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Megan C
Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 14095
Experience:  Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
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My son will be given Japanese yen on a monthly basis for the

Resolved Question:

My son will be given Japanese yen on a monthly basis for the next two years to help him pay for his tuition, fees, books and room and board while he attends the University of Tokyo in Japan. Does he have to report this as income on his US income tax return?
Submitted: 1 year ago.
Category: Tax
Expert:  Megan C replied 1 year ago.

MyVirtualCPA :

Thanks for asking your question! I'm sorry to hear about your tax issue and I'm going to try my best to help you understand or resolve it.

MyVirtualCPA :

Are these funds a gift or a loan? If so, there is no tax on the funds

MyVirtualCPA :

Is he an American citizen and are the funds coming from a foreign source? If so, if the amount is over $100,000 he will have to declare it on form 3520

Customer:

Yes he is an American citizen and will be coming from the school itself (therefore foreign). It will not be anywhere near $100,000, but if so what currency exchange rate would I use?

MyVirtualCPA :

Is this a scholarship or grant?

Customer:

I'm not sure what the difference is, but I know he will not have to pay it back.

MyVirtualCPA :

Okay in this event, since he is attending a foreign school the award would be taxable

MyVirtualCPA :

You would use the exchange rate at the end of the year to figure the amount

Customer:

While getting his BS degree he was able to apply his tuition, fee, books expenses such that he would only pay taxes on any excess left over. So are you telling me that he can or cannot do the same with the funds from the Japanese school?

MyVirtualCPA :

The school has to be accredited by a US Department of Education area

Customer:

How would I find out whether the University of Tokyo, which is one of the top schools in the world, is accredited by a US Department of Education area?

MyVirtualCPA :

You could ask the school, and they should be able to tell you straight away

MyVirtualCPA :

Here's a good article on what is taxable vs not taxable

MyVirtualCPA :

http://www.fastweb.com/college-scholarships/articles/35-is-your-scholarship-taxable

MyVirtualCPA :

Do you have any further questions?

MyVirtualCPA :

If not, please rate my response as "excellent" so that I may receive credit for assisting you today

Expert:  taxmanrog replied 1 year ago.

Welcome to Just Answers! Thank you for giving me the opportunity to assist you! I will do my best to help!

 

I am happy to hear that your son has received such a gift! My daughter is a senior in high school right now and we are looking for scholarships for her!

 

 

The good news is that if the tuition is used for qualified higher education expenses, it DOES NOT HAVE TO BE at a school that is accredited by the US Department of Education. The taxability of scholarships is controlled by Internal Revenue Code §117.

 

 

To be tax free, Internal Revenue Code (hereinafter "IRC") §117(a) says that gross income does not include any amounts received as a qualified scholarship paid to an individual who is a candidate for a degree at an educational organization as described in IRC §170(b)(1)(A)(ii). A qualified scholarship is defined in IRC §117(b)(1) as any amounts received by an individual as a scholarship or fellowship grant to the extent that the individual uses the amount for qualified tuition and related expenses.

 

 

If we look at IRC §170(b)(1)(A)(ii) for the definition of an educational organization, we find that it is " an educational organization which normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on." Period. End of definition. It says NOTHING about having to be accredited by the US Dept of Education!

 

 

The University of Tokyo, one of the finest higher education institutions in the world, definitely maintains a regular faculty and curriculum and normally has a regularly enrolled body of students. Therefore, the amounts received by the student ARE TAX FREE to the extent that they are used to pay for tuition, books and related fees.

 

 

I hope this helps you! And congratulations on the scholarship!

 

 

If you have any more questions, please feel free to ask!

 

 

Have a great weekend!

 

 

Roger

Expert:  Megan C replied 1 year ago.
Hello,

Sorry for any confusion. There is no requirement for the school to be accredited...just that it must meet the requirements set forth in IRC §170(b)(1)(A)(ii) which defines the institution as "an educational organization which normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on."

So, based on our conversation (which I was unable to finish with you) Your scholarship would NOT be taxable.

Please let me know if you need anything additional. If not, please rate my response as "Excellent" so that I may receive credit for assisting you today.
Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 14095
Experience: Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
Megan C and 3 other Tax Specialists are ready to help you

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