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IRS blocks tax on scholarships

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According to a new IRS information letter, college athletes who are treated as employees under federal labor law won’t be taxed on scholarships. (IRS Information Letter 2014-0016, 6/27/14)

The furor began in March when the regional office of the National Labor Relations Board (NLRB) in Chicago determined that college football players receiving grant-in-aid scholarships were “employees” under the National Labor Relations Act. It concluded that players could choose whether or not to be represented in collective bargaining. “The NLRB decision does not control the tax treatment of athletic scholarships. The treatment of scholarships for federal income tax purposes is governed by the Internal Revenue Code,” wrote IRS Commissioner John Koskinen. Generally, scholarships are tax-free under Section 117.

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