Can I claim my child's education expenses even though I did not pay my child's tuition?

Question: Can I claim my child's education expenses even though I did not pay my child's tuition?

Answer: If you can claim your child as a dependent and no one else can claim the education expenses, then yes, you may deduct the amount of your child's tuition from your gross income. This is a short answer and is not intended to be legal advice. I received this question via e-mail and researched this particular situation by looking up the rule in the Tax Code. I thought that I would share what I found on my blog. For more information on tax problems and solutions, please visit www.tonyfamlaw.com.

What are Fringe Benefits?

Section 119 of the Internal Revenue Code offers a series of exclusions, where employers can offer fringe benefits to their employees without incurring increased tax liabilities. If employee benefits are not formulated correctly, both employers and employees may incur increased tax liabilities because income was not reported. Sections 119 and 132 offer employers a way to provide fringe benefits without having the value of these benefits count as income for their employees, the following is a short list of exclusions:  meals provided on the job to employees, employee discounts, reimbursement of employee moving expenses and even qualified retirement planning services.
However, employers should use caution when offering employees payments in cash because as the Supreme Court in Commissioner v. Kowalski, 434 U.S. 77 (1977) found, §119 does not include cash payments of any kind. Kowalski was decided before the tax code was revised in 1986 and the current code allows employers a way to offer cash payments to their employees under §125. Section 125 of the Internal Revenue Code allows employers the option of setting up a "Cafeteria Plan." A "Cafeteria Plan" offers employees the option of choosing between receiving fringe benefits or cash and the cash received by the employees would not be counted as income. All of this depends on strict adherence to the requirements of §125. For more information about fringe benefits or other tax issues, please visit www.tonyfamlaw.com or call (214) 872-6406.

File your tax returns!

If you are in the situation where you have paid more than you owe on your Federal Income taxes to the Internal Revenue Service (IRS) please be aware that you must file your tax return within the 3 years statute of limitations from when the tax was originally due to obtain a refund. Further, the IRS has a 10 year statute of limitations on collecting any unpaid taxes from the day the taxes were due. The following example may clear up any confusion, if you did not file a tax return in 2007 and you paid more Federal Income taxes than you owe, you have until April 15th 2011 to obtain a refund from the IRS. Because the IRS statute is unambiguous, the chances of obtaining a judgment from a tax court in your favor after the statutory period has passed is slim to none. The only exception to the statutory rule found in the case law is whether the excess payment could be defined as a deposit paid to the IRS to defend against any potential deficiency claim by the IRS. However, the rules and the factual situation required to define any excess payment as a deposit is complicated and may not work in every situation. 

For more information on tax problems and solutions, visit tonyfamlaw.com.