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following type of payment is not excludable from income under
section 117:
any amount paid or allowed to, or on behalf of, an
individual to enable him to pursue studies or research, if
such amount represents either compensation for past,
present, or future employment services or represents payment
for services which are subject to the direction or
supervision of the grantor.
Sec. 1.117-4(c)(1), Income Tax Regs. The Supreme Court has held
that:
The thrust of the provision [in the section 117 regulations]
dealing with compensation is that bargained-for payments,
given only as a “quo” in return for the quid of services
rendered--whether past, present, or future--should not be
excludable from income as “scholarship” funds.
Bingler v. Johnson, 394 U.S. 741, 757-758 (1969). Based on
petitioner’s testimony, we conclude that any payments by NSBE for
petitioner’s education were not in the form of a “qualified
scholarship” within the meaning of section 117. Any such
payments were made in accordance with the terms of the employment
relationship. If they were in fact made, they were a form of
compensation and not the result of disinterested generosity.
Thus, the section 117(a) exclusion does not apply in this case.
Second, section 127(a)(1) excludes from gross income
“amounts paid or expenses incurred by the employer for
educational assistance to the employee”, but only if the
assistance is furnished pursuant to a qualifying “educational
assistance program”. An “educational assistance program” is a
“separate written plan of an employer” which meets certain
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Last modified: May 25, 2011