QUESTION:
What can direct payment of tuition extend to be an “excluded gift” to avoid gift tax treatment?
SHORT ANSWER:
Tuition is limited to “[E]xpenses . . . paid directly to the qualifying educational
organization providing the education. No [such] exclusion is permitted for amounts paid for
books, supplies, dormitory fees, board, or other similar expenses which do not constitute
direct tuition costs.”1
As discussed below, this would only apply to institutions with brick-and-mortar locations
where there are teachers, students, and having a curriculum being taught.
This has been permitted for a martial arts institution, as decided by Revenue Ruling 78-309,
but would presumably not apply to a Little League because Little League does not meet the
qualifications required, such as a regular curriculum.
By analogy to martial arts institutions, the following would likely apply as “qualifying
educational organizations”:
1. Music Schools;
2. Gymnastic School Centers;
3. Culinary Institutions;
ANALYSIS:
Treas. Reg. § 25.2503-6(b)(2):
For purposes of paragraph (b)(1)(i) of this section, a qualifying educational organization is one that normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where it’s educational activities are regularly carried on. See section 170(b)(1)(A)(ii) and the regulations thereunder. The unlimited exclusion is permitted for tuition expenses of full-time or part-time students paid directly to the qualifying educational organization providing the education. No unlimited exclusion is permitted for amounts paid for books, supplies, dormitory fees, board, or other similar expenses which do not constitute direct tuition costs.
1 See Treas. Reg. § 25.2503-6(b)(2)
