The Tax Court recently denied the American Opportunity Credit on a petitioner's 2013 tax return in respect of tools and equipment purchased to attend a workshop because the money was not paid directly to the educational institution. See Ochoa v. Commissioner.
The decision was based on 26 CFR 1.25A-2(d)(2)(ii), which provides that "[q]ualified tuition and related expenses include fees for books, supplies, and equipment used in a course of study only if the fees must be paid to the eligible educational institution for the enrollment or attendance of the student at the institution."
The instructions for Form 8863 for tax year 2013 indicate that the AOTC can be claimed for "course materials that the student needs for a course of study whether or not the materials are bought at the educational institution as a condition of enrollment or attendance." The IRS web page "Qualified Education Expenses" confirms that "[f]or AOTC only, expenses for books, supplies and equipment the student needs for a course of study are included in qualified education expenses even if it is not paid to the school."
What is going on here? Is the IRS just making stuff up in their literature, or do the IRS staff who write it know something that the Commissioner of Internal Revenue, his counsel, and the Tax Court have all overlooked?