TAX COURT OPINION

Case: Stanley V. McClain & Sonia N. McClain
Docket Number: 4732-14S
Judge: Carluzzo
Opinion Type: bench
Filed: 05/14/2015
Pages: 7

UNITED STATES TAX COURT WASHINGTON, DC 20217 STANLEY V. MCCLAIN & SONIA N. MCCLAIN, Petitioner(s), v. ) ) ) ) ) ) Docket No. 4732-14S Cz COMMISSIONER OF INTERNAL REVENUE, Respondent. ) ) ) ORDER Pursuant to the determination of the Court as set forth in its bench opinion rendered on May 1, 2015, it is ORDERED that the Clerk of the Court shall transmit herewith to petitioners and to respondent a copy of the pages of the transcript of the trial in the above case before Special Trial Judge Lewis R. Carluzzo at Miami, Florida, containing his oral findings of fact and opinion rendered at the trial session at which the case was heard. In accordance with the oral findings of fact and opinion, decision will be entered for petitioners. (Signed) Lewis R. Carluzzo Special Trial Judge Dated: Washington, D.C. May 14, 2015 SERVED May 15 2015 Capital Reporting Company 3 Bench Opinion by Special Trial Judge Lewis Carluzzo May 1, 2015 Stanley V. McClain & Sonia N. McClain v. Commissioner Docket No. 4732-14S THE COURT: The Court has decided to render oral findings of fact and opinion in this case and the following represents the Court's oral findings of fact and opinion (bench opinion). Unless otherwise noted section references made in this bench opinion are to the Internal Revenue Code of 1986, as amended, in effect for the relevant periods, and Rule references are to the Tax Court Rules of Practice and Procedure. This bench opinion is made pursuant to the authority granted by section 7459(b) and Rule 152. This proceeding for the redetermination of a deficiency is a small tax case subject to the provisions of section 7463 and Rules 170 through 175. Pursuant to section 7463(b) the decision entered in this case shall not be treated as precedent for any other case. Except as provided in Rule 152(c), this bench opinion shall not be cited as authority. Stanley V. McClain and Sonia N. McClain appeared on behalf of themselves. Brian A. Pfeifer appeared on behalf of respondent. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 4 In a notice of deficiency dated December 30, 2013 (notice), respondent determined a $2,500 deficiency in petitioner's 2011 Federal income tax. The issue for decision is whether petitioners are entitled to the education credit apparently claimed on their 2011 joint Federal income tax return (return). Petitioners reside in Florida at the time the petition was filed. During 2011, Stanley V. McClain (petitioner) was a student at ITT Technical Institute (ITT), a qualified educational institution, as that phrase is used in section 25A. The tuition charged by ITT was paid, at least in part, by Stafford student loans. Petitioner apparently applied for, and was granted the loans prior to, or around the same time he enrolled as an ITT student in December of 2011, and his student financial account statement shows that tuition charges accrued on that date. The proceeds of the student loans were paid directly to ITT and applied against those tuition charges on February 17, 2012. Petitioners' 2011 return has not been admitted into evidence but the parties proceeded at trial as though petitioners claimed an educational credit totaling $2,500 on that return, as we do 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 5 likewise. According to the notice, a copy of which is attached to respondent's answer, petitioners are not entitled to the credit because ITT "did not verify" the education credit claimed on petitioners' return. Subject to a variety of conditions and limitations, an individual is entitled to a credit against the individual's Federal income tax liability for qualified tuition and related expenses paid to an eligible education institution. See section 25A. We need not discuss the technical requirements set forth in section 25A because respondent agrees that petitioner has satisfied those requirements. Replying upon section 1.25A-5(e)(3), Income Tax Regs., however, respondent argues that petitioners have claimed the credit in the wrong year. According to respondent, if the credit is otherwise allowable in 2012, it is properly available in that year, that is, the year that petitioner's student loan proceeds were applied against petitioner's 2011 tuition charges. Section 1.25A-5(e)(3), Income Tax Regs., provides a timing rule and states in relevant part, "Expenses paid with loan proceeds. - An education tax credit may be claimed for qualified tuition and 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO www.Capita1ReportingCompany.com Capital Reporting Company 6 1 2 3 4 5 6 7 8 9 related expenses paid with the proceeds of a loan only in the taxable year in which the expenses are paid, and may not be claimed in the year the load is repaid. Loan proceeds disbursed directly to an eligible education institution will be treated as paid on the date the institution credits the proceeds to the student's account". Other language in the regulation establishes that the timing rule with respect to the disbursement of the proceeds of 10 Stafford loans is consistent with the above-quoted 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 language. This portion of the regulation certainly supports the position that respondent has taken in this matter. The last sentence of the regulation, however, goes on to state, "If the taxpayer does not know the date the institution credits the student's account, the taxpayer must treat the qualified tuition and related expense as paid on the last day for payment prescribed by the institution". The use of the word "must" in the last sentence of the regulation suggests that under the circumstances there described, the rule is mandatory and supercedes the disbursement rules stated earlier in the regulation. We think it reasonable to fix the time of the taxpayer's "knowledge", or lack thereof, as of 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 7 the date the taxpayer's return is filed. The trial exhibits showing the date petitioner's student loans were credited to his account is dated Apiol 30, 2015, which was the date this matter was tried. Apparently the document was faxed to respondent's counsel by ITT shortly before the trial started. There is no showing that petitioner was previously aware of the date the loan proceeds were credited to his account, and from his presentation we are satisfied that he was not. In the words of the regulation we are satisfied that petitioner did not know the date that his student loan proceeds were credited to his account as of the date his return was filed. Petitioner credibly testified that the policy of ITT was that a student could not begin classes until the student's tuition was paid. Because petitioner's classes began in December of 2011, petitioner apparently assumed that his student loan proceeds were disburses no later than the date his classes began, that is, that is the last date that ITT prescribed for payment was at the latest, the first day of class. Under the circumstances, we are satisfied that the last sentence of the regulation operates to allow the credit to be claimed in 2011. Therefore, 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO www.Capita1ReportingCompany.com Capital Reporting Company 8 we find that petitioners are entitled to the education credit as claimed on their return. To reflect the foregoing, decision will be entered for petitioners. This concludes the bench opinion in this case. (Whereupon, at 2:15 p.m., the above- entitled matter was concluded.) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO www.CapitalReportingCompany.com