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Final Rules on Education Tax Credits

1/02/2003

The final regulations on the Hope and Lifetime Learning tax credits, published by the Internal Revenue Service December 27, 2002, interpret section 25A of the Code, providing guidance to taxpayers who may claim the credits. Although the 25A rules do not address institutional reporting requirements, a number of provisions are important for colleges and universities. These provisions cover the definition of an eligible educational institution, qualified tuition and related expenses, and the timing of payments.

The final regulations hold, as did the rules first proposed in 1999, that qualified expenses include fees for books, supplies, and equipment used in a course of study only if the fees are required to be paid to the institution for the enrollment or attendance of the student.

The rules also clarify that personal expenses such as room and board, insurance, medical expenses, transportation, and similar personal living expenses are not qualified expenses for purposes of claiming the credits, regardless of whether the fee must be paid to the institution as a condition of enrollment. Institutions must determine the allocation of bundled fees that combine qualified expenses and personal expenses that are not qualified. The rules became effective on December 26, 2002.

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