Additional Information

If there is some doubt about the tax treatment of your grant, consult the grantor. The grantor may have received advice from the IRS about the appropriate tax treatment of the grant. You can also contact the IRS Director for your area. Be sure to ask for the information as soon as possible so that you can receive an answer in time to file your return. If you request this advice by mail, give a complete statement of all the facts.

Reporting Scholarships and Fellowships

If your only income is a completely tax-free scholarship or fellowship, you do not have to file a tax return and no reporting is necessary. If all or part of your scholarship or fellowship is taxable and you are required to file a tax return, report the taxable amount as explained next. You must report the taxable amount whether or not you received a Form W-2. If you receive an incorrect Form W-2, ask the payer for a corrected one.

For information on filing requirements, see Publication 501 or your income tax form instructions.

Form 1040EZ.   Report the taxable amount on line 1. If the taxable amount was not reported on Form W-2, print SCH and the amount to the right of the words W-2 form(s) on line 1.

Form 1040 or 1040A.   Report the taxable amount on line 7. If the taxable amount was not reported on Form W-2, print SCH and the amount on the dotted line next to line 7 on Form 1040 or in the space to the left of line 7 on Form 1040A.

Schedule SE (Form 1040).   Amounts you receive under a grant that represent pay for your services as an independent contractor are included in determining net earnings from self-employment. If your net earnings are $400 or more, you will have to pay self-employment tax. Use Schedule SE, Self-Employment Tax, to figure this tax.

Whether you are an independent contractor or employee depends on the facts in your situation. The general rule is that you are an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done.

You are not an independent contractor if you perform services that can be controlled by an employer (what will be done and how it will be done). This applies even if you are given freedom of action. What matters is that the employer has the legal right to control the details of how the services are performed. If an employer-employee relationship exists (no matter what the relationship is called), you are not an independent contractor.

For more information in determining whether you are an independent contractor or an employee, get Publication 15-A, Employer's Supplemental Tax Guide.

When To File

If you file on the calendar year basis, the due date for filing your return is April 15 of the following year. If you file on a fiscal year basis (a year ending on the last day of any month except December), the due date is the 15th day of the 4th month after the close of your fiscal year.

When the due date for any act for tax purposes falls on a Saturday, Sunday, or legal holiday, the due date is delayed until the next business day.

Your paper return is filed on time if it is mailed in an envelope that is properly addressed and postmarked by the due date. You can use a designated private delivery service to send your return. See your form instructions for a list of private delivery services.

If you use IRS e-file, your return is considered filed on time if the authorized electronic return transmitter postmarks the transmission by the due date.

Extensions.   You can get an extension of time to file your return. Special rules apply if you were:

• Outside the United States (see Publication 54), or
• Serving in a combat zone (see Publication 3, Armed Forces' Tax Guide).

Automatic extension.   If you are not able to file your return by the due date, you generally can get an automatic 4-month extension of time to file. To get this automatic extension, use Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. Generally, you must request the 4-month extension by the regular due date of your return. See the Form 4868 instructions for how to file.

Where To File

If you are living in the United States, send your return to the appropriate Internal Revenue Service Center address listed in the instructions to your federal tax return.

If you are studying or teaching abroad, send your return to the Internal Revenue Service Center, Philadelphia, PA 19255-0215 U.S.A.

Qualified Tuition Reduction

A qualified tuition reduction is tax free. It is a reduction in tuition that meets the following rules. Separate rules apply to education below the graduate level and education at the graduate level.

Education below the graduate level.   A tuition reduction for education below the graduate level is tax free if the reduction is provided by an educational institution to its employees for their education or the education of any person treated as an employee. It must not represent a payment for services. Under this rule, only the following are treated as employees.

1. A current employee,
2. A former employee who retired or left on disability,
3. A widow or widower of an individual who died while an employee,
4. A widow or widower of a former employee who retired or left on disability, or
5. A dependent child or spouse of any person listed in (1) through (4), above.

Child of deceased or divorced parents.   If both parents have died, and if one of the parents qualified as an employee under (1) through (4) above, their child, if under age 25, can qualify to exclude a tuition reduction from income.

A dependent child of divorced parents is treated as the dependent of both parents.

Officers, owners, and highly compensated employees.   Qualified tuition reductions apply to officers, owners, or highly compensated employees if benefits are available to employees on a nondiscriminatory basis. This means that the tuition reduction benefits must be available on substantially the same basis to each member of a group of employees, defined under a reasonable classification set up by the employer. It must not discriminate in favor of owners, officers, or highly compensated employees.

Graduate education.   A tuition reduction for graduate education is tax free if the reduction is provided by an educational institution to a graduate student who performs teaching or research activities for that institution. The qualified tuition reduction must be for education furnished by that institution, and not represent payment for services.

Individuals Abroad

For the most part, U.S. scholars and teachers abroad are taxed like those living in the United States. You determine the tax treatment of a scholarship or fellowship under the rules discussed earlier. A payment for services, such as teaching or lecturing, is taxable. This includes cash paid to you for transportation expenses and the value of transportation provided by the grantor.

If your scholarship or fellowship is taxable, special rules apply to:

• Reporting income,
• Deducting expenses,
• Paying foreign taxes, and
• Paying U.S. income tax.

Reporting Income

You must report all income on a U.S. federal income tax return in U.S. dollars. If part or all of your income is in foreign currency, you must report this income in U.S. dollars at the rates of exchange in effect when you received the income. You should use the rate that most nearly reflects the value of the foreign currency - the official rate, the open market rate, or any other appropriate rate. You must be able to justify the rate you use.

A special rule applies if the income is paid in nonconvertible foreign currency. See Blocked Income, later.

Foreign Earned Income Exclusion

You may be able to exclude foreign earned income from your gross income if your tax home is in a foreign country and you are:

• A U.S. citizen and a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year,
• A U.S. resident alien who is a citizen or national of a country with which the United States has an income tax treaty in effect and who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year, or
• A U.S. citizen or a U.S. resident alien and are physically present in a foreign country or countries for at least 330 full days in 12 consecutive months.

In addition, you may qualify to exclude or deduct a foreign housing amount.

Tax home.   Your tax home is the general area of your main place of business, employment, or post of duty, regardless of where you maintain your family home. Your tax home is the place where you permanently or indefinitely work. You are not considered to have a tax home in a foreign country for any period in which your abode is in the United States. Your abode can be your home, habitation, residence, domicile, or place of dwelling. If your tax home remains in the United States while you are abroad, you will not qualify for the foreign earned income or housing exclusions or the foreign housing deduction. But you may be able to deduct your away-from-home expenses (for travel, meals, and lodging). See Deducting Expenses, later.

More information.   For more information on tax home, the foreign earned income exclusion, and the foreign housing exclusion and deduction, see Publication 54.

Blocked Income

There may be cases in which a scholarship or fellowship grant is made in a foreign currency that is not convertible into U.S. dollars or into other money or property that is convertible into U.S. dollars because of:

• Restrictions imposed by the foreign country,
• An agreement with the United States, or
• The terms and conditions of the U.S. Government grant.

This nonconvertible income is commonly called blocked or deferrable income.

How to report.   There are two ways to report blocked income:

1. Report the income and pay your federal income tax with U.S. dollars that you have in the United States or in some other country, or
2. Defer reporting the income until it becomes unblocked. Any expenses related to the income must also be deferred.

Defer reporting.   If you choose to defer reporting the income, you must file with your federal income tax return an information return on a separate Form 1040 labeled Report of Deferrable Foreign Income, pursuant to Rev. Rul. 74-351. You must declare on the information return that you will include the blocked income in your gross income when it becomes unblocked. You also must state that you give up any right to claim that any part of the blocked income was includable in income for any earlier year.

All amounts reported on the information return must be reported in the foreign currency involved. If you have blocked income from more than one foreign country, include a separate information return for each country.

Your choice to defer reporting income cannot be changed without the consent of the IRS. Use Form 3115, Application for Change in Accounting Method, to request a change.

Income becomes unblocked and reportable for tax purposes when any of the following happen.

1. It becomes convertible.
2. It is converted into dollars or into other money or property that is convertible into U.S. dollars.
3. You use blocked income for your nondeductible personal expenses.
4. You dispose of it by gift, bequest, or devise.

Deducting Expenses

If your grant for lecturing or teaching abroad is wholly taxable, you can deduct your ordinary and necessary business expenses. Ordinary and necessary business expenses include your away-from-home expenses (travel, meals, and lodging) if you are temporarily away from your tax home in the United States. Your expenses do not include the expenses of anyone accompanying you. Generally, you are considered to be temporarily away from your U.S. tax home if you expect your stay abroad to last, and it does last, for one year or less. For details about these expenses, including whether your stay is temporary, see Publication 463, Travel, Entertainment, Gift, and Car Expenses.

Paying Foreign Taxes

The United States has income tax treaties with certain countries. Under these treaties, the citizens and residents of the United States are exempt from foreign income taxes on certain amounts received while they are temporarily in a treaty country. The kinds of income that may be exempt by treaties include:

• Certain pay for personal services performed by a U.S. citizen or resident temporarily present in a treaty country,
• Wages of U.S. professors, teachers, and researchers who teach or do research in a treaty country, and
• Certain remittances, grants, allowances, and awards received by U.S. students, apprentices, and trainees who are studying in a treaty country.

For more information on these tax treaty provisions, get Publication 901. Although Publication 901 is written for foreign nationals receiving income from U.S. sources, treaty provisions are generally reciprocal, applying equally to U.S. citizens or residents deriving income from foreign sources.

Paying U.S. Income Tax

You must pay any income tax due with U.S. dollars. This rule may not apply to the tax on a Fulbright grant that was paid in nonconvertible foreign currency, as explained later.

Table 2.  Formula to Determine Estimated Tax That May Be Paid in a Nonconvertible Foreign Currency

Adjusted gross income that is blocked income *	×	Total estimated U.S. tax	=	Estimated tax on blocked income
Total adjusted gross income *

* Estimated amounts

Table 3. Formula to Determine Estimated Tax That May Be Paid in a Nonconvertible Foreign Curremcy

Credit or deduction for foreign taxes paid.   If income taxes are imposed on you by a foreign country, you may be entitled to take either a tax credit or a tax deduction on your U.S. income tax return. Usually, it is to your advantage to claim the credit, which you subtract directly from your U.S. tax liability. Get Publication 514.

Payment of Tax by Fulbright Grantees

As explained earlier, all income must be reported in U.S. dollars. In most cases, the tax must also be paid in U.S. dollars. If, however, at least 70% of your entire Fulbright grant has been paid in nonconvertible foreign currency (blocked income), you can use that currency to pay the U.S. tax, but only the part that is on the blocked income.

Paying U.S. tax in foreign currency.   To qualify for this method of payment, you must prepare a statement that shows the following information.

• You were a Fulbright grantee and were paid in nonconvertible foreign currency.
• The total grant you received during the year and the amount you received in nonconvertible foreign currency.
• At least 70% of the grant was paid in nonconvertible foreign currency.

The statement must be certified by the U.S. educational foundation or commission paying the grant or other person having control of grant payments to you.

You should prepare at least two copies of this statement. Attach one copy to your Form 1040 and keep the other copy for identification purposes when you make a tax deposit of nonconvertible foreign currency.

Figuring actual tax.   When you prepare your income tax return, you may owe tax or the entire liability may have been satisfied with your estimated tax payments. If you owe tax, figure the part due to (and payable in) the nonconvertible foreign currency by using the formula in Table 2.

1. Substitute actual amounts for estimated amounts.
2. Subtract estimated tax payments from the part of your actual tax payable in nonconvertible foreign currency.

You must attach all of the following to the return.

• A copy of the certified statement discussed earlier.
• A detailed statement showing the allocation of tax attributable to amounts received in foreign currency and the rates of exchange used in determining your tax liability in U.S. dollars.
• The original deposit receipt for any balance of tax due that you paid in nonconvertible foreign currency.

1. A copy of the certified statement discussed earlier.
2. A detailed statement showing the allocation of tax attributable to amounts received in foreign currency and the rates of exchange used in determining your tax liability in U.S. dollars.
3. The original deposit receipt for any balance of tax due that you paid in nonconvertible foreign currency.

Figuring estimated tax on nonconvertible foreign currency.   If you are liable for estimated tax (discussed later), figure the amount you can pay to IRS in nonconvertible foreign currency using the formula in Table 2.

If you must pay your host country income tax on your grant, subtract any estimated foreign tax credit that applies to your grant from the estimated tax on the blocked income.

Deposit of foreign currency with disbursing officer.   Once you have determined the amount of the actual tax or estimated tax that you can pay in nonconvertible foreign currency, deposit that amount with the disbursing officer of the Department of State in the foreign country in which the foundation or commission paying the grant is located.

Estimated tax installments.   You may either deposit the full estimated tax amount before the first installment due date or make four equal payments before the installment due dates. See When to pay estimated tax, later.

Deposit receipt.   Upon accepting the foreign currency, the disbursing officer will give you a receipt in duplicate. The original of this receipt (showing the amount of foreign currency deposited and its equivalent in U.S. dollars) should be attached to your Form 1040 or payment voucher from Form 1040-ES. Keep the copy for your records. Mail the return or your payment voucher to the Internal Revenue Service Center, Philadelphia, PA 19255-0215, U.S.A.

Estimated Tax

The grantor of a scholarship or fellowship does not withhold tax unless the grant represents payment for services. Grants representing payment for services are wages for withholding purposes. The grantor must report them on a Form W-2.

You may have to pay estimated tax if the grantor of a scholarship or fellowship does not withhold tax or withholds insufficient tax on the taxable part of your scholarship or fellowship grant.

Your estimated tax is the total of your expected tax for the year minus your expected withholding and credits.

Use Form 1040-ES to figure and pay estimated tax. See Publication 505 for information on estimated tax.

Who should make estimated tax payments?   Generally, you must make estimated tax payments if you expect to owe at least $1,000 in tax after subtracting your withholding and credits, and you expect your withholding and credits to be less than the smaller of:

1. 90% of the total tax for the year, or
2. 100% of the total tax shown on your preceding year's tax return. You must have filed a return for the preceding tax year that covers all 12 months.

When to pay estimated tax.   For estimated tax purposes, the year is divided into four payment periods. The payment due dates are April 15, June 15, September 15, and January 15. If you have income subject to estimated tax during the first payment period, you must make your first payment by the due date for the first payment period. You can pay all your estimated tax at that time, or you can pay it in four installments. If any of the due dates fall on a Saturday, Sunday, or legal holiday, the due date is the following business day.

Penalty.   If you do not pay enough of your estimated tax in each payment period, you may have to pay a penalty. You will not have to pay a penalty if you had no tax liability last year and you were a U.S. citizen or resident for the whole year. For this rule to apply, your prior tax year must have been a tax year of 12 months.

How To Get Tax Help

You can get help with unresolved tax issues, order free publications and forms, ask tax questions, and get more information from the IRS in several ways. By selecting the method that is best for you, you will have quick and easy access to tax help.

Contacting your Taxpayer Advocate.   If you have attempted to deal with an IRS problem unsuccessfully, you should contact your Taxpayer Advocate.

The Taxpayer Advocate represents your interests and concerns within the IRS by protecting your rights and resolving problems that have not been fixed through normal channels. While Taxpayer Advocates cannot change the tax law or make a technical tax decision, they can clear up problems that resulted from previous contacts and ensure that your case is given a complete and impartial review.

To contact your Taxpayer Advocate:

• Call the Taxpayer Advocate at
  1-877-777-4778.
• Call the IRS at 1-800-829-1040.
• Call, write, or fax the Taxpayer Advocate office in your area.
• Call 1-800-829-4059 if you are a
  TTY/TDD user.

For more information, see Publication 1546, The Taxpayer Advocate Service of the IRS.

Free tax services.   To find out what services are available, get Publication 910, Guide to Free Tax Services. It contains a list of free tax publications and an index of tax topics. It also describes other free tax information services, including tax education and assistance programs and a list of TeleTax topics.

Personal computer. With your personal computer and modem, you can access the IRS on the Internet at www.irs.gov. While visiting our web site, you can:

• Find answers to questions you may have.
• Download forms and publications or search for forms and publications by topic or keyword.
• View forms that may be filled in electronically, print the completed form, and then save the form for recordkeeping.
• View Internal Revenue Bulletins published in the last few years.
• Search regulations and the Internal Revenue Code.
• Receive our electronic newsletters on hot tax issues and news.
• Get information on starting and operating a small business.

You can also reach us with your computer using File Transfer Protocol at ftp.irs.gov.

TaxFax Service. Using the phone attached to your fax machine, you can receive forms and instructions by calling 703-368-9694. Follow the directions from the prompts. When you order forms, enter the catalog number for the form you need. The items you request will be faxed to you.

For help with transmission problems, call the FedWorld Help Desk at 703-487-4608.

Phone. Many services are available by phone.

• Ordering forms, instructions, and publications. Call 1-800-829-3676 to order current and prior year forms, instructions, and publications.
• Asking tax questions. Call the IRS with your tax questions at 1-800-829-1040.
• TTY/TDD equipment. If you have access to TTY/TDD equipment, call 1-800-829- 4059 to ask tax questions or to order forms and publications.
• TeleTax topics. Call 1-800-829-4477 to listen to pre-recorded messages covering various tax topics.

Evaluating the quality of our telephone services. To ensure that IRS representatives give accurate, courteous, and professional answers, we evaluate the quality of our telephone services in several ways.

• A second IRS representative sometimes monitors live telephone calls. That person only evaluates the IRS assistor and does not keep a record of any taxpayer's name or tax identification number.
• We sometimes record telephone calls to evaluate IRS assistors objectively. We hold these recordings no longer than one week and use them only to measure the quality of assistance.
• We value our customers' opinions. Throughout this year, we will be surveying our customers for their opinions on our service.

Walk-in. You can walk in to many post offices, libraries, and IRS offices to pick up certain forms, instructions, and publications. Some IRS offices, libraries, grocery stores, copy centers, city and county governments, credit unions, and office supply stores have an extensive collection of products available to print from a CD-ROM or photocopy from reproducible proofs. Also, some IRS offices and libraries have the Internal Revenue Code, regulations, Internal Revenue Bulletins, and Cumulative Bulletins available for research purposes.

Mail. You can send your order for forms, instructions, and publications to the Distribution Center nearest to you and receive a response within 10 workdays after your request is received. Find the address that applies to your part of the country.

• Western part of U.S.:
  Western Area Distribution Center
  Rancho Cordova, CA 95743-0001
• Central part of U.S.:
  Central Area Distribution Center
  P.O. Box 8903
  Bloomington, IL 61702-8903
• Eastern part of U.S. and foreign addresses:
  Eastern Area Distribution Center
  P.O. Box 85074
  Richmond, VA 23261-5074

CD-ROM. You can order IRS Publication 1796, Federal Tax Products on CD-ROM, and obtain:

• Current tax forms, instructions, and publications.
• Prior-year tax forms and instructions.
• Popular tax forms that may be filled in electronically, printed out for submission, and saved for recordkeeping.
• Internal Revenue Bulletins.

The CD-ROM can be purchased from National Technical Information Service (NTIS) by calling 1-877-233-6767 or on the Internet at www.irs.gov. The first release is available in mid-December and the final release is available in late January.

IRS Publication 3207, Small Business Resource Guide, is an interactive CD-ROM that contains information important to small businesses. It is available in mid-February. You can get a free copy by calling 1-800-829-3676 or visiting the IRS web site at www.irs.gov.

Services Available Outside the United States

During the filing period (January to mid-June), you can get the necessary federal tax forms and publications from U.S. Embassies and consulates. You can request Package 1040-7 for Overseas Filers, which contains special forms with instructions and Publication 54.

Also during the filing season, the IRS conducts an overseas taxpayer assistance program. To find out if IRS personnel will be in your area, you should contact the consular office at the nearest U.S. Embassy.

Phone. You can also call your nearest U.S. Embassy, consulate, or IRS office listed below to find out when and where assistance will be available. These IRS telephone numbers include the country and city codes required if you are outside the local dialing area.

Berlin, Germany	(49)	(30)	8305-1140
London, England	(44)	(207)	408-8077
Mexico City, Mexico	(52)	(55)	5080-2191
Paris, France	(33)	(1)	4312-2555
Rome, Italy	(39)	(06)	4674-2560
Singapore	(65)		6476-9413
Tokyo, Japan	(81)	(3)	3224-5466

If you are in Guam, the Bahamas, U.S. Virgin Islands, or Puerto Rico, you can call (787) 759-5100 or 1-800-829-1040.

Mail. For answers to technical or account questions, you can write to:

Internal Revenue Service
International Section
P.O. Box 920
Bensalem, PA 19020-8518.

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