T.C. Summary Opinion 2006-40



                     UNITED STATES TAX COURT



         JAYESH B. AND DEVSMITA J. PATEL, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 11530-04S.              Filed March 16, 2006.


     Jayesh B. and Devsmita J. Patel, pro sese.

     Clare J. Brooks, for respondent.



     GOLDBERG, Special Trial Judge:     This case was heard pursuant

to the provisions of section 7463 of the Internal Revenue Code in

effect at the time the petition was filed.    The decision to be

entered is not reviewable by any other court, and this opinion

should not be cited as authority.   Unless otherwise indicated,

subsequent section references are to the Internal Revenue Code in

effect for the year in issue.
                               - 2 -

     Respondent determined a deficiency in petitioners’ Federal

income tax of $295 for the taxable year 2002.

     The issue for decision is whether petitioners’ prepayment of

$3,611 of tuition in 2001 entitles them to a Lifetime Learning

Credit pursuant to section 25A in tax year 2002.

     Some of the facts have been stipulated and are so found.

The stipulation of facts and the attached exhibits are

incorporated herein by this reference.   Petitioners resided in

York, Pennsylvania, on the date the petition was filed in this

case.

                            Background

     During taxable year 2002, Ami Patel (Ms. Patel),

petitioners’ niece, lived with petitioners for the entire year.

Ms. Patel, whom petitioners claimed as a dependent, was a full-

time student at York College in York, Pennsylvania, during

taxable year 2002.   In the year in issue, petitioners paid $3,750

in qualified education expenses to York College.   Also, in the

taxable year 2001, petitioners paid $3,611 in qualified education

expenses to York College.   The payment of $3,611 made on November

28, 2001, to York College represented prepaid tuition for the

spring semester of 2002.1   Petitioners prepaid the spring


     1
      It is unclear from the record when the 2002 spring semester
began at York College. However, due to the fact that York
College measures the college year in semesters and not trimesters
nor quarters, we assume that the spring semester of 2002 began in
                                                   (continued...)
                                - 3 -

semester tuition because they were going to be out of the country

when the tuition became due.

     Petitioners timely filed their Form 1040, U.S. Individual

Income Tax Return, for taxable year 2002.     On their 2002 Federal

tax return, petitioners claimed a Lifetime Learning Credit for

Ms. Patel as the eligible student.      In calculating the Lifetime

Learning Credit for their 2002 Federal tax return, petitioners

added the above-mentioned amounts of qualified education expenses

along with other miscellaneous education expenses, resulting in a

total amount for qualified education expenses of $7,600.

Petitioners then used Form 8863, Education Credits (Hope and

Lifetime Learning Credits), to calculate their claimed education

credit of $1,000 for taxable year 2002.

     Subsequently, respondent issued a notice of deficiency to

petitioners in which respondent disallowed $250 of petitioners’

claimed $1,000 education credit.    In other words, respondent

allowed petitioners an education credit for taxable year 2002 of

$750.    Respondent contends that the partial disallowance of

petitioners’ claimed education credit is correct because the

prepayment of the 2002 spring semester tuition of $3,611 is

properly taken into account on petitioners’ 2001 Federal tax




     1
      (...continued)
January or February of taxable year 2002.
                               - 4 -

return and not their 2002 Federal tax return pursuant to section

25A(g)(4).

                            Discussion2

     Respondent did not question Ms. Patel’s status as

petitioners’ dependent.   Further, respondent conceded that both

payments were “qualified tuition and related expenses” and that

York College was an “eligible educational institution”.

Therefore, the only issue for us to consider is whether

petitioners’ prepayment of $3,611 of tuition in 2001 for the

spring 2002 semester entitles them to include this amount in

computing the Lifetime Learning Credit pursuant to section 25A

for taxable year 2002.

     For eligible individuals, section 25A allows credits against

tax for qualified tuition and related expenses paid by the

taxpayer during the taxable year.   Section 25A(c) specifically

provides, in pertinent part:

     SEC. 25A(c) Lifetime Learning Credit.--

          (1) Per taxpayer credit.-- The Lifetime Learning Credit
     for any taxpayer for any taxable year is an amount equal to
     20 percent of so much of the qualified tuition and related
     expenses paid by the taxpayer during the taxable year (for
     education furnished during any academic period beginning in
     such taxable year) as does not exceed $10,000 ($5,000 in the
     case of taxable years beginning before January 1, 2003).



     2
      We decide the issues in this case without regard to the
burden of proof. Accordingly, we need not decide whether the
general rule of sec. 7491(a)(1) is applicable in this case. See
Higbee v. Commissioner, 

(2001).
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     Section 25A(g) states special rules which apply to both the

Hope Scholarship Credit and the Lifetime Learning Credit.

Specifically, section 25A(g)(4) provides:

     (4) Treatment of certain prepayments.-- If qualified tuition
     and related expenses are paid by the taxpayer during a
     taxable year for an academic period which begins during the
     first 3 months following such taxable year, such academic
     period shall be treated for purposes of this section as
     beginning during such taxable year.

     In the present case, during taxable year 2001 petitioners

prepaid qualified tuition of $3,611 for the 2002 spring semester,

an academic period which begins during the first 3 months

following taxable year 2001.   Therefore, pursuant to the plain

language of section 25A(g)(4) the prepayment amount of $3,611

would properly be included in the calculation of petitioners’

Lifetime Learning Credit for the 2001 taxable year and not their

2002 taxable year.   Accordingly, respondent’s determination on

this issue is sustained.

     Reviewed and adopted as the report of the Small Tax Case

Division.

                                       Decision will be entered

                               for respondent.