WASHINGTON – U.S. Sens. Mark Kirk (R-Illinois) and Roy Blunt (R-Missouri) this week introduced legislation to protect work colleges and their students’ scholarships from an ambiguous IRS rule.
The Work Colleges Tax Relief Act (S. 2525) would clarify and make permanent a tax exemption for work college scholarships, providing certainty to the schools and their students while helping them avoid unnecessary legal and accounting costs. In 2011, Blackburn College in Carlinville, Ill., was audited because of the confusing tax code provision, costing the school $25,000 in legal fees, staff time and resources that could have gone to student scholarships instead.
“Blackburn College is one of Illinois’ most affordable colleges, and these scholarships are vital to keeping students’ costs down,” Kirk said. “As a former Blackburn student, I know firsthand the value of a work college education. By making this tax exemption permanent, we can save these schools from wasteful audits and protect students’ scholarships from the IRS.”
In 1986, the Tax Reform Act eliminated a specific tax protection for scholarships awarded by work colleges, but the IRS has continued to exempt these scholarships from taxation. However, because the law is unclear, work colleges face costly audits over the tax treatment of scholarships, and there is no guarantee the exemption will continue to be honored in the future. S. 2525 would amend Section 117(c)(2) of the tax code to make the exemption permanent.
There are seven work colleges nationwide – in Kentucky, Illinois, Missouri, Arkansas, Vermont and North Carolina. These schools are private institutions at which work is an integrated and required component of educational programs, and whose enrollments range around 300 to 1,600 students per year. Work colleges provide educational opportunities to more than 5,000 students every year.