Income Tax -- Scholarships over multiple years

[banx]

Hi Bogleheads!

I attended college at an expensive private school from Fall '08 through Spring '12 (8 semesters) on need-based financial aid that covered virtually all of my expenses. This aid paid for both required expenses (tuition, etc) and room/board. I understand that the room/board portion is treated as taxable income.

When I filed my 2008 taxes I didn't realize that I had to declare that income, and I didn't. For 2009 - 2011 I paid the tax. I never made up what I thought was the missed payment from 2008 and the IRS never contacted me about it. I knew several people who were in situations similar to mine who were unaware that they had to pay tax on the room/board funds and never did for any of the years.

For simplicity, let's say tuition was $18k per semester and room/board was $7k per semester. In 2010 I saw that my 1099 (I think that's the form) for 2009 showed $50k in scholarships and $36k in qualified expenses. Here's how I thought things had worked:

2008: charged 18+18 in qualified expenses and received 18+18+7+7 for F'08, S'09, so I should have paid tax on $14k
2009: charged 18+18 in qualified expenses and received 18+18+7+7 for F'09, S'10, so I paid tax on $14k
2010: charged 18+18 in qualified expenses and received 18+18+7+7 for F'10, S'11, so I paid tax on $14k
2011: charged 18+18 in qualified expenses and received 18+18+7+7 for F'11, S'12, so I paid tax on $14k
2012: nothing

But yesterday I received a 1099 showing $25k in scholarships and $0 in qualified expenses. So now I realize that this is what happened:

2008: charged 18+18 in qualified expenses for F'08, S'09; received 18+7 for F'08, so I owed nothing and paid nothing and had a surplus of $11k of qualified expenses
2009: charged 18+18 in qualified expenses for F'09, S'10; received 18+18+7+7 for S'09, F'09, so I paid tax on $14k
2010: charged 18+18 in qualified expenses for F'10, S'11; received 18+18+7+7 for S'10, F'10, so I paid tax on $14k
2011: charged 18+18 in qualified expenses for F'11, S'12; received 18+18+7+7 for S'11, F'11, so I paid tax on $14k
2012: charged nothing; received 18+7 for S'12, so I owe tax on $25k

Basically, the university charged me in December for the following Spring semester, but didn't award the aid until January.

Question:
So now it seems that I owe tax on $25k instead of the $14k that was actually used for room/board, since the $11k surplus of qualified expenses from 2008 never got "used" due to the timing of the charges and aid payments. Is there a way to carry that surplus over to a future year? If not directly to 2012, could it be carried over to 2009? Could I file amended returns for 2009 - 2011 to carry the surplus to 2012 (since 2009 would have an $11k surplus given the $11k from 2008, and so on)?

Thanks for your help with this question and thanks even more for the excellent advice available throughout the forum and wiki.

-b

[jared]

Question:
So now it seems that I owe tax on $25k instead of the $14k that was actually used for room/board, since the $11k surplus of qualified expenses from 2008 never got "used" due to the timing of the charges and aid payments. Is there a way to carry that surplus over to a future year? If not directly to 2012, could it be carried over to 2009? Could I file amended returns for 2009 - 2011 to carry the surplus to 2012 (since 2009 would have an $11k surplus given the $11k from 2008, and so on)?

Thanks for your help with this question and thanks even more for the excellent advice available throughout the forum and wiki.

-b

I don't see an issue. There was no "surplus". The 1098-T simply reports the amount of tuition billed in the current year. It's likely the 1098-T had box 7 checked, indicating that some of the billed expenses were for the following Spring semester. The scholarship/grants paid the qualifying expenses in the year the scholarships were received. The fact that the institution billed in the previous year doesn't matter.

Taxpayers should be reconciling these 1098-T's to amounts they actually paid/received in the current year rather than just using the numbers provided on the form.

The other aspect worth considering is whether or not the scholarship/grant may be applied, by its terms, to expenses other than qualified tuition and related expenses. If so, it might be possible and beneficial to include some of the scholarship/grant as taxable income in order to claim education credits.