Taxing fellowships

The Internal Revenue Service is considering new rules that would define, with greater precision, the difference between nontaxable scholarships and fellowships on the one hand, and taxable gross income from services rendered on the other hand. Section 117 of the Internal Revenue Code provides that scholarship or fellowship awards are at least partly excludable from gross income. In recent years, however, there has been a great increase in the number of ambiguous situations not specifically spelled out under Section 117. The problem in such cases, according to IRS chief counsel Mitchell Rogovin, is to distinguish true scholarships and fellowships from payments that are in fact compensation for services performed.