Rev. Rul. 75-40

Advice has been requested whether a taxpayer is entitled to use the income averaging method in computing his tax under the circumstances described below.

During one of his base period years the taxpayer, who was a full-time student, received through a scholarship paid directly to the school an amount that exceeded the total amount otherwise used for his support. The scholarship was excludable from gross income under section 117 of the Internal Revenue Code of 1954.

Section 1301 of the Code limits the use of the income averaging method to eligible individuals. Section 1303(c)(1) provides that an individual shall not be an eligible individual for the computation year if, for any base period year, such individual furnished less than one-half of his support. Section 1303(c)(2) provides certain exceptions, none of which apply in this case.

Section 1302(c)(1) of the Code defines the term "computation year" to mean the taxable year for which the taxpayer chooses the benefits of income averaging. Under section 1302(c)(3) a "base period year" is defined as any of the four taxable years immediately preceding the computation year.

Section 1.1303-1(c)(1) of the Income Tax Regulations provides, with certain exceptions not here pertinent, that for purposes of determining under section 1303(c)(1) of the Code whether an individual is an eligible individual for the computation year, such individual must, together with his spouse, have furnished 50 percent or more of his support during each of his four base period years.

For purposes of determining whether an individual furnished 50 percent or more of his support during each of the four base period years the amount of support furnished by such individual (and his spouse) for each base period year should be compared with the entire amount of support that the individual received for each base period year from all sources including support that the individual (and his spouse) supplied. The term "support" includes food, shelter, clothing, medical and dental care, education, and the like.

In the instant case, the amount of support received in one of the base period years by the taxpayer through the scholarship paid directly to the school he attended did not represent support furnished by the taxpayer. Since this scholarship amount exceeded the total amount otherwise used for his support in this year, the taxpayer furnished less than 50 percent of his support in this year. Accordingly, since he furnished less than 50 percent of his support during one of his base period years, he is not an eligible individual and, therefore, is not entitled to use the income averaging method in computing his tax. See James B. Heidel, 56 T.C. 95 (1971), and William L. Frost, 61 T.C. 488 (1974).