Is this a gift?

If you pay the tuition (should be directly to the school) then the payment is not considered a taxable gift under IRC §2503(e). Stu

Yes. Pay the tuition directly to the school and it doesn't count against your annual tax-free gift limit. (The same applies for medical expenses.)

-- Phil Marti Clarksburg, MD

If you pay the tuition (tuition only) DIRECTLY to the med school, it is not a gift and no gift tax return need be filed.

Gifts for higher education, if given directly to the educational institution, are EXEMPT from the annual gift tax limits.

"NadCixelsyd" wrote

Direct payments to the college are not considered gifts.

Whether or not he's going to be a dependent (again) would fall to his income during the years in question. Maybe in the future, you can structure things where you're his dependent. Scary I know.

-- Paul A. Thomas, CPA Athens, Georgia

Under Internal Revenue Code Section 2503(e), you can pay an unlimited amount of tuition on behalf of another person and it does not constitute a taxable gift. The exclusion is only applicable for tuition paid to "educational organizations" described in the Internal Revenue Code, but most, if not all, medical schools should meet that definition.

--Chris

So long as Mom and Dad pay the medical school directly for the costs of tuition (not including books, supplies, dormitory fees, board, or other similar expenses that do not constitute direct tuition costs), those payments should not constitute "gifts" for federal gift tax purposes and therefore are not subject to the federal gift tax. See Code Sections 2503(e)(1), (2)(A). Be careful, however, to make sure that (1) Mom and Dad send the checks directly to the school themselves and do not send the money to the child, either for the child to pay the school, or as reimbursement for payments the child already made to the school, and (2) the school is a regular school, with a regular faculty and curriculum and a body of regularly enrolled students in attendance at the place where it carries on its educational activities (probably not a big issue, just make sure). To the extent that Mom and Dad want to pay for items that do not constitute "tuition," e.g., books, supplies, housing, etc, they could instead make an excudable gift of those amounts to the child each year. Mom and Dad should be able to use the split-gift provisions under Section 2513, which would enable them to make a total gift to child each year of twice the amount of the annual gift exclusion (which is $12,000 for 2006), meaning that, e.g., in 2006 Mom and Dad could make an outright gift to child of $24,000 without having to pay any gift tax on that amount or use up any portion of the unified credit. With all of the above possibilities, I would avoid the whole briar-patch of interest-free loans to children.