Taxation Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Taxation Case Solution

Is any portion of the athletic scholarship taxed to Thelma?

No, the athletic scholarship that she received was solely for the purpose of being a cheerleader and not for other purposes. Thus, the whole scholarship is a deductible expense. As per the regulations, if there were any additional services that the student, receiving scholarship, has to perform for the college, then the part of the scholarship will become taxable. Although here Thelma is required to perform as a cheerleader, but she is not abiding by it and it is not a condition for her scholarship. Her scholarship is based on grades. Thus, here the scholarship is not taxable.

Yes. Through a worksheet provided at IRS, the taxable portion is calculated as:

	Thelma
		$
1	Amount of Scholarship	20000
2	Amount for Required services	0
3	Net amount	20000
4	Amount used for unqualified expenses	0
5	Net amount	20000
6	Amount for qualified expenses	$51,663
7	Lower of above two amount	20000
8	Less line 7 from 5	0
9	Taxable (Add line 2,4 and 8)	0

What other deductions or credits are available and which expenses qualify?

Qualified educational expenses are the tuition and education related fees that are paid to acquire enrollment and attendance at an eligible education institute. Following are the qualified expenses:

		Qualified	Unqualified
Tuition:	$43,318	$43,318
Technology Fees:	500	500
Residence Hall Fees:	10,850		10,850
Meal Plan:	6,000	6,000
Required Book & Supplies:	1,350	1,350
Non-required Books & Supplies:	1,750		1,750
Health Service Fees:	1,335		1,335
Student Activity Fee:	495	495
Parking Fee:	750		750
Total	66,348	$51,663	$14,685

As per the law, tuition and education fees paid for getting enrollment is qualified expense. Thus, it is classified as qualified here. The technology fee is also assumed to be a necessary expense for getting enrollment. The residence Hall Fees is not a mandatory one and thus, is considered as unqualified. Meal Plan is a part of college enrollment and is a qualified education expense. First set of books and supplies are necessary for enrollment and are also directly paid to the University; thus, this is also a qualified educational expense. Non-required books and supplies are not a necessary expense for getting enrolled, thus it is an unqualified expense. Health services are also an unqualified education expense. As per the regulations at the ATO website (Expenses That Don't Qualify, n.d), Following expense are not qualified educational expenses:

Amount paid for Insurance
Any Medical expenses that includes student health fees as well
Room and board
Transportation
personal, living, or family expenses

Thus, here, considering health service is not mandatory for enrollment then it is an unqualified education expense. Student activity fee is a qualified expense as per law. While parking fee comes in the category of transport or personal expenses, thus this is also an unqualified education expense. In this way, the total unqualified educational expense is $51,663.Taxation Case Solution

While concluding this, a court case that is related to the qualification of educational expenses, James M and Mary N. Gorski v. Commissioner of Internal Revenue, provides comprehensive information as to what constitutes to be qualified educational expenses and what does not. As per the case proceedings, IRA has claimed here too, that only those expenses that are necessary to get enrolled are qualified and expenses that are not required by university cannot be classified as qualified expenses (JAMES M. AND MARY N. GORSKI vs COMMISSIONER OF INTERNAL REVENUE).

Who can and should claim these deductions or credits? Which one should be claimed?

One can first claim the tuition and fees deductions if the following three requirements are met (Tuition and Fees Deduction , n.d):..............

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