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Can I reduce income tax if my scholarship is instead issued as a conditional gift?

New Brunswick, NJ |

My accountant told me my research grant is taxable because it is a scholarship for a non degree-granting program. How is this possible? In my state, gifts are not taxable as income, so why are scholarships?
As I understand, a gift can be conditioned if the condition is not consideration. So can I eliminate the income tax if the donor issues the money as a gift conditioned on my performing the research, rather than as a scholarship?

Attorney Answers 1

  1. If a scholarship is used for a degree program and is used specifically for tuition and fees, it may be deductible. The fact that you are not in a matriculating degree program is the problem here. Also, gifts ARE taxable above the annual exemption amount.

    What your accountant told you is correct. No need to get into the philosophy of why he is correct in any great detail. I don't think there is any creative way for you to avoid that result, except to transfer to a degree-granting program and use the scholarship there.

    Hope this helps.

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