Question

Anna is a graduate accounting student at the local university. She is the recipient of a $1,000 scholarship from the university. In addition, Anna works as a part time teaching assistant in the school of accountancy. She is paid $3,000 per calendar year and receives a tuition waiver covering 100 percent of her tuition. If not for the waiver, Anna would have paid $8,000 for tuition. Further, she paid $400 for books and supplies related to her coursework and incurred living expenses of $6,200. How much gross income Anna must report

Answer 1

Answer: -

Anna must report $7,600 as gross income.

Explanation: -

According to IRS Code, Sec. 117- “Gross income does not include any amount received as

a qualified scholarship by an individual who is a candidate for a degree at an educational

organization”. In order to be considered a “qualified scholarship” Sec. 117(b)(1) further

states that “the individual must establish that any amounts used were for qualified tuition

and related expenses.” Furthermore, Sec. 117(d)(2) also allows from the exclusion of gross

income “any qualified tuition reduction provided to an employee of an organization for the

education of the employee.” Finally, Prop. Reg. 1.117-6(d)(3) further clarifies what amounts

are not allowed to be excluded from gross income and states that “if only a portion of

scholarship or fellowship grant represents payment for services, the grantor must determine

the amount of the scholarship or fellowship grant (including any reduction in tuition or

related expenses) to be allocated to payment for services.”

Therefore,

Ann is allowed to exclude from gross income the $8,000 of tuition that is waived for her by

State University in addition to the $400 that she paid for her books and supplies. The living

expenses that she incurred are not allowed to be excluded from gross income. Therefore,

Ann will must report $7,600 as gross income