Let' say I endow a scholarship fund at a community college. I suggest preferences for a tuition, fees, and books, but they make the final decision as to the recipient. And presume the selection process does not run afoul of the whims of others.
I will classifiy the transaction as a gift. Is there any reason recipient has taxable income?
Dick
You've made a charitable donation. The recipient isn't taxed for just the things you mentioned, tuition, fees, books. Room and board isn't part of the deal. So as long as the school doesn't mistakenly offer that (They must know this already, right?) the student is without issues. Joe
Depends on WHO you mean by recipient - the community college or the student getting the aid, and if its the student we have to look at the amount of aid compared to the costs.
The endowment will likely be a charitable contribution to you regardless of what the CC does with the money.
The scholarship money the student receives will almost certainly be tax free to him UNLESS he receives more in scholarships and tax preference money than it costs him to attend school. I have a case right now where the student got $44,000 in scholarships, tuition was just $28K AND she didn't tell mom and dad about the big scholarship so they cashed out another $15K from the
529 Plan. NOW she has taxable income for the money taken that exceeds QHEEs.Gene E. Utterback, EA, RFC, ABA
Am currently prez of local CC Foundation, a qualified 501(c)(3). I'd presume the CC in question has such as well through whom this would be done. If not, I'd rethink the idea or doublecheck on the arrangements thoroughly. If so, it's a qualified charitable contribution, not a literally a gift.
Given that it is, like us, I'd be pretty confident like us they'll ensure they do the awards process such as to maintain their status. :) The issues of donors wanting excessive control over how funds are invested and/or used does come up fairly frequently but we simply sometimes have to decline accepting proposed donations or establishing a given particular endowment if donor can't abide the conditions. At this point we've chosen to not undertake the effort required to handle user-directed endowments as simply beyond our means to administer w/ limited staffing, etc., at least for the magnitude of investment those who have, so far, wanted such. For enough $$, I'm sure we'd reconsider in the future...
As others have said, scholarships are nontaxable income to the student for qualified expenses which include the above but not
A last thought -- I'd recommend discussing w/ the Endowment Director their needs while you're doing this and trying to ensure that the conditions placed are, while meeting your desires, also those that fit in with the needs of the institution. Many (in fact, I'd venture most) endowment foundations are overly-burdened with restricted funds that have either so restrictive of requirements that there are very few if any qualified applicants or that the number w/ such similar restrictions leaves other pools of worthy applicants less fully funded or even not receiving any scholarship help at all even if there is, overall, available $$ that _could_ be given if the restrictions weren't placed on those funds. We fight that battle annually in that something like 80% of the total endowment is in restricted fund agreements. If you've not thought thru such things or had such a discussion, I'd take the liberty of suggesting you perhaps make the endowment to "unrestricted" funds or w/ a few restrictions as you feel comfortable in leaving to provide the institution more flexibility in their awards process. This also, of course, implies the donor have a considerable belief in the integrity of the scholarship foundation.
$0.02, imo, ymmv, etc., etc., etc., ..., of course.
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