Our clients, Ned and Kate Stark, have come to the firm with two questions they would like help with. I would like you to research both and write a file memorandum detailing the relevant authority, your analysis, and your conclusions. Ned and Kate are married.

They have questions about the tax consequences of education-related decisions for their children. Ned’s son Jon is from a prior relationship, and Ned and Kate have a daughter together, whose name is Sophie.

Question One: Jon is 28 and is in graduate school. He has a few years to go to finish his degree program, and when he has finished will have accumulated approximately $200,000 in student loan debt (he already has $100,000 in debt, and anticipates borrowing another $100,000). Jon is a biochemistry major and has already had a few offers from firms that either want to hire him after graduation or provide him with assistance while in school. He has asked his parents for their advice about what to do.

Offer #1: One potential employer has proposed to give Jon a $12,000 per year bonus for every year he is employed with the firm, for up to five years. Jon can use the money to pay back his loans, or for whatever else he would like.

Offer #2: The second potential employer has offered to contribute extra funds to Jon 401(k) plan for every dollar Jon pays toward his student loans, up to $12,000 per year, for up to five years. This would be over and above the regular company match.

Offer #3: A private company has contacted Jon and offered to fund the cost of his remaining education (approximately $100,000 for two more years of school) in exchange for a 10% share of his future earnings, with payments capped at $158,000. Jon explained that this was known as an “income share agreement.” He is interested in this option, but is concerned that the tuition payments would be considered income to him, and wants to know if his future payments would be deductible.

What are the tax ramifications of the three proposals?

Question Two: Sophie is 22 and is a full-time undergraduate student. Her parents pay her $35,000 annual college tuition. Sophie works as a social media influencer and makes about $40,000 per year, so she does not qualify as Ned and Kate’s dependent. She does pay the rent on her apartment, and her car payment. Ned and Kate’s projected AGI for 2020 is $158,000.

The family would like to know whether Ned and Kate can claim the American Opportunity Tax Credit, or if they cannot, if Sophie can?

This is in the United States.

Please research both questions and prepare a file memorandum.

Make sure you properly cite the relevant authority for each position you take.

add a "table of authorities" to your memorandum (basically a list of all of the statutes,

regulations, revenue procedures, revenue rulings, letter rulings, and/or court cases you used).

Answer rating: 100% (QA)

Ans Ned and Kate would like to know the following 1 What are the tax consequences of each offer for Jon 2 What are the tax consequences of each offer ... View the full answer