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I am getting audited....yay!

So here is the situation

In 2010 I worked for mega corp that paid my tuition for a qualified master degree program.

Obviously I am not entitled to an education tax benefit, but wait there is more.

In December of that year I left the company for other opportunities and paid mega corp back the tuition money in January of the following year.

What is the proper tax treatment of this scenario? I claimed it on my 2010 year taxes even though I paid it off in 2011. I based this decision on the IRS's wording about education loans. IE you are entitled to the tax benefit when the tuition bill is paid not when the loan is repaid.

Thanks in advance for your help.

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Was it a loan? What did your tax preparer say? –  littleadv Jul 12 '12 at 17:14
    
It wasn't originally a loan but it had to be paid back when I quit. I self prepared the taxes. –  Pablitorun Jul 12 '12 at 17:23
1  
Could you explain how exactly you treated your education assistance payback? Since the IRS did accept it, it would be helpful to other users who are in the same situation you were in. –  user11243 Sep 18 '13 at 0:47
    
The IRS accepted my explanation as above "It was an expense owed by me for education incurred in 2010 so I was allowed to get the credit for 2010 taxes filed in 2011" I just sent them a signed letter from Mega Corp explaining that I paid the money back and a letter from my university explaining the program and tuition costs incurred. –  Pablitorun Sep 23 '13 at 15:36

1 Answer 1

up vote 8 down vote accepted

I suggest you have a professional assist you with this audit, if the issue comes into questioning. It might be that it wouldn't. There are several different options to deal with such situation, and each can be attacked by the IRS. You'll need to figure out the following:

  1. Have you paid taxes on the reimbursement? Most likely you haven't, but if you had - it simplifies the issue for you.

  2. Is the program qualified under the employers' plan, and the only reason you're not qualified for reimbursement is that you decided to quit your job? If so, you might not be able to deduct it at all, because you can't take tax benefits on something you can be reimbursed for, but chose not to. IRS might claim that you quitting your job is choosing not to get reimbursement you would otherwise get. I couldn't find from my brief search any examples of what happened after such a decision.

  3. You can claim it was a loan, but I doubt the IRS will agree. The employer most likely reported it as an expense.

  4. If the IRS don't contest based on what I described in #2, and you haven't paid taxes on the reimbursement (#1), I'd say what you did was reasonable and should be accepted (assuming of course you otherwise qualify for all the benefits you're asking for).

I would suggest getting a professional advice. Talk to a EA or a a CPA in your area. This answer was not intended or written to be used, and it cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer

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+1 for the disclaimer. :) –  Dheer Jul 13 '12 at 6:32
    
a follow up. The IRS did accept my treatment of the education assistance and payback. yay! Thanks for the advice. –  Pablitorun Dec 3 '12 at 16:55

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