Erik M. Jensen


While the legislation popularly (or unpopularly) known as the Tax Cuts and Jobs Act of 2017 was working its way through Congress, many colleges and universities were afraid that the repeal of Internal Revenue Code section 117(d), as provided in the House version of the bill, would have catastrophic effects on American graduate education. The concern was that, after repeal, graduate teaching and research assistants would be taxed on their tuition reductions, and the measure of the income would be determined using the stated tuition figure—the sticker price—for the academic institution. Section 117(d) survived, but it could come under challenge again and it’s worth considering what difference repeal would really make. This article concludes that repeal would have negatively affected few graduate students; the real effect would have been on undergraduate tuition reductions provided to faculty, staff, and dependents. In addition, the article questions the common assumption that, when a tuition reduction is taxable, income should be measured by the school’s sticker price. What should be taxed is value received, and a reasonable measure might be what the average student at the school is paying for tuition. In a world in which tuition “discounts” are the norm, that figure is going to be less, and often much less, than the sticker price.


IRC section 117(d); IRC section 127; tuition waivers; tuition reductions; scholarships; deductibility of education expenses; working condition fringes

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158 Tax Notes 1187 (2018)


COinS Erik M. Jensen Faculty Bio