Is this tax fraud?

[hanson34]

Wisconsin

I am a 20 year old student studying at a private college and paying my entire way through it. As a child I received an insurance settlement (in my name) for pain and suffering which at the time I came of age was worth $60,000. My parents made a college fund for me (not sure if it was in my name or not, but I think it was), worth $20,000. For the past 3 years I have been paying for college with that money. This includes housing, food, and tuition. Last summer I spent 3 months at home before returning to school. I pay all of my expenses sans insurance payments (my parents pay for my health and car insurance). On my FAFSA statement I am a dependent as with the financial aid at my school so I receive aid only to what they feel is appropriate for my parent's income bracket (assuming that they will contribute to my college education). Each year my college expenses are about $35,000, of which I pay entirely by myself (as previously stated), but my parents refuse to let me file taxes as an independent. I have no serious medical conditions and am a good driver, so I don't think there is any way that they pay more than half of my expenses and I no longer live with them, yet they still claim me as a dependent. They even asked how much I spent on textbooks so they could write it off on their taxes (textbooks that I bought with my own money). Are my parents committing tax fraud?

 

[LdiJ]

Wisconsin

I am a 20 year old student studying at a private college and paying my entire way through it. As a child I received an insurance settlement (in my name) for pain and suffering which at the time I came of age was worth $60,000. My parents made a college fund for me (not sure if it was in my name or not, but I think it was), worth $20,000. For the past 3 years I have been paying for college with that money. This includes housing, food, and tuition. Last summer I spent 3 months at home before returning to school. I pay all of my expenses sans insurance payments (my parents pay for my health and car insurance). On my FAFSA statement I am a dependent as with the financial aid at my school so I receive aid only to what they feel is appropriate for my parent's income bracket (assuming that they will contribute to my college education). Each year my college expenses are about $35,000, of which I pay entirely by myself (as previously stated), but my parents refuse to let me file taxes as an independent. I have no serious medical conditions and am a good driver, so I don't think there is any way that they pay more than half of my expenses and I no longer live with them, yet they still claim me as a dependent. They even asked how much I spent on textbooks so they could write it off on their taxes (textbooks that I bought with my own money). Are my parents committing tax fraud?

No, your parents are not committing tax fraud. The money you spend on your education is not considered to be part of your support.

 

[Zigner]

If the OP is paying her own way in life entirely, then the parents have no right to claim her as a dependent. The settlement money is hers, not her parents'.

For the OP: Do your parents spend money on you? If so, how much? Do you live at home? You don't need their permission to file your own tax return, but it may cause some paperwork issues that need to be straightened out down the road.

ETA: For the OP: Are you employed?

 

[LdiJ]

If the OP is paying her own way in life entirely, then the parents have no right to claim her as a dependent. The settlement money is hers, not her parents'.

For the OP: Do your parents spend money on you? If so, how much? Do you live at home? You don't need their permission to file your own tax return, but it may cause some paperwork issues that need to be straightened out down the road.

ETA: For the OP: Are you employed?

Zig...first, its not that simple. Second, of course the OP can file their own tax return. Just because you are someone else's dependent does not mean that you cannot (or are not required to) file your own tax return.

Being away at college is considered to be a temporary absence from the parental home. The OP clearly states that the OP goes home for summer (and I assume holidays). Tuition and housing/food while away at college are not considered to be "support", they are considered to be educational expenses.

In addition, the OP does not appear to be earning any income. Therefore if they have any taxable income at all it would be minimal interest income from invested money. Student loans are not considered to be income either.

If you are under 24, you may not claim educational credits or apply for financial aid/student loans without using your parent's information, no matter how much money you earn. You would have to be married, have children of your own, be in the military, or not have any living parents before you could claim educational credits or be able to file for financial aid/student loans without your parent's information.

 

[Zigner]

Zig...first, its not that simple. Second, of course the OP can file their own tax return. Just because you are someone else's dependent does not mean that you cannot (or are not required to) file your own tax return.

Being away at college is considered to be a temporary absence from the parental home. The OP clearly states that the OP goes home for summer (and I assume holidays). Tuition and housing/food while away at college are not considered to be "support", they are considered to be educational expenses.

In addition, the OP does not appear to be earning any income. Therefore if they have any taxable income at all it would be minimal interest income from invested money. Student loans are not considered to be income either.

If you are under 24, you may not claim educational credits or apply for financial aid/student loans without using your parent's information, no matter how much money you earn. You would have to be married, have children of your own, be in the military, or not have any living parents before you could claim educational credits or be able to file for financial aid/student loans without your parent's information.

My questions are important. The OP may, in fact, be fully self supporting and NOT a dependent of her parents for tax purposes.

 

[davew128]

but my parents refuse to let me file taxes as an independent.

Put your big boy pants on and file your own return without them looking over your shoulder.

 

[davew128]

The money you spend on your education is not considered to be part of your support.

Since when???

 

[LdiJ]

My questions are important. The OP may, in fact, be fully self supporting and NOT a dependent of her parents for tax purposes.

I disagree. The permanent home that the parent's are providing counts as support. The educational expenses do not.

Nothing you asked is going to make the FASFA or education credit rules change. Since that is clearly the OP's "gripe"...since the OP does not have any earned income that is being taxed, the answers to your questions will not make a difference.

The OP's parents are not committing tax fraud.

 

[hanson34]

If the OP is paying her own way in life entirely, then the parents have no right to claim her as a dependent. The settlement money is hers, not her parents'.

For the OP: Do your parents spend money on you? If so, how much? Do you live at home? You don't need their permission to file your own tax return, but it may cause some paperwork issues that need to be straightened out down the road.

ETA: For the OP: Are you employed?

When I go back home on breaks they'll take me out to dinner and take me shopping, but I never let them buy me anything more than $60. I do not live at home, I live on campus. I tried filing my own return last year, but before I could, my parents found out and there was lots of stern talking and then they took over and filed my taxes. I'm going to file by myself this upcoming year, but I'm just wondering if they have been taking advantage of me for the tax breaks it gives them.

I have a job on campus as part of my financial aid package, but that's it. That's why my dad doesn't consider me an independent because "I can't provide for myself", but haven't I been providing for myself this whole time? Does it really make a difference if that money comes from a job or from a loan?

 

[OHRoadwarrior]

Yes it does. You have no income. What you are trying to do is make an end run around FAFSA qualifications to obtain a large amount of financial aid. You are not going to succeed in the scenario you presented.

 

[davew128]

I still disagree that tuition and food while away at school do not count as support. They most certainly do....as support provided by the student in this case.

 

[TinkerBelleLuvr]

What portion of your room & board/ tuition do your parents pay?

OP is on work-study that does count as the STUDENT providing towards the tuition, not the parents. In addition, it appears that the money that came from the accident is paying for tuition which is coming from the STUDENT.

What really needs to happen is to see what portion the parent is paying versus what portion the parent is paying. If the student is paying more than 50% of their support, then the student can claim their own exemption. It really is just a matter of straight math there.

 

[LdiJ]

What portion of your room & board/ tuition do your parents pay?

OP is on work-study that does count as the STUDENT providing towards the tuition, not the parents. In addition, it appears that the money that came from the accident is paying for tuition which is coming from the STUDENT.

What really needs to happen is to see what portion the parent is paying versus what portion the parent is paying. If the student is paying more than 50% of their support, then the student can claim their own exemption. It really is just a matter of straight math there.

Tink, what we have here is a disagreement about what is considered to be "support". Every bit of continuing education that I have ever done indicates that higher educational expenses are NOT support and that being away at college is a temporary absence from the parental home. If the theory that education expenses are support is correct then the vast majority of college students would not be their parent's dependents as their educations are being financed by scholarships and student loans...and the vast majority of students would be able to qualify for FASFA and education credits without providing their parent's financial information. Under that theory as well any scholarship money would be treated as taxable income. We all know that scholarship money that covers tuition, fees, and room and board is not taxable income.

So, lets say that the OP files their tax return with very little earned income, claims the American Opportunity Credit (gets the refundable portion) and attempts to file for FASFA without including his parent's income. Do you think that is going to fly? Its not. The IRS is going to deny him the AOC and FASFA is going to reject the application. Mom and dad are still going to be able to file and claim him as a dependent (although they may have to file paper) and the IRS is going to rule in favor of the parents.

Now, if the student is living completely independently (not in a dorm) and does not go home for school breaks except minimally, and does not go home for the summer, and has 15-20k in earned income, I agree that it might fly that they can claim their own exemption. HOWEVER, if they are under 24, they are STILL not going to get the AOC or be able to fill out the FASFA without providing their parent's financial information.

There is no way that the OP's parents are committing tax fraud.

 

[davew128]

LdiJ, I suggest you google the matter. There are numerous articles that discuss this. Education is most definitely support as the courts have ruled as such.

 

[TinkerBelleLuvr]

If the OP is paying for ROOM & BOARD with that accident money, that most certainly IS coming from the student and not the parents. He/she has NOT come back and clarified the amount that the parent's are paying.