Learning the Hard Way: Deciphering the Correct Tax Treatment of Graduate Education Benefits for University Faculty
79 Pages Posted: 2 Apr 2018
Date Written: March 6, 2018
Abstract
From time to time, and for a variety of reasons, universities grant their faculty members tuition reductions for graduate studies at their institutions. When this occurs, both the university that provides, and the faculty member who receives, the graduate tuition reduction struggle to determine the proper tax treatment of the benefit. Whether such a tuition reduction is includible in, or excludable from, the faculty member’s gross income is surprisingly confusing, given the complex maze of Internal Revenue Code provisions and Treasury regulations that potentially apply. In this Article, Professor Hodaszy and Professor Krivacek attempt to sort through the complexity and confusion. First, Hodaszy and Krivacek survey the applicable rules within sections 117, 127, and 132 of the Code. Next, they discuss how the IRS currently reads those rules to find faculty graduate tuition reductions includible in all but a few circumstances. Then, they explain how the IRS’s current view of the relationship among those provisions—specifically in the context of graduate tuition reductions—conflicts with express statutory language, relevant legislative history, and related interpretive regulations. In the course of this exposition, Hodaszy and Krivacek suggest a roadmap for challenging the IRS’s current position and for excluding the appropriate amount of any given faculty graduate tuition reduction.
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