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 organization described in section 170(b) (1) (A) (ii), or

(B) as a fellowship grant, including the value of contributed services and accomodations; 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 fellowship grant, but only to the extent that the amount is so expended by the recipient.

(b) Limitations.-

(1) Individuals who are candidates for degrees. -In the case of an individual who is a candidate for a degree at an educational organization described in section 170(b)(1)(A)(ii), subsection (a) shall not apply to that portion of any amount received which represents payment for teaching, reseach, or other services in the nature of part-time employment required as a condition to receiving the scholarship or fellowship grant. If teaching, research, or other services are required of all candidates (whether or not recipients of scholarship or fellowship grants) for a particular degree as a condition to receiving such degree, such teaching, research, or other serivces shall not be regarded as part-time employment within the meaning of this paragraph.

(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 organization described in section 170(b)(1)(A)(ii), subsection (a) shall apply only if the condition in subparagraph (A) is satisfied and then only within the limitations provided in subparagraph (B).

(A) Conditions for exclusion. - The grantor of the scholarship or fellowship grant is-

(i) an organization described in section 501(c)(8) which is exempt from tax under section 501(a),
(ii) a foreign government,
(iii) an international organization, or a binational or multinational educational foundation or commission created or continued pursuant to the Mutual Educational and Cultural Exchance Act of 1961, or
(iv) the United States, or an instrumentality or agency thereof, of a State, or a possession of the United States, or any political subdivision thereof, or the District of Columbia.


(B) Extent of exclusion. -The amount of the scholarship or fellowship grant excluded undersubsection (a)(1) in any taxable year shall be limited to an amount equal to 4800 times the number of months for which the recipient received amounts under the scholarship or fellowship 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 consecutive) 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).

(c) Federal grants for tuition and related expenses not includable merely because there is requirement of future service as federal employee.-

(1) In general. -If-

(A) an amount received by an individual under a Federal program would be excludable under subsections (a) and (b) as a scholarship or fellowship grant but for the fact that the individual is required to perform future srevice as a Federal employee, and

(B) the individual establishes that, in accordance with the terms of the grant, such amount was used for qualified tuition and related expenses,

gross income shall not include such amount.

(2) Qualified tuition and related expenses defined. -For purposes of this subsection-

(A) In general. -The term "qualified tuition and related expenses" means-
(i) tuition and fees required for the enrollment or attendance of a student at an institution of higher education, and
(ii) fees, books, supplies, and equipment required for courses of instruction at an institution of higher education.


(B) Institution of higher education. -The term "institution of higher education" means an educational institution in any state which-

(i) admits as regular students only individuals having a certificate of graduation from a high school, or the recognized equivalent of such a certificate,
(ii) is legally authorized within such State to provide a program of education beyond high school,
(iii) provides an educational program for which it awards a bachelor's or higher degree, provides a program which is acceptable for full credit toward such a degree, or offers a program of training to prepare students for gainful employment in a recognized health profession, and
(iv) is a public or other nonprofit institution.


(3) Service as Federal employee. -For purposes of this subsection, service in a health manpower shortage area shall be treated as service as a Federal employee.