Prior ruling on compensatory research-fellow stipends is revoked prospectively

Plain-English summary

The IRS had previously ruled that stipends paid to research fellows from grants outside the National Research Service Award program were not wages for employment tax purposes. It later determined that the prior ruling no longer matched its current view. The IRS stated that non-NRSA fellowship payments that compensate fellows for services are wages subject to Social Security taxes under sections 3101, 3111, and 3121(a). It revoked the earlier private letter ruling, but used section 7805(b) to limit the change to the taxpayer's taxable periods beginning on or after the date of this letter. The IRS also specified that the revocation letter itself was not an adverse ruling on the earlier issue.

Ruling snapshot

• Question: Would the IRS revoke its prior ruling that compensatory non-NRSA research-fellow stipends were not wages?
• Outcome: revocation, effective prospectively for taxable periods beginning on or after the letter date
• Key authorities: IRC §§ 3101, 3111, 3121(a), and 7805(b)

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201705001 Third Party Communication: None
Release Date: 2/3/2017 Date of Communication: Not Applicable
Index Number: 117.05-00, 117.05-06
Person To Contact:
-------------------------------------------- --------------------, ID No. -----------
----------------------------------------------------------------Telephone Number:
------ ----------------------
-------------------------------------------- Refer Reply To:
------------------------------ CC:ITA:B06
PLR-103681-16
Attn: ------------------------------------ Date:
October 24, 2016

Re: --------------------------------------------------------------------------

Legend

Taxpayer = --------------------------------------------
EIN: -----------------

Dear --------------:

As discussed in our telephone conversation with Taxpayer’s authorized representatives
on January 15, 2016, we are revoking Private Letter Ruling 200607017 dated March 7,
2005. In addition, this letter limits the retroactive effect of the revocation pursuant to
§ 7805(b) of the Internal Revenue Code.

In Private Letter Ruling 200607017, the Internal Revenue Service held that the stipends
that Taxpayer paid to its research fellows using grants other than those authorized
under the National Research Service Award (NRSA) program did not constitute “wages”
for employment tax purposes, and were not subject to social security taxation under
§§ 3101, 3111 and 3121(a).

The Service has recently determined that Private Letter Ruling 200607017 is not in
accord with the current views of the Service. Amounts paid to research fellows under
non-NRSA grants that are compensatory in nature constitute a payment for services,
are “wages” for employment tax purposes, and are subject to social security taxation
under §§ 3101, 3111 and 3121(a).
PLR-103681-16 2

Accordingly, Private Letter Ruling 200607017 is revoked. Pursuant to the authority
granted under § 7805(b), this revocation will apply to Taxpayer’s taxable periods
beginning on or after the date of this letter. This letter does not constitute an adverse
letter ruling with respect to the issue addressed in Private Letter Ruling 200607017.

In accordance with the power of attorney on file with our office, we are sending copies
of this letter to Taxpayer’s authorized representatives. In addition, we are sending a
copy of this letter to the appropriate operating division director.

                                   Sincerely,



                                   William A. Jackson
                                   Chief, Branch 5
                                   Office of Associate Chief Counsel
                                   (Income Tax & Accounting)

Enclosures
Copy of this letter
Copy for § 6110 purposes

cc: