The Tax Court in Brief – January 9th – January 13th, 2023
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Tax Litigation: The Week of January 9th, 2022, through January 13th, 2023
- Simpson v. Comm’r, T.C. Memo. 2023-4| January 9, 2023 | Jones, J. | Dkt. No. 16923-16
- Wondries v. Comm’r, T.C. Memo. 2023-5| January 9, 2023 | Kerrigan, J. | Dkt. No. 13345-19 (deficiencies for deduction of farm and ranch expenses; evaluation of activity not engaged in for profit).
- Decrescenzo v. Comm’r, T.C. Memo. 2023-7| January 12, 2023 | Halpern, J. | Dkt. No. 16784-18
- Smith v. Comm’r, T.C. Memo. 2023-06| January 12, 2023 |Toro, J. | Dkt. No. 5191-20
Vassiliades v. Comm’r, T.C. Memo. 2023-1 | January 9, 2023 | Panuthos, J. | Dkt. No. 12283-20S.
Summary: This case involves whether taxpayers are allowed to claim the American Opportunity Credit (AOC) on their federal income tax return. In 2018, the IRS disallowed the AOC claimed by John M. Vassiliades and Eliza Ortizluis Vassiliades (Vassiliades) on their 2018 federal income tax return. Mr. Vassiliades has a daughter (AM) from a prior relationship, who lived in London and was enrolled in postsecondary education at the University College London (UCL). Mr. Vassiliades made several wire transfers to his daughter in an account in the UK to pay for school tuition, fees, and other expenses. Vassiliades claimed AM as a dependent in their 2018 tax return. Additionally, under Form 8863 Education Credits they claimed the AOC, consisting of a refundable education credit and a refundable credit regarding qualified education expenses paid during AM’s enrollment at UCL for 2018. However, Vassiliades did not receive a Form 1098-T, Tuition Statement, from the University for such year. The IRS determined that Vassiliades failed to prove that they paid qualified expenses during 2018 and disallowed them the AOC claimed. Vassiliades to substantiate AM’s education expenses provided receipts of various wire transfers made to AM, including currency conversions, and a receipt for an online payment made to UCL in 2017. However, the UCL receipt provided by Vassiliades to the Tax Court was for 2017 and the payment was made by a third party (the mother of AM). Mr. Vassiliades testified that he did not have a tuition receipt for 2018 because he suffered a home burglary in November 2018 and several important documents were missing. However, the Tax Court determined that from the record provided by Vassiliades, it was unable to conclude that they paid the qualified tuition and related expenses to UCL in 2018. Therefore, the Tax Court considered that Vassiliades failed to prove they were entitled to the AOC for 2018, and found their arguments moot, irrelevant, or without merit.
- Whether the taxpayers are allowed to claim the American Opportunity Credit (AOC) on their federal income tax return?
- No, Vassiliades failed to keep detailed evidence to support their AOC tax credit. Consequently, they failed to meet the substantiation requirements to be entitled to claim the AOC credit.
- This opinion shall not be treated as a precedent for any other case.
Key Points of Law:
- Assessments determined by the IRS are presumed correct, and the taxpayer bears the burden of proving that the assessment is not correct. “[L]ike deductions, tax credits are a matter of legislative grace, and the taxpayer bears the burden of proving that he or she is entitled to any credit claimed”. See Rule 142(a); Deputy v. du Pont, 308 U.S. 488, 493 (1940); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934).
- Taxpayers are required to maintain sufficient books and records to substantiate the amounts of any credits claimed. See 26 U.S.C. 6001; Treas. Reg. § 1.6001-1(a).
- The U.S.C. allows an education credit, referred to as the AOC. The AOC provides for a credit against tax equal to 100% of the qualified tuition and related expenses paid by the taxpayer during any academic period of the taxable year, which shall not exceed of $2,000.00 USD, plus 25% of such expenses paid that exceed $2,000.00 USD but do not exceed $4,000.00 USD, where it is permitted a maximum credit of $2,500.00 USD. See 26 U.S.C. 25A(b)(1).
- “Qualified tuition and related expenses” are tuition and fees paid by the taxpayer to an eligible educational institution, which the taxpayer, the taxpayer’s spouse, or any dependent of the taxpayer attends, as well as course materials. See 26 U.S.C. 25A(f)(1)(A), (D).
- Forty percent of the credit is allowed and may be refundable. See 26 U.S.C. § 25A(i).
- Regarding qualified tuition and expenses including required course materials, the credit is allowed for the first four years of postsecondary education. See 26 U.S.C. 25A(b)(2)(C), (f)(1)(D).
- The credit is available if among other requirements, the student is enrolled at least half time for at least one academic period that begins during the taxable year. See 26 U.S.C. 25A(b)(2)(B).
Insights: This case involves the disallowance of the AOC made by the taxpayer regarding certain education expenses made. If a taxpayer fails to duly record and register the information and documentation that will allow him or her to substantiate a tax credit made, this will imply that the substantiation requirements will not be met. It is advisable to record any expense made to be able to substantiate them before the IRS. For additional information on 26 U.S.C. § 25A, please see Freeman Law blog: Bidzimou v. Comm’r, T.C. Memo. 2020-85 (June 15, 2020)