IRS Notice on 2015 tax return

[Cypress]

Scrooge arrived yesterday in the afternoon mail. I have an IRS notice about the 2015 tax return. The problem is about the education credits. They say I owe $400.

IRS are asking me: We need to verify the education credits you claimed on Form 1040....Education institutions can report either amounts you paid for qualified expenses or amounts they billed on Forms 1098 T. We don't consider amounts they billed you in box 2 as proof of actual expenses you paid. Provide a signed detailed explanation of the amounts you paid to support the amounts claimed.

My taxes are prepared for me by a local non-profit that provides free tax preparation and filing for people under $50K. I remember getting this form from my employer showing the cost of tuition for courses taken through an on-line program at a local University. I paid for the courses up front. I was reimbursed by my employer upon successfully completing the courses. I asked at the time, could I file this on the return. There was a line for the expense so we put it in and a credit came back to me. I am not sure if I owe or don't owe considering the circumstances.

It's taken the IRS since February to get back to me on this question, and they charged 4% interest too. I had no idea this was coming. I can prove I registered, paid for and completed the courses, but do I owe? They suggest reading Publication 970 Tax Benefits for Education. I assume it's on line somewhere.

I am off work until January 3. I can ask the benefits coordinator and payroll person about this situation when I get back, they might have insight on taxes. I can disagree with the statements and wait for a decision. But, they continue to charge interest on the amount outstanding.

[Tybee]

This is from Turbo Tax, maybe it will help?

I paid 2014 tuition in Dec 2013, My employer partially reimbursed me for some of the tuition. Was I supposed to claim the tuition paid on my 2013 tax return?

I paid 2014 tuition in Dec 2013, My employer partially reimbursed me for some of the tuition. Was I supposed to claim the tuition paid on my 2013 tax return? If so, how would I claim the reimbursement in 2014? I will have the same scenario for tuition paid in 2014, but reimbursed in 2015, and paid in 2015, but reimbursed in 2016. How do I do this correctly? I didn't claim tuition paid in Dec 2013 for my taxes that year as I didn't get a 1098 for from the school and assumed that I would get one after the semester is complete in time to file for 2014, but I am reading that I was wrong.
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Maybe.
If you paid tuition in 2013, but weren't reimbursed until 2014, you have been presented with a tax loop hole. You have a choice. You can do nothing, taking the position that the reimbursement just balances out.
Alternatively, you may claim the tuition credit on your 2013 return because you were actually out of pocket in 2013 (you do not need a 1098-T). But, that will require you to report as taxable income, in 2014, any reimbursement that you receive. Normally the first $5250 of reimbursement is tax free. But, you may not "double dip". That is, you may not claim the same money for the tuition credit and as tax free reimbursement. Any amount over $5250 is taxed on your W-2 and so is considered out of pocket and eligible to claim the credit. You said you were only partially reimbursed, so the reimbursed part is eligible for the credit in 2013.



This is from the IRS: I put the most relevant note in red:

https://www.irs.gov/uac/tax-benefits...rmation-center

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Exclusions from Income

You may exclude certain educational assistance benefits from your income. That means that you won’t have to pay any tax on them. However, it also means that you can’t use any of the tax-free education expenses as the basis for any other deduction or credit, including the lifetime learning credit.
Employer-Provided Educational Assistance

If you receive educational assistance benefits from your employer under an educational assistance program, you can exclude up to $5,250 of those benefits each year. This means your employer should not include the benefits with your wages, tips, and other compensation shown in box 1 of your Form W-2.
Educational Assistance Program
To qualify as an educational assistance program, the plan must be written and must meet certain other requirements. Your employer can tell you whether there is a qualified program where you work.
Educational Assistance Benefits
Tax-free educational assistance benefits include payments for tuition, fees and similar expenses, books, supplies, and equipment. The payments may be for either undergraduate- or graduate-level courses. The payments do not have to be for work-related courses. Educational assistance benefits do not include payments for the following items.

• Meals, lodging, or transportation.
• Tools or supplies (other than textbooks) that you can keep after completing the course of instruction.
• Courses involving sports, games, or hobbies unless they:
  
  • Have a reasonable relationship to the business of your employer, or
  • Are required as part of a degree program.

Benefits over $5,250
If your employer pays more than $5,250 for educational benefits for you during the year, you must generally pay tax on the amount over $5,250. Your employer should include in your wages (Form W-2, box 1) the amount that you must include in income.



Hope this helps?

[ApatheticNoMore]

Who paid for the classes you or your employer? If your employer reimbursed you it seems your employer did. So I don't think you can get a tax credit for education that your employer not you paid for.

Was your employers reimbursement recorded on your W2? It seems to me it should have been but I'm not an expert on how that is recorded.

Now maybe some actually tax accountants will chime in, which I am certainly not.

I do take education tax credits a decent amount and get forms from colleges when I take classes. The most wonderful tax credits ever!!! But they are for classes I pay for (I've never worked anywhere where employers were going to help pay for any form of education at all, it's always been my own aftertax money).

[sweetana3]

In order to take a credit or deduction, the item must be paid by the taxpayer claiming the credit or deduction. Education that is fully reimbursed and that does not appear as income on your W-2 would not be a deduction or credit on your return. Probably why the IRS is checking. You got a great deal having your employer pay for them as a benefit and not having to report the cost as income.

Another example are medical bills paid in full by insurance. You cannot deduct the medical bills paid by insurance on a return as an itemized deduction because none of your income was used to pay for the medical bills.

Tybee's answer is terrific and right on point.

Note: Worked for the IRS for 31 years.

[Cypress]

Tybee said something I hadn't thought through. One course was taken in Fall 2014 and Spring 2015, another in Fall 2015 and I signed up for another in Spring 2016. The total amount is $3555.00

I remember saying to the person who prepared the form, isn't this double dipping? I don't think they honestly knew. The form is double checked by a professional tax person before filing. We had the form from the employer, plugged it into the program and out came the credit. I probably owe this.

[mschrisgo2]

It seems to me that the company that prepared your return owes you the money and interest that you will have to pay. You went to them for professional tax return preparation, and they made an error. They should pay, reimbursing you, because you will have to pay the IRS.

PS- I'd try to make a payment plan with IRS, just as soon as you possibly can. Sometimes, that will stop the interest and penalties from accruing.

[iris lilies]

It seems to me that the company that prepared your return owes you the money and interest that you will have to pay. You went to them for professional tax return preparation, and they made an error. They should pay, reimbursing you, because you will have to pay the IRS.

PS- I'd try to make a payment plan with IRS, just as soon as you possibly can. Sometimes, that will stop the interest and penalties from accruing.

Is is a free, non-profit organization that prepared her taxes.

Since she owes the original amount (assuming that is true) why would the tax preparer have to pay it?
I do wonder what their policy is on interest the I.R.S. charges in cases like this.

[ApatheticNoMore]

I don't think if it was a paid tax preparation firm they would necessarily have to pay anything (unless it's specifically part of their terms - something like if we do your taxes wrong and you owe we'll pay it). Yea of course in cases like this it may make sense to go to the professionals if one wants to fight the IRS (and I don't know that I recommend fighting them - they are usually right), because they surely know more than say me, but here's a little secret when you are getting into difficult stuff (and this sounds kind of difficult with the multiple years etc.) most tax preparation places don't know much about how to handle difficult stuff in my experience either. They mostly understand the basic stuff -earning straightforward income from the most common sources - taking straightforward write-offs and basic itemizing.

[Cypress]

I paid this bill and wonder what to do for the return 2016. My employer will send another form to me showing costs of education benefit. I am taking classes continuously. The agency I file taxes with is a community grant funded filing service. They don't itemize much at all as it tends to benefit me to not. I own a house and have normal deductions. I am single and have limited line items to start with.

Should I ask my HR office? Or, just ignore the form and don't include this time.

[MaryHu]

I do taxes as a volunteer for the AARP Tax Aide Service.
You can find any IRS from or Publication online at IRS.gov. Just type "Pub 970" in the search box.
I looked up the Pub 970 online and found lots of info that relates to your case. You'll want to start on page 67; "Qualifying Work Related Education"
Since I don't know all the particulars of your case I'll let you read it and see what applies. BUT it would seem to boil down to who paid. Did they reimburse 100% of the costs? If so that would fall under the "No Double Benefit Allowed" clause on page 72. In which case you should not have taken any deduction or credit for it.
In general: Don't just assume the IRS is right. They don't know all the details, they are asking for more info.
Also; This is pretty early for them to be getting back to you on this. I've had them question me on a tax return from 4 or 5 years back. (I won that case, by the way)
I believe H&R Block & some other companies will pay the interest and penalties but not the actual tax is they make a mistake. I don't know if the agency you went to has any policy like that but it can't hurt to ask. Good luck.