Per IRS Publication 970 Tax Benefits for Education, page 5:
Tax-Free Scholarships and Fellowship Grants
A scholarship or fellowship grant is tax free (excludable from gross income) only if you are a candidate for a degree at an eligible educational institution.
A scholarship or fellowship grant is tax free only to the extent:
Candidate for a degree. You are a candidate for a degree if you:
Eligible educational institution. An eligible educational institution is one whose primary function is the presentation of formal instruction and that normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance at the place where it carries on its educational activities.
Qualified education expenses. For purposes of tax-free scholarships and fellowship grants, these are expenses for:
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