The House Republican tax plan would tax tuition waivers, redux

In light of the confusions being circulated about the House plan, I asked Mike Simkovic, a tax scholar at the University of Southern California, to comment.  He kindly shared these remarks:

The general rule for income tax purposes is that payment for services is taxable income even if it is in a form other than cash.  Non-cash fringe benefits count as income unless they are specifically excluded from income.

An exception in 26 U.S.C. § 117(d)(1),(2) and (5) changes this rule for graduate students who receive tuition waivers as a fringe benefit of their employment by the university.  https://www.law.cornell.edu/uscode/text/26/117  (Arguably some fraction of tuition waivers might still be taxable under 117(c) if it is closely tied to teaching and research duties rather than a broadly available benefit, but tuition waivers probably would not be taxed if the graduate student receives some salary for teaching and research duties.  See Prop Reg §1.117-6(d)(5) Ex 6).

For the most part, the tuition graduate students are not charged does not count as income.  Without this exception, the tuition graduate students are not charged would likely count as income, the same as if the university paid graduate students higher wages and those graduate students in turn paid the university higher tuition.  The house bill released last Thursday deletes subsection (d) of IRC section 117.  This deletion is in Section 1204(a)(3) of the house bill.

https://www.congress.gov/bill/115th-congress/house-bill/1/text#toc-H3BEDA09CF25F4219941B22D519C67DFC

So the Republican House bill is clearly intended to tax graduate students on the value of tuition waivers.    

The Republican House bill would also eliminate IRC 127, which is similar in that it relates to taxation of employer-paid education assistance fringe benefits.  

ADDENDUM:   With luck, the dysfunctional Republicans won't be able to pass any tax plan.  Lobbyists for universities are already at work to get these malicious proposals out of any tax plan that is approved.  Universities are well aware that their PhD programs are at risk if tuition waivers become taxable; I am sure they are also already exploring work-arounds in the event the waivers do become taxable.