Death And Taxes

The IRS Cracks Down on Financial Aid Recipients, Leaving Students Confused About Tax Obligations

For many financial aid recipients, life just got even more complicated.

Last week Harvard officials said they had turned over aid information on 3500 students for the calendar year 1989 to the Internal Revenue Service (IRS).

The IRS received the information--which included the students' names, Social Security numbers, financial aid given and tuition paid out--as part of an agency crackdown on students who are not paying income tax on their aid.

The crackdown stems from a 1986 change in the tax law that makes all scholarship money applied to room, board, travel or personal expenses taxable.

The financial aid office has mailed letters to all the students notifying them of the transfer of information. Caraway Seed '93, one of the students who received the letter, says she is "surprised" that the IRS is checking up on aid packages.


"I wonder if there weren't other students who would be affected," adds Seed, who says she has paid taxes on her financial aid "faithfully."

"If you get a lot in grants, it can really change your taxes," Seed says.

But according to University attorney Marianna C. Pierce, the IRS did not come by the information easily.

According to Pierce, the University denied an initial request for the information on the basis of the Buckley Amendment, a nearly 20-year-old law which says that universities do not have to release information on individual students.

The IRS obtained the documents only after issuing an agency summons, which carries the weight of a court subpoena.

"We were cooperative, but we didn't want to turn the information over unless we had to," said Pierce.

Further Action?

Now, with the information in IRS hands, Pierce and other Harvard officials say the issue is no longer a University matter. But IRS action here may portend further action at Harvard and at other colleges.

According to last week's Chronicle of Higher Education, there is currently no nationwide system of checking compliance with this part of the tax law. The publication also reports that the IRS often checks on a small group of taxpayers before launching a major compliance program.

At Harvard, the crackdown will only affect about one fifth of all students on financial aid. According to Director of Financial Aid James Miller, most students do not received enough money in grants to have tax laws apply to their aid.

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