Cathy Coed is a full-time senior student at Big Research University (BRU). Cathy
ID: 2542597 • Letter: C
Question
Cathy Coed is a full-time senior student at Big Research University (BRU). Cathy is considered by most as a brilliant student and has been given a $35,000-per-year scholarship. In the current year, Cathy pays the following amounts to attend BRU:
Tuition $26,000
Required Lab Fees 300
Required Books and Supplies 1,000
Room and Board 7,500
What are the tax consequences (i.e., how much is income) of the $35,000 current year’s scholarship to Cathy? In answering this case, use RIA Checkpoint, and cite only the Internal Revenue Code in your memo.
Required: After researching the tax code in RIA Checkpoint, prepare, in good form, a short research memo for the client file stating the issue(s), conclusion(s), and rationale for your conclusion(s). Use only the Code as your authority.
Style: The memo should not exceed one page, one-inch margins, Times New Roman font at 12 point, single-spaced. Use good form and check your writing against the “EAGLE Online Writing
Tutorial” checklist
Explanation / Answer
Issues:
Conclusions
Rationale:
As per IRC Topic 421,
Scholarships, fellowship grants, and other grants are tax-free if meet the following conditions:
However it is specifically given in the text to include in gross income Amounts used for incidental expenses, such as room and board, travel, and optional equipment.