Taxation Harvard Case Solution & Analysis

Taxation  Case Solution

  1. 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
$
1Amount of Scholarship20000
2Amount for Required services0
3Net amount20000
4Amount used for unqualified expenses0
5Net amount20000
6Amount for qualified expenses$51,663
7Lower of above two amount20000
8Less line 7 from 50
9Taxable (Add line 2,4 and 8)0

  1. 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:

  QualifiedUnqualified
Tuition:$43,318$43,318
Technology Fees:500500
Residence Hall Fees:10,85010,850
Meal Plan:6,0006,000
Required Book & Supplies:1,3501,350
Non-required Books & Supplies:1,7501,750
Health Service Fees:1,3351,335
Student Activity Fee:495495
Parking Fee:750750
Total66,348$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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