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IRS.gov Website
Publication 970
taxmap/pubs/p970-006.htm#en_us_publink1000204381

Who Can Claim a
Dependent's Expenses(p16)

rule
If there are qualified education expenses for your dependent during a tax year, either you or your dependent, but not both of you, can claim an American opportunity credit for your dependent's expenses for that year.
For you to claim an American opportunity credit for your dependent's expenses, you must also claim an exemption for your dependent. You do this by listing your dependent's name and other required information on Form 1040 (or Form 1040A), line 6c.
IF you...THEN only...
claim an exemption on
your tax return for a
dependent who is an
eligible student
you can claim the American opportunity credit based on that dependent's expenses. The dependent cannot claim the credit.
do not claim an exemption on your tax return for a dependent who is an eligible student (even if entitled to the exemption) the dependent can claim the American opportunity credit. You cannot claim the credit based on this dependent's expenses.
taxmap/pubs/p970-006.htm#en_us_publink1000204383

Expenses paid by dependent.(p16)

rule
If you claim an exemption on your tax return for an eligible student who is your dependent, treat any expenses paid (or deemed paid) by your dependent as if you had paid them. Include these expenses when figuring the amount of your American opportunity credit.
Deposit
Qualified education expenses paid directly to an eligible educational institution for your dependent under a court-approved divorce decree are treated as paid by your dependent.
taxmap/pubs/p970-006.htm#en_us_publink1000204385

Expenses paid by you.(p16)

rule
If you claim an exemption for a dependent who is an eligible student, only you can include any expenses you paid when figuring the amount of the American opportunity credit. If neither you nor anyone else claims an exemption for the dependent, only the dependent can include any expenses you paid when figuring the American opportunity credit.
taxmap/pubs/p970-006.htm#en_us_publink1000204386

Expenses paid by others.(p16)

rule
Someone other than you, your spouse, or your dependent (such as a relative or former spouse) may make a payment directly to an eligible educational institution to pay for an eligible student's qualified education expenses. In this case, the student is treated as receiving the payment from the other person and, in turn, paying the institution. If you claim an exemption on your tax return for the student, you are considered to have paid the expenses.
taxmap/pubs/p970-006.htm#en_us_publink1000204387

Example.(p16)

In 2013, Ms. Allen makes a payment directly to an eligible educational institution for her grandson Todd's qualified education expenses. For purposes of claiming an American opportunity credit, Todd is treated as receiving the money from his grandmother and, in turn, paying his qualified education expenses himself.
Unless an exemption for Todd is claimed on someone else's 2013 tax return, only Todd can use the payment to claim an American opportunity credit.
If anyone, such as Todd's parents, claims an exemption for Todd on his or her 2013 tax return, whoever claims the exemption may be able to use the expenses to claim an American opportunity credit. If anyone else claims an exemption for Todd, Todd cannot claim an American opportunity credit.
taxmap/pubs/p970-006.htm#en_us_publink1000204388

Tuition reduction.(p17)

rule
When an eligible educational institution provides a reduction in tuition to an employee of the institution (or spouse or dependent child of an employee), the amount of the reduction may or may not be taxable. If it is taxable, the employee is treated as receiving a payment of that amount and, in turn, paying it to the educational institution on behalf of the student. For more information on tuition reductions, see Qualified Tuition Reduction in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions.