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Part $1$

Answer each of the$$ following:

a$.$

Define the term scholarship as it is used in Sec. $117.$

b$.$

If a scholarship covers room and$$ board, is it$$ excludable?

c$.$

If an employer provides a scholarship to an employee who is on leave of$$ absence$,$ is that scholarship$$ taxable?

d$.$

Is the amount paid by a university to students for services excludable from the$$ students' gross$$ income?

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Part $1$

a$.$ Define the term scholarship as it is used in Sec. $117.$

A$.$

A scholarship is an award given to an undergraduate degree candidate in exchange for services performed while attending the university.

B$.$

A scholarship is an award made for$$ religious, charitable,$$ scientific, educational,$$ artistic, literary or civic achievement.

C$.$

A scholarship is a state mandated set amount of money that is given to degree candidates who are attending state universities.

D$.$

A scholarship is an amount paid or allowed to a degree candidate to aid the individual in pursuing his or her studies.

Part $2$

b$.$ If a scholarship covers room and$$ board, is it$$ excludable?

A$.$

The exclusion is not limited to amounts awarded for$$ tuition, books,$$ fees, supplies, and equipment. As a$$ result, if a scholarship either exceeds the total amount of qualifying$$ expenses, or$,$ alternatively, the scholarship is specified as being for nonqualifying$$ expenses, the scholarship will still be nontaxable.

B$.$

The exclusion is limited to amounts awarded for$$ tuition, books,$$ fees, supplies, and equipment. As a$$ result, if a scholarship either exceeds the total amount of qualifying expenses$$ or$,$ alternatively, the scholarship is specified as being for nonqualifying$$ expenses, the scholarship will be at least partially taxable.

C$.$

The exclusion is limited to amounts awarded for$$ tuition, and room and board. As a$$ result, if a scholarship either exceeds the total amount of qualifying$$ expenses, or$$ alternatively, the scholarship is specified as being for nonqualifying$$ expenses, the scholarship will become fully taxable.

D$.$

The exclusion is limited to any college$$ expenses, including,$$ tuition, books,$$ fees, supplies,$$ equipment, and room and board. As a$$ result, if scholarship income is used on$$ non$-$educational purposes, that amount will become taxable.

Part $3$

c$.$ If an employer provides a scholarship to an employee who is on leave of$$ absence$,$ is that scholarship$$ taxable?

A$.$

If an employer provides a scholarship for an employee to obtain a higher$$ degree, that scholarship income is not taxable to the employee providing the higher degree will assist the employee in doing a better job for the employer.

B$.$

It is likely that such a scholarship will be viewed as compensation for future$$ services, and$$ will, therefore, be taxable. The expenses incurred by the employee may be deductible education expenses.

C$.$

Scholarship money provided by an employer to an employee is never taxable to an$$ employee, regardless of whether the employee is on leave of absence or still working. The scholarship money is never considered compensation.

D$.$

Any scholarship money an employer provides to an employee will be taxable to the$$ employee, providing that employee is taking a leave of absence to obtain a higher degree. If the employee is continuing to work for the employer while obtaining the$$ degree, the scholarship money will be nontaxable to the employee.

Part $4$

d$.$ Is the amount paid by a university to students for services excludable from the$$ students' gross$$ income?

A$.$

No$.$ At least$85\%$ of the amounts will be included as taxable income under dividend income.

B$.$

Yes. The amounts will be distributed as$$ tax$-$free providing the money goes back to the university for educational purposes.

C$.$

No$.$ The amounts will normally be taxable compensation.

D$.$

Yes. The amounts are considered a gift for educational purposes.