Page 125

TITLE 26-INTERNAL REVENUE CODE Limitations applicable to dividends received from regulated investment company, see section 854 of this title. Restrictions applicable to dividends received from real estate investment trusts, see section 857 of this title. SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in sections 301, 584, 642, 643, 702, 854, 857, 1375 of this title. § 117. Scholarships and fellowship grants (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 or- ganization described in section 170(b)(1)(A)(ii), or (B) as a fellowship grant, including the value of contributed services and accommo- dations; and (2) any amount received to cover expenses for- (A) travel, (B) research, (C) clerical help, or (D) equipment, which are incident to such a scholarship or to a fellowship grant, but only to the extent that the amount is so expended by the recipi- ent. (b) Limitations (1) Individuals who are candidates for degrees In the case of an individual who is a candi- date for a degree at an educational organiza- tion described in section 170(b)(1)(A)(ii), sub- section (a) shall not apply to that portion of any amount received which represents pay- ment for teachIng, research, or other services in the nature of part-time employment re- quired as a condition to receiving the scholar- ship or the fellowship grant. If teaching, re- search, or other services are required of all candidates (whether or not recipients of scholarships or fellowship grants) for a par- ticular degree as a condition to receiving such degree, such teaching, research, or other ser- vices shall not be regarded as part-time em- ployment within the meaning of this para- graph. (2) Individuals who are not candidates for degrees In the case of an individual who is not a candidate for a degree at an educational orga- nization described in section 170(b)(1)(A)(ii), subsection (a) shall apply only if the condi- tion in subparagraph (A) is satisfied and then only within the limitations provided in sub- paragraph (B). (A) Conditions for exclusion The grantor of the scholarship or fellow- ship grant is- (i) an organization described in section 501(c)(3) which is exempt from tax under section 501(a), (ii) a foreign government, (iii) an international organization, or a binational or multinational education and cultural foundation or commission cre- ated or continued pursuant to the Mutual Educational and Cultural Exchange Act of 1961, or (iv) the United States, or an instrumen- tality or agency thereof, or a State, or a possession of the United States, or any political subdivision thereof, or the Dis- trict of Columbia. (B) Extent of exclusion The amount of the scholarship or fellow- ship grant excluded under subsection (a)(1) in any taxable year shall be limited to an amount equal to $300 times the number of months for which the recipient received amounts under the scholarship or fellow- ship grant during such taxable year, except that no exclusion shall be allowed under subsection (a) after the recipient has been entitled to exclude under this section for a period of 36 months (whether or not con- secutive) amounts received as a scholarship or fellowship grant while not a candidate for a degree at an educational organization described in section 170(b)(1)(A)(ii). (Aug. 16, 1954, ch. 736, 68A Stat. 38; Sept. 21, 1961, Pub. L. 87-256, § 110(a), 75 Stat. 535; Oct. 4, 1976, Pub. L. 94-455, title XIX, § 1901(b)(8)(A), (c)(3), 90 Stat. 1794, 1803.) REFERENCES IN TEXT The Mutual Educational and Cultural Exchange Act of 1961, referred to in subsec. (b)(2)(A)(iii), is Pub. L. 87-256, Sept. 21, 1961, 75 Stat. 527, as amended, which is principally classified to chapter 33 (§ 2451 et seq.) of Title 22, Foreign Relations and Intercourse. For com- plete classification of this Act to the Code, see Short Title note set out under section 2451 of Title 22 and Tables volume. AMENDMENTS 1976-Subsecs. (a)(1)(A), (b)(1), (2), Pub. L. 94-455, § 1901(b)(8)(A), substituted "educational organization described in section 170(b)(1)(A)(ii)" for "educational institution (as defined in section 151(e)(4))" following "scholarship at an". Subsec. (b)(2)(A)Xv). Pub, L. 94-455, § 1901(c)(3), struck out "a territory" following "or a State". Subsec. (b)(2)(B). Pub. L. 94-455, § 1901(b)(8)(A), substituted "educational organization described in sec- tion 170(b)(1)(A)(il)" for "educational institution (as defined in section 151(e)(4))" following "degree at an". 1961-Subsec. (b)(2)(A). Pub. L. 87-256 included cases where the grantor of the scholarship or fellow- ship grant is a foreign government, an international organization, or a binational or multinational educa- tional and cultural foundation or commission created or continued pursuant to the Mutual Educational and Cultural Exchange Act of 1961. EFFECTIVE DATE OF 1976 AMENDMENT Amendment by Pub. L. 94-455 applicable with re- spect to taxable years beginning after Dec. 31, 1976, see section 1901(d) of Pub. L. 94-455, set out as an Ef- fective Date of 1976 Amendment note under section 2 of this title. EFFECTIVE DATE OF 1961 AMENDMENT Section 110(h)(1) of Pub. L. 87-256 provided that: "The amendments made by subsections (a), (b), and (c) of this section (to subsec. (b)(2)(A) of this section and sections 871 and 872 of this title] shall apply to taxable years beginning after December 31, 1961." Page 125 § 117