Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 64-29

1964-1 C.B. 79

Sec. 117

IRS Headnote

Stipends paid by a school of medical technology to its student-trainees, who are required to perform no significant services for the school as a condition to receiving such stipend, are excluded from gross income under section 117(a) of the Internal Revenue Code of 1954, and are not subject to the withholding of income tax.

Full Text

Rev. Rul. 64-29

Advice has been requested whether amounts paid to student-trainees enrolled in a certain school of medical technology are includible in gross income and subject to the withholding of income tax.

The school is an organization described in section 501(c)(3) of the Internal Revenue Code of 1954 which is exempt from tax under section 501(a) of the Code. Its training facilities are located in a general hospital having a clinical laboratory which performs tests and analyses. The course extends over a period of one year and enrollment is limited to a maximum of ten students.

A prerequisite for admission to the school is satisfactory completion of three years in a college or university. Students spend four to six hours per week in lectures and seminars and the balance of their time is used in making practice tests and analyses, reading assignments, and examinations. When they become proficient in the work of one section of the laboratory, they are rotated to another section for further training. Records of progress are kept for each student. All tests and analyses made by students are part of their training and must be checked by a registered technician.

The school is affiliated with a college which permits students to count their year of training at the school of medical technology as thirty credit hours toward a Bachelor of Science degree in Medical Technology. Students working for such degree must register with the college and pay the necessary fees required for graduation.

The school charges no tuition, furnishes routine health and medical services without charge, and gives the students a stipend of 50 x dollars a month. In addition, students may earn 5 x dollars per day for weekend work outside the training program.

Students successfully completing their training receive a certificate from the hospital and are eligible to take the national examination conducted by the Board of Registry of Medical Technology which leads to the MT (ASCP) certification of the registered medical technologist. A formal employment service is not maintained by the hospital but graduates are assisted in locating jobs, wherever possible.

Section 117(a)(1) of the Code excludes from the gross income of an individual any amount received as a scholarship or fellowship grant, subject to the limitations of section 117(b) of the Code. Section 1.117-3(c) of the Income Tax Regulations defines the term `scholarship or fellowship grant' 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.

Since the primary purpose of the stipend is to further the education and training of the students in their individual capacities, the payments made under the training program do not represent compensation for personal services or for part-time employment within the meaning of section 117(b)(1) of the Code.

Accordingly, it is held that the stipends of 50 x dollars per month are scholarship or fellowship grants which are excludable from the gross income of the recipients under section 117(a) of the Code and are not `wages,' as defined in section 3401 of the Code, subject to income tax withholding under section 3402 of the Code.

However, any amount paid by the school to a student-trainee for week-end work outside the training program is compensation which is includible in gross income under section 61(a) of the Code and is subject to the withholding of income tax.