American Oppity Cr: contrasting 2 outcomes - am I right?

I don't have an answer for you, but I suspect you may have to look at the specific language in the law that created the AOC (and the earlier Hope Credit). If they are unclear, there may be a Congressional Committee report that details the intent of Congress when they passed the law.

Ira Smilovitz, EA Leonia, NJ

I think you're overthinking it. "Has not completed the first four years," in the ordinary meaning of the words, refers to _time_ and not number of credits earned, let alone some speculative determination of a "full year's _worth_ of education." If it were otherwise, a student could continue failing courses until the school kicks them out, yet get the credit every year.

That said, as Ira suggests, if the law actually does define "first four years" in another way, that would of course control.

There is no "speculative determination of a full year's worth of education" involved. Form-8863-instructions formula states: "had not completed the first 4 years of post-secondary education (generally, the freshman through senior years of college), as determined by the eligible educational institution." The problem is that Student 2 has completed "the first 4 years" but has not yet started their "senior year", thus my question.

I've always seen people interpret the 4 year rule to be 4 calendar years (which for students that start in the fall, can span 5 tax years). The AOC rules require the student be enrolled at least half time (for at least one academic period beginning in the tax year) and be pursuing a degree. With these requirement, it seems clear to me the government is not requiring or even anticipating a degree in 4 years and only intends to pay the AOC for the first 4 years of post-secondary education.

Maria,

IRS instructions are not authoritative. The only way to get a definitive answer is to look at the Code, Regs, and court cases.

Ira Smilovitz, EA Leonia, NJ

The fact that you view the fifth year of the five year program as the senior year is irrelevant. The first four years are GENERALLY the freshman through senior years, but in this specific case the first four years are freshman, sophomore, junior-a, junior-b, and NOT the senior year.

The controlling regulations are at 26 CFR 1.25A-1 through 26 CFR 1.25A-3. Note that the Regs still refer to the Hope Scholarship Credit, but the Code at 26 USC 25A was amended to replace "Hope Scholarship" with "American Opportunity Tax" as well as changing the two academic year limitation to four years. The examples in the Regs cover many different variations of circumstances, but it appears that the definition of years of post-secondary academic credit is determined by the educational institution. The school in question for your specific situation must have answered this already for others.

Ira Smilovitz. EA Leonia, NJ

I have always made the determination based on the Regs. Has the student been granted a bachelors degree? The answer needs to be No. Does the student attend at least half time in pursuit of the bachelor's degree or recognized certificate and does the school categorize the student as either a freshman, sophomore, junior or senior? The answer needs to be Yes. Has the student or taxpayer claiming the student availed him or herself of the credit in 4 different tax years? The answer has to be No. Does the student have a felony drug conviction on the record? The answer needs to be No. Does the student and/or taxpayer claiming the student have TINs? The answer needs to be Yes.

This means that someone who attends half-time in pursuit of the bachelors degree will take more than 4 calendar years to obtain the degree and still be eligible for the tax credit in no more than 4 tax years. Given the 4 years of tax credit limitation, there have been many times that I and the taxpayer needed to decide whether a relative small amount of qualified expenses should be used for the AOC (and use up one tax year) or should it be used for the LLC or the deduction. A good example is someone who takes 6 semester credits in their first fall semester and plans on taking considerable more than that in each year for the next 6 years. Do you want use up one year of the AOC on 6 credits or gamble and save it for the 18 to 21 credits planned for each of the next 4 years?

I haven't researched this issue - actually I'm not familiar with it at all. But based on what I've seen here, I get the impression that they're talking about school years rather than calendar years. If you take six years to finish a program that can normally be finished in four years, because you are taking fewer classes, I'd think that you'd still be eligible for all those six years. Again, that's on incomplete information just based on the discussions here.

Sometimes yes, sometimes no. You are eligible for the credit in up to four calendar years. As part of the requirements, you must be a more than half-time student in at least one academic period during the calendar year. You also have to have not completed four academic years at the start of the calendar year in question. Then there are some other curveballs such as eligible educational institution, no felony conviction, credits for courses taken prior to or elsewhere, less than half-time enrollment, etc.

Ira Smilovitz, EA Leonia, NJ

"Whether a student has completed the first two years of postsecondary education at an eligible educational institution as of the beginning of a taxable year is determined based on whether the institution in which the student is enrolled in a degree program (as described in paragraph (d)(1)(i) of this section) awards the student two years of academic credit at that institution for postsecondary course work completed by the student prior to the beginning of the taxable year."

That said, this is the best advice of all:

"The school in question for your specific situation must have answered this already for others." (due credit given to Ira)