This paper traces the evolution of the tax status of scholarships. Scholarships are one of the few forms of charitable giving which may subject the recipient to a tax liability, despite the donor deriving no personal, tangible benefit from the donation.
The exclusion from income for scholarships was first introduced in 1954, giving scholarships unlimited tax-free status. This was subsequently narrowed by a succession of tax reform legislation, especially the Tax Reform Act of 1986. This legislation removed the tax-free status of scholarships that represented fee for services, that are awarded to students who are not degree candidates, that are used for living expenses and that are used for travel and research.
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