A church pays a monthly amount to a seminary student as support while he is school. He performs no services, and this money is truly a gift with no oversight of the use of the funds. The yearly amount exceeds $25,000. Is the student able to exclude this gift from taxable income?
The church leadership is wise to be careful in the situation described here. If the payments are compensation for services present or future they will result taxable income.
An example is given in IRS Publication 970, "You are a candidate for a degree at a medical school. You receive a scholarship for your medical education and training. The terms of your scholarship require you to perform future services. A substantial penalty applies if you don't comply. The entire amount of your grant is taxable as payment for services in the year it is received."
If a scholarship program is established with nondiscriminatory and non-compensatory parameters, then the disbursement represents a t…