fee, if all students incur the fee simply by enrolling in the school, then it is likely a "required" fee.  The TESU residency waiver fee is a voluntary fee - you either take 16 semester hours  at TESU OR you pay the fee.  No student is required to pay the residency waiver fee to take a class at TESU or required to pay it merely by enrolling there as a student.  It is, in fact, a fee to avoid incurring tuition....

Is there a similar set up for Excelsior's fee?  Likely not, as it is an annual enrollment fee.

US Tax Court has historically construed the AOTC and it's predecessor the Hope Credit with greater than average deference to the Commissioner's decisions in allowing or disallowing the credit.  I believe this is due to the presence of the documentation of the school.  Tax Court seems to adopt the view that the taxpayer has incentive to stretch the limits of the credit while the Service has incentive to contract it; the school has no bias. The 1098T would likely be impossible to refute in an audit or tax court case.  

I would argue that the residency waiver fee is NOT required tuition or related student fees for the purposes of the credit.  In terms of credits, and especially refundable credits, if an expense is not specifically included, it is excluded.  

While I encourage anyone to consult their own tax advisor, my experience in tax administration leads me to conclude it is not able to be used.