Using a qualified EAP.

• Author: Ellentuck, Albert B.
• Position: Educational assistance program

Editor's note: This case study has been adapted from PPC Tax Planning Guide--Closely Held Corporations, 16th Edition, by Albert L Grasso, Joan Wilson Gray, R. Barry Johnson, Lewis A. Siegel, Richard L. Burris, James A. Keller, Gary W. Brawn and James J. Mogelnicki, published by Practitioners Publishing Company, Ft. Worth, TX, 2003 ((800) 323-8724; www.ppcnet.com).

Facts: Hastings Electronics has established a qualified educational assistance program (EAP) that meets Sec. 127's requirements. Hastings encourages its employees to pursue degree courses at the local university and professional development seminars in fields of career or educational interest. For degree courses, Hastings reimburses 100% of tuition and related expenses if the employee's grade transcript shows he or she earned a B or higher. For professional development seminars, Hastings reimburses 100% of registration, travel and related expenses if the employee provides a statement of attendance and participation. During the year, the following activity occurred under the plan (Hastings reimbursed all amounts).

Payroll clerk Sally Jones used extended vacation leave to pursue an education degree at Private College. (Currently, Sally does not have a college degree and wants to be a math teacher.) She completed 30 hours of course work; Hastings paid $6,000 to Private College. Sally also attended a one-week payroll seminar during the year. Registration, course materials and travel costs were $2,000. Sally adequately substantiated her expenses and Hastings reimbursed her.

Technician Jeff Cooper incurred $500 in educational expenses to attend a local seminar on computer software programming. Although the seminar topic was not related to his current job, Jeff hopes to become an independent computer programmer.

Financial executive Stan Harder, who is pursuing an MBA through Private College, completed 10 hours of course work ($150 per hour) required for his degree. His requested reimbursement was for tuition, books and supplies ($2,000).

Human resources manager Jessica Fields attended a one-week professional development seminar on personnel practices. The seminar was held in Florida. Registration and coupe materials were $700; Jessica incurred $900 in travel, lodging and related expenses.

Issue: Do these reimbursements qualify as educational assistance under the company's qualified EAP?

Analysis

Employers can annually provide each employee with up to $5,250 of tax-flee educational...