Education Credits Form Changes

A couple of weeks ago, I discussed the changes to the EITC checklist (Form 8867). The changes were made in order to fight the fraud in that program. The IRS has also changed Form 8863 for Education Credits in hopes to reduce the fraud in the educational credits especially the American Opportunity Credit (AOC).

The first thing you’ll notice on the new Form 8863  (download) is that the second page has become the first page. Page one is now where the taxpayer calculates the credits to be taken to the 1040 or 1040A. Part I is for the refundable American Opportunity Credit and Part II calculates the non- refundable credits. The second page (Part III) documents the student and school information and the qualified educational expenses. School information, including the EIN and address will have to be listed. This page also has a checklist to make sure that the student does qualify for the credit. A separate page 2 is completed for each student.

I have a concern about the wording of line 23. I can see taxpayers who would qualify for the American Opportunity Credit but read this question as asking if the Hope or AOC had be taken in the last 4 years, checking “Yes” and denying themselves the credit. The question might be better worded, “Has the Hope or AOC been taken for this student 4 times on any taxpayer’s return?”

The changes to Form 8863 aren’t surprising considering the fraud with refundable credits.  But if someone is really trying to rip off the system, they’ll know how to lie on the form. The changes look to remind tax pros and taxpayers of the rules and to provide some info to match to the 1098T’s supplied by the school. This is scary considering how often those forms can be incorrect. Maybe the next step should be to teach the schools how to properly fill out the 1098T?

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Comments

[Broniec]

It is is bit ironic how those huge books full of instructions still fail to completely explain the questions. You are right. The wording is misleading and could have a huge impact on whether that questions gets answered properly or not.

[Megan Sonicksen]

Trish,

NATP brought this issue to the IRS's attention (as noted in the last TAXPRO Weekly), this was their response to us:

Tax Forms & Pubs will clarify the 4 prior year rule in the Instructions. The language on line 23 reflects what is in the statute. Tax Forms & Pubs will clarify that taxpayers can only claim the credit for any prior 4 tax years. We may even add some examples to reduce confusion, but that has not been decided.

Not exactly the response you were looking for.
Thanks,
Megan Sonicksen
NATP Tax Communications