
From the U.S. Code Online via GPO Access
[wais.access.gpo.gov]
[Laws in effect as of January 2, 2001]
[Document affected by Public Law 107-16 Section 413(a)]
[Document affected by Public Law 107-16 Section 413(b)]
[CITE: 26USC117]

 
                     TITLE 26--INTERNAL REVENUE CODE
 
                        Subtitle A--Income Taxes
 
                  CHAPTER 1--NORMAL TAXES AND SURTAXES
 
               Subchapter B--Computation of Taxable Income
 
         PART III--ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME
 
Sec. 117. Qualified scholarships


(a) General rule

    Gross income does not include any amount received as a qualified 
scholarship by an individual who is a candidate for a degree at an 
educational organization described in section 170(b)(1)(A)(ii).

(b) Qualified scholarship

    For purposes of this section--

                           (1) In general

        The term ``qualified scholarship'' means any amount received by 
    an individual as a scholarship or fellowship grant to the extent the 
    individual establishes that, in accordance with the conditions of 
    the grant, such amount was used for qualified tuition and related 
    expenses.

             (2) Qualified tuition and related expenses

        For purposes of paragraph (1), the term ``qualified tuition and 
    related expenses'' means--
            (A) tuition and fees required for the enrollment or 
        attendance of a student at an educational organization described 
        in section 170(b)(1)(A)(ii), and
            (B) fees, books, supplies, and equipment required for 
        courses of instruction at such an educational organization.

(c) Limitation

    Subsections (a) and (d) shall not apply to that portion of any 
amount received which represents payment for teaching, research, or 
other services by the student required as a condition for receiving the 
qualified scholarship or qualified tuition reduction.

(d) Qualified tuition reduction

                           (1) In general

        Gross income shall not include any qualified tuition reduction.

                   (2) Qualified tuition reduction

        For purposes of this subsection, the term ``qualified tuition 
    reduction'' means the amount of any reduction in tuition provided to 
    an employee of an organization described in section 170(b)(1)(A)(ii) 
    for the education (below the graduate level) at such organization 
    (or another organization described in section 170(b)(1)(A)(ii)) of--
            (A) such employee, or
            (B) any person treated as an employee (or whose use is 
        treated as an employee use) under the rules of section 132(h).

       (3) Reduction must not discriminate in favor of highly 
                              compensated, etc.

        Paragraph (1) shall apply with respect to any qualified tuition 
    reduction provided with respect to any highly compensated employee 
    only if such reduction is available on substantially the same terms 
    to each member of a group of employees which is defined under a 
    reasonable classification set up by the employer which does not 
    discriminate in favor of highly compensated employees (within the 
    meaning of section 414(q)). For purposes of this paragraph, the term 
    ``highly compensated employee'' has the meaning given such term by 
    section 414(q).

     [(4) Repealed. Pub. L. 101-140, title II, Sec. 203(a)(1), 
                      (2), Nov. 8, 1989, 103 Stat. 830]

       (5) Special rules for teaching and research assistants

        In the case of the education of an individual who is a graduate 
    student at an educational organization described in section 
    170(b)(1)(A)(ii) and who is engaged in teaching or research 
    activities for such organization, paragraph (2) shall be applied as 
    if it did not contain the phrase ``(below the graduate level)''.

(Aug. 16, 1954, ch. 736, 68A Stat. 38; Pub. L. 87-256, Sec. 110(a), 
Sept. 21, 1961, 75 Stat. 535; Pub. L. 94-455, title XIX, 
Sec. 1901(b)(8)(A), (c)(3), Oct. 4, 1976, 90 Stat. 1794, 1803; Pub. L. 
96-541, Sec. 5(a)(1), Dec. 17, 1980, 94 Stat. 3205; Pub. L. 98-369, div. 
A, title V, Sec. 532(a), July 18, 1984, 98 Stat. 887; Pub. L. 99-514, 
title I, Sec. 123(a), title XI, Secs. 1114(b)(2), 1151(g)(2), Oct. 22, 
1986, 100 Stat. 2112, 2450, 2506; Pub. L. 100-647, title I, 
Sec. 1011B(a)(31)(B), title IV, Sec. 4001(b)(2), Nov. 10, 1988, 102 
Stat. 3488, 3643; Pub. L. 101-140, title II, Sec. 203(a)(1), (2), Nov. 
8, 1989, 103 Stat. 830; Pub. L. 104-188, title I, Sec. 1703(n)(14), Aug. 
20, 1996, 110 Stat. 1878.)


                               Amendments

    1996--Subsec. (d)(2)(B). Pub. L. 104-188 substituted ``section 
132(h)'' for ``section 132(f)''.
    1989--Subsec. (d)(4). Pub. L. 101-140, Sec. 203(a)(2), amended par. 
(4) to read as if amendments by Pub. L. 100-647, Sec. 1011B(a)(31)(B), 
had not been enacted, see 1988 Amendment note below.
    Pub. L. 101-140, Sec. 203(a)(1), amended subsec. (d) to read as if 
amendments by Pub. L. 99-514, Sec. 1151(g)(2), which added par. (4), had 
not been enacted, see 1986 Amendment note below.
    1988--Subsec. (d)(4). Pub. L. 100-647, Sec. 1011B(a)(31)(B), 
substituted ``there shall'' for ``there may'' and ``who are'' for ``who 
may be''.
    Subsec. (d)(5). Pub. L. 100-647, Sec. 4001(b)(2), added par. (5).
    1986--Pub. L. 99-514, Sec. 123(a), in amending section generally, 
substituted ``Qualified scholarships'' for ``Scholarships and fellowship 
grants'' in section catchline.
    Subsec. (a). Pub. L. 99-514, Sec. 123(a), amended subsec. (a) 
generally. Prior to amendment, subsec. (a) read as follows: ``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 accommodations; 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 
    recipient.''
    Subsec. (b). Pub. L. 99-514, Sec. 123(a), in amending subsec. (b) 
generally, substituted qualified scholarship provision for former 
limitations provision, which related in par. (1) to individuals who were 
candidates for degrees, and in par. (2) to individuals who were not 
candidates for degrees, describing in subpar. (A) conditions for 
exclusion and in subpar. (B) extent of exclusion, such detailed 
provision now covered in subsec. (c).
    Subsec. (c). Pub. L. 99-514, Sec. 123(a), in amending subsec. (c) 
generally, substituted limitation provision for former provision 
relating to Federal grants for tuition and related expenses not 
includable merely because there was requirement of future service as 
Federal employee.
    Subsec. (d). Pub. L. 99-514, Sec. 123(a), in amending subsec. (d) 
generally, substituted ``reduction'' for ``reductions'' in heading and 
inserted ``(within the meaning of section 414(q))'' after ``highly 
compensated employees'' in par. (3).
    Subsec. (d)(3). Pub. L. 99-514, Sec. 1114(b)(2), struck out 
``officer, owner, or'' after ``with respect to any'' and ``officers, 
owners, or'' after ``in favor of'' and inserted at end ``For purposes of 
this paragraph, the term `highly compensated employee' has the meaning 
given such term by section 414(q).''
    Subsec. (d)(4). Pub. L. 99-514, Sec. 1151(g)(2), added par. (4).
    1984--Subsec. (d). Pub. L. 98-369 added subsec. (d).
    1980--Subsec. (c). Pub. L. 96-541 added subsec. (c).
    1976--Subsecs. (a)(1)(A), (b)(1), (2). Pub. L. 94-455, 
Sec. 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))'' after ``scholarship at an''.
    Subsec. (b)(2)(A)(iv). Pub. L. 94-455, Sec. 1901(c)(3), struck out 
``a territory'' after ``or a State''.
    Subsec. (b)(2)(B). Pub. L. 94-455, Sec. 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))'' after 
``degree at an''.
    1961--Subsec. (b)(2)(A). Pub. L. 87-256 included cases where the 
grantor of the scholarship or fellowship grant is a foreign government, 
an international organization, or a binational or multinational 
educational and cultural foundation or commission created or continued 
pursuant to the Mutual Educational and Cultural Exchange Act of 1961.


                    Effective Date of 1996 Amendment

    Amendment by Pub. L. 104-188 effective as if included in the 
provision of the Revenue Reconciliation Act of 1993, Pub. L. 103-66, 
Secs. 13001-13444, to which such amendment relates, see section 1703(o) 
of Pub. L. 104-188, set out as a note under section 39 of this title.


                    Effective Date of 1989 Amendment

    Amendment by Pub. L. 101-140 effective as if included in section 
1151 of Pub. L. 99-514, see section 203(c) of Pub. L. 101-140, set out 
as a note under section 79 of this title.


                    Effective Date of 1988 Amendment

    Amendment by section 1011B(a)(31)(B) of Pub. L. 100-647 effective, 
except as otherwise provided, as if included in the provision of the Tax 
Reform Act of 1986, Pub. L. 99-514, to which such amendment relates, see 
section 1019(a) of Pub. L. 100-647, set out as a note under section 1 of 
this title.
    Section 4001(c) of Pub. L. 100-647 provided that: ``The amendments 
made by this section [amending this section and section 127 of this 
title] shall apply to taxable years beginning after December 31, 1987.''


                    Effective Date of 1986 Amendment

    Amendment by section 123(a) of Pub. L. 99-514 applicable to taxable 
years beginning after Dec. 31, 1986, but only in the case of 
scholarships and fellowships granted after Aug. 16, 1986, see section 
151(d) of Pub. L. 99-514, set out as a note under section 1 of this 
title.
    Amendment by section 1114(b)(2) of Pub. L. 99-514 applicable to 
years beginning after Dec. 31, 1987, see section 1114(c)(2) of Pub. L. 
99-514, set out as a note under section 414 of this title.
    Amendment by section 1151(g)(2) of Pub. L. 99-514 applicable, with 
certain qualifications and exceptions, to years beginning after Dec. 31, 
1988, see section 1151(k) of Pub. L. 99-514, as amended, set out as a 
note under section 79 of this title.


                    Effective Date of 1984 Amendments

    Section 532(b) of Pub. L. 98-369, as amended by Pub. L. 99-514, 
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: ``The amendment 
made by this section [amending this section] shall apply to qualified 
tuition reductions (as defined in section 117(d)(2) of the Internal 
Revenue Code of 1986 [formerly I.R.C. 1954]) for education furnished 
after June 30, 1985, in taxable years ending after such date.''
    Provisions of subsec. (d) treated as in effect on and after Jan. 1, 
1984, in case of education described in section 127(c)(8) of this title, 
see section 1(g)(5) of Pub. L. 98-611, set out as a note under section 
127 of this title.


                    Effective Date of 1980 Amendment

    Section 5(a)(2) of Pub. L. 96-541 provided: ``The amendment made by 
paragraph (1) [amending this section] shall apply to taxable years 
beginning after December 31, 1980.''


                    Effective Date of 1976 Amendment

    Amendment by Pub. L. 94-455 applicable with respect to taxable years 
beginning after Dec. 31, 1976, see section 1901(d) of Pub. L. 94-455, 
set out as a 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 [amending this 
section and sections 871 and 872 of this title] shall apply to taxable 
years beginning after December 31, 1961.''


                               Regulations

    Secretary of the Treasury or his delegate to issue before Feb. 1, 
1988, final regulations to carry out amendments made by section 1114 of 
Pub. L. 99-514, see section 1141 of Pub. L. 99-514, set out as a note 
under section 401 of this title.


 Nonenforcement of Amendment Made by Section 1151 of Pub. L. 99-514 for 
                            Fiscal Year 1990

    No monies appropriated by Pub. L. 101-136 to be used to implement or 
enforce section 1151 of Pub. L. 99-514 or the amendments made by such 
section, see section 528 of Pub. L. 101-136, set out as a note under 
section 89 of this title.


Applicability of Certain Amendments by Public Law 99-514 in Relation to 
                   Treaty Obligations of United States

    For nonapplication of amendment by section 123(a) of Pub. L. 99-514 
to the extent application of such amendment would be contrary to any 
treaty obligation of the United States in effect on Oct. 22, 1986, with 
provision that for such purposes any amendment by title I of Pub. L. 
100-647 be treated as if it had been included in the provision of Pub. 
L. 99-514 to which such amendment relates, see section 1012(aa)(3), (4) 
of Pub. L. 100-647, set out as a note under section 861 of this title.


           Plan Amendments Not Required Until January 1, 1989

    For provisions directing that if any amendments made by subtitle A 
or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or title XVIII 
[Secs. 1800-1899A] of Pub. L. 99-514 require an amendment to any plan, 
such plan amendment shall not be required to be made before the first 
plan year beginning on or after Jan. 1, 1989, see section 1140 of Pub. 
L. 99-514, as amended, set out as a note under section 401 of this 
title.


    Transitional Rules for Treatment of Certain Reductions in Tuition

    Section 1853(f) of Pub. L. 99-514 provided that:
    ``(1) A tuition reduction plan shall be treated as meeting the 
requirements of section 117(d)(3) of the Internal Revenue Code of 1954 
[now 1986] if--
        ``(A) such plan would have met the requirements of such section 
    (as amended by this section but without regard to the lack of 
    evidence that benefits under such plan were the subject of good 
    faith bargaining) on the day on which eligibility to participate in 
    the plan was closed,
        ``(B) at all times thereafter, the tuition reductions available 
    under such plan are available on substantially the same terms to all 
    employees eligible to participate in such plan, and
        ``(C) the eligibility to participate in such plan closed on June 
    30, 1972, June 30, 1974, or December 31, 1975.
    ``(2) For purposes of applying section 117(d)(3) of the Internal 
Revenue Code of 1954 [now 1986] to all tuition reduction plans of an 
employer with at least 1 such plan described in paragraph (1) of this 
subsection, there shall be excluded from consideration employees not 
included in the plan who are included in a unit of employees covered by 
an agreement that the Secretary of the Treasury or his delegate finds to 
be a collective bargaining agreement between employee representatives 
and 1 or more employers, if, with respect to plans other than plans 
described in paragraph (1), there is evidence that such benefits were 
the subject of good faith bargaining.
    ``(3) Any reduction in tuition provided with respect to a full-time 
course of education furnished at the graduate level before July 1, 1988, 
shall not be included in gross income if--
        ``(A) such reduction would not be included in gross income under 
    the Internal Revenue Service regulations in effect on the date of 
    the enactment of the Tax Reform Act of 1984 [July 18, 1984], and
        ``(B) such reduction is provided with respect to a student who 
    was accepted for admission to such course of education before July 
    1, 1984, and began such course of education before June 30, 1985.''


                    National Research Service Awards

    Pub. L. 95-600, title I, Sec. 161(b), Nov. 6, 1978, 92 Stat. 2810, 
as amended by Pub. L. 96-167, Sec. 9(b), Dec. 29, 1979, 93 Stat. 1278; 
Pub. L. 96-541, Sec. 5(b), Dec. 17, 1980, 94 Stat. 3206; Pub. L. 97-248, 
title II, Sec. 285, Sept. 3, 1982, 96 Stat. 569; Pub. L. 99-514, Sec. 2, 
Oct. 22, 1986, 100 Stat. 2095, provided that:
    ``(1) General rule.--Any amount paid to, or on behalf of, an 
individual from appropriated funds as a national research service award 
under section 472 of the Public Health Service Act [section 289l-1 of 
Title 42, The Public Health and Welfare] shall be treated as a 
scholarship or fellowship grant under section 117 of the Internal 
Revenue Code of 1986 [formerly I.R.C. 1954].
    ``(2) Effective date.--The provisions of subsection (b) shall apply 
to awards made during calendar years 1974 through 1983.''


       Scholarship Programs for Members of the Uniformed Services

    Pub. L. 93-483, Sec. 4, Oct. 26, 1974, 88 Stat. 1458, as amended 
Pub. L. 94-455, title XXI, Sec. 2130, Oct. 4, 1976, 90 Stat. 1922; Pub. 
L. 95-171, Sec. 5, Nov. 12, 1977, 91 Stat. 1355; Pub. L. 95-600, title 
I, Sec. 161(a), Nov. 6, 1978, 92 Stat. 2810; Pub. L. 95-615, title I, 
Sec. 6, Nov. 8, 1978, 92 Stat. 3098; Pub. L. 96-167, Sec. 9(a), Dec. 29, 
1979, 93 Stat. 1278; Pub. L. 99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 
2095, provided that:
    ``(a) In General.--Any amount received from appropriated funds as a 
scholarship, including the value of contributed services and 
accommodations, by a member of a uniformed service who is receiving 
training under the Armed Forces Health Professions Scholarship Program 
(or any other program determined by the Secretary of the Treasury or his 
delegate to have substantially similar objectives) from an educational 
institution (as defined in section 151(e)(4) of the Internal Revenue 
Code of 1986 [formerly I.R.C. 1954]) [see section 170(b)(1)(A)(ii) of 
this title] shall be treated as a scholarship under section 117 of such 
Code [this section], whether that member is receiving training while on 
active duty or in an off-duty or inactive status, and without regard to 
whether a period of active duty is required of the member as a condition 
of receiving those payments.
    ``(b) Definition of Uniformed Services.--For purposes of this 
section, the term `uniformed service' has the meaning given it by 
section 101(3) of title 37, United States Code.
    ``(c) Effective Date.--The provisions of this section shall apply 
with respect to amounts received during calendar years 1973, 1974, and 
1975, and, in the case of a member of a uniformed service receiving 
training after 1975 and before 1981 in programs described in subsection 
(a), with respect to amounts received after 1975 and before 1985.''
    [Section 6 of Pub. L. 95-615, which reenacted Sec. 4(c) of Pub. L. 
93-483 without change, to cease to have effect on the day after Nov. 8, 
1978, see section 210(a) of Pub. L. 95-615, set out as a note under 
section 61 of this title.]

                  Section Referred to in Other Sections

    This section is referred to in sections 25A, 74, 125, 127, 135, 414, 
1441, 3121, 3231, 3306, 3401, 4941, 4945 of this title; title 42 section 
409.
