529 News

Court case rules on Sec. 529 room and board

(December 1, 2009) - In Venet v. Commissioner, T.C. Memo. 2009-268 (Nov. 24, 2009), the U.S. Tax Court was faced with determining the amount of room and board, as defined under Sec. 529, incurred by taxpayer's daughter attending Michigan State University in 2006. The taxpayer was looking to avoid the 10 percent early distribution penalty on an IRA distribution. The penalty is waived to the extent the taxpayer or taxpayer's spouse or child incurs Sec. 529 qualified higher education expenses.

Although they did not keep detailed records of room and board expenses, the court was satisfied on the basis of credible testimony that the taxpayers provided their daughter with $575 per month for rent, $100 month for utilities, and $100 per month for food ($775 per month total) in the year at question (2006). However, such expenses would be limited to the amount included by MSU in its cost of attendance for purposes of the penalty waiver. That particular figure was not stated in the case.

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