[Code of Federal Regulations]
[Title 26, Volume 2]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.117-1]

[Page 489-490]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.117-1  Exclusion of amounts received as a scholarship or 
fellowship grant.

    (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 Sec. 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 Sec. 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 Sec. 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

[[Page 490]]

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.