IRS Changes Stance – Payments to Research Fellows Now Considered Compensation

IRS: Stipends Paid Under Non-NRSA Grants Constituted Compensation

Until recently the IRS had taken the stance that stipends paid by a teaching and research hospital to its research fellows were not considered compensation to the individuals who received them. However, the IRS has now stated that the letter ruling on which this stance was based (Letter Ruling 200607017) was not in line with the current view of the IRS and it has since been revoked.

Following this change, amounts paid to research fellows under non-National Research Service Award (NRSA) grants are considered to be compensatory in nature and constitute a payment for services. These payments are therefore “wages” for employment tax purposes and are subject to Social Security taxation under Code Secs. 3101, 3111 and 3121(a). Further, pursuant to the authority granted under Code Sec. 7805(b), the revocation would apply to the taxpayer’s tax periods beginning on or after the date of the current letter ruling.

Source: IRS Letter Ruling 201705001