1098-T, 1099-Q QUESTION...

[dd4vols]

Say a dependent student has a 1098-T for $4,000 in Tuition payments (all current year) and $3,500 in Room and Board and other required fees.  And the Parent withdraws from a couple of 529 plans, the exact amount of $7,500. On the Student Information page, you tell it that NONE of the expenses are used for credit or deduction.  So all those -0- out, and you get no Form 8863.  My question is, how does ye olde IRS know that the earnings of the 529 plan are not taxable, and were used properly to cover expenses, if NO form is submitted with the tax return?

I actually had to submit the Student info form as a response to an IRS assessment that the earnings were taxable in a situation similar to this last summer.  And they accepted the response and removed the assessment.  So, will that probably be the norm in those situations?

[rbynaker · Accepted solution]

There's no reporting mechanism for this.  Sometimes it's annoying.  If I were in charge there would be a centralized student form that would get filed with every return that it pertains to.

Do the parents have too much AGI for AOTC?

[dd4vols]

yeah.. and the earnings on the 529 plan withdrawals are huge. So by electing no credit or deduction , it actually saves tax dollars,.... I just know I'll have to respond to this next summer I bet. Just seems like there should be a way to alert the IRS in these particular situations, and avoid the paper war in 18  months.

[rbynaker]

You'd think that maybe the IRS computers would be smart enough to "see" a 1098-T and a 1099-Q for the same student and put two and two together.  But that hasn't been my experience, and it sounds like not yours either. 😞

You could try throwing in on Line 21 as in and out.  Some one at the IRS actually looks at those . . . right after you send them a letter replying to the CP2000 and telling them that you already reported it on Line 21 . . .