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jgordosea, Enrolled Agent
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Experience:  I've prepared all types of taxes since 1987.
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Fellowship for unaffiliated researcher. I have been awarded

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Fellowship for unaffiliated researcher.

I have been awarded a fellowship under the Documenting Endangered Languages Program (DEL), a joint program of the National Science Foundation (NSF) and the National Endowment for the Humanities (NEH). It's for one year, June 1 2013 to May 31 2014. The purpose is for me to further develop my linguistic database of a highly endangered language, and to make my materials available to language revitalization programs which members of that language community are developing.

The NEH, as program administrator, declines to say whether or not the fellowship stipend is taxable:
"The Endowment does not withhold taxes from stipends. Neither does the Endowment send to Fellows an IRS form W-2 or IRS form 1099. You should familiarize yourself with the tax laws to determine the tax liability of your fellowship stipend and whether you are entitled to deduct any expenses in connection with your fellowship. The IRS has not advised the Endowment concerning tax treatment of fellowship awards, and NEH cannot provide tax advice or answers to tax questions."
http://www.neh.gov/files/grants/fellowships_general_information_2013-2014.pdf

Can you point me to an IRS document that tells me whether or not my stipend in this fellowship is subject to income tax? I will review below the documents that I have found and reviewed in pursuit of an answer to this question.

The discussion at http://aapf-fellows.org/Taxes concludes that recipients of NSF Astronomy and Astrophysics Postdoctoral Fellowships must pay income tax, basing this on the document at http://nsf.gov/funding/pgm_summ.jsp?pims_id=5291. However, the referenced AAPF program supports "research in combination with a coherent educational plan for the duration of the fellowship [at] eligible host institution(s) ... [and] is intended to ... provide ... experience in research and education." When an educational institution receives and disburses grant or fellowship money, it is accounted compensation for service and is therefore subject to tax. I am unaffiliated, that is, no educational institution is involved in this funding or in the funded activities.

An exchange on this website between Stephen E. Grizey and an unnamed querant (found at http://www.justanswer.com/tax/6yiix-received-3700-national-endowment-humanities-grant.html) concludes that the person's grant was not taxable, basing that on the absence of a W-2 or 1099 (see above) and on the section "Grants to Individuals" that Mr. Grizey appears to have quoted from http://www.irs.gov/Charities-&-Non-Profits/Private-Foundations/Grants-to-Individuals. However, that document gives advice not to grantees but rather to grantors, the private foundations captioned higher up in the URL path. Further, the querant had received a "grant for high school teachers for a 3 week philosophy course at the University of Virginia in July 2011", so her or his support clearly was for education.

My tax consultant here quoted IRS publication 970 "Tax Benefits for Education", which obviously is specifically about education, and which says that such grants are tax free only for grantees in a degree program and satisfying some other requirements. The DEL fellowship is for scientific research, not education, and I am not using the funds for my education.

There's similar language in IRS publication 520, which is also but less explicitly concerned with educational grants, fellowships, and scholarships.

Publication also 520 says (p. 2) "This publication does not discuss certain items that are covered in other publications", and lists three examples. A fourth example that is not in this list is the document for private foundations cited above. I'm looking for some relevant IRS publication that is not among the three listed in Publication 520.

I hope you can help me find an IRS document that applies to my minority situation as an unaffiliated scientist. Thank you.
Submitted: 1 year ago.
Category: Tax
Expert:  jgordosea replied 1 year ago.
Greetings,

Your tax consultant is correct that fellowships and scholarships are excluded from income subject to tax only if you are a candidate for a degree at an eligible educational institution and to the extent used for qualified tuition and related expenses..

As with all other worldwide income of United States citizens, income is subject to income tax unless there is some provision in the code that excludes or exempts that income.

A plain language discussion of non-employee fellowship payments is at http://vpf-web.harvard.edu/ofs/tax_services/pdf/fell_hand.pdf

Whether or not the payer is an educational institution does not change the fact that there is not an exclusion from income for fellowship income except when "The recipient is an individual, who is a candidate for a degree at an educational organization ... AND The fellowship amount is used for "qualified tuition and related expenses." under Section 117(a) of the Internal Revenue Code.

See http://www.law.cornell.edu/uscode/text/26/117

Please ask if you need clarification or more information.
Thank you.



Customer: replied 1 year ago.

Thanks. A more definitive source is http://www.irs.gov/taxtopics/tc421.html.


 


I guess you will have to reply once more to return this to a state where I can rate your answer and close the question.

Expert:  jgordosea replied 1 year ago.
Hello again,

You are quite welcome.
Yes, the tax topic does provide a good summary of the code provisions.

A side issue may be whether or not there is self employment tax on fellowship income.

In Revenue Ruling 30-378, 1960-2 C.B. 38, the Commissioner ruled that
scholarships and fellowship grants are not subject to tax on self employment income:
“[Scholarships and fellowship grants] do not constitute income from a
trade or business and, hence, are not to be included in the recipient’s net earnings from self-employment for purposes of the Self Employment Contributions Act. The terms “fellowship grant” and
“trade or business” are inconsistent and mutual exclusive. Amounts
received under a fellowship grant which qualifies as such under
section 117 of the Code cannot be deemed to be income from a trade
or business….”

So, you do not have to pay self employment tax (as would be the case with independent contractor, 1099-MISC, type of income) and will not include the income on Schedule SE.

Please ask if you need anything more.
Thank you and best wishes on your endeavor.
jgordosea, Enrolled Agent
Category: Tax
Satisfied Customers: 3093
Experience: I've prepared all types of taxes since 1987.
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jgordosea
jgordosea
Enrolled Agent
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I've prepared all types of taxes since 1987.