Page 552 - TaxAdviser_2022

TAX CLINIC

period of limitation has expired. Sec.
6511(a) provides that claims for credits
or refunds of tax overpayments shall be
filed within three years from the time
the return was filed or two years from
the time the tax was paid, whichever
period expires later. If no return was
filed by the taxpayer, the claim for
credit or refund must be filed within
two years from the time the tax was
paid. Because of potential timing is-
sues involved in making the portability
election via the filing of Form 706, Rev.
Proc. 2022-32 provides that a claim for
credit or refund of tax filed within the
Sec. 6511(a) time limits in anticipation
of a valid Form 706 being filed to elect would probably be on the list, espe- satisfaction that the grant meets at least
portability pursuant to the revenue pro- cially now, amid the worst inflation the one of the following three criteria:
cedure will serve as a protective claim economy has experienced in nearly 40 1. The grant is a qualified scholar-
for credit or refund of tax. years. Scholarships have become ever ship under Sec. 117(b)(1) and is to
more critical to easing students’ finan- be used for study at an educational
Additional information cial burdens. organization that normally maintains
Rev. Proc. 2022-32 became effective Some exempt private foundations a regular faculty and curriculum and
July 8, 2022. On or before the fifth an- provide scholarship grants to students normally has a regularly enrolled
niversary of a decedent’s date of death, it to attend two- and four-year colleges. A body of pupils or students in at-
is the exclusive procedure for obtaining scholarship grant will not be taxable to tendance at the place where its
an extension of time to make a portabil- the student if it is a qualified scholarship educational activities are regularly
ity election for a decedent’s estate and under Sec. 117(b)(1). A qualified schol- carried on (Sec. 170(b)(1)(A)(ii)). No
should be used in lieu of the letter ruling arship for this purpose is any amount “strings” can be attached to the award
process. However, letter rulings may still received by an individual as a scholarship of the grant (e.g., it cannot be made
be requested if a portability election is or fellowship grant to the extent the with the clear expectation that future
sought after the fifth anniversary of the individual establishes that, in accordance services will be performed by the
decedent’s date of death. If a request for with the conditions of the grant, the recipient).
a letter ruling seeking an extension of amount was used for qualified tuition 2. The grant constitutes a prize or
time to make a portability election was and related expenses. award in which the recipient was
pending in the IRS National Office on A scholarship grant made by a private selected from the general public.
July 8, 2022, the IRS is required to close foundation to an individual is also poten- The recipient should also be selected
the file on the ruling request and refund tially a taxable expenditure that is subject without any action on his or her part
the user fee, and the estate may obtain to a 20% tax on the foundation and 5% to enter the contest or proceeding,
the extension of time to make a porta- tax on a foundation manager. Under Sec. and the recipient is not required to
bility election by complying with the 4945(d)(3), a grant by a private founda- render substantial future services as
revenue procedure. tion to an individual for travel, study, or a condition to receiving the prize or
From Ryan Nance, CPA, Irvine, Calif. other similar purposes by the individual award (Sec. 74(b)).
will be a taxable expenditure unless the For example, if the grant consists PHOTO BY NAY NI RATN MAK CAN THUK/EYEEM/GETTY IMAGES
grant is described in Sec. 4945(g). Under of a reward that requires the student
Exempt Organizations this section, the grant must be awarded to work as a teaching assistant, it is
on an objective and nondiscriminatory not a qualified reward, and the money
Scholarship grants awarded basis (a requirement that might easily received by the student should be
by private foundations be overlooked) pursuant to a procedure treated as taxable income.
If you ask college students what their approved in advance by the IRS, and it 3. The purpose of the grant is to
top concerns are, expensive tuition must be demonstrated to the Service’s achieve a specific objective; produce

10 November 2022 The Tax Adviser