T.C. Summ ary Opi ni on 20 14 -1 15

UNITED STAT ES TAX COURT

JOHN MARK FER M AND BRENDA KAY FERM, Pet it io ne rs v. COMM ISSI ONER OF INTERNAL REVENUE, Resp on de nt

Doc ke t No . 19 10 7- 13 S. Fi le d Dec em be r 30 , 20 14 .
Jo hn MarkFerm

an d B ren daKay

Ferm , pro ses e. Je remy J. Eg ge rth an d J oh n C . Sch m it td ie l, fo r res po nd en t.

SUMM ARY OPINION MARVEL, Ju dg e: Thi s ca se was h eardpu rs ua ntto th e p ro vi si on s o f se ct io n 74 63 of t he Int ern al Rev enue Co de ineffec t wh enth e p et it io n was fil ed . 1

Unl es s o th erwi se in di cat ed , all sec ti on refe ren ces are t o t he Int ern al 1 Rev enue Co de as a m en de d a ndineffe ctforth e ta x year atis su e, an d a ll Ru le refe ren ces are t o t he Tax C ou rt Rul es of P ract ic e an d P ro cedur e.- 2 -

Pu rs ua ntto sec ti on 74 63 (b ), th e d eci si on to be en te redis no t re vi ewab le by any ot he r co urt, an d t hi s o pi ni on sh al l n otbe tre at edas p rece de ntforan y ot he r cas e. Ina no ti ce o f de fic ie nc y

da te d J un e 1 3, 2 01 3, re sp on de ntde te rm in eda Fed eral in co m e ta x d efi ci en cy of $ 3,6 62 forpe ti ti on ers ’ 20 11 tax ab le y ear a fte r th ey fil edanam en de d re tu rn . After c on ces si on s b y res po nd en t, th e o nl y

is su e 2
rem ai ni ng is whet he r pe ti ti on ers are en ti tl edto anAm eri can op po rtu ni ty credi t i n anam ou ntgre at er than t ha t al lo wedby resp on de nt . Bac kg ro un d So m e o f th e fac ts ha ve be enst ip ul at edan d a re s o fo un d. Th e st ip ul at ed fact s an d fa ct s drawnfro m st ip ul at edex hi bi ts are i nc or po rat edhe rei n b y

th is refe ren ce. Pet it io ne rs , who are m arri edto each ot he r, res id edinMi nn es ot a whe n th ey fil edth e p et it io n. Pet it io ne r wife ’s dau gh te r, H.A., gradua te d fr om hi ghsch oo l i n J un e 2 01 0 an d s ub se qu en tl y

en ro ll edinNort h Hen ne pi n C omm un it y Co ll eg e. Sh e b eg an
The no ti ce o f de fic ie nc y

di sa ll owe d ade pe nd en cy ex em pt io n d educ ti on for 2 pe ti ti on er h us ba nd ’s m in orch il d E.F. Aft er tria l re sp on de ntco nc ed edth is is su e in hi s s ta tu s re po rt. Th e n ot ic e o f de fic ie nc y als o d is al lo wedpe ti ti on ers ’ cl ai m ed ch il d t ax cred itas aco m

pu ta ti on al ad

jus tm en t o n t he ba si s o f res po nd en t’s di sa ll owa nc e o f th e d ep en de nc y ex em pt io n d educ ti on . Alth ou gh res po nd en t’s st atus rep ort d oe s n otm en ti on th e ch il d t ax cred it , th e Co urt as su m es th at res po nd en t n o l on ge r di sp ut es th e cre di t as a res ul t o f res po nd en t’s co nc es si on of th e d ep en de nc y

ex em pt io n d educ ti on .- 3 -

cl as se s i n t he fal l 2 01 0 s em es te r. Forth e sp rin g 2 01 1 s em es te r, whi chbe ga n i n earl y Jan ua ry , H.A.’ s ac co un t s ta te m en t fr om th e co ll eg e sh ows ch arg es forth e fo ll owi ng : Ite m Am ou nt

Res id en t tui ti on $2 ,11 3.1 6 Park in g 44 .80 Stud en t l ife fee 70 .00 Tech no lo gy fee 84 .00 MSC SA 4.3 4 Pro fes si on al de ve lo pm en t Occ/p ro fes si on al co ur se fees 50 .00 The st at em en t al so sh ows th atth ree p aym en ts were m ad e to wardth e sp rin g 20 11 ch arg es : $ 2,1 50 .85 rece iv edon Decem be r 28 , 20 10 ; $ 50 rece iv edon Ja nu ary 3, 2 01 1; an d $ 16 5.4 5 re cei ve d o n M ay 6, 2 01 1. Pe ti ti on ers m ad e th es e pa ym en ts on H.A.’ s b eh al f by tak in g d is tri bu ti on s fr om th ei r qu al ifi edtu it io n pr og ram acco un t, al so kn own as asec ti on 52 9 p la n a cco un t, an d t he n re m it ti ng pa ym en ts to th e co ll eg e with ade bi t/ cred itcard . Pet it io ne rs , who are ca sh m etho d t ax pay ers , ti m el y fil eda joi ntFo rm

10 40 , U.S. Ind iv idua l In co m e Tax Return, fo r ta xabl e y ear 2 01 1. OnApri l 1 , 20 13 , res po nd en t re cei ve d fr om pe ti ti on ers a Fo rm

10 40 X, Am en de d U.S. In di vi du al In co m e Tax Return, fo r th e 2 01 1 t ax ab le y ear, re fle ct in g a dju st m en ts m ad e as a- 4 -

res ul t o f res po nd en t’s ex am in at io n. Onth ei r Fo rm 10 40 X pet it io ne rs cla im edan Am eri canop po rtu ni ty credi t o f $2 ,10 7 forH.A.’ s educ at io n e xp en se s. 3 4 On J un e 1 3, 2 01 3, re sp on de ntsen t p et it io ne rs a no ti ce o f de fic ie nc y di sa ll owi ng th e Am eri can op po rtu ni ty credi t fo r la ckof p aym en t v eri fic at io n. On Aug us t 1 9, 2 01 3, p et it io ne rs ti m el y fil eda pe ti ti on inth is Co urt d is pu ti ng res po nd en t’s d is al lo wan ce o f th e cre di t. At t ria l re sp on de ntco nc ed ed$1 57 of t he cl ai m edcred it . The remaini ng am ou ntis indi sp ut e. Dis cu ss io n I. Bu rd enof P ro of Gen eral ly, th e Co m

m is si on er’s d et erm in at io ns ina no ti ce o f de fic ie nc y are pr es um edco rrec t, an d t he tax pa y er b ears th e b ur de n o f pr ov in g tha t the de te rm in at io ns are erro ne ou s. See Ru le 14 2( a); W el chv. Hel ve rin g, 2 90 U.S. 11 1, 11 5 (1 93 3) . The b ur de n o f pr oo f sh ift s t o t he Co m m is si on er, h owe ve r, if t he

Of th e $ 2,1 07 , $8 43 was c la im edas arefu nd ab le cred itan d $ 1,2 64 was 3 cl ai m edas ano nr efu nd ab le cred it . See s ec. 2 5A( i)( 6) . On the ori gi na l re tu rn , pet it io ne rs cla im ededuc at io n c red it s as so ci at edwith 4 pe ti ti on er h us ba nd ’s chi ldJ.F. Pet it io ne rs th enam en de d t he ir r eturn, re m ov in g th e d ep en de nc y

ex em pt io n d educ ti on an d the educ at io n c red it s as so ci at edwith J.F. as a res ul t o f res po nd en t’s ex am in at io n. Th e rem ai ni ng Am eri can op po rtu ni ty cred itis att rib ut ab le so le ly to H.A.’s edu cat io n e xp en se s.- 5 -

ta xp ay er p ro du ces cred ib le ev id en ce wi th res pe ctto an y factua l i ss ue rel ev an t t o as cert ai ni ng th e ta xp ay er’s l iabi li ty for an y tax im po se d b y subt it le A or B o f th e Co de an d t he tax pa y er s at is fie s t he requi rem en ts of s ect io n 7 49 1( a)(2 ). Sec. 5 74 91 (a)( 1) . Pet it io ne rs do no t co nt en d t ha t s ect io n 7 49 1( a)(1 ) ap pl ie s, an d the reco rd do es no t p erm itus to co nc lu de th atth ey sat is fie d the sec ti on 74 91 (a)( 2) requi rem en ts . Accor di ng ly, th e b ur de n o f pr oo f do es no t s hi ft t o re sp on de nt . II. Am eri can Opp ortu ni ty Credi t Fo r 20 11 , sec ti on 25 A perm it s qua li fie d t ax pa y ers anAm eri can op po rtu ni ty cred it of: (1) 10 0% o f qu al ifi edtu it io n a ndrel at edex pe ns es th atth e ta xp ay er 6

“ ‘Credi bl e ev id en ce i s t he qu al it y of e vi de nc e whi ch , aft er cr it ic al an al y si s, 5 th e co urt wo ul d fi ndsu ffi ci en t upo n wh ic h t o b as e a d eci si on on th e is su e if no co nt rary evi de nc e were s ub m it te d (wi th ou t re ga rdto th e jud ic ia l p res um pt io n o f IRS c orrect ne ss ).’” Higb ee v . Commis si on er, 1 16 T.C. 43 8, 4 42 (20 01 ) (quo ti ng H.R. Co nf

. Rep t. No . 10 5- 59 9, at24 0- 24 1 (1 99 8) , 19 98 -3 C.B. 7 47 , 99 4- 99 5) . The Am eri can op po rtu ni ty credi t i s a m od ifi edve rs io n o f th e Hop e 6 Sch ol ars hi p C red itineffe ctfortax ab le y ears 20 09 to 20 12 . See s ec. 2 5A( i). Th e cred itis av ai labl e o nl y

to tax pa y ers who pa idqu al ifi edex pe ns es rel at edto educ at io n fu rn is he d t o e li gi bl e stud en ts . See s ec. 2 5A( f), (i ). Eli gi bl e stud en ts , in ad di ti on to ot he r requi rem en ts , sh ou ldhave be enen ro ll edat a n e li gi bl e educ at io na l i ns ti tu ti on ina pr og ram lea di ng to warda po st se co nd ary de gr ee, cert ifi cat e, orot he r rec og ni zedpo st se co nd ary educ at io na l cr ed en ti al . See s ec. 1.2 5A- 3( d) , Inc om e Tax Reg s. Fu rth er, the cred itis li m it edto tax pa y ers who se m od ifi edad

jus te d g ro ss in co m e fal ls be lo w a cert ai n t hr es ho ld . See s ec. 25 A(i) (4 ). Res po nd en t d oe s n otdi sp ut e th atH.A. is an eli gi bl e stud en t o r th at (co nt in ue d...)- 6 -

pa iddu rin g t he tax ab le y ear f oreduc at io n fu rn is he d dur in g any acad em ic pe rio d be gi nn in g i n t ha t t ax ab le y ear up t o $ 2,0 00 , pl us (2) 25 % of s o m uc h o f qu al ifi ed tu it io n a ndrel at edex pe ns es so pa idas e xc eed s $ 2,0 00 bu t d oe s n otex ceed$4 ,00 0. Sec. 2 5A( i)( 1) . The s ta tu te de fin es “ qu al ifi edtu it io n andrel at edex pe ns es ” to in cl ud e tu it io n a ndfees at an e li gi bl e educ at io na l i ns ti tu ti onth atth e ta xp ay er, the ta xp ay er’s s po us e, orth e ta xp ay er’s d ep en de ntatt en ds , as wel l as co ur se m at eri al s. Sec. 2 5A( f)(1 ), (i) (3 ). The cr ed itcan no t b e ap pl ie d t o e xp en se s i nv ol vi ng sp orts , ga m es , or h ob bi es un le ss th is educ at io n i s p artof the stud en t’s d eg ree p ro gr am . Sec. 2 5A( f)(1 )(B) . Mor eo ve r, stud en t ac ti vi ty fees, at hl et ic fees , in su ran ce ex pe ns es , andot he r ex pe ns es no t re la te d t o a n a cad em ic co ur se of i ns tru ct io n a re no t cr ed it ab le ex pe ns es un le ss th e fee s ar e a requi redco nd it io n o f th e stud en t’s at te nd an ce o r en ro ll m en t an d a re n otin he ren tl y pe rs on al . Sec. 2 5A( f)(1 )(C) ; s ec. 1.2 5A- 2( d) (1 ), (3 ), In co m e Tax Reg s. (s ta ti ng th atpe rs on al ex pe ns es su chas in su ran ce an d m ed ic al co st s ar e n otqu al ifi edev enif t he fee m us t b e p ai d t o t he educ at io na l i ns ti tu ti on as arequi si te of e nr ol lm en t o r at te nd an ce). Altho ug h p et it io ne rs ha ve pro vi de d s uf fic ie ntev id en ce t o s ho w th atth ey pa idth e ch arg es fro m

Nort h Hen ne pi n C omm

un it y Co ll eg e fo r H.A.’ s b en efi t, (...co nt inue d) 6 pe ti ti on ers m eetth e in co m e th res ho ld .- 7 -

res po nd en t d is al lo wedall bu t $ 15 7 o f th e cl ai m edcred itass oc ia te d wi th th es e ex pe ns es . Res po nd en t co nt en ds th at(1) pe ti ti on ers pa id$2 ,15 0.8 5 o f th e ch arg es in th e 2 01 0 t ax ab le y ear, an d (2 ) no t al l o f th e ch arg es were “ qu al ifi edtu it io n a nd rel at edexpe ns es ”. Gen eral ly, th e Am eri can op po rtu ni ty credi t i s al lo wedon ly whe n p aym en t i s m ad e in th e sa m e y ear t ha t the acad em ic pe rio d b eg in s. Sec . 1.2 5A- 5( e)(1 ), In co m e Tax Reg s. Fo r cas h m etho d t ax pa y ers , su chas p et it io ne rs , qu al ifi ed educ at io n e xp en se s ar e tr eat edas p ai d i n t he y ear i n wh ic h t he ex pe ns es are actua ll y pa id . Id. Sec ti on 25 A(g )(4 ) co nt em pl at es th e sc en ari o wh ere, as he re, a ta xp ay er p rep ay s qua li fie d tui ti on an d re la te d e xp en se s dur in g o ne tax ab le y ear f or anacad em ic pe rio d t ha t b eg in s dur in g t he fir stth ree m on th s o f th e fo ll owi ng ta xabl e y ear. In th atin st an ce, s ect io n 2 5A( g) (4 ) pr ov id es th atth e aca de m ic pe rio d is tre at edas b eg in ni ng du rin g the tax ab le y ear i n wh ic h p aym en t was m ad e. Thi s pr ov is io n t he refo re re qu ire s t ax pa y ers to cla im th e cre di t wi th res pe ctto th e ta xabl e y ear t ha t the ex pe ns es were p ai d wh enth e aca de m ic pe rio d b eg in s i n Ja nu ary, Feb ru ary, or M archof t he fol lo win g year. See s ecs . 1.2 5A- 3( e), 1 .25 A- 7 5( e)(2 )(i ), In co m e Tax Reg s.
Thi s as su m es th e ta xabl e y ear f ol lo ws the cal en dar y ear. Se e se c. 1.2 5A- 7 5( e)(2 )(i ), In co m e Tax Reg s.- 8 -

The reg ul at io ns pro vi de anex am pl e o f th is pri nc ip le : “ InDecem be r 19 98 , Tax pay er A, a cal en da r y ear t ax pa y er, p ay s C ol le ge Z $1 ,00 0 i n qua li fie d tui ti on an d re la te d e xp en se s t o a tt en d c la ss es du rin g t he 19 99 Sp rin g s em es te r, whi ch be gi ns inJan uary

19 99 . Taxp ay er A m ay

cla im aneduc at io n t ax cred iton ly in 19 98 forpa ym en ts m ad e in19 98 forth e 1 99 9 S pr in g s em es te r.” Sec . 1.2 5A5( e)(2 )(i i), In co m e Tax Reg s. (e m ph as is ad de d) ; s ee al so sec . 1.2 5A- 3( e), In co m e Tax Reg s. Re sp on de ntdo es no t d is pu te th atpe ti ti on ers pa idqu al ifi edtu it io n a nd rel at edexpe ns es on Decem be r 28 , 20 10 , forth e aca de m ic pe rio d b eg in ni ng Ja nu ary 20 11 . Peti ti on ers were the refo re en ti tl edto anAm eri can op po rtu ni ty cred itwith re sp ectto th is paym en t, i f atall , fortax ab le y ear 2 01 0. Se e se c. 25 A(g )(4 ); s ec. 1 .25 A-5 (e)( 2) (ii ), In co m e Tax Reg s. Nei th er the st atut e n orth e reg ul at io ns pe rm ita cas h m etho d t ax pay er an Am eri can op po rtu ni ty credi t wi th res pe ctto a y ear o th er tha n the tax ab le y ear i n wh ic h the pa ym en t was actua ll y m ad e. Acco rd in gl y , pet it io ne rs are n oten ti tl edto a cred itfortax ab le y ear 2 01 1 with re sp ectto th e Dece m be r 28 , 20 10 , paym en t o f $2 ,15 0.8 5. Pet it io ne rs m ad e two paym en ts intax ab le y ear 2 01 1: a pa ym en t o f $5 0 rece iv edon Jan ua ry

3, 2 01 1, an d apa ym en t o f $1 65 .45 rece iv edon May 6, 20 11 . Res po nd en t co nc ed es th atpe ti ti on ers are en ti tl edto a cred itof $ 15 7 wi th res pe ct to th es e p aym en ts . The remaini ng $5 8.4 5 i s i n d is pu te .- 9 -

Res po nd en t d is al lo wedth is am ou ntas p ur po rte dl y no t p ai d t owa rdqu al ifi ed tu it io n a ndrel at edex pe ns es . The ac co un t s ta te m en t fr om Nort h Hen ne pi n Co m m un it y Co ll eg e sh ows ch arg es forpa rk in g, a s tu de ntli fe fe e, a te ch no lo gy fee, “ MSC SA”, an d “ Pro fes si on al Deve lo pm en t Occ /P ro fes si on al Co ur se Fees ” as 8 well as tui ti on ch arg es . Peti ti on ers ’ pa ym en ts were n otall oc at edam on g t he ch arg es . Peti ti on ers ha ve no t s ho wn tha t tho se fees were n eces sa ry foren ro ll m en t oratt en da nc e atNorth Hen ne pi n C omm un it y Co ll eg e o r th atth e 2 01 1 p aym en ts were ap pl ie d s ol el y

to qu al ifi edtu it io n a ndrel at edex pe ns es . See s ec. 2 5A( f)(1 ); se c. 1.2 5A- 2( d) (2 ) an d (3 ), In co m e Tax Reg s.; see als o R ul e 1 42 (a); W el chv. Helv eri ng , 29 0 U.S. at11 5. Acco rd in gl y , pet it io ne rs are n oten ti tl edto an Am eri canop po rtu ni ty credi t fo r th e 2 01 1 t ax ab le y ear i n a n am ou ntgre at er tha n th e am ou ntres po nd en t al lo wed . W e rea li ze tha t the st atut ory requi rem en ts m ay

see m to worka ha rs h re su lt in a cas e su ch as t hi s wh ere afou r-d ay de la y inm ak in g the Decem

be r 28 , 20 10 , pa ym en t wo ul d h av e en ge nd ereda di ffer en t re su lt . Howev er, the Co urt m us t ap pl y th e st atut e as writ te n a ndfol lo w th e acc om pa nyin g re gu la ti on s wh en co ns is te ntth erewi th . Mic ha el s v . Comm is si on er, 8 7 T.C. 1 41 2, 1 41 7 (1 98 6) . W e
The reco rddo es no t i nd ic at e wha t “ MSC SA” o r “ Pro fes si on al 8 Dev el op m en t Occ ” st an ds for .- 10 -

ha ve co ns id eredth e p art ie s’ rem ai ni ng arg um en ts , andto th e ex te ntno t d is cu ss ed ab ov e, co nc lu de th os e arg um en ts are i rrel ev an t, m oo t, o r wit ho utm eri t. To re fle ctres po nd en t’s co nc es si on s an d t he for eg oi ng , Deci si on wil l b e en te red un de r Ru le 15 5.