Internal Revenue Service
Revenue Ruling

TaxLinks.com   sm

 Rev. Rul. 61-66

1961-1 C.B. 19

Sec. 102

Sec. 117

IRS Headnote

Where an individual transfers an amount of money to a university to be disbursed by it to a teacher, not a candidate for a degree, specifically designated by the donor to enable the teacher to engage in independent research, such amount is not excludable from the gross income of the recipient as a fellowship grant under section 117 of the Internal Revenue Code of 1954. However, such amount is, under certain conditions, excludable from the gross income of the recipient as a gift under section 102 of the Code.

Full Text

Rev. Rul. 61-66

Advice has been requested whether an amount disbursed by a university to a faculty member, under the circumstances described below, to enable him to engage in independent research while on leave from his teaching position, is excludable from the gross income of the recipient as a fellowship grant under section 117 of the Internal Revenue Code of 1954.

In this case, A , an individual, forwarded a sum of money to a university with the specific instruction that it be disbursed by the university to B . a professor at the university, to enable him to engage in certain research and study in his particular field for a specified period. The recipient is not a candidate for a degree.

During the period of research and study, B was on leave from the university and received no pay or other renumeration from its general funds. During such period, B was not under any employment agreement or contract with the university or with A and he was not obligated to make reports to or render services for either the university or A . The university is a tax-exempt organization of the type described in section 501(c)(3) of the Code.

Section 117(a) of the Code provides, in part, that gross income does not include any amount received as a fellowship grant and any amount received and expended to cover certain expenses incident to such fellowship grant. The term `fellowship grant' is defined in section 1.117-3(c) of the Income Tax Regulations to mean generally an amount paid or allowed to, or for the benefit of, an individual to aid him in the pursuit of study or research. The term does not include any amount provided by an individual to aid a relative, friend, or other individual in the pursuit of study or research where the grantor is motivated by family or philanthropic considerations. In order for an amount received by an individual who is not a candidate for a degree to be excludable from gross income as a fellowship grant, the grantor must be an organization described in section 501(c)(3) of the Code which is exempt from tax under section 501(a), the United States, or an instrumentality or agency thereof, or a State, a Territory, or a possession of the United States, or any political subdivision thereof, or the District of Columbia. See section 117(b)(2)(a) of the Code.

In the instant case, A specifically designated B as the recipient of the money which he transferred to the university and the university had no control over the disposition of such funds. Thus, the university acted merely as a conduit to disburse the funds to B for A . Since A as an individual, is the grantor, it is held that no part of the amount received by B is excludable from his gross income as a fellowship grant under section 117(a) of the Code.

However, section 102(a) of the Code provides that gross income does not include property acquired by gift. Since the university acted merely as a conduit in disbursing the money transferred by A to B , and since the facts indicate that such transfer was motivated solely by philanthropic considerations, it is further held that the amount transferred constituted a gift within the meaning of section 102(a) of the Code and is excludable as such from B's gross income.

Accordingly, it is held that the amount received by B in this case is not includible in his gross income for Federal income tax purposes. Since the gift was made to B , an individual, it is not deductible by A , the donor, under section 170 of the Code. However, the amount involved is subject to the Federal gift tax imposed by section 2501 of the Code upon transfers of property by gift by individuals.