Rev. Rul. 59-355

Advice has been requested whether the amounts received by a student under the provisions of the War Orphans' Educational Assistance Act of 1956, 38 U.S.C. 1701 (1958 Edition), must be taken into consideration in determining who furnished more than half of the student's support for purposes of section 152 of the Internal Revenue Code of 1954.

The taxpayer's 17-year old son, the child of a deceased World War II veteran, is a student at a qualified educational institution. He was employed during the summer and earned income in excess of $600 for the year. He also receives a monthly payment under the provisions of the War Orphans' Educational Assistance Act of 1956, supra, which is administered by the Veterans' Administration.

Section 61(a) of the Code provides, in part, that gross income includes all income from whatever source derived, except as otherwise provided by law. In general, section 151(e) of the Code allows to a taxpayer an exemption of $600 for each dependent, as defined in section 152 of the Code, who is a child of the taxpayer and who has not attained the age of 19 at the close of the calendar year in which the taxable year of the taxpayer begins, or is a student.

The term "dependent," as defined in section 152(a) of the Code, includes a son or daughter of the taxpayer, over half of whose support was received from the taxpayer for the calendar year in which the taxable year of the taxpayer begins. Under the provisions of section 152(d) of the Code, amounts received by a student as a scholarship for study at an educational institution are not taken into account in determining whether the individual received more than half of his support from the taxpayer.

Section 1.152-1(c) of the Income Tax Regulations provides, in part, as follows:

* * * In determining whether the taxpayer does in fact furnish more than one-half of the support of an individual who is a child, as defined in paragraph (a) of Section 1.151-3, of the taxpayer and who is a student, as defined in paragraph (b) of Section 1.151-3, a special rule regarding scholarships applies. Amounts received as scholarships, as defined in paragraph (a) of Section 1.117-3, for study at an educational institution shall not be considered in determining whether the taxpayer furnishes more than one-half the support of such individual. * * * For purposes of this paragraph, amounts received for tuition payments and allowances by a veteran under the provisions of the Servicemen's Readjustment Act of 1944 or the Veterans' Readjustment Assistance Act of 1952 are not amounts received as scholarships. * * *

The War Orphans' Educational Assistance Act of 1956, supra, is considered to be analogous to the Veterans' Readjustment Assistance Act of 1952, supra. Therefore, amounts received under the provisions of the former Act are not scholarships or fellowship grants. Accordingly, any amount received by a student under the provisions of the War Orphans' Educational Assistance Act of 1956, supra, is not subject to exclusion from the student's income in determining whether some other person furnished over half his support.

The Veterans' Benefits Act of 1957, 38 U.S.C. 3101, provides, in part, that payments made to, or on account of, a beneficiary under any law administered by the Veterans' Administration shall be exempt from taxation.

Therefore, although benefits received by a student under the War Orphans' Educational Assistance Act of 1956, supra, are not includible in his gross income, they must, to the extent they are used for his support, be considered as being contributed by him in determining the person who furnished more than half of his support.