Final answer:
Scholarship proceeds can be excluded from gross income if used for tuition, fees, books, and supplies, per IRS guidelines. These proceeds are tax-exempt when meeting these conditions, and do not cover room and board or travel expenses. The correct answer is option b.
Step-by-step explanation:
A scholarship recipient at State University may exclude from gross income the scholarship proceeds used to pay for b. Only tuition and fees, books, and supplies. According to the IRS, qualified scholarships and fellowships are exempt from taxation as long as they are used for tuition and fees required for enrollment, and for books, supplies, and equipment required for courses at the educational institution. This tax exemption does not apply to amounts used for incidental expenses such as room and board or travel, nor for payments for teaching, research, or other services required as a condition for receiving the scholarship.