The Tax Reform Act of 1986 amended the Internal Revenue Code section pertaining to the taxability of scholarship and fellowship grants. Effective January 1, 1987, only the amount of a scholarship or fellowship grant which is used for qualified tuition and related expenses (i.e., tuition, fees, books, supplies, and equipment) is excluded from gross income. Any amount of a scholarship or fellowship grant which is used for non-course related expenses (such as room and board or travel) is taxable and must be included in the student's gross income. Students should keep accurate records of all tuition paid and related expenses, and financial aid received.
For further information, please visit the IRS website at www.irs.gov/pub/irs-pdf/p970.pdf.