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Christopher Phelps
Christopher Phelps, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 2710
Experience:  CPA, CFP, PFS, Tax Practitioner 21 Years, Member AICPA/CSCPA Tax/Financial Planning Committee Member
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tax exempt stipend$

Customer Question

Customeris a quadropelegic who uses his mouth to paint. Jeff has been awarded a scholarship with the Mouth & Foot Painter's Association. He has also become a full member. Recently Jeff has been invited to attend an artist's convention in Shanghai, China. Speaking with the other artists there Jeff learned that they do not share the financial difficulties that Jeff does. They said he should not be paying taxes on his stipend money. Jeff has been paying faithfully for years. They also suggested he hire an accountant. We are certainly looking into that, but need to do some research first. Please help us to understand the stipend laws and the limit if any to how much of the stipend money can be tax-exempt.
Submitted: 11 years ago.
Category: Tax
Expert:  Christopher Phelps replied 11 years ago.
 

Any amount received as a qualified scholarship by an individual who is a candidate for a degree at a qualified educational organization, which normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance where its educational activities are regularly carried on, is excluded from that individuals gross income (IRC Sec. 117, Reg. Sec. 1.117-1).  A qualified scholarship includes any amount received by an individual as a scholarship or fellowship grant so long as the amount was used for qualified tuition and related expenses such as fees, books, supplies and equipment required for the courses of instruction at the qualified educational organization.


 


The exclusions will not apply to amounts for qualified scholarships representing payments for teaching, research or other services provided by the student that are required as a condition of receiving the scholarship.  Also, scholarship amounts spent on room and board will also be taxable as gross income.


 


Thus, to the extent Jeff uses the scholarship funds on the qualified expenditures listed above, they will not be taxable.  To the etent Jeff has reported these scholarships as income in the past, he should amend his tax returns for all open years (generally, the last three tax years) and get a refund of any taxes paid as a result of reporting these amounts as income.


 


I would suggest retaining a qualified CPA to file these but if you want to do it on your own just go to www.irs.gov and get the form 1040X and follow the instructions.

   
Christopher Phelps, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 2710
Experience: CPA, CFP, PFS, Tax Practitioner 21 Years, Member AICPA/CSCPA Tax/Financial Planning Committee Member
Christopher Phelps and 2 other Tax Specialists are ready to help you
Customer: replied 11 years ago.
Reply to Christopher Phelps's Post: Thank you for your response! I am going to find a cpa and also check out the www.irs.gov. I greatly appreciate your help. -J LaDow

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