Rev. Rul. 68-415

In view of the decision of the Tax Court of the United States in Mary Keegstra v. Commissioner , 48 T.C. 897 (1967), reconsideration has been given to Revenue Ruling 59-355, C.B. 1959-2, 53, relating to the tax treatment of amounts received by a student under the provisions of the War Orphans' Educational Assistance Act of 1956, 38 U.S.C. 1701 (1964 Edition).

Revenue Ruling 59-355 holds that amounts received by a student under the provisions of the War Orphans' Educational Assistance Act of 1956 are not scholarships or fellowship grants and that, to the extent such amounts are used for the support of the student, they must be considered as being contributed by him in determining who furnished more than one-half of his support for the purposes of section 152 of the Internal Revenue Code of 1954.

In the Keegstra case, the taxpayer's son could not qualify as her dependent if it was necessary for the payments he received under the War Orphans' Educational Assistance Act of 1956 to be included in his total support in determining whether the taxpayer furnished over one-half of his support. The court reviewed pertinent legislative documents and concluded that Congress intended payments under the War Orphans' Educational Assistance Act of 1956 to be gratuitous in nature, and that such amounts used for support of the recipient are `scholarships' and, therefore, are not taken into account in determining whether the individual received more than one-half of his support from the taxpayer.

The Internal Revenue Service has acquiesced in the decision of the Tax Court in the Keegstra case, page 2, this Bulletin.

Accordingly, amounts received by a student under the provisions of the War Orphans' Educational Assistance Act of 1956 and used for his support are scholarships or fellowship grants within the meaning of section 152(d) of the Code and are not taken into account in determining total support of the student for dependency exemption purposes. Since the amounts are scholarships or fellowship grants they are not includible in gross income for Federal income tax purposes.

Revenue Ruling 59-355 is hereby revoked.