SECTION 7. EXCLUSION FOR

EMPLOYER-PROVIDED EDUCATIONAL ASSISTANCE

TRA ‘97 extends tax-free treatment to employer-provided educational assistance for undergraduate courses that begin before June 1, 2000. Employers may continue to provide up to $5,250 per year in educational assistance to each employee on a tax-free basis for courses beginning before that date, regardless of whether the education is job-related. This benefit expires for assistance in paying for courses that begin on or after June 1, 2000.

Q1: How does an employee learn

whether tax-free educational assistance is available to him/her? A1: Employers have this information.

Employers offering tax- free educational assistance are required to have a written plan describing the benefit and the terms under which it is available. Q2: Does the employee have to do any thing special to avoid being taxed on employer-provided educational assistance, up to the $5,250 limit? A2: No. The employer will automati cally treat the educational assistance as a tax-free benefit and will not include it as wages on the employee’s W–2 form. Q3: May an employee receive tax-free

educational assistance from the employer to attend graduate school? A3: In general, no. However, employers

can provide job-related educational assistance for graduate-level education as a tax-free fringe benefit under certain circumstances. Educational assistance would generally qualify as job-related if it maintains or improves skills required for the employee’s current job or satisfies certain express employer-imposed conditions for continued employment. Individuals should consult a tax advisor for help in determining the tax treatment of any assistance the individual may be receiving from an employer for graduate-level education. Q4: If a student is enrolled in undergrad uate courses in a particular year and owes $3,000 in qualified tuition and related expenses, and the student’s employer pays all of the student’s qualified tuition and related expenses, may a Hope Scholarship Credit or a Lifetime Learning Credit be claimed for that student for that year? A4: No. Neither the Hope Scholarship

Credit nor the Lifetime Learning Credit may be claimed for that student for that year.

FOR FURTHER INFORMATION CONTACT: Donna J. Welch, (202) 622-4910 regarding the Hope Scholarship and Lifetime Learning Credits; Monice L. Rosenbaum, (202) 622-6070 regarding em

ployer-provided educational assistance and qualified state tuition programs; Pamela R. Kinard, (202) 622-6030 regarding Education IRAs and using IRA withdrawals to pay for higher education expenses; and John Moriarty, (202) 6224950 regarding student loan interest deduction (not toll-free numbers).

The IRS will publish additional guidance on the provisions discussed in this notice as well as other provisions included in TRA ‘97. You may visit the IRS worldwide web site at (http://www.irs. ustreas.gov/prod/hot/index.html) to review this document or for information on additional guidance as it becomes available.

The Department of Education has a worldwide web site (http://www.ed.gov/ prog_info/SFA/StudentGuide) you can visit and telephone numbers (1-8004FED-AID and 1-800-USA-LEARN) you can call to get more information on affording college and obtaining student aid, such as Pell grants and student loans.

DRAFTING INFORMATION: The principal authors of this notice are Donna J. Welch, Office of Assistant Chief Counsel (Income Tax and Accounting) and Monice L. Rosenbaum and Pamela R. Kinard, Office of Associate Chief Counsel (Employee Benefits and Exempt Organizations). However, other personnel from the IRS and Treasury Department participated in its development.

26 CFR 601.162: Business Expenses. (Also Part I, §§ 170; 1.162-15, 1.170A–1)

Rev. Proc. 97–52