Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 64-71

1964-1 C.B. 82

Sec. 117

IRS Headnote

Grants made by the National Institute of Public Affairs to Government employees, to enable them to attend selected universities for an academic year of study, are excludable from the gross incomes of the recipients under section 117(a) of the Internal Revenue Code of 1954, subject to the limitations prescribed in section 117(b) of the Code.

However, the continuing salary payments received by grant recipients from their employers during this period are compensation for services rendered and are includible in the recipients' gross incomes under section 61(a) of the Code.

Full Text

Rev. Rul. 64-71

Advice has been requested whether granted received by Government employees from the National Institute of Public Affairs under the circumstances described below are excludable from the gross incomes of the recipients under section 117(a) of the Internal Revenue Code of 1954.

The Institute is an organization of the type described in section 501(c)(3) of the Code and is exempt from tax under section 501(a) of the Code.

Under its Career Education Awards program, the Institute awards grants to individuals selected by departments, bureaus and independent agencies of the Government. The stated purpose of the program is to stimulate the early identification of able young administrators, to help advance their careers, to improve the public service by aiding the development of potentially top-flight executive talent, and to assist in building more effective communication between universities and public agencies with the expectation that agency administrators will increasingly use graduate-level educational programs specifically geared to their needs.

Each of the individuals selected for these grants attends a participating university for an academic year of study. During the period, the grantees continue to receive their usual salaries from their department, bureau, or independent agency. Tuition charges, allowances for books and other classroom expenses and expenses of relocating temporarily at a university are paid by the Institute.

Section 117(a) of the Code provides that, in the case of an individual, gross income does not include any amount received as a scholarship at an educational institution, or as a fellowship grant, including the value of contributed services and accommodations, and any amount received to cover certain specified expenses which are incident to a scholarship or to a fellowship grant, but only to the extent that the amount is actually expended for the purposes enumerated therein.

Section 1.117-3(c) of the Income Tax Regulations defines the term `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. The term includes the value of contributed services and accommodations and the amount of tuition, matriculation, and other fees which are furnished or remitted to an individual to aid him in the pursuit of study or research. The term also includes any amount received in the nature of a family allowance as a part of a fellowship grant.

Section 117(b)(2)(B) of the Code provides that the exclusion, in the case of individuals who are not candidates for degrees, shall be limited to an amount equal to $300 times the number of months for which the recipient received amounts under the fellowship grant during the taxable year. No exclusion is allowed after the recipient has been entitled to an exclusion for a period of 36 months, whether or not consecutive.

The facts indicate that the primary purpose of the grants concerned is to enable the recipients to further their education and training in their individual capacities and not as compensation for past, present, or future services.

Accordingly, it is held that grants made by the National Institute of Public Affairs to Government employees, to enable them to attend participating universities for an academic year of study, are excludable from the gross incomes of the recipients as fellowship grants under section 117(a) of the Code, subject to the limitations of section 117(b) of the Code. Any amounts specifically designated to cover expenses for travel, research, clerical help or equipment, are excludable from the gross incomes of the recipients under section 117(a) of the Code to the extent expended for such purposes.

However, the continuing salary payments received by grant recipients from their employers are compensation for services rendered and are includible in their gross incomes under section 61(a) of the Code.