[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: 26CFR1.117-4]

[Page 494]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.117-4  Items not considered as scholarships or fellowship grants.

    The following payments or allowances shall not be considered to be 
amounts received as a scholarship or a fellowship grant for the purpose 
of section 117:
    (a) Educational and training allowances to veterans. Educational and 
training allowances to a veteran pursuant to section 400 of the 
Servicemen's Readjustment Act of 1944 (58 Stat. 287) or pursuant to 38 
U.S.C. 1631 (formerly section 231 of the Veterans' Readjustment 
Assistance Act of 1952).
    (b) Allowances to members of the Armed Forces of the United States. 
Tuition and subsistence allowances to members of the Armed Forces of the 
United States who are students at an educational institution operated by 
the United States or approved by the United States for their education 
and training, such as the United States Naval Academy and the United 
States Military Academy.
    (c) Amounts paid as compensation for services or primarily for the 
benefit of the grantor. (1) Except as provided in paragraph (a) of 
Sec. Sec. 1.117-2 and 1.117-5, any amount paid or allowed to, or on 
behalf of, an individual to enable him to pursue studies or research, if 
such amount represents either compensation for past, present, or future 
employment services or represents payment for services which are subject 
to the direction or supervision of the grantor.
    (2) Any amount paid or allowed to, or on behalf of, an individual to 
enable him to pursue studies or research primarily for the benefit of 
the grantor.

However, amounts paid or allowed to, or on behalf of, an individual to 
enable him to pursue studies or research are considered to be amounts 
received as a scholarship or fellowship grant for the purpose of section 
117 if the primary purpose of the studies or research is to further the 
education and training of the recipient in his individual capacity and 
the amount provided by the grantor for such purpose does not represent 
compensation or payment for the services described in subparagraph (1) 
of this paragraph. Neither the fact that the recipient is required to 
furnish reports of his progress to the grantor, nor the fact that the 
results of his studies or research may be of some incidental benefits to 
the grantor shall, of itself, be considered to destroy the essential 
character of such amount as a scholarship or fellowship grant.

[T.D. 6500, 25 FR 11402, Nov. 26, 1960; 25 FR 14021, Dec. 21, 1960, as 
amended by T.D. 8032, 50 FR 27232, July 2, 1985]