“I’m still not seeing the argument that something called a scholarship that is dependent on your teaching automatically counts as a tuition reduction.”

It doesn’t necessarily automatically count as one; you’re welcome to declare it as a non-qualified scholarship. But why do that?

Think of it this way; there are four different categories here:
1. Non-qualified scholarship (taxable)
2. Qualified scholarship (not taxable)
3. Non-qualified tuition reduction (taxable)
4. Qualified tuition reduction (not taxable)

It could be (1) if you really want, but why pay taxes when you don’t have to? It’s not (2), because scholarships are not qualified when there is a research/teaching component as per 117(c)(1). It’s not (3), because 117(d)(5) makes an exception for graduate students doing research and teaching, though again you can count it as tuition benefits if you really wanted to pay taxes on it.

So between (1), (3), and (4), you WANT it to be counted as (4) tuition reduction, because that is the only option among the three where you don’t pay taxes on it.

Where I did my PhD, the tuition remission was not taxed, but the salary provided by the stipend was. As per your example, look at your W-2 to see what’s declared as income. For me, it’s just the salary from the stipend. While it may be different for you, I find it really unlikely.

Sorry for the double post, but I wanted to clarify from the IRS proposed publication for Title 26 1.117-6.
You can find the PDF here: https://www.gpo.gov/fdsys/pkg/FR-1988-06-09/pdf/FR-1988-06-09.pdf
And I got the pointer from here: https://surlysubgroup.com/2017/11/06/gop-raises-taxes-on-graduate-students-or-does-it/
That’s a blog post from A Notre Dame Law Professor specializing in tax law. Full disclosure: His latest tweet says that the bill will tax reductions (https://twitter.com/patrickw_thomas/status/928015776975654913) but he does so on the basis of unclear testimony cited from a Ways and Means staffer in a verge article (https://www.theverge.com/2017/11/7/16619246/tax-bill-trump-gop-cuts-and-jobs-act-graduate-students-tuition-waiver-reductions). What isn’t clarified in that exchange is the 117(a-c) vs 117(d) dispute though.
In any case, here is the text on how to determine which part of a scholarship and fellowship is payment for service. Note: If there is a procedure for determining it, then clearly there are cases in which some part of such is not payment for service.

(3)
Determination of amount of
scholarship or fellowship grant
representing payment for services.

If only a portion of a scholarship or
fellowship grant represents payment for
services, the grantor must determine the.
amount of the scholarship or fellowship
grant (including any reduction in tuition
or related expenses) to be allocated to
payment for services. Factors to be
taken into account in making this
allocation include, but are not limited to,
compensation paid by—
(i) The grantor for similar services
performed by students with
qualifications comparable to those of
the scholarship recipient, but who do
not receive scholarship or fellowship
grants;
(ii) The grantor for similar services
performed by full-time or part-time
employees of the grantor who are not
students; and
(iii) Educational organizations, other
than the grantor of the scholarship or
fellowship, for similar services
performed either by students or other
employees.
If the recipient includes in gross income
the amount allocated by the grantor to
payment for services and such amount
represents reasonable compensation for
those services, then any additional
amount of a scholarship or fellowship
grant received from the same grantor
that meets the requirements of
paragraph (b) of this section is
excludable from gross income. See
paragraph (d)(5), Examples (5) and (6) of
this section.

I have never heard of a university dicing up where your tuition reduction comes from (“So in addition to your $30,000 stipend, you also get a $50,000 tuition reduction, of which $20,000 comes from your teaching/research, while the other $30,000 is a no-strings-attached scholarship because you’re awesome”). If a university did to get around the removal of 117(d), the IRS would almost certainly disallow that kind of bookkeeping game, for the very reasons you quote: The IRS is not going to find that your stipend PLUS a significant portion of your tuition is worth that much, especially as tuition skyrockets. If it’s declared as a scholarship, under 117(c) they’ll figure out the fair market value of your services, and subtract it from the tuition and your stipend together. The resulting number will mean you are being taxed at a significantly higher rate. The example you cite stops holding true when you add “more realistic numbers.”

Kolja, I know argument from authority is a fallacy, but I’ll do it a little anyway: I literally paid for my masters litigating the tax code. A good chunk of my PhD dissertation dealt with issues of statutory interpretation. I am licensed to practice in 2 state and 3 federal jurisdictions. The language of the original statute was clearly written to try and capture taxes from employees given tuition reduction but carving out an exception for graduate students who receive tuition waivers as part of their funded graduate study.
And when it comes to analysis of the real-world implications of statutory language, you have to be less analytical and more continental. A lot of how it is interpreted and enforced is based on intent, meaning, common practice, etc. etc.. The guy you cite is being naive in my opinion when he suggests the GOP doesn’t know what they’re doing. They’re trying to get rid of the SALT deduction, which will hurt (at least in terms of numbers, if not intensity), far more people than the tuition reduction change. If passed as-is the Trump IRS will almost certainly consider your tuition benefits as largely taxable.

I also second Matt’s warning to be very careful what you are telling your fellow graduate students. Interpreting how laws (or proposed laws) will affect them is

Thank you Matt and D.C. for that very helpful correction, and especially the warning of not accidentally giving legal advice. I also appreciate the patience in showing me how this argument from the current laws can be undermined by the intent of repealing 117(d) and subsequent interpretations of that intent. I did not remember the importance of that, and that is a good reason to think that even if the current language favors one reading, this consideration could overturn that. That helped me understand something I did not understand before: Why, in the face of the language of 117(c), an explicit “tuition scholarship” would now be taxed. In everything I had seen argued before, that was not clear to me, so I really appreciate you helping me see that. I’ll go with suspending judgment on what the IRS would do if this passed as is, noting that it largely depends on the Republican’s intent.

I’ll ask one more question on the interpretation of 117(c) though, D.C., leaving the intent of repealing 1179d) aside. The example I meant was the following dice-up: ” Congratulations on getting accepted. Because you’re so smart to get accepted to our PhD program, we’re giving you a full tuition scholarship. Just note: to keep the scholarship, you gotto do some TA gig. But don’t worry, we’ll compensate you with $20.000 a year to do that.” That sounds to me like a normal acceptance letter. Seeming result: $20.000 in taxable income. You do point out that the TA/teaching/lab duties could get valued at above the value of the fellowship, and then taxable income would eat into the tuition scholarship amount. That does sound like a real worry, and i believe you that the IRS could rule that the entire scholarship a tuition should be counted as a tuition remission instead by citing the intent of the repeal of 117(d). But apart from that, is the way I put it above a misreading of the law? I’m just trying to figure out where I might be misunderstand that part of it.

I also asked Patrick Thomas to clarify over twitter whether he thought the staffer cited in Verge understood the difference between 117(a-c) and 117(d), and he noted that
“I’m not 100% sure that they understand it. Regardless, my concern is that (1) it does seem to be their intent to repeal this exclusion, (2) universities who rely on section 117(d) may classify such waivers as taxable, and (3) if universities don’t, students may face IRS audits.”
and
“While I think my argument re: 117(a) is right, universities may not, and may withhold tax on students.” (https://twitter.com/patrickw_thomas/status/928635401769832448).
So he does think the first order evidence on the law on the books says one thing, but intention and interpretation can change what it in fact comes to.

In terms of your advice, Matt, to take action. Given that commenting to Democrats isn’t much help, I did contact the Republican contender for my local house seat that has some non-zero chance of winning elections and asked him for clarification. While he can’t vote in congress, he might still have some impact, and I happen to have met him a few times in his current function as town supervisor. That’s about the best I can do on that end, given where I’m a resident.

Now, here is a meta question (In my more experienced role qua epistemologist):
I appreciate the call to defer to experts, and I especially appreciate the warning on not giving legal advice. However, something strikes me as a bit irksome about that. Given that we’re, of sorts, discussing the repercussions of political activities, specifically the passing of laws, my understanding was that citizen (or alien resident) discussion and debate was a good thing. We do this in broad general terms all the time without looking at the details.
What happened to me is that I was perfectly fine and accepted the report in the news on the tax impact. I even I posted it on my own facebook wall condemning the move. But then I came across the argument here that said: “Wait, this is a misreading of the tax code. Here is what it actually says in detail…” I was incredulous, but really wanted to know, and given that I only had higher order testimony and was presented with some coherent first order defeater, I didn’t know what else to do but look at this in detail myself. Notably, no one had made an in depth argument addressing the “tuition scholarships” from 117 (a-c). Now, it might be the case that looking at the tax code myself was a grave mistake I should not have made. Maybe getting more evidence was the wrong thing to do, epistemically.
Notably, I didn’t start looking at the tax code until someone else, a putative expert, suggested that the first order evidence did not support the claims in the news articles. When I did look at it, that argument seemed plausible. Moreover, it seemed that lots of people misread the language in 117(c) to mean “Any scholarship conditional on services rendered is taxable” which is not what it says. So now I had someone suggesting the first order evidence pointed one way, my own looking into it coming to the same conclusion, and a number of disagreeing higher order testimony.

From this we get an important question in the epistemology of disagreement:
What if you know of some expert disagreement, you look at the first order evidence as a novice, come to agree with the minority and understand the argument by the minority, and you do not know or understand the argument from the first order evidence of the other side. Moreover, you have some error theory, on what you think the evidence points to, why the experts on the other side might get this wrong (along with some explanation from political motivation). And finally, you don’t have any way of accessing the argument from the other side.
What should you believe in that scenario? What should you do?
Is the advice something like never trust yourself when faced with majority expert disagreements when you don’t know the argument from the other side?
What if you know the detailed argument from neither side? Usually when we’re arguing about politics or the implications of some proposed law on society we engage in political debate without knowing the exact legal arguments from either side. So, is it somehow worse to try to look at the legal arguments in detail? That also seems odd. I don’t think having less evidence in a political dispute is better than having more. know few people criticizing the plan to decrease corporate tax form 35% to 20% that have engaged with commentary from both liberal and conservative economists, even though they’re hashing out disagreements on the exact impact in the journals and on their blogs. Would it be bad to look at the detailed models some on either side propose in making their arguments as an economics novice? Especially when faced with the need to take political action, looking at the details could be good, even if one gets it wrong. But maybe one should never do that.

A further note on the legal advice jeopardy: If I get an email from the GSR saying “Your taxes will go up. See this article.” And I sent an email back “Someone says they won’t. Here is an explanation of the argument they make from the tax code.” Here is where the analytic philosopher side of me wants to complain about the criteria of what counts as legal advice. Both apply a particular law (proposal) to a particular circumstance. One does so on the basis of a news articles. One does by re-stating an argument from a social media website in a cleaned up version. Especially since the real question is “What would happen if this bill passed?” that seems to come close to barring individuals from discussing the political implication of some proposed law if they get too close to the evidence that matters, i.e. the changes in the legal code. That just seems undemocratic, but I get the dangers, especially if emails are phrased in the “here is what the law is” kind of way. At the time, I really just meant well because if the proposal indeed does not have the implications, and if we could know that, then people would be getting stressed and worried unnecessarily.

Finally, there is the question of the GOP intention. As you both point out, that matters for interpreting the law, and you assume the intention is to cut all grad tuition scholarships/remissions. I had wanted to approach this in exactly the opposite direction. My assumption was that we could deduce the GOP intention by looking at what the resulting law would and would not count as taxable income. And the more I looked at the details it seemed that the intention of 117(d) was intended to cover employee benefits and 117(a-c) was intended to cover tuition scholarships for students, so I thought that was a good guide towards coming to a conclusion about the GOP intention.

Part of what fueled that incredulity was that repealing the scholarships would constitute the largest tax hike on anyone affected by this tax bill with the possible exception of people that have medical expenses in proportion to their income that matches the proportion of tuition scholarships/remission to take home pay ration of grad students. Going from $20.000 to $70.000 in taxable income is a tax increase I have never heard of, and everything else that people are discussing on the tax plan is peanuts in comparison (with the exception of high medical expenses), relative to an individual.

So now I realize how much intent matters. I had hoped to deduce intent by finding out about the tax implications of the remaining laws, but that seems to have been going at it completely backwards. I’m still, I’m wondering why they’re not repealing 117 all-together in that case. If no grad student can ever get a scholarship tax free, why not go all the way and make undergrads pay taxes for them as well? Maybe that’s too much political backlash, although they did cut student loan interest deductions.

Thanks again for the really helpful comments and bearing with me on that. I feel like I learned a lot, and I’m eagerly awaiting someone to authoritatively declare the intent behind the law while doing what I can that it won’t affect the tuition remissions and scholarships.

Thanks for the gracious response, Kolja. D.C. has said everything I might about the practical aspect (and more, since D.C. speaks from expertise and I don’t).
About the epistemological aspect, I guess again I’ll agree with D.C. that there’s nothing wrong with siding with a minority expert view–but for law in particular the way law gets interpreted can get very far away from the kind of logical analysis we’re inclined toward. This came up a lot in the litigation over the Affordable Care Act, where one of the lawsuits involved a question of whether, as written, a definition in one part of the law strictly speaking implied that health-care subsidies couldn’t be paid in states that used healthcare.gov exchanges rather than setting up their own exchanges. And the Supreme Court eventually decided–as I roughly understand it–that that couldn’t be the proper interpretation because it would lead to a ridiculous outcome contrary to the intent of the bill. (Also there’s the question of Chevron deference to the ruling of the administrative agency, which didn’t come up, but gets discussed there.)
And as D.C. says what we’re ultimately concerned about is the way the law actually gets applied, which is a question of how the relevant authorities would decide to apply it. So that ultimately we can’t be quite sure whether the majority or minority expert opinion will prevail–but what we can conclude is that this might lead to tuition waivers being taxed, which given the disastrous effect is something to be concerned about.
(And good on you for contacting the local Republican potential candidate! If the actual congressfolk hear from their candidates that the issue is hurting them, it might have an impact, and upstate NY Republicans are some of the key votes on this bill because many of them are unhappy about what it would do to their constituents, specifically with repealing the state and local tax deduction bill. My representatives and senators are so safely Democratic, or Democratic-caucusing independent, that I don’t have much leverage there–they’ll oppose this bill no matter what.)