Scholarship taxability to recipient


D

Dick Adams

Let' say I endow a scholarship fund at a community college.
I suggest preferences for a tuition, fees, and books, but
they make the final decision as to the recipient. And
presume the selection process does not run afoul of the
whims of others.

I will classifiy the transaction as a gift. Is there any
reason recipient has taxable income?

Dick
 
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J

JoeTaxpayer

Let' say I endow a scholarship fund at a community college.
I suggest preferences for a tuition, fees, and books, but
they make the final decision as to the recipient. And
presume the selection process does not run afoul of the
whims of others.

I will classifiy the transaction as a gift. Is there any
reason recipient has taxable income?

Dick
You've made a charitable donation.
The recipient isn't taxed for just the things you mentioned, tuition,
fees, books. Room and board isn't part of the deal. So as long as the
school doesn't mistakenly offer that (They must know this already,
right?) the student is without issues.
Joe
 
G

Gene E. Utterback, EA, RFC, ABA

Dick Adams said:
Let' say I endow a scholarship fund at a community college.
I suggest preferences for a tuition, fees, and books, but
they make the final decision as to the recipient. And
presume the selection process does not run afoul of the
whims of others.

I will classifiy the transaction as a gift. Is there any
reason recipient has taxable income?

Dick
Depends on WHO you mean by recipient - the community college or the student
getting the aid, and if its the student we have to look at the amount of aid
compared to the costs.

The endowment will likely be a charitable contribution to you regardless of
what the CC does with the money.

The scholarship money the student receives will almost certainly be tax free
to him UNLESS he receives more in scholarships and tax preference money than
it costs him to attend school. I have a case right now where the student
got $44,000 in scholarships, tuition was just $28K AND she didn't tell mom
and dad about the big scholarship so they cashed out another $15K from the
529 Plan. NOW she has taxable income for the money taken that exceeds
QHEEs.

Gene E. Utterback, EA, RFC, ABA
 
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D

dpb

Dick said:
Let' say I endow a scholarship fund at a community college.
I suggest preferences for a tuition, fees, and books, but
they make the final decision as to the recipient. And
presume the selection process does not run afoul of the
whims of others.

I will classifiy the transaction as a gift. Is there any
reason recipient has taxable income?
Am currently prez of local CC Foundation, a qualified 501(c)(3). I'd
presume the CC in question has such as well through whom this would be
done. If not, I'd rethink the idea or doublecheck on the arrangements
thoroughly. If so, it's a qualified charitable contribution, not a
literally a gift.

Given that it is, like us, I'd be pretty confident like us they'll
ensure they do the awards process such as to maintain their status. :)
The issues of donors wanting excessive control over how funds are
invested and/or used does come up fairly frequently but we simply
sometimes have to decline accepting proposed donations or establishing a
given particular endowment if donor can't abide the conditions. At this
point we've chosen to not undertake the effort required to handle
user-directed endowments as simply beyond our means to administer w/
limited staffing, etc., at least for the magnitude of investment those
who have, so far, wanted such. For enough $$, I'm sure we'd reconsider
in the future... <vbg>

As others have said, scholarships are nontaxable income to the student
for qualified expenses which include the above but not

A last thought -- I'd recommend discussing w/ the Endowment Director
their needs while you're doing this and trying to ensure that the
conditions placed are, while meeting your desires, also those that fit
in with the needs of the institution. Many (in fact, I'd venture most)
endowment foundations are overly-burdened with restricted funds that
have either so restrictive of requirements that there are very few if
any qualified applicants or that the number w/ such similar restrictions
leaves other pools of worthy applicants less fully funded or even not
receiving any scholarship help at all even if there is, overall,
available $$ that _could_ be given if the restrictions weren't placed on
those funds. We fight that battle annually in that something like 80%
of the total endowment is in restricted fund agreements. If you've not
thought thru such things or had such a discussion, I'd take the liberty
of suggesting you perhaps make the endowment to "unrestricted" funds or
w/ a few restrictions as you feel comfortable in leaving to provide the
institution more flexibility in their awards process. This also, of
course, implies the donor have a considerable belief in the integrity of
the scholarship foundation.

$0.02, imo, ymmv, etc., etc., etc., ..., of course.

--
 

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