college student kids and low income parent

a full-time student under 24 normally will be dependent on parents.

I have a client if their daughter filed herself independently will have much better results.

Parents live in Oregon, only income is rental income, and if filed MFJ without the kid, not tax liability.

Daughter attends College in WA and earn 8000 in WA, paid tuition 11000, which was supported by her grandparents in Japan.

So in this situation, the parent didn't support 50%, so she can file own independent return, correct? this way, she also doesn't need to file Oregon return and save a few hundred $$ state tax.

Thanks

Was the $11,000 in tuition from the grandparents gifted to the daughter or sent directly to the college for payment of tuition ? It is my understanding that in order for daughter to claim an exemption on her personal return she needs to satisfy the support test.

By the way, even if the parents could claim the daughter the daughter would have a federal filing requirement because she made $8,000 in wages.

By the way, If these earnings were made in Washington (No state income state) the daughter has no filing requirement in Oregon only her parents do

So in this situation, the parent didn't support 50%, so she can file own independent return, correct? "

No, the test for a fulltine student is did the Student/Child actually provide more than 50% of her support( not whether the parents or the parents and/or grandparents provided more than 50% of her support)

The cost of education including tuition is a factor in determining total support . Based on the information provided by the poster we cannot determine if the full time student daughter provided more than 1/2 of her support .

Was the $11,000 in tuition from the grandparents gifted to the daughter or sent directly to the college for payment of tuition ? It is my understanding that in order for daughter to claim an exemption on her personal return she needs to satisfy the support test. .

The cost of education including tuition is a factor in determining total support . Based on the information provided by the poster we cannot determine if the full time student daughter provided more than 1/2 of her support .

Are you saying that the fact that section 2503 excludes direct-to-college tuition payments from taxable gifts means they are also not part of support?

Are you saying [...]

I took it to mean, that if the grandparents made a true unrestricted gift of funds to the student, then by using those funds for tuition (or travel or buying a car or whatever) instead of saving them, they would count as support provided by student. However, as seems more likely, if the money was provided strictly for the purpose of paying tuition, then it would be support provided by someone else, not the student.

The OP was a little fuzzy, but if I understand, the parents owe no tax regardless of dependency status, rather it is the student who would be better off claiming their own exemption.

"the parent didn't support 50%, so she can file own independent return, correct?" Based on the wording of the OP, I don't think this is a complicated issue of what constitutes self-provided support, I think rather it is a simple matter of OP not understanding the basic rules of the support test for qualifying children. My tentative conclusion: student cannot claim own exemption.

However, as seems more likely, if the money was provided strictly for the purpose of paying tuition, then it would be support provided by someone else, not the student.

Money from the grandparents are considered support provided by the student, if the student used the funds (i.e. pay tuition) for support. (OP indicates daughter paid tuition).

wowo, so many replies, thanks.

The fund was sent to the kid, not paid directly for the tuition.

Lucyko, my understanding is dependent kid shall use parent's State as home state, so she will need to file Oregon return if she is dependent?

Talking of 50% supporting, I have a friend whose kid is in CS major, fresh in College, but he gets an offer for the intern in Google, and pay $10,000 per month plus food and lodging, so he will earn total 50000-60000.He has scholarship , only paid 10K for tuition, so he meets 50% supporting test , but is only 19, so he can file independently?

wowo, so many replies, thanks.

The fund was sent to the kid, not paid directly for the tuition.

Lucyko, my understanding is dependent kid shall use parent's State as home state, so she will need to file Oregon return if she is dependent?

Talking of 50% supporting, I have a friend whose kid is in CS major, fresh in College, but he gets an offer for the intern in Google, and pay $10,000 per month plus food and lodging, so he will earn total 50000-60000.He has scholarship , only paid 10K for tuition, so he meets 50% supporting test , but is only 19, so he can file independently?

How much he earns is not really relevant. He could earn a million dollars and still be a dependent. What matters is his support. If he provides more than 50% of his own support then he is not a dependent of another taxpayer.

Grandparents sent $11,000 to kid.
Kid spent it on tuition.
It is support.
Who provided that support?

Grandparents sent $11,000 to kid.
Kid spent it on tuition.
It is support.
Who provided that support?

The Kid. The grandparents gave him a gift and he used it for tuition. Same thing if parents set up an account under the kid's name and social. Even if parents put all of the money in, it belongs to the kid and if he uses it for tuition or whatever, it's support he provided.

Money from the grandparents are considered support provided by the student, if the student used the funds (i.e. pay tuition) for support. (OP indicates daughter paid tuition).

This may be true for purposes of education credits (§25A(g)(3)(B)), but is there any support (pun intended) for following this rule for purposes of determining dependency?

"Grandparents sent $11,000 to kid."

What was this, a birthday present? Could kid have put money in savings account and then turned around and asked parents for help to pay $11K of tuition?

Here is a good article:

https://www.thetaxadviser.com/issues/20 ... -2010.html

"Under Regs. Sec. 1.152-1(a)(2)(ii), “in computing the amount which is contributed for the support of an individual, there must be included any amount which is contributed by such individual for his own support, including income which is ordinarily excludable from gross income.” Therefore, gifts made to the student are included in total support if they are used for his or her support."

Therefore, it matters a great deal whether this was truly a gift, or simply grandparents paying student's tuition (support but not a gift).

An H&R Block printed education course from 2010, when quality was high (don't know if it still is), states an opinion:

"A cash gift given to a prospective dependent is included as funds available for support paid by the dependent. If a third party pays tuition directly to an educational institution for a full-time student, the amount paid is considered third-party support."

Note the above quote does not address the case where a third party does not pay tuition directly to school, but also does not make a gift. Did grandparents attach strings to the payment, namely that recipient (student) would enroll in school and work toward a degree?

You missed this paragraph from the article......

Students use many funding sources to pay for their education and living expenses while in college. These include parents’ savings, personal savings, income from part-time jobs, student loans, gifts from family members, scholarships, and funds from tax-advantaged savings vehicles. The source of funds will determine whether the expenses are considered support provided by the student or the parents.

You missed this paragraph from the article......

An odd (and incorrect) comment...

Grandparents paying tuition is a gift to the student. That is evidence by the tax law regarding gifts that makes a specific exemption from the annual limit if the tuition is made directly to the educational institution. If the funds were gifted to the child directly, it would be a gift to the child subject to the annual limit.

odd comment

I am pointing out the reference to gifts from family members. Didn't student receive gift? What else would you call it?

Pub 501 worksheet two "Funds belong to the person you supported - Enter the total funds belonging to the person you supported, including income received (taxable and nontaxable) and amounts borrowed during the year, plus the amount in savings and other accounts at the beginning of the year."

If the money belonged to the taxpayer, it would be included as amount used for support?

That is evidence by the tax law regarding gifts that makes a specific exemption from the annual limit if the tuition is made directly to the educational institution.

This was alluded to by Nilodop in post #5. Whether something is taxable or non-taxable under gift tax laws does not change the determination of whether or not it is a gift and/or support. A gift is a transfer of something of value with no expectation of receiving something of at least equal value in return.

I am pointing out the reference to gifts from family members. Didn't student receive gift? What else would you call it?

I would call it not a gift, but we don't have enough facts, since no one has answered the question about whether or not the student was expected or required to spend the money on tuition. If the money had "strings attached", meaning the grandparents were to receive, in return for the payment, a grandchild who was enrolled in a school and pursuing a degree, then it would be support provided by the grandparents, rather than support provided by the student.

As a practical matter, obviously people can game this in a number of ways, and I don't think it's likely to end up as a court case whichever way it is reported on the returns. And don't even start with Crummey trusts.

My main point here is that for purposes of determining support, we should not be looking to laws about education credits or laws about taxable gifts. If you disagree, I'd welcome some authoritative arguments about why these other laws would apply for purposes of determining support.

Whether something is taxable or non-taxable under gift tax laws does not change the determination

Len's post was about the question of support of the student, not taxation.

The law distinguishes between gifts to universities directly or gifts to the individual. That is because there is a legal difference between writing a check to the university and writing a check to an individual, whether or not you pray that the check ends up with the university.

This has nothing to do with taxable income, nothing to do with your other your notion of what happens if the student did not forward on to the funds to the university, or a completed gift. It was a completed gift. The check has to be written to the university to bypass the annual exclusion rule.

The distinguishing factor is that it is a gift to the individual and subject to annual limits if you write the check to the student.

The only other way to look at this is if it is a gift to the parents, but that is not what happened. The check was written to the student.

EOM

Whether or not something might be a gift for gift tax purposes really has no bearing on the income tax issue of support. So I agree with Makbo’s analysis here.

Makbo has it right when he talks about “strings attached” (i.e. restrictions). In case you need a cite, from B. Stafford Mantz, TC Memo 1966-272:

Barbara testified the money she received directly from her parents (with the exception of the $2,000 she received from her father on September 30, 1962) was in response to her plea for help in supporting herself and her children. She had her own checking account where she deposited funds she received from her parents. Respondent admits on brief that if Barbara was free to use the money as she saw fit, her use of it for the support of the children would be her contribution. It fairly appears that she was under no restrictions as to the use of these funds. She did use the funds to support herself and her children for, as the record shows, she received but little support money from her husband during the first five months of 1962 when he was living in their home. The record shows he was out of work during a portion of this period. We could not hold under this record that the money Barbara spent for the support of the children should be anything other than her contribution merely because the source of the funds was amounts given to her by her parents.

Like Makbo, I lean towards “the college money wouldn’t be treated as support provided by the student” in OP’s case. But like he says, we don’t have all the facts. If the grandparents knew the grandchild/student was in college and was forwarding money to grandchild with the understanding that it would go towards college, I’m thinking those funds will not be treated as self-provided support.

Great find Jeff-Ohio.