September 26, 2005
Scott Defisks HoNDA Sect. 6: Coverdell Accounts
SEC. 6. CLARIFICATION OF THE COVERDELL EDUCATION SAVINGS ACCOUNT AS TO ITS APPLICABILITY FOR EXPENSES ASSOCIATED WITH STUDENTS PRIVATELY EDUCATED AT HOME UNDER STATE LAW.
(a) In General- Paragraph (4) of section 530(b) of the Internal Revenue Code of 1986 (relating to qualified elementary and secondary education expenses) is amended by adding at the end the following new subparagraph:
`(C) SPECIAL RULE FOR HOME SCHOOLS- For purposes of clauses (i) and (iii) of subparagraph (A), the terms `public, private, or religious school’ and `school’ shall include any home school which provides elementary or secondary education if such school is treated as a home school or private school under State law.’.
(b) Effective Date- The amendment made by subsection (a) shall apply to taxable years beginning after the date of the enactment of this Act.
Chris says, “Anytime the federal law includes the phrase ‘Special Rule for Home Schools’ your spidey senses should start to tingle.”
Chris argues that this tax benefit will cause the IRS to write up a list of acceptable homeschool expenses, which will lead to abuses by scuba-diving homeschoolers, which will lead to congressional hearings, etc., etc.
His argument trails off at that point. I can’t tell whether the outcome is that people can no longer claim a scuba-diving trip as a legitimate Coverdell Account expense, or that Congress comes swooping in to shut down your homeschool.
I think the former is more likely: in Chris’s worst-case scenario, after all the shouting and fury is over, you won’t be able to go scuba-diving on a Coverdell Account. I, personally, can live with that prospect, since I can’t go scuba-diving on my Coverdell Account right now.
Homeschoolers can’t use Coverdell Accounts for anything, right now.
Chris can’t be arguing that we shouldn’t try to get Coverdell Accounts because there might be abuses that mean we won’t be able to use them for scuba diving. Could somebody help me understand what he is saying?
Comments
He's saying that the IRS (or anyone else for that matter) should not be determining what is, or isn't, a legitimate homeschooling expense. What parents choose as educational materials should not be subject to government scrutiny, approval or denial. It's absolutely inane to give up one's freedom to choose one's curriculum materials and have them subject to IRS audit, for a 'savings' account with dubious qualities. As an investment, it can loose value. It can be subject to management or maintenance fees which exceed the tax 'savings'. For what? So some rich person somewhere can shelter up to $2000. a year? Put it in tax free muni bonds - no restrictions on the amount or the use. And no going begging to the IRS for approval of a family's educational expenses.
Drumming up business for the IRS? Must be a new division of HSLDA. I can see it now - the HSLDA Tax Division: "Representing Home Schoolers At Their IRS Audits"
Mary
Posted by: Mary at September 26, 2005 09:52 PMI thought the argument was that unless you could 'write off' a scuba trip, the tax savings are insignificant given the potential for government oversight. It wouldn't pay for us to use one - at least not today.
On the other hand, Coverdell's are voluntary. I think most would opt not to use them if it meant dictation of curriculum, etc.
Posted by: Eric Holcombe at September 27, 2005 08:54 AMOf course, there is always the option to not take the deduction / credit. My fear is that the IRS rules will trickle down to the states and become de facto standards for what is and isn't homeschooling.
Take this scenario...
Happy Homeschooler (no relation to the blog) lives in a state with reporting requirements and some legal responsibility to be "in school" 180 days a year. She can document 175 days of schoolwork last year, plus 7 days scuba diving with her 17 year old daughter who has a full ride scholarship next year in Marine Biology. Some state bureaucrat is determining if she met the legal requirement and he has in his hands an IRS ruling that travel expenses are not deductible as home education expenses for Coverdell purposes...
Far fetched? Maybe, may be not.
Posted by: COD at September 27, 2005 12:04 PMParents are not able to take advantage of the Education Savings Account unless they comply with the federal rules that established the account. A change in Federal legislation regarding the Coverdell Education savings Accounts is simply one more way that homeschoolers will be included in a category of parents who must endure federal regulation. Until now, the Internal Revenue Service had no ability to review anything about homeschooling. With implementation of this bill, yet another agency of the federal government will be authorized to intrude on and regulate the activities of a homeschooling family. With implementation of this bill, the IRS will have a new definition of homeschooling.
While it sounds laudable to include homeschool families under this section of the IRS code, the statement ‘if such school is treated as a home school or private school under State law' is problematic for homeschoolers in states which do not currently ‘treat’ them under state law. In order to qualify for a small tax benefit, states would need to enact laws which would ‘treat’ homeschoolers as a home or private school, thereby removing any independence homeschoolers in those states now enjoy.
Briefly, the Education Savings Accounts may be used to pay for elementary or secondary educational expenses related to enrollment or attendance at an eligible school for a designated beneficiary (child) such as tuition, books, tutoring, special needs services, room and board, uniforms and transportation. Computer equipment is included if it is used for educational purposes. The educational institution should be able to tell you if it is an eligible educational institution. Up to $2000 may be added to each child’s account each year by qualifying parents and relatives and the money then belongs to the child. It is counted as the child’s asset and income when applying for education loans. If it is not used by the time the child is 30 years old, it becomes theirs. It should also be noted that trustee fees to manage the account may exceed the tax-free interest earned and in order to access this type of tax benefit, parents are required to file a tax return.
If families want to use their own money to pay for the education of their own children, they can do so right now with no government rules attached. Another alternative to a government program would be to open a tax-free no-load mutual fund to save for your child’s education. To learn more about this type of investment program visit web sites like: http://www.troweprice.com/mutual/fixed/investingTaxFree/0,3285,lnp=10094&cg=910&htmlid=39,00.html
Because these are private mutual fund investments, none of your fellow homeschoolers would have their freedom threatened by federal regulation so you could qualify. No state would have to institute homeschool laws to treat homeschools "as a home school or private school under State law" in states which currently do not regulate them as such. Additionally, you and your family members would be able to save for your child without any limits on the amount you set aside and your educational choice will not have to be approved by the government.
Homeschoolers need to assess whether this small tax benefit is worth trading for legislation regulating homeschools in those states which do not currently do so. To learn more about Coverdell ESA’s (Educational Savings Accounts) either request IRS publication 970 - Tax Benefits for Education – or visit their web site at http://www.irs.gov/formspubs/page/0,,id%3D104276,00.html#T73
Federal legislation that is being considered (HR3753/SB1691) to revise to the change the IRS code regarding Education Savings Accounts is totally unnecessary and will only invite further reporting requirements and regulation for homeschoolers!
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Hmmm..if I check my crystal ball of the future... Do I see HSLDA lawyers representing homeschoolers at IRS audits now ?? That could mean some serious income for HSLDA... gee Mr Farris, do I hear the "kah-ching" at the cash box" ...
In my 13 years of working at HSLDA, I've become used to a standard style of opposition. HSLDA proposes or supports something, and then HSLDA opponents write up scenarios of what will happen if HSLDA succeeds. The arguments on this thread are good examples of the general approach.
I'd like to pose an honest question about this approach. Would it be fair to call it "fearmongering"? If not, why not?
Posted by: Scott W. Somerville at September 27, 2005 03:39 PMYou mean like how HSLDA marketing literature implies that you are in grave danger of the mean ole government men knocking on your door at any time - and you'll need that pre-paid hotline to HSLDA to save your family when they do.
Is that what you mean by fear mongering?
Sorry Scott - but you so set yourself up for that one. My readers would have been very disappointed if I let it go without a snarky retort :)
You've stated yourself that some of HoNDA will make your job easier next year. I'm sure your salivating at the thought of dropping a federal regulation on the desk of some PITA financial aid counselor at a 3rd tier college. Honestly, I can't say I'd feel any different if I had your job.
However, like Judy and others, I believe that adding the Feds to the mix in any way will bite us in the ass later. It's not fear mongering if there really is something to be fearful of. And the IRS getting involved in HS'ing scares the hell out of me.
Scott Somerville wrote:
"In my 13 years of working at HSLDA, I've become used to a standard style of opposition. HSLDA proposes or supports something, and then HSLDA opponents write up scenarios of what will happen if HSLDA succeeds. The arguments on this thread are good examples of the general approach."
But what if your 'opponents' are correct?
Posted by: Mary at September 28, 2005 01:38 PMBoth Mary and Chris have taken me up on what truly is a very honest question. I appreciate both responses.
Mary asks, "What if your opponents are correct?" In the thirteen years I've been at HSLDA, I have seen article after article in Home Education Magazine or other sources that have made predictions about damage that would result from HSLDA actions. Could you (or anybody else) look up just ONE of those predictions for me and give me some evidence that it actually occurred?
And Chris, could you provide a link to a current example of any "HSLDA fearmongering"? You may find there is less of it out there than might think.
Posted by: Scott W. Somerville at September 28, 2005 02:01 PMThat tactic doesn’t work anymore, Scott.
No having an answer, he turns it back onto the questioner to divert attention away from HoNDA and towards his perceived opponents. I can only assume he's hoping no one will notice he isn’t answering the question.
Bottom line: do homeschoolers want homeschooling to be regulated by the federal government?
and who stands to gain if homeschooling is regulated by the federal govenment?
Is that 'fear-mongering' or an assessment? Why don't we let homeschoolers decide!
Wouldn't that be novel for HSLDA...
>>> In the thirteen years I've been at HSLDA, I have seen article after article in Home Education Magazine or other sources that have made predictions about damage that would result from HSLDA actions. Could you (or anybody else) look up just ONE of those predictions for me and give me some evidence that it actually occurred?
Maybe the complications didn't happen because of the grassroots opposition to the actions?
Btw, I don't have time to go looking up all the past actions; too busy trying to cope with the latest one (plus 'life'). Maybe someone else has them handy?
Posted by: Valerie at September 28, 2005 03:48 PMScott, my impression is that HSLDA has toned it down a bit the last few years - but I honestly don't pay close enough attention to know for sure.
What I do know is that in 1998 when I moved to VA "everybody" told us we had to join HSLDA - so I dutifully submitted the information request and got the HSLDA propaganda in the mail. Really, I didn't know you guys from the NEA at the time.
What I remember about that literature is
1. It was a scare job, not that that really bothers me. I am in sales - a little exaggeration to close the deal is fine.
2. You weren't guaranteeing to help anybody. However, "everybody" thought they had legal insurance - which they didn't. The literature implied that you were buying protection without ever actually saying it, and of course in the fine print, it stated very clearly that HSLDA was not obligated to anything.
My decision to not join HSLDA back then was predicated more on the tone of the marketing literature than any philosophical differences. We were new HS'ers - we didn't have a philosophy. It was later (after many conversations with Will Shaw) that I came to believe HSLDA could be a threat to homeschool freedoms.
Posted by: COD at September 28, 2005 08:07 PMO.K., Scott, can you please explain to me why you think that anything has changed with the feds since the last time you floated this bill?
I told you last time that if I had to do the legal research for you guys that you ought to anti up the bucks that I normally charge for that kind of work. You guys make the big bucks and ought to be doing your own homework!
Nothing has changed and everything still applies. IF you put something into federal law the feds will define it. Period.
AND, it is not unconstitutional for them to do so because YOU guys asked them to include homeschoolers. You have no leg to stand on in court if you don't like the results.
Y'all need to get out of the federal law business or figure out how the feds really work. Asking Santorum won't do you any good since he obviously couldn't figure out the difference between public schooling and homeschooling and whether or not he was a legal resident of one state or the other!
Posted by: Lynda at September 28, 2005 10:18 PMScott wrote: "I've become used to a standard style of opposition. HSLDA proposes or supports something, and then HSLDA opponents write up scenarios of what will happen if HSLDA succeeds."
Anyone who criticizes HSLDA is classified as an "opponent". Terming those who don't agree "opponents" is creating a divide among homeschoolers. However, we are all homeschoolers, we are all ON THE SAME SIDE.
So why does HSLDA continue to do things, like introduce this legislation they already learned in 2003 was divisive and unwelcome in our community, again?
Why, Scott, why? Why is it so important to divide our community up into "those who back HSLDA" and "opponents"? Perhaps HSLDA is the "opponent"? Who grants that status? Or is it just easier to dismiss critics by labeling them "opponents"?
Posted by: Mary at September 29, 2005 01:27 PMI'm not trying to be a jerk about this, folks, but I've posed two very sincere questions and am going to keep posing those questions until somebody answers or until people drop this thread.
(1) Can you provide a CURRENT example of "HSLDA fearmongering"?
(2) Can you provide one example of PAST criticism of HSLDA's federal legislative languange that has proven to be accurate?
If people keep giving me nonresponsive answers, I'll start digging through old articles and websites to remind you of the kinds of "criticism" that I'm thinking about.
Posted by: Scott W. Somerville at October 3, 2005 11:43 AMIf the comment entry box is gone it's because comments are closed for this entry. Please feel free to use the "contact" link above to get in touch.