In December 2011,Emily,a cash basis taxpayer,received a $2,500 cash scholarship for the Spring semester of 2012.However,she did not use the funds to pay the tuition until January 2012.Emily can exclude the $2,500 from her gross income in 2011.

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Scholarships used for tuition and related expenses are generally excludable from gross income. Since Emily is a cash basis taxpayer, she reports income when received, but scholarships for future educational expenses can be excluded when received if they are used for qualified expenses.

In December 2011,Emily,a Cash Basis Taxpayer,received a $2,500 Cash Scholarship