![]() The gray area addressed in IRS rulings concerns nursery or pre-schools and schools in other instructional areas. The regulations under Section 170 specify that primary, secondary, preparatory schools, high schools, colleges, and universities all are considered "educational organizations". ![]() Do private primary and secondary schools qualify? What about pre-schools? The presentation of formal instruction must be the primary function of the organization. Section 170(b)(1)(A)(ii) defines an educational organization as one that normally maintains a regular faculty and curriculum and has a regularly enrolled body of students in attendance at the place where the educational activities are being carried on. To qualifying for the exclusion, the payment of tuition must be to an educational organization of the type described in Section 170(b)(1)(A)(ii). Are there limits on the types of schools or educational organizations that qualify? The IRS, at some point in the future, could challenge this. The commonly accepted practice is to claim the full fee charged by such an institution as qualifying for the Section 2503(e) exclusion. One issue, on which there appears to be no guidance, concerns institutions such as boarding schools which do not break out their fees between teaching expenses and room and board and instead charge one tuition fee. It does not cover books, supplies, room and board or similar expenses. It includes tuition for part-time students. Tuition means the amount of money required for enrollment. The education expense exclusion is limited to tuition. What education expenses besides tuition fall under the exclusion? For example, grandparents who already take full advantage of the annual exclusion for gifts to grandchildren can make additional tax-free transfers by paying their grandchildren's tuition for private school or college. This can be an important exclusion for planning purposes. ![]() ![]() Under Section 2503(e) of the Internal Revenue Code (the "Code"), tuition payments made directly to an educational organization on behalf of a person, and payments for a person's medical care made directly to the provider are not treated as taxable gifts. What is the gift tax exclusion for payment of medical and tuition expenses? Tom Abendroth, of ArentFox Schiff's Private Clients practice, answers some frequently asked questions below. But these transfers are subject to their own set of rules. They still have options: they can make tax-free transfers for qualifying educational or medical expenses. ![]()
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