Par. 2. Section 1.25A-0 is amended by: 1. Revising the entry for § 1.25A-1(e)(1) introductory text. 2. Adding entries for § 1.25A-1(e)(1), (2), and (3). 3. Revising the entries for § 1.25A-1(f) introductory text and (f)(2). 4. Adding entries for § 1.25A-1(f)(3) and (4). 5. Revising the entries for § 1.25A-1(g) and (h). 6. Adding an entry for § 1.25A-1(i). 7. Revising the entries for §§ 1.25A-2(d)(3), (4), (5), and (6). 8. Adding entries for §§ 1.25A-2(d)(7) and (e). 9. Revising the entry for § 1.25A-2(f)(6). 10. Adding entries for §§ 1.25A-5(f)(7) and (g). The revisions and additions read as follows:
Par. 5. Section 1.25A-5 is amended by: 1. In paragraph (e)(2)(ii), revising the Example. 2. Redesignating paragraph (f)(6) as paragraph (f)(7). 3. Adding a new paragraph (f)(6). 4. In newly redesignated paragraph (f)(7), adding Example 4. 5. Adding paragraph (g). The revisions and additions read as follows:
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(f) * * *
(6) Treatment of refunds where qualified tuition and related expenses paid in two taxable years for the same academic period.
(7) Examples.
(g) Effective/applicability date.
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(e) * * *
(2) * * *
(ii) * * *
Example.
In December 2016, Taxpayer A, a calendar year taxpayer who is not a dependent of another taxpayer under section 151, receives a bill from College Z for $5,000 for qualified tuition and related expenses to attend College Z for the 2017 spring semester, which begins in January 2017. This is the first semester that Taxpayer A will attend College Z. On December 15, 2016, Taxpayer A pays College Z $1,000 in qualified tuition and related expenses for the 2017 spring semester. On February 15, 2017, Taxpayer A pays College Z the remaining $4,000 due for qualified tuition and related expenses for the 2017 spring semester. In August 2017, Taxpayer A receives a bill from College Z for $7,000 for qualified tuition and related expenses to attend College Z for the 2017 fall semester, which begins in September 2017. Taxpayer A pays the entire $7,000 on September 1, 2017. In December 2017, Taxpayer A receives a bill from College Z for $7,000 for qualified tuition and related expenses to attend for the 2018 spring semester. Taxpayer A pays $1,000 of the 2018 spring semester bill on December 15, 2017 and $6,000 of that bill in February 15, 2018. Taxpayer A does not enroll in an eligible educational institution for the 2018 fall semester or the 2019 spring semester. Taxpayer A may claim an education tax credit on Taxpayer A's 2016 Form 1040 with respect to the $1,000 taxpayer paid to College Z on December 15, 2016 for the 2017 spring semester. On Taxpayer A's 2017 Form 1040, Taxpayer A may claim an education credit with respect to the $12,000 Taxpayer A paid to College Z during 2017 ($4,000 paid on February 15, 2017 for the 2017 spring semester, $7,000 paid on September 1, 2017, for the 2017 fall semester, and $1,000 paid on December 15, 2017, for the 2018 spring semester). On Taxpayer A's 2018 Form 1040, Taxpayer A may claim an education credit with respect to the $6,000 taxpayer paid to College Z on February 15, 2018.
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(f) * * *
(6) Treatment of refunds where qualified tuition and related expenses paid in two taxable years for the same academic period. If a taxpayer or someone other than the taxpayer—
(i) Pays qualified tuition and related expenses in one taxable year (prior taxable year) for a student's enrollment or attendance at an eligible educational institution during an academic period beginning in the first three months of the taxpayer's next taxable year (subsequent taxable year);
(ii) Pays qualified tuition and related expenses in the subsequent taxable year for the academic period beginning in the first three months of the subsequent taxable year; and
(iii) Receives a refund of qualified tuition and related expenses during the subsequent taxable year for the academic period beginning in the first three months of the subsequent taxable year (including an amount treated as a refund under paragraph (f)(4) or (5) of this section), the taxpayer may allocate the refund in any proportion to qualified tuition and related expenses paid in the prior taxable year under paragraph (f)(2) or (3) of this section or the subsequent taxable year under paragraph (f)(1) of this section, except that the amount of the refund allocated to a taxable year may not exceed the qualified tuition and related expenses paid during the taxable year with respect to the academic period beginning in the subsequent taxable year. The sum of the amounts allocated to each taxable year cannot exceed the amount of the refund.
(7) * * *
Example 4.
In December 2016, Taxpayer D, a calendar year taxpayer who is not a dependent of another taxpayer under section 151, receives a bill from University X for $2,000 for qualified tuition and related expenses to attend University X as a full-time student for the 2017 spring semester, which begins in January 2017. In December 2016, D pays $500 of qualified tuition and related expenses for the 2017 spring semester. In January 2017, D pays an additional $1,500 of qualified tuition and related expenses for the 2017 spring semester. Early in the 2017 spring semester, D withdraws from several courses and no longer qualifies as a full-time student. As a result of D's change in status from a full-time student to a part-time student, D receives a $750 refund from University X on February 16, 2017. D has no other qualified tuition and related expenses for 2017. Under paragraph (f)(6) of this section, D may allocate all, or a portion, of the $750 refund to reduce the $1,500 of qualified tuition and related expenses paid in 2017 or D may also allocate a portion of the $750 refund, up to $500, to reduce the qualified tuition and related expenses paid in 2016 and allocate the remainder of the refund to reduce the qualified tuition and related expenses paid in 2017.
(g) Applicability date. (1) Except as provided in paragraph (g)(2) of this section, this section applies on or after December 26, 2002.
(2) Paragraphs (e)(2)(ii), (f)(6), and Example 4 in paragraph (f)(7) of this section apply to qualified tuition and related expenses paid and education furnished in academic periods beginning on or after the date of publication of the Treasury decision adopting these rules as final regulations in the Federal Register . However, taxpayers may apply paragraphs (e)(2)(ii), (f)(6), and Example 4 in paragraph (f)(7) of this section in taxable years for which the limitation on filing a claim for credit or refund under section 6511 has not expired.