Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 65-58

1965-1 C.B. 37

Sec. 74

Sec. 117

IRS Headnote

A prize awarded by a business firm, designated a `scholarship' but not required to be used for educational purposes, is includible in the recipient's gross income under section 74(a) of the Internal Revenue Code of 1954.

Full Text

Rev. Rul. 65-58

Advice has been requested as to the taxability of amounts received as a `scholarship' prize in a contest, where there was no requirement that the prize be used to further the recipient's education.

The taxpayer won a contest conducted by a business firm. Although the prize was advertised as a `scholarship to the college of your choice,' and the business firm had stated its hope that the award would be used to further the recipient's education, there were no restrictions on the actual use of the prize money.

Section 74(a) of the Internal Revenue Code of 1954 provides as follows:

* * * Except as provided in subsection (b) and in section 117 (relating to scholarships and fellowship grants), gross income includes amounts received as prizes and awards.

Section 1.74-1(a) of the Income Tax Regulations provides, in part, that prizes and awards includible in the gross income of the recipient include amounts received from participation in contests of all types, unless such prizes or awards qualify as an exclusion from gross income under section 74(b) of the Code, or unless such prize or award is a scholarship or fellowship grant excluded from gross income by section 117 of the Code.

Section 117 of the Code provides as follows:

(a) GENERAL RULE.-In the case of an individual, gross income does not include-

(1) any amount received-

(A) as a scholarship at an educational institution (as defined in section 151(e)(4)) * * *

The term `scholarship' is defined in section 1.117-3(a) of the regulations as an amount `paid to or allowed to, or for the benefit of, a student, * * * to aid such individual in pursuing his studies.'

Since, in the instant case, it was not required that the amounts received be used to further the educational pursuits of the taxpayer, it cannot be said that they were amounts received as a scholarship or fellowship for purposes of section 117 of the Code.

Accordingly, it is held that the prize is required to be included in the recipient's gross income under the provisions of section 74(a) of the Code.