Scholarship from Church

[Lion EA]

College student received a $5,000 check written to him from XXX Church Trust with YYY Scholarship in the memo. Taxable? Other Income? Kiddie Tax?

[Lee B]

How did the Trust determine who the $5,000 would be awarded to?

Any relationship between the student and the trust? 

Did the scholarship specify what the money could be used for?

 

 

[Lion EA]

It was called a scholarship but was paid to the student for whatever he wanted. The student has no relationship to the specific scholarship/person whose name in on the scholarship. However, the student attends the church that has the scholarship fund; only church members received scholarships. Grandfather hires me to prepare his grandkids tax returns; he's an investment banker and has invested monies for them since they were born. I talk to the dad once/year to get his return info for Kiddie Tax on his kids' returns. I'll check with dad/church member, but grandfather thinks there was no application nor essay or anything. Grandfather thinks what ever committee at that church just picks a few recipients out of their HS graduates. I'm trying to confirm or get details from dad. Prizes & Awards and taxable? Gift and not taxable?

[Lion EA]

Dad got back to me; situation is different from what I understood from grandfather.

BB Yacht Club scholarship (even though check was written by BB Church). Family is NOT members of the Yacht Club.

Offered annually to all graduating seniors in the DEHS Band.

Essay contest with 3 prizes in the form of a check. My client won 1st place of $5,000.

Check was made out to him personally with the memo " A BB Yacht Club Member's Name Scholarship." (Member wanted to support HS music.) No other paperwork.

No mention, verbal or written, on a restriction on the use of funds.

Knowing this family, though, it was no surprise that they worked the DD Tech to split the funds between 1st and 2nd semesters, applied to student's account via cashier's check. Dad did keep photos documenting all the process, if I need them. I think dad is saying the funds were used for tuition.

[Lion EA]

Anyway to prove this is a gift and no need to report? The closest I find is Prizes & Awards on Schedule 1 for winning with his essay. But, is there anyway to subtract tuition from that? Is there any other place to report this private "scholarship" where I can subtract tuition?

The dad seems to think the scholarship offsets tuition for both fall semester 2023 and spring semester 2024, and worked with the college DD Tech to send them a cashier's check to apply to fall tuition and another cashier's check for spring tuition. But, I feel the student had constructive receipt before his HS graduation in 2023 when he was handed a check written in his name.

[BulldogTom]

7 hours ago, Lion EA said:

Anyway to prove this is a gift and no need to report? The closest I find is Prizes & Awards on Schedule 1 for winning with his essay. But, is there anyway to subtract tuition from that? Is there any other place to report this private "scholarship" where I can subtract tuition?

The dad seems to think the scholarship offsets tuition for both fall semester 2023 and spring semester 2024, and worked with the college DD Tech to send them a cashier's check to apply to fall tuition and another cashier's check for spring tuition. But, I feel the student had constructive receipt before his HS graduation in 2023 when he was handed a check written in his name.

I think you are overthinking it.   It was presented as a scholarship and it was used for tuition.   I think it should be included like any other scholarship when you start looking at the education credits.

Tom
Longview, TX

[Lion EA]

But the parents already took the education credits for their dependent and have possession of the Form 1098-T. (I don't prepare the parents' return.)

So, the parents would subtract the private scholarship from tuition before calculating the LLC or AOC; and the student does NOT report the scholarship on his return?

[jklcpa]

34 minutes ago, Lion EA said:

So, the parents would subtract the private scholarship from tuition before calculating the LLC or AOC; and the student does NOT report the scholarship on his return?

Probably. The amount received isn't a lot when considering cost of higher education costs today. As long as student meets the requirements for the funds to be tax free, he or she can exclude it and sounds as though it may be the case.

Then for the parents, was the net amount paid after reduction for the scholarship still more than the allowed amount so that the credit claimed is still unchanged and correct? If so, then even though the amount of education expenses shown as paid was the incorrect amount, no amendment is needed. 

I agree with Tom that you may be  overthinking this.

[Lion EA]

Yes, without preparing the parents return, I was missing that piece. No Form 1098-T for the student, no knowledge of 529 Plan distributions (I'm sure there were none, because grandfather invests money for grandkids, and I have their consolidated 1099s), savings bonds cashed in for education (again, unlikely), scholarships reported on 1098-T, etc. Student went to an in-state school in a LCOL state with tuition about $10,000. It's going to be close! I'm used to contacting the father each year for the amounts I need for Kiddie Tax. I may be UNDERthinking, because I didn't think to ask about the amounts I need to know for which return needs to report which info for education. I don't remember having a client with a scholarship that didn't appear on Form 1098-T before. Another question I must add to my DD list. Back to dad... Thank you, Tom and Judy, for pointing me to education credits when I got stuck on "scholarship."

[Lion EA]

Ouch. Fall 2023 tuition & fees were $5,415. If parents took any education credit, that leaves at least some scholarship monies taxable to the student.

Family is on vacation in CA as the student's HS graduation present. I think I'll wait until they're home to deliver bad news.

Gotta check with software to find out how to enter this. Earned income, right? Darn.

[jklcpa]

35 minutes ago, Lion EA said:

Earned income, right?

It depends. I believe it is included as earned income for purposes of calculating the student's standard deduction, and any amount above that is unearned and subject to the kiddie tax, that is if kiddie tax applies to this child.  Check me on this though.

[kathyc2]

I've never seen a scholarship paid directly to the student rather than the college.  If the kid could use it for anything, then I don't see how it's a scholarship just because the memo said it is.

I also don't see how it's earned income.

Sounds to me like prizes and awards subject to kiddie tax. 

[kathyc2]

Also guessing that because it was just a check and no tax form, majority of people would ignore it and not tell preparer.

However, since you know about it, you can't ethically ignore it.

[Lion EA]

I know, I started with prizes & awards and kiddie tax. Fund is labeled as a scholarship, and essays were required; committee judged the essays and awarded 3 scholarships. But, I could name my company Dollars & Sense Scholarship...

The good news, if it's a scholarship, is that parents did not claim any education credit. But they also do not have Form 1098-T. Student is retrieving it electronically from the bursar's office. Turns out he doesn't know his password, and they're on vacation. So when they go home.

That means I'll worry and obsess over what this $5,000 is, where to report it, for another week!

Thank you, everyone.

[Lion EA]

From the college's website:

External Scholarships

So you have been awarded an outside scholarship by a church, civic organization, your high school, business, private donor, foundation or any number of external agencies—Congratulations! Billions of dollars are earned by college students every year across the country.

This page will provide a step by step guide on how to notify the Tennessee Technological University (TTU) Office of Financial Aid about your outside/external/private scholarship. Federal regulations require that you notify the University regarding all externally funded (not awarded by TN Tech) scholarships, and we want to make sure all federal regulations are followed.

How to Submit External Scholarships to Tennessee Tech

Please be aware that you are required to notify the Financial Aid Office at Tennessee Tech whether or not the award is paid to you directly by a donor or through the university. You are responsible for ensuring that your Tennessee Tech Financial Aid reflects all scholarship funds that you receive. This is important to ensure that no one inadvertently violates federal regulations regarding total eligibility for other forms of financial aid. When you receive notification of any award from a donor other than Tennessee Tech, please immediately notify the Tennessee Tech Financial Aid Office.

If you, the student, receive a scholarship check from a private entity:

Please submit the scholarship check to the Tennessee Tech Financial Aid Office immediately upon receipt by the donor. Checks should be submitted no later than August 1 for the fall term, December 15 for the spring term, and April 15 for the summer term in order for them to be processed by the first Fee Payment Deadline. Checks submitted after those dates may not be applied in time to assist you with bill payment.

Make sure the scholarship check has your name and Tennessee Tech ID (your T#) listed on the Memo at the bottom of the check. If you go by a nickname or your middle name, be sure to provide your legal first name.

Check to see whether the check is written just to Tennessee Tech, or to both Tennessee Tech and you. If your name is included in the "Pay to the Order of" line, you will need to endorse the check by signing the back of it.

Make a copy of your award letter or any information included with the scholarship check (such as a check stub). We will need a copy of this information, but you should also keep a copy for your records. Then, remit to the Tennessee Tech Financial Aid Office.

[kathyc2]

Sounds like it would be on  1098T then and not your problem.

[Lion EA]

I'm hoping! The dad did mention his son depositing the scholarship check, because the check was in the student's name only, and then dealing with the college to send them 2 cashier's checks (1 for each semester) in a certain way per the college. Son will go online to get the 1098-T and bursar's report when they return from their trip.

[Catherine]

6 hours ago, Lion EA said:

when they return from their trip.

Take a nap until then! Or work on someone else's stuff.

[Lion EA]

Yep, started on another family. Every. Single. Return. has something new and different this year. Same old clients, in fact I fired a few. But my guesstimates on when I'll complete a return or when I'll get to someone #12 in my stack are way off this year due to all the new issues. I also started a load of laundry last night. 

Marchternity

@MarchternityBot

Today is March 1544, 2020. It will never end. #taxtwitter

[Catherine]

On 5/22/2024 at 7:42 PM, Lion EA said:

Today is March 1544, 2020. It will never end. #taxtwitter

Love it - in a horrified "this is SO true" sort of way.

[WITAXLADY]

I worked for 4 hours - it is a Monday - and caught up to what I said I would do over the weekend!

That is not counting Monday's list..

Even the so called simple ones have new issues!

I guess that is why we do this - for the challenge!

But I still need more sleep and ready to have fun!

D/WI