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The term scholarships include both cash scholarships and tuition reductions. § 117(d) – Qualified Tuition Reduction—EMPLOYEE OF AN EDUCATIONAL ORG.(2)Term qualified tuition reduction means the amt of any reduction in tuition provided to an EE of an org described in §170(b)(1)(A)(ii) for the education (below the graduate level) at such org of A.Such employee, orB.Any person treated as an employee(3)Reduction must not discriminate in favor of highly compensated(5)Special rules for teaching and research assistants – in the case of the edu of an indiv who is a graduate student at an edu org and who is engaged in teaching or research activities for such org,Allows a "qualified tuition reduction"to be excluded from gross income in the case of education below the graduate level or at the graduate level if the graduate student is engaged in teaching or research activities.The exclusion invokes the section 132 concept of nondiscrimination: section 117(d) is applicable tohighly compensated employees only on a nondiscriminatory basis. Although a qualified tuition reduction is eligible for an exclusion from gross income, to the extent that the reduction represents payment for research, teaching, or other services required of the student to receive the tuition, the qualified tuition reduction is required to be included in gross income. If required to teach (math) and employee as graduate assistant; qualified tuition will be deemed to be compensation because required to teach a course. Does not include assistance for courses involving sports, games, hobbies.§ 127(c)(1)(A) & (B)Does not require candidate for degreeLimitation (B)(3)oSH or owner = no more than 5%21
§ 127(c)PROBLEMS1. Student working toward an A.B. degree is awarded a scholarship of $15,000 for full tuition and forroom and board during the academic year. The tuition, including the cost of books, is $10,000, and the room and board cost $5,000. As a scholarship recipient, Student is required to do about 300 hours of research for the professor to whom he is assigned. Non-scholarship students, if hired, receive $10.00 per hour for such work. (a) What tax consequences to Student?$ 2,000 remainder of room and board – included Reg. § 1.117-6(c)(2)(ii)$10,000 excluded, $5000 included.Best for IRS$7,000 – Excludable from GI §117(a)$3,000 – Includable in G.I. § 117(c)(1)$5,000 – Reg. § 1.117-6(c)(2)(ii)Excludable from Gross Income: $7000 [ §117 (a)(1)]Includable as Gross Income: ($5000 room and board [§61(a)(1)] + $3000 (300 hrs x $10 = $3,000) research assistant [§117(c)(1)]) = $8000Mediated Positiontuition - $10,000 - $2000 (200 hours x $10) = $8,000$2,000 GI §117(c)(1)$1,000 (remaining amount of work) – includable as GI §117(c)(1)$4,000 remainder of R&B - GI §61