Hello again, Karen. You have a very good point with respect to the money not having to be considered a scholarship, but unfortunately, you end up at the same point either way with respect to taxes. If you bring a professional in for a conference and pay his or her travel expenses, then you are still providing taxable compensation
to that person, regardless of what you call the money. Travel expenses paid to a non-student are considered to be taxable income. If the recipient of the money is self-employed, then the travel reimbursement
would be reported as gross income
and the actual expenses paid would be considered business expenses
. If the scholarship or travel expense money is given to the student, then the actual travel expenses could be deducted on Schedule A
employee expenses if a student were in a financial position to itemize deductions
. As an employee, you are paid wages and if your company pays for travel that isn't considered a separate benefit because you are being paid by your employer. If your employer doesn't pay for your travel expenses or your wages while you are at a conference, then you can deduct those expenses as unreimbursed employee expenses on Schedule A.
There really isn't a difference in the handling of a student and a non-student. When it comes to taxable scholarship money, that money is treated just like wages and other compensation being paid to a worker. The student has an advantage in that much of the scholarship income
(those parts being used for qualified education expenses) are tax-free and many education expenses that are non-qualified education expenses for the purposes of determining the taxability of scholarship money may still be considered allowed education expenses for the purposes of education tax credits
. The specific determination of which expenses are allowed for education tax credits depends on the specific expense, the type of program the student is enrolled in, the number of years the student has attended college, and what education tax credits they have used in previous years and so I can't give any general rules
as to whether these travel expenses will be allowed for the purposes of qualifying for tax credits. Some students will be able to use them for tax credits and some won't.
A very unusual but maybe possible way that your foundation could transfer money tax-free to the students (at least, the student wouldn't pay any taxes) would be if you could arrange for the money to be a gift to the student and the IRS may well have already closed that loophole, since a gift given to a student for educational purposes is the definition of a grant. Grants are covered by the same tax rules
as scholarships and fellowships. The IRS may consider any gift of money given to a student by an organization to be a grant covered by the same tax rules as a scholarship or a fellowship, rather than a gift covered by the normal gift tax
rules. A gift is not taxable to the recipient, but it can be taxable to the giver. An individual can give up to $13,000 (in 2009) to a recipient in a year without the gift being taxable to the giver. A gift is defined as something given for no value in return
or for less than full consideration (an equivalent amount of goods or service) in return. The IRS could consider that the presence of the student at the conference and the contributions of the student would be equivalent value to the travel expenses. There is also an education exclusion for taxability of a gift if the gifter pays tuition for the giftee. However, your organization is not paying tuition, so the educational exclusion wouldn't apply. Usually, the gift rules are used for giving money to relatives or heirs. Gifts and gift taxes are covered in Publication 950, Introduction to Estate and Gift Taxes
. I've never heard of gifting being used in a situation such as we are discussing, so I don't know whether it is even a reasonable possibility.
You can follow up these issues with the IRS by either hiring a local CPA or tax lawyer to deal with the IRS on your behalf if you don't want to take the time personally (if your outreach program hires the CPA or tax lawyer, it would be a deductible
expense), you can talk to an IRS agent personally by calling 1-800-829-1040, or you can find your local Taxpayer Assistance Center (local IRS office) by looking in the phone book under the US Government
pages, Internal Revenue Service
and make an appointment to talk to an IRS agent in person.
I hope this answers your questions. Please let me know if you need more information.