Your original post asked about scholarships. Now you're using the term "gift funds".
No, gifts are not treated as scholarships. But, you could do the same thing with a 529 plan distribution; claim the credit and pay tax on the distribution (plus the 10% penalty)
" So, is my perception correct that no specific IRS Reg or US Code section makes explicit reference to voluntary election of gift funds as taxable income?"
No, it only means I got my answer from an IRS publication and am not personally familiar with the actual tax code section. But, I'm also confident that anything found in an IRS pub has it's basis in the tax law.
