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Abstract

Two years ago one of the authors published an article surveying the tax ramifications of prepaid college tuition plans, with a focus on the Michigan plan - the Michigan Education Trust ("MET"). That article took a generally positive view of such plans in general and of MET in particular. It discussed three basic themes: 1) the uncertainty of existing tax law with respect to prepaid tuition plans requires clarifying congressional legislation; 2) the position of the Internal Revenue Service ("Service") with respect to prepaid tuition plans, as enunciated in a private letter ruling addressed to MET, is flawed; and 3) the position that prepaid tuition plans are basically a good idea, that deserve tax-favored treatment in any clarifying congressional legislation in order to be successful. Commentary by other authors undoubtedly bears out the first theme. The novelty of prepaid tuition plans and their sheer lack of fit with existing Internal Revenue Code provisions make predicting the tax consequences of such plans more an exercise in speculation than in legal analysis. Perhaps one could do as well by casting lots or throwing darts as with the Code and regulations. Moreover, the commentators have generally agreed that the Service's position is flawed, although for widely varying reasons.

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