Frank S. Duke, Jr. wrote:
- quote -

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.

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in article C3CA753D.D3D6F%dukefs[at]one.net, Frank S. Duke, Jr. at
dukefs[at]one.net wrote on 2/2/08 10:02 PM:

- quote -

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

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<< ------------------------------------------------------- > << 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. > << ------------------------------------------------------- >

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
parent¹s return and treat it like it was reported on the daughter¹s return?
If the expenses had actually been the parent¹s expenses and they offset the
taxable part of the 1099-Q, nothing would appear on the return.

All freely provided advice guarantee correct or double your money back

Frank S. Duke, Jr. CPA
Cincinnati, OH USA

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<< ------------------------------------------------------- > << 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. > << ------------------------------------------------------- >