Internal Revenue Service
Revenue Ruling

TaxLinks.com   sm

 Rev. Rul. 62-2

1962-1 C.B. 9

Section 61 -- Gross Income Defined
Section 62 -- Adjusted Gross Income
Section 117 -- Scholarships
Section 162 -- Business Expense Deduction
Section 262 -- Nondeductible Living Expenses
Section 911 -- Earned Income Exclusion

IRS Headnote

Amounts received by an American citizen, under the so-called Fulbright Act and the United States Information and Educational Exchange Act of 1948, to lecture in a foreign university, constitute compensation for services rendered, includible in gross income under section 61 of the Internal Revenue Code of 1954. Such amounts do not constitute scholarship or fellowship grants under section 117 of the Code. The value of transportation furnished in kind and any cash advances to cover transportation expenses are likewise includible in gross income.

However, the taxpayer may deduct his traveling expenses in computing adjusted gross income, including the cost of his meals and lodging on the round trip to and from the university and during his stay there, if he can show that they are reasonable and necessary and that they are incurred while away from "home" in the pursuit of his trade or business. Transportation expenses of other members of the taxpayer's family, as well as their living expenses while in the foreign country, are not deductible.

Full Text

Rev. Rul. 62-2

Advice has been requested with respect to the status, for Federal income tax purposes, of amounts received by a taxpayer who was appointed as a lecturer in a foreign university under the circumstances described below.

The taxpayer, an American citizen and a professor on sabbatical leave from an American university, was appointed by the United States Department of State as a lecturer in a university in France and received a grant under the provisions of the Act of August 1, 1946, 60 Stat. 754, 50 U.S.C. 1641 (so-called Fulbright Act). The stipend for the academic year of ten months was paid in francs in monthly payments. The entire payment was designated as maintenance allowance for the taxpayer and dependent (taxpayer's wife). He also received a supplemental grant under the United States Information and Educational Exchange Act of 1948, 62 Stat. 6, 22 U.S.C. 1431, 1471 (so-called Smith-Mundt Act), paid in American currency. The United States Government furnished the taxpayer with transportation in kind to the port of debarkation in France and advanced cash for his rail fare from the port to the university. The taxpayer paid the transportation expenses of his wife.

Section 61 of the Internal Revenue Code of 1954 provides that, except as otherwise provided by statute, gross income means all income from whatever source derived. Section 117(a) of the Code excludes from gross income amounts received as a scholarship or fellowship grant, subject to certain limitations.

The grants under consideration are for the professional services of a lecturer, who, in accordance with the grant, is required to lecture at a university in a foreign country. Therefore, in the instant case the amounts received under both Acts cited above represent compensation for services rendered. Accordingly, it is held that amounts so received do not constitute scholarship or fellowship grants within the meaning of section 117 of the Code. See section 1.117-4(c)(1) of the Income Tax Regulations. Furthermore, since the amounts are paid by the United States, they are not excludable from gross income under section 911(a) of the Code. The amounts received represent compensation for services rendered or to be rendered and are includible in the recipient's gross income under section 61 of the Code, even though they may be paid in blocked or restricted foreign currency.

A further problem to be resolved is the extent to which traveling expenses incurred by the lecturer are deductible, including the cost of his meals and lodging on the round trip to and from the university in France and during his stay there.

Section 162(a) of the Code provides that among the ordinary and necessary business expenses paid or incurred during the taxable year and allowable as deductions in computing taxable income are "traveling expenses (including the entire amount expended for meals and lodging) while away from home in the pursuit of a trade or business."

In order for traveling expenses to be deductible under section 162(a) of the Code, they must satisfy three conditions, namely, (1) they must be reasonable and necessary, (2) they must be incurred while away from home, and (3) they must be incurred in pursuit of a trade or business. See Commissioner v. J. N. Flowers, 326 U.S. 465, Ct. D. 1659, C.B. 1946-1, 57, and Rev. Rul. 60-189, C.B. 1960-1, 60.

A taxpayer's principal post of duty or place of employment is considered his "home" for the purposes of this deduction. If the taxpayer in the instant case can show that he has retained his regular place of employment in the United States and will return thereto at the expiration of the lecture period, his regular place of employment in the United States would be his "home."

As stated above, the amounts received as grants constitute compensation for services rendered which amounts are includible in the recipient's gross income under section 61 of the Code. However, under section 162 of the Code, he may deduct his traveling expenses, including expenses incurred for meals and lodging on the round trip to and from the university in France and during his stay there, if the expenses meet the three conditions stated above. Traveling expenses which are allowable deductions under section 162 of the Code may be subtracted from gross income in computing adjusted gross income under section 62 of the Code. However, transportation expenses of members of the taxpayer's family, as well as their living expenses, are nondeductible personal expenses under section 262 of the Code.

Furthermore, the amounts received in cash for rail fare from the port of debarkation to the university, and the value of transportation to the foreign country furnished in kind by the Government, should also be included in the taxpayer's gross income; and proper deductions should be claimed for the value of the transportation furnished in kind, and the expenses actually incurred by him, to the extent attributable to his own transportation as distinguished from that of his family.