26 C.F.R. § 1.117-1

Exclusion of amounts received as a scholarship or fellowship grant

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(a) In general. Any amount received by an individual as a scholarship at an educational institution or as a fellowship grant, including the value of contributed services and accommodations, shall be excluded from the gross income of the recipient, subject to the limitations set forth in section 117(b) and § 1.117-2. The exclusion from gross income of an amount which is a scholarship or fellowship grant is controlled solely by section 117. Accordingly, to the extent that a scholarship or a fellowship grant exceeds the limitations of section 117(b) and § 1.117-2, it is includible in the gross income of the recipient notwithstanding the provisions of section 102 relating to exclusion from gross income of gifts, or section 74(b) relating to exclusion from gross income of certain prizes and awards. For definitions, see § 1.117-3.

(b) Exclusion of amounts received to cover expenses. (1) Subject to the limitations provided in subparagraph (2) of this paragraph, any amount received by an individual to cover expenses for travel (including meals and lodging while traveling and an allowance for travel of the individual's family), research, clerical help, or equipment is excludable from gross income provided that such expenses are incident to a scholarship or fellowship grant which is excludable from gross income under section 117(a)(1). If, however, only a portion of a scholarship or fellowship grant is excludable from gross income under section 117(a)(1) because of the part-time employment limitation contained in section 117(b)(1) or because of the expiration of the 36-month period described in section 117(b)(2)(B), only the amount received to cover expenses incident to such excludable portion is excludable from gross income. The requirement that these expenses be incident to the scholarship or the fellowship grant means that the expenses of travel, research, clerical help, or equipment must be incurred by the individual in order to effectuate the purpose for which the scholarship or the fellowship grant was awarded.

(2)(i) In the case of a scholarship or fellowship grant which is awarded after July 28, 1956, the exclusion provided under subparagraph (1) of this paragraph is not applicable unless the amount received by the individual is specifically designated to cover expenses for travel, research, clerical help, or equipment.

(ii) In the case of a scholarship or fellowship grant awarded before July 29, 1956, the exclusion provided under subparagraph (1) of this paragraph is not applicable unless the recipient establishes, by competent evidence, that the amount was received to cover expenses for travel, research, clerical help, or equipment, but such amount need not be specifically designated. The fact that the recipient actually incurred expenses for travel, research, clerical help, or equipment is not sufficient to establish that the amount was received to cover such expenses.

(iii) The exclusion provided under subparagraph (1) of this paragraph is applicable only to the extent that the amount received for travel, research, clerical help, or equipment is actually expended for such expenses by the recipient during the term of the scholarship or fellowship grant and within a reasonable time before and after such term.

(3) The portion of any amount received to cover the expenses described in subparagraph (1) of this paragraph which is not actually expended for such expenses within the exclusion period described in subparagraph (2) of this paragraph shall, if not returned to the grantor within this period, be included in the gross income of the recipient for the taxable year in which such exclusion period expires.

Notes of Decisions

Cited in 5 cases, 1959–1994 · leading case: Isenbergh v. Comm'r, 31 T.C. 1046 (Tax Ct. 1959).

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Isenbergh v. Comm'r, 31 T.C. 1046 (Tax Ct. 1959). · cites it 4× “117-1(b) of the Income Tax Regulations , 4 contends *250 that none of the expenditures which, with one exception, he concedes were incurred in connection with petitioner's *1055 plan of study, are to be excluded from gross income as expenses incident to a fellowship grant…”

Cass v. Comm'r, 86 T.C. 1275 (Tax Ct. 1986). · cites it 6× “The cross-reference in section 74(a) to section 117 does not establish, as petitioner argues, a "backstop" to section 74(b) .”

Spiegelman v. Comm'r, 102 T.C. 394 (Tax Ct. 1994). · cites it 2× “The regulations indicate that "The exclusion from gross income of an amount which is a scholarship or fellowship grant is controlled solely by section 117 "; thus, scholars and fellows could not avail themselves of the exclusions under sec. 74(b) or 102(a).”

Bogdan v. Comm'r, 37 T.C.M. 1127 (Tax Ct. 1978). · cites it 2× “ucational institution, (2) the taxpayer performs part-time services for the institution which satisfy then existing specifically stated requirements for the degree, and (3) equivalent services are required of all candidates for the degree, the Internal Revenue Service will…”

Loudon v. Comm'r, 55 T.C.M. 543 (Tax Ct. 1988). · cites it 2× “In the case of an individual who is a candidate for a degree, however, subsection (a) does not apply if the amounts received represent payments for teaching, research, or other part-time employment required as a condition to receiving the scholarship or fellowship grant.”

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