Maximizing the American Opportunity Credit Under §25A By Declining the Exclusion of Scholarship Income Under §117(b)(1)

• In Event: JLTR Conference Part I

Abstract

The calculation of the American Opportunity Credit is based on qualified
educational expenses less any scholarship that is excluded from taxable income.
It is often in the taxpayer’s interest to decline the exclusion, pay tax and thus
receive a larger credit. This paper examines the legal basis for declining to
exclude scholarship income and thus increasing the credit.

In Publication 970, the IRS concedes that the exclusion may be declined, but only
when the scholarship may be used for non‐qualified expenses, such as room and board. This paper argues that the recipient may decline the exclusion for any scholarship and include amounts used for tuition, fees, etc. because the burden of proof for any exclusion is on the taxpayer. The recipient may simply choose not
establish that the scholarship is excluded, have taxable income and thus a larger American Opportunity Credit.

Author

• J. Kent Poff, University of North Georgia