Cadet Taxes - Form 8880

Discussion in 'Off Topic' started by Option.Period, Mar 13, 2017.

  1. Option.Period

    Option.Period Member

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    Looking for some advice on whether cadets can claim the "Credit for Qualified Retirement Savings Contributions" IRS Form 8880?

    They wouldn't qualify if ... for IRS purposes ... they are defined as a "student":

    meaning enrolled at a "school" which includes "technical, trade, and mechanical schools. It does not include on-the-job training courses, correspondence schools, or schools offering courses through the Internet."

    Generally for Personal Exemptions noted that "Student defined. To qualify as a student, your child must be, during some part of each of any 5 calendar months of the year:

    A full-time student at a school that has a regular teaching staff, course of study, and a regularly enrolled student body at the school, or ...

    School defined. A school can be an elementary school, junior or senior high school, college, university, or technical, trade, or mechanical school. However, an on-the-job training course, correspondence school, or school offering courses only through the Internet doesn’t count as a school.​

    I have seen many posts which say that cadets aren't "students" they are "active military" are these mutually exclusive for tax purposes - does anyone have a reference that says that a cadet is not a "student" or that a SA is not a "school"? - such that they could be sure they can claim the credit?

    Thank you.
     
  2. Capri120

    Capri120 Parent

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    Cadets and Mids are not students per the IRS.

    Here is a link to TurboTax's answer:
    https://ttlc.intuit.com/questions/3...service-academy-considered-full-time-students

    Also, Per UNITED STATES AIR FORCE ACADEMY INSTRUCTION 65- 101...

    Section 5.4.
    The USAF Academy does not issue IRS Form 1098-T, Tuition Statement, because (1)USAFA is prohibited by law from charging tuition, (2) USAFA is not considered an eligible educational institution as we are ineligible to participate in the Department of Education’s student aid program, and (3) USAFA does not maintain a separate student financial account required by the IRS. Any tax consequence as a result of attending USAFA, receiving scholarship funds, and/or receiving educational investment plan proceeds are the responsibility of the cadet.

    Section13.
    Student aid, educational tax benefits, and educational credits. USAFA is not eligible to participate in the Department of Education Title IV programs and therefore does not receive Title IV program funds. USAFA is an eligible school for deferment purposes only. Since USAFA is not eligible to participate in a student aid program administered by the Department of Education, it is not an eligible educational institution as defined in IRS Publication 970,
    Tax Benefits for Education, and does not file any Form 1098-T. Because USAFA is not an eligible educational institution, any education expenses a cadet may incur are not qualified education expenses for the Hope, American Opportunity or Lifetime Learning Credits, the Tuition and Fees Deduction, or distributions from education savings plans.

    And, per IRS Publication 970, Chapter 1, page 6...

    Payment to Service Academy Cadets
    An appointment to a United States military academy isn't a scholarship or fellowship grant. Payment you receive as a cadet or midshipman at an armed services academy is pay for personal services and will be reported to you on Form W-2, box 1. Include this pay in your income in the year you receive it unless one of the exceptions, discussed earlier under Payment for services, applies.

    Here's a link to the most current revision: https://www.irs.gov/pub/irs-pdf/p970.pdf
     
    Last edited: Mar 13, 2017
  3. Option.Period

    Option.Period Member

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    Thank you for response – not trying to split hairs (although the IRS might), but this is the rub I’m seeing; the referenced information … of which I have seen variation of in other comments on other sites … seem directed towards educational credits for the cadet/mid &/or dependent exemption for cadet/mid’s parent – which may be an apples to oranges comparison where a qualification concern is viewed by the IRS for a different purpose (Credit for Qualified Retirement Savings Contributions - Form 8880). I think I get the posted explanation(s) & maybe I’m just being paranoid not wanting to get my cadet in trouble pushing the envelope a bit … but the cadet/mid doesn’t get the education credits because the SA is not an “eligible educational institution” (not necessarily because they aren't a "student") – that may not be the same as whether a cadet is a "student" or a SA not being a "school" for purposes of Form 8880, or is it? Also, for the dependent claim … that appears to not be because of being in “school” or not, but more so because of the degree of support paid by the parent? (wish the Turbo Tax answer had given some kind of cross reference for the blanket statement that a cadet/mid is simply not a “student” for tax purposes – will have to have cadet put the question in when files taxes in a few weeks with regard to ability to claim Form 8880 credit and see what they say. Will update this post when get a reply.
     
  4. Capri120

    Capri120 Parent

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    The cadet receives a W2 and has earned income, he/she can put money into IRAs up to the limit or annual earned income, whichever is less.
     
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  5. Option.Period

    Option.Period Member

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    In follow-up, FYI below is the response we received from TurboTax while working on taxes & trying to get a clear cut answer on whether a cadet can claim the "Credit for Qualified Retirement Savings Contributions" IRS Form 8880. Unfortunately still no clear cut answer ... so may be an iffy claim for this credit (increases tax refund by a couple hundred), I can still see a basis for it in my opinion (e.g. cadets/mids aren't students IMHO), but the IRS might not agree. We really never asked about the education credits because that was not the point, but the information was offered in this advisers opinion. I have a hard time believing that if a cadet is FT active military duty for tax purposes, that they would also be considered FT students, but I don't have the expertise to know for sure.

    "The issue of the education credit eligibility isn't student/non student realted. The US Military aACademies aren't considered "eligible education institutions" for purposes of thee education credits, in part becasue they don't accept financial aid and are ineligible to participate in the US Department of Education Financial Aid programs. Since the institutions don't qualify, cadets cannot claim any of the education credits.

    Sadly, that doesn't definitively resolve the question of your full time student status for purposes of the Retirement contribution Credit (also called the Saver's Credit). Cadets are considered active duty miitary, and the academies don't qualify for education credits, but full time employment wouldn't preclude a civilian from also being a full time student, ant the definition of a full time student for purposes of this creit don't require the school to meeet any specific requirements. The definition is farily broad. My opionion is that you would be a student under this definition, but I'd strongly suggest you consider reaching out to the Academy tax or legal office if possible. They may be able to definitively resolve the matter if it's been asked and researched before. The question is, am I a full time student for purposes of the Retirement Savings Contribution Credit?

    Here are some links to supporting info, as promised.

    West Point Tax Information For Parents (Page 2, Item 6)

    IRS Publication 571 (See "Full Time Student")

    Finally, the US Code references regarding active duty status.

    37 USC 101(18) states, "The term 'active duty' means full-time duty in the active service of a uniformed service, and includes full-time training duty, annual training duty, full-time National Guard duty, and attendance, while in the active service, at a school designated as a service school by law or by the Secretary concerned."

    38 USC 101(b)(21) states, "The term 'active duty' means service as a cadet at the United States Military, Air Force, or Coast Guard Academy, or as a midshipman at the United States Naval Academy."

    38 USC 1965(1)(d) states, "The term 'active duty' means full-time duty as a cadet or midshipman at the United States Military Academy, United States Naval Academy, United States Air Force Academy, or the United States Coast Guard Academy."

    I do hope this helps."


     
  6. Capt MJ

    Capt MJ 10-Year Member

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    Digression off taxes for a moment:


    This is a KEEPER bit of info, handy for your SA (less USMMA, different status) mid or cadet to have handy on phone or a piece of paper kept in luggage, for those airline ground staff who balk at extending active duty line or luggage perks to them.


    Back to taxes, i predict the USNA JAG will not offer an opinion on personal tax issues of mids/cadets/families in an area where DOD is not the ruling agency UNLESS the Comptroller of the Navy or DOD has obtained an official ruling. Sure would be nice to have one. Maybe the Presidents of all the Parents Clubs could work it as a joint issue through an MOC who sits on the right committee.
     
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  7. brutus

    brutus Member

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    I know this is an old thread but I seem to have found some contradiction at irs.gov which says the USAFA is and eligibile institution for the American Oportunity Tax Credit. Question #18 at the IRS link below gives another link which shows the USAFA is accredited for this tax credit.

    https://www.irs.gov/uac/american-opportunity-tax-credit-questions-and-answers


    Q18. How do I know if my school is an eligible institution?

    A. A student can check with the educational institution. However, this link from the Department of Education, http://ope.ed.gov/accreditation/, shows all accredited schools. If your school is found using this link, then it is an eligible institution and you can claim the American opportunity tax credit.

    screenshot_87.jpg
     
  8. AROTC-dad

    AROTC-dad Moderator 5-Year Member

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    Beg to differ with Brutus.

    I believe that the IRS is contradicting itself on that area but that the over arching policy is that USAFA is NOT eligible for the AOTC. While all Service Academies ARE accredited, they are NOT eligible for USDE student aid programs which is the key to qualifying for the AOTC.

    The AOTC rules state that an eligible educational institution is a school offering higher education beyond high school. It is any college, university, vocational school, or other post secondary educational institution eligible to participate in a student aid program run by the U.S. Department of Education.

    USAFA IS accredited but NOT ELIGIBLE FOR STUDENT AID RUN BY THE US DEPT OF EDUCATION.
    This is per the USAFA's own documents which state:
    5.4. The USAF Academy does not issue IRS Form 1098-T, Tuition Statement, because (1) USAFA is prohibited by law from charging tuition, (2) USAFA is not considered an eligible educational institution as we are ineligible to participate in the Department of Education’s student aid program,

    Source:
    http://static.e-publishing.af.mil/production/1/usafa/publication/usafai65-101/usafai65-101.pdf
     
  9. brutus

    brutus Member

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    I want to comply with tax law, but I would trust the interpretation of the IRS over the interpretation of the USAFA. If this ever got audited, I believe the decision would be favorable based on the previously provided supportive link directly from the IRS.

    The USAFA may not be ELIGIBLE FOR STUDENT AID RUN BY THE US DEPT OF EDUCATION but according to the IRS, it IS eligible for the AOTC, which has a different eligibility requirement. Student Aid is not the same as a Tax Credit.

    I appreciate the pushback, I am always looking for the safe (but compliant) side when it comes to taxes.
     
    Last edited: Aug 16, 2017
  10. AF-Dad

    AF-Dad Member

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    Back to the Form 8880, "Credit for Qualified Retirement Savings Contributions".
    Our local military base has a tax office that assists military members with their taxes. I spoke with them regarding the eligibility of USAFA cadets, which are Active Duty and not eligible for AOTC, to obtain Form 8880 credits. They spent two days researching the issue and discussed this issue with former IRS auditors. They told me the IRS wasn't clear on the subject but their opinion was cadets would not be eligible for the credits due to their status as students.

    If anyone has filed for 8880 credits and had no problems, that would certainly be an interesting data point.
     
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  11. Option.Period

    Option.Period Member

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    Really wish there was a clear cut answer here. Continues to be a gray area to me; but, it seems to me that there may be a misconception going on OR maybe I just don't understand (entirely possible as I am certainly no tax expert), but I don't think that whether USAFA qualifies as a "eligible education institution" for certain tax purposes is necessarily instructive or determinative on whether a cadet can claim the Form 8880, "Credit for Qualified Retirement Savings Contributions".

    There is the institution's status and then there is the taxpayer's status, and they are separate concepts, aren't they?

    I do believe that it really boils down to the taxpayer's individual status and the question is whether a cadet meets the definition of being a "student"? (assuming that they aren't excluded under the other conditions). I would argue that they don't fall under that definition and so can claim the Credit if they otherwise qualify:

    In connection with trying to determine whether the Credit could be claimed, contact was made with a military tax center as well as a pretty high level private side tax/accounting firm, while stating that the tax center was not giving legal advice and I do not have a written opinion of the tax firm, the general opinion was that a cadet should be able to claim the Credit - but, they did not have a definitive answer; the thought process essentially being that ->

    (i) it is my understanding that for tax purposes the IRS defines the cadets as full-time active duty military (I think this has been pretty well settled ???); and,

    (ii) given that a cadet's determined IRS status is full-time active duty military for the attendance at a Service Academy - it would seem to mean that the cadet cannot also be defined to be a "full-time student" at the very same time for doing the very same thing as they are defined to be full-time active duty military (can they? - this would be the IRS having its cake and eating it too ... the IRS shouldn't be able to have simultaneously defined the cadets 2 different ways for tax purposes shafting them in the process ... you can't categorize a cadets doing 1 thing as being FULL TIME for 2 separate things taxwise can you ... that doesn't seem right to me ... doesn't mean its not, but I don't see how you can (of course a private side person could have a full time job and then be a student at night full time as well thereby disqualifying them), but a cadet's situation is different, isn't it?);
    Also, if the IRS can say a cadet is simultaneously full-time in both capacities while just doing one thing, e.g. being a cadet; another point which I would argue may still allow a cadet to claim this Credit could be to state that the cadet is still not a "student" within the definition of the Credit on the basis that a Service Academy is not "school" within the definition of the Credit as it's definition does not include "on-the-job training courses" - again if the IRS says cadets are full time active duty military, doesn't that essentially make their time at the Service Academy a 4 year on-the-job training course?

    To each cadet their own on this ... I certainly don't think the answer is crystal clear as opposed to a cadet's sibling who is attending a private sector university ... there may be some level of risk to interpretation of the tax rules here. I don't think that you will necessarily get a data point on this issue until a cadet who has claimed this Credit actually gets audited. IMHO if a cadet were audited and this Credit were questioned I think the above gives a cadet a good-faith basis for making the claim of the Credit and, if found ineligible for the Credit likely would only have to pay the taxes owed on the disallowed credit ... I personally can't see interest and penalties being sought, but again not being a tax professional I'd have no real basis from which to argue other than just fairness.