If I am being asked to pay back the refundable portion of the AOC from 2016, does that mean the IRS has completely removed this credit from my 2016 tax return?

[Srumley0001]

Hello. I received a letter from the IRS saying I wasn’t qualified to claim the American Opportunity Credit in 2016, and asked me to pay back the refundable portion I received. If they say I was not qualified and are making me pay that money back, does that mean the AOC was removed from my 2016 tax return via the IRS? Do I need to amend 2016 to completely remove it? 

I want to claim the AOC for 2019 because I still have qualifying education expenses. If I’m being asked to pay back 2016, does that free up a year to claim the AOC? 

[DavidD66]

It does not mean they are "removing" the entire credit.  It means you weren't eligible for the refundable part of the credit.  When you're eligible to claim a credit that's refundable and if it's more than your total tax liability, the Internal Revenue Service will send you the balance of the money. By contrast, a nonrefundable credit can only reduce your federal income tax liability to zero. Any part of the credit that's left over is not refunded back to you.

Most tax credits are non-refundable, meaning that once a taxpayer's liability is reduced to zero, that’s the end of it. However, the AOTC is not one of them, as 40% of the credit is refundable. This partial refund means that if the student’s tax liability has been reduced to zero with AOTC, they may still receive 40% of the remaining credit, up to $1,000, as a tax refund from the Internal Revenue Service (IRS).

This would not "free up" a year to claim the AOC again.

[Hal_Al]

Look at line 50 of your 2016 form 1040.  If there is an amount there, it means you also claimed the non-refundable portion of the AOC.  Since you say the IRS only asked you to pay back the refundable portion, I assume they did not ask you to repay the line 50 amount too.

If the line 50 amount is not enough to justify using one of your 4 AOC years; then yes, you need to amend 2016 to remove it.

On the other hand, if line 50 is blank and there is only the refundable amount on line 68; you do not need to amend, as the IRS has disallowed it and it will not count as one of your 4 times.

@DavidD66  - Do you concur with this opinion?

[DavidD66]

A couple of very good points made by @Hal_Al - I do concur with your opinion.

[Srumley0001]

Where can I find this line? Is the 1040 part of the original return or will I find it on my amended return? I'm assuming on my original return. Is there any way you can clarify exactly where I can find this line? 

[SusanY1]

The refundable amount in 2016 was on Line 8 of Form 8863 and transferred to Line 68 on Form 1040.

[Srumley0001]

I don’t believe I’m looking for the refundable portion, I’m looking for the nonrefundable amount I received 

[MaryK4]

Line 50 of Form 1040 for 2016

@Srumley0001

[Hal_Al]

The rules for claiming the refundable and non refundable portions of the AOC are the same, except the refundable portion has this additional rule: the student does not qualify for the (up to) $1,000 refundable portion of the American Opportunity Credit (AOC) if items 1, 2, and 3 below apply to him. 

1. He was:
.....a. Under age 18 at the end of 2019, or 
......b. Age 18 at the end of 2019 and his earned income was less than one-half of his support, or 
......c. A full-time student over age 18 and under age 24 at the end of 2019 and his earned income was less than one-half of his support .
2. At least one of his parents was alive at the end of 2019.
3. He is not filing a joint return with his spouse for 2019.