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We are a 501c3 nonprofit organization and one of our grants

Customer Question
wants to give a $686...
We are a 501c3 nonprofit organization and one of our grants wants to give a $686 one-time "scholarship" to 12 people. I put "scholarship" in quotes because we have nothing to back up that it is a "scholarship".   The PI was planning to send a letter with the checks congratulating them on receiving the "scholarship". (1) What documentation do we need to be able to call these disbursements a "scholarship" and (2) is this money a 1099 event since it is over $600? 2 of the people are residents of the US and 10 reside in other countries.
Submitted: 9 years ago.Category: Tax
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10/2/2008
Tax Professional: Ed Johnson, Tax Preparer replied 9 years ago
Ed Johnson
Ed Johnson, Tax Preparer
Category: Tax
Satisfied Customers: 10,760
Experience: GPHR Cert; U.S. Treasury Tax Advocacy Panel appointee
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DearCustomer

 

Can you tell me waht is a PI?

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Customer reply replied 9 years ago
PI stands for Principal Investigator and the tax deductible comment is not relevant because we are non-profit. Thanks!
Tax Professional: Ed Johnson, Tax Preparer replied 9 years ago

DearCustomer

 

Thank you. I understand the tax deductible part as a non-profit. That phase is part of my permanent signature.

 

But, for the record. It is possible for a tax exempt non-profit to incur income that is taxable.

 

The payment of fees here for information regarding your business operations may also be included as a business expense.

 

Regarding the scholarship.

 

Typically when a client donates money to your for a specific cause or function, it becomes a restricted use donation.

 

This means it had to be used for the scholarship.

 

The only thing you had to do was to enter the donation into the books by purpose, and note it in the diary.

 

so the balance sheet should show donation for scholarships, then the amount.

 

Second. every corporation and non-profit should have a diary for significant events. A restricted use donation, whether or not it meets the charter purpose, should be considered significant. You would note it in the diary.

 

When you get such a donation, while it is not required, a memo or procedure needs to be documented that outlines how the scholarships were awarded, and the candidate selections.

 

It need only be a one pager: i.e. "Scholarship Selections (restricted donation of named person).

 

This is important that you make a memo indicating who was on the selection board or committee and who applied, and who won and who did not. (protects you in an audit).

 

 

 

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Customer reply replied 9 years ago
Yes, I understand we can have unrelated business taxable income. This is for a grant with NIH, Office of Aids, that we are managing where it states that some of the money is for travel scholarships. My question is whether it is a 1099able event as a scholarship. Thanks!
Tax Professional: Ed Johnson, Tax Preparer replied 9 years ago

DearCustomer

 

Thanks for the addtitional information.

 

if I am to assume this is a qualified scholorship, then it is

 

qualified scholorship: http://www4.law.cornell.edu/uscode/26/117.html

 

There is no reuirement to issue a 1099 for qualified scholorships. You may, but it is not required. If you do, it is reported on a1099 (citizens and legal permanent residents).

 

You did not indicate if the persons living overseas were citizens or legal permanent residents. if they are foreign nationals, not legal permanent residents or citizens of the U.S., then they have the scholorships reported on form 1042 S.

 

The exception to reorting of scholordhips to citizens and legal permanent residents is if there is a service requirement to obtain the scholorship. (they had to work, for example).

 

so the basic rules are:

 

. A scholarship or fellowship is not reportable if:
a. Recipient is a candidate for a degree at an educational institution and
b. The grant is a qualified scholarship or fellowship


2. Payments to scholarship, fellowship or stipend recipients are not reportable by to the IRS except for the following:

a. Payments are made to a Non-Resident Alien
b. There is a service requirement

 

 

Ed Johnson
Ed Johnson, Tax Preparer
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