Rev. Rul. 57-386

Advice has been requested whether the stipends received by the interns and resident physicians of a medical training hospital are taxable to the recipients, or whether such amounts are excludable from gross income under section 117 of the Internal Revenue Code of 1954.

The training hospital has on its staff interns and resident doctors who receive stipends from the hospital. It is stated that modern medical education requires training beyond that provided by four years at a medical college. This additional medical education is provided by supervised general experience and training in hospitals. Such training is obtained by service of an internship. If on completion, the doctor desires to specialize in a particular field of medicine, it is necessary to serve a `residency' under qualified supervision.

The interns and resident doctors are appointed periodically and receive stipends from the hospital, and some receive room and board. In the course of and as part of their training, all assist in the care of patients at the hospital.

Section 61(a)(1) of the Internal Revenue Code of 1954 includes as gross income `Compensation for services, including fees, commissions, and similar items.' However, section 117(a) of the Code excludes any amount received as a scholarship at an educational institution or as a fellowship grant, as well as incidental expenditures for travel, research, clerical help, or equipment, to the extent so expended by the recipient. Section 117(b)(1) of the Code relates to the exclusion available to individuals who are candidates for degrees and does not apply the exclusion to that portion 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 for degrees. Section 117(b)(2) subject to certain conditions, provides an exclusion for individuals who are not candidates for degrees, and limits the exclusion to a maximum of $300 per month for 36 months.

Section 1.117-4(c) of the Income Tax Regulations provides, in part, that if any amount paid or allowed to or on behalf of an individual, to enable him to pursue studies or research, represents compensation for past, present, or future employment services, or represents either payment for services which are subject to the direction or supervision of the grantor or research primarily for the benefit of the grantor, such payments or allowances shall not be considered as amounts received as a scholarship or a fellowship grant for the purpose of section 117 of the Code.

The interns and residents in the instant case are primarily performing services for the hospital as physicians, even though, in the process, they are acquiring training and experience in their particular specialities. The stipends received under such circumstances represent compensation for services and do not constitute scholarships or fellowship grants within the meaning of section 117 of the Internal Revenue Code of 1954. Accordingly, such compensation is includible in gross income under section 61(a) of the Code.