Rev. Rul. 64-54

Advice has been requested whether the value of tuition received by students enrolled at B College, the amount of cash paid or credited to students under B's learning-through-working program, and the amount paid to students for services performed during the summer months while not enrolled in college qualify for an exclusion from gross income under section 117 of the Internal Revenue Code of 1954.

B College, committed to the educational philosophy that working and earning while learning are inseparable steps in the process of acquiring a complete education, has included a student work program in its scholastic program since its founding over 100 years ago. Under this program, all students enrolled at B , as a prerequisite to receiving a degree, must work a minimum of 10 hours per week for the College in a college-operated activity for which they receive either nominal cash payments, if they have prepaid their room and board and incidental educational costs charges, or credits against the cost for room and board and incidental educational costs.

B does not charge its students tuition; there is, however, no direct correlation between the saving to the College through the benefits it derives from the student work program and the cost per student per year incurred by B for operating its educational facilities.

Services performed by the students during the summer are outside the requirements of the scholastic program. The students receive cash payments for performing these services.

Section 1.117-4(c) of the Federal Income Tax Regulations provides, in part, that except in situations covered by section 117(b)(1) of the Code, amounts paid or allowed to, or on behalf of, an individual to enable him to pursue studies or research are scholarships if the primary purpose of the studies or research is to further the education of the recipient in his individual capacity, provided that amounts received do not represent compensation for past, present, or future employment services or payment for services that are subject to the direction or supervision of the grantor.

Section 117(a)(1)(A) of the Code provides that in the case of an individual, gross income does not include any amount received as a scholarship at an educational institution, including the value of contributed services and accommodations. In the case of an individual who is a candidate for a degree, this exclusion is limited by section 117(b)(1) of the Code, which provides that section 117(a)(1) of the Code does not apply to that portion of any amount received which represents payment for teaching, research, or other services in the nature of part-time employment required as a condition to receiving the scholarship or fellowship grant, unless such services are required of all candidates (whether or not recipients of scholarships or fellowship grants) as a condition to receiving such degree.

As B's learning-through-working program is in integral part of its overall scholastic program, in much the same form as courses in the humanities and the sciences, it is concluded that the primary purpose of the student work program is to further the education and training of the students in their individual capacities; thus, the value of tuition and the payments and credits made under the learning-through-working program constitute scholarships under section 117(a)(1)(A) of the Code.

Further, it is held that the value of tuition and the amount of cash payments and credits received under the work-and-learn program do not represent payment for services in the nature of part-time employment; thus, the limitation of section 117(b)(1) of the Code on the full exclusion provided for in section 117(a)(1)(A) of the Code is not applicable.

Also, it is held that the cash payments received by students for services performed outside the requirements of the work program are not scholarships, but are includible in the recipient's gross income under section 61(a) of the Code as compensation for services.

The distinguishing facts between this Revenue Ruling and Revenue Ruling 55-500, C.B. 1955-2, 398, are that B College requires these services and integrated them into its overall scholastic program which, in turn, implemented its established educational philosophy, whereas in Revenue Ruling 55-500, the services were performed for a corporation not related to the College except as a lessee, and the College did not view the services performed by its students as essential to acquiring a complete education and thus did not require the services of all its students.