529 Distribution & Delayed College Billing Due to COVID

[dascpa]

IRS states that a valid 529 distribution must be in the same year the qualified education expenses are paid.  There was a COVID rule about tuition refunds due to COVID.

Taxpayer withdrew 529 monies for Spring billing in December but college delayed sending out bills due to COVID until the following year.  I have $100k withdrawn but only $50k 1098-T/room/board/etc.  This extra $50k withdraw is creating $30k of taxable income on the earnings.

Has anyone seen (I cannot find) an exception/allowance made because the school delayed billing? 

[rbynaker]

I have a similar situation.  I'm likely going to hang my hat on this Notice of Proposed Rulemaking (and disclose reliance on it):

https://www.govinfo.gov/content/pkg/FR-2008-01-18/pdf/E8-859.pdf

See PDF page 5, last paragraph, continuing onto page 6:

Section 529 is silent regarding
whether distributions must be made
from a section 529 account in the same
tax year as QHEEs were paid or
incurred. Concerns have been raised
that individuals could allow the account
to grow indefinitely on a tax-deferred
basis before requesting reimbursement
or use distributions in earlier years to
pay QHEEs in later years. Accordingly,
the IRS and the Treasury Department
propose to adopt a rule that, in order for
earnings to be excluded from income,
any distribution from a section 529
account during a calendar year must be
used to pay QHEEs during the same
calendar year or by March 31 of the
following year.

[dascpa · Accepted solution]

And this is why the community board can be such a big help .  Thank you.

[rbynaker]

It's not exactly stellar authority but at least it's something.  AFAIK they never actually issued any "rulemaking" so the best we have to go on is that someone at the IRS was thinking about this back in 2008.