Academic journal article Journal of Accountancy

Scholarships

Academic journal article Journal of Accountancy

Scholarships

Article excerpt

According to Internal Revenue Code section 117, scholarships must cover tuition, fees, books, supplies and related educational equipment if they are to be excluded from gross income. Scholarships for room, board, travel and incidental living expenses are included in gross income. The portion of any scholarship used as payment for teaching, research or other services required as a condition for receiving the qualified scholarship also is taxable as gross income. The US. Supreme Court, in Bingler v. Johnson (394 US. 741, 1969), said such comperasatory scholarships can only be excluded if they are "relatively disinterested, `no-strings' educational grants, with no requirement of any substantial quid pro quo from the recipient."

Now consider these facts: A law school grants scholarships and tuition reductions to its students who agree to practice their profession, following graduation, full-time for a specified period in public, not-for-profit or other lower-paying sectors of the legal profession. Grants constitute up to two-thirds of the tuition. The graduates are not required to work for, nor are they under the direction of, the law school. They can choose their own specialties, but their salaries are limited during the period when they are providing public services. Are these scholarships exempt or are they earned income and taxable to the recipients? …

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