From IRS Publication 970:
A scholarship or fellowship grant is tax free only to the
extent:
• It doesn't exceed your qualified education expenses;
• It isn't designated or earmarked for other purposes
(such as room and board), and doesn't require (by its
terms) that it can't be used for qualified education expenses; and
• It doesn't represent payment for teaching, research, or
other services required as a condition for receiving the
scholarship.
Qualified education expenses. For purposes of
tax-free scholarships and fellowship grants, these are expenses for:
• Tuition and fees required to enroll at or attend an eligible educational institution; and
• Course-related expenses, such as fees, books, supplies, and equipment that are required for the courses
at the eligible educational institution. These items
must be required of all students in your course of instruction.
Expenses that don't qualify. Qualified education expenses don't include the cost of:
• Room and board,
• Travel,
• Research,
• Clerical help, or
• Equipment and other expenses that aren't required for
enrollment in
