Generally, no, this is not allowed.
However, per IRS
Publication 970 Chapter 2 Page 16: Coordination with Pell grants and other scholarships.
- You may be able to increase your American opportunity credit when the student (you, your spouse, or
your dependent) includes certain scholarships or fellowship grants in the student's gross income.
- Your credit may
increase only if the amount of the student's qualified education expenses minus the total amount of scholarships
and fellowship grants is less than $4,000.
- If this situation
applies, consider including some or all of the scholarship
or fellowship grant in the student's income in order to treat
the included amount as paying nonqualified expenses instead of qualified education expenses. Nonqualified expenses are expenses such as room and board that aren't
qualified education expenses such as tuition and related
fees.
- Scholarships and fellowship grants that the student includes in income don't reduce the student's qualified education expenses available to figure your American opportunity credit. Thus, including enough scholarship or
fellowship grant in the student's income to report up to
$4,000 in qualified education expenses for your American
opportunity credit may increase the credit by enough to increase your tax refund or reduce the amount of tax you
owe even considering any increased tax liability from the
additional income.
- However, the increase in tax liability as
well as the loss of other tax credits may be greater than
the additional American opportunity credit and may cause
your tax refund to decrease or the amount of tax you owe
to increase.
- Your specific circumstances will determine
what amount, if any, of scholarship or fellowship grant to
include in income to maximize your tax refund or minimize
the amount of tax you owe.
- The scholarship or fellowship grant must be one that
may qualify as a tax-free scholarship under the rules discussed in IRS Publication 970, Chapter 1.
- Also, the scholarship or fellowship
grant must be one that may (by its terms) be used for nonqualified expenses.
- Finally, the amount of the scholarship
or fellowship grant that is applied to nonqualified expenses can't exceed the amount of the student's actual nonqualified expenses that are paid in the tax year. This
amount may differ from the student's living expenses estimated by the student's school in figuring the official cost of
attendance under student aid rules.
Related information:
[Edited 3-12-19|7:17 am PST]
