Question on Form 1099-Q

I'm surprised why they would have put it in your name. If it's because you called, maybe it's better if next time she calls.

It wasn't a call but a form I filled out and submitted with a copy of the University bill for tuition and fees, scholarships (which left money for other things), and a copy of the apartment lease.

The 529 plan folks replied to me today indicating:

- Any disbursement not paid directly to the university is considered a disbursement to the account owner.

- As long as the expense is qualified, I need not report anything, but must have proof that the expense is qualified.

Still sounds fishy to me.

See Chapter 8 of Publication 970 to find out what, if anything, is taxable and what, if anything, to show on your return.

Phil Marti VITA/TCE Volunteer Clarksburg, MD

Thank you Phil.

I think that Chapter 8 of Pub 970 is not clearly worded in regard to when a

1099-Q is received by the account owner, and when a 1099-Q is received by the beneficiary, and what if anything the difference means.

Page 55:

"Earnings and return of investment. YOU [emphasis mine, the account owner)]will receive a Form 1099-Q, Payments From Qualified Education Programs (Under Sections 529 and 530), from each of the programs from which YOU [emphasis mine] received a QTP distribution in 201[1]."

This is the only time Chapter 8 refers to the account owner, not the beneficiary, receiving a 1099-Q. All subsequent examples suggest the student/beneficiary receives the 1099-Q, but the wording is not clear.

The wording never clarifies the difference between the owner taking a distribution on behalf of the beneficiary, and the beneficiary taking a distribution. This is the difference resulting in whether the owner or the beneficiary receives a 1099-Q.

Example 1, Page 55:

"Before Sara [the beneficiary] can determine the taxable part of HER (emphasis mine) QTP distribution ...."

The above implies the beneficiary receives the 1099-Q, not the owner.

Then Example 1 goes on to state:

"Sara's [the beneficiary] Form 1099-Q shows that $950 of the QTP distribution is earnings."

This sentence clearly indicates the beneficiary as 1099-Q recipient.

Example 2, Page 55:

"An American opportunity or lifetime learning credit (education credit) can be claimed in the same year THE BENEFICIARY TAKES A TAX-FREE DISTRIBUTION FROM A QTP [emphasis mine], as long as the same expenses are not used for both benefits."

Again, the above suggests the beneficiary is the recipient of the 1099-Q.

If I get a 1099-Q, I interpret that as far as the Federal and Maryland governments are concerned, I the account owner, not the beneficiary, took a distribution, and I am not a college student who has no qualified expenses.

Example 2 suggests only one Form 1099-Q for the computations of taxable portion of earnings. For the current 2012 tax year, I plan to take an American Opportunity Credit, and I now expect both I and my daughter will receive Forms 1099-Q. I will have to compute a taxable portion of earnings on the first $4000 of tuition distribution. Based on where the funds go, my

1099-Q has no tuition distribution on it (just apartment rent), while my daughter's 1099-Q includes all tuition distribution, so I guess I'll just use the earnings on only her 1099-Q for computation of the taxable portion to report next year on her 2012 income. But, that I also receive a 1099-Q adds an unnecessary layer of complexity.

Section on Coordination with Coverdell ESA Distributions, Page 55

"If a DESIGNATED BENEFICIARY RECEIVES DISTRIBUTIONS [emphasis mine] from both a QTP and a Coverdell ESA in the same year ...."

Again, this scenario suggests to me that the student/beneficiary should be the recipient of the 1099-Q.

Example 3, Page 56

"Example 3. Assume the same facts as in Example 2, except that instead of receiving a $5,300 distribution from HER (emphasis mine) QTP, Sara [the beneficiary] received $4,600 from that account...."

Again, this suggests the beneficiary received the distribution, and should be the recipient of the 1099-Q.

So there you have it.

Phil, I will assume the intent of your response is that as long as a distribution is put on a 1099-Q in my name, as long as all of the distribution went to my daughter's [the beneficiary's] QEEs, I have no tax/penalty issue on the earnings. In this case, all of the distribution on my 1099-Q went to QEEs for the beneficiary.

The Maryland 529 Plan replied to my question on my receipt of the 1099-Q that any payment to the University generates a 1099-Q in my daughter's name, and any payment that goes to any other entity (ie Apartment landlord, bookstore, ...) generates a 1099-Q in my name. They indicated that as long as the distribution in my name went to QEEs for my daughter, I will not have a tax/penalty issue, but I will have to have receipts/paperwork to prove that the expenses from the distribution were for QEEs if I don't report income on the earnings.

By the way, I live near Clarksburg, just a few miles east of Damascus in western Howard County.

Correct. If you follow on to the instructions for line 21 of the 1040 you'll find that there's nothing to report on the 1040 if none of the distribution is taxable.

Hello, neighbor! I do returns at the Damascus Senior Center.

Phil Marti VITA/TCE Volunteer Clarksburg, MD