Memorandum-to-the-File

Date: November 16, 2014
From: Gregory Foublasse
Re: Taxability of Ann’s Salary, Scholarship, and School Expenses

Facts:
Anne is in graduate school at State University. Anne received a $1000 scholarship. Although her tuition is $8000, because she is a half-time teaching assistant her tuition is waived, and she receives a salary of $7000 a year. She incurred a cost of $500 for books and supplies, in addition to $7400 in living expenses.

Issues:
How do her various form of income and compensation affect her overall Adjusted Gross Income. 1. How does the scholarship affect her AGI? 2. How does the teaching assistant payment affect AGI? 3. How does her waived tuition affect her AGI? How do her other expenses affect her AGI?

Applicable Law:
Section 117 provides that 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. Under Sec. 119(b)(1) A qualified scholarship is described as “any amount received by an individual as a scholarship or fellowship grant to the extent the individual establishes that, in accordance with the conditions of the grant, such amount was used for qualified tuition and related expenses.” These expenses are clarified in Sec. 119(b)(2) to include “tuition and fees required for the enrollment or attendance” and “fees, books, supplies, and equipment required for courses of instruction”.
In regards to the teaching assistant payment; Section 117(c)(1) states that this exclusion from gross income “shall not apply to that portion of any amount received which represents payment for teaching, research, or other services by the student required as a condition for receiving the qualified scholarship or qualified tuition reduction.”
The tuition waiver is addressed under Section 117(d)(1) and Sec. 117(d)(2) state