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grantee (teaching or research activities) are taxable, even though these services
may be required to obtain a degree or the scholarship.

In general, scholarships and fellowship grants (as defined in Code
section 117), grants (as defined in Code section 4945(g)), and prizes and awards (as
defined in Code section 74) made by a U.S. citizen or resident or private or
governmental entity for study in the United States are treated as income from
sources within the United States. Treas. Reg. section 1.863-1(d)(2)(i). Conversely,
scholarships, fellowship grants, targeted grants and achievement awards made by
a foreign government, international organization, or person other than a U.S.
citizen is treated as sourced outside the United States and is not subject to U.S. tax.
Treas. Reg. section 1.863-1(d)(2)(ii). And scholarships, fellowship grants, targeted
grants, and achievement awards received by a person other than a U.S. person
from activities conducted outside the U.S. are treated as U.S. sourced income.
Treas. Reg. section 1.863-1(d)(2)(iii). Amounts paid as salaries or compensation are
governed by the sourcing rules applicable to personal services under Treasury
Regulation section 1.861-4.

In January 1, 2001, the IRS issued Treasury Regulations under section1441 of
the Code that broadly defined the type of income subject to 30% withholding. The
IRS has indicated that reimbursement for travel and living expenses of independent
contractors is included in the type of gross income (as emoluments or
remunerations) subject to withholding under Code section 1441(a). These facts
have created uncertainty with respect to withholding by U.S. charities on grants
solely for travel expenses of a grantee doing research, attending conferences or
otherwise performing activities in the United States. The Council on Foundations
has requested that the IRS provide guidance on the final regulations under
section 1441 with respect to grants solely for travel expenses of a grantee who is
doing research, attending conferences, or otherwise performing activities in the
United States. The June 14, 2002 letter to the IRS requesting this guidance, and a
supporting detailed memorandum are published in 37 Exempt Org. Tax Rev. 370
(2002). As of the present time, the IRS has not provided guidance on this point.

CHAPTER 43. Compliance With Antiterrorist Provisions

a. Executive Order 13224

In response to the terrorist attacks on the United States of September 11,
2001, President Bush signed Executive Order 13224 (the “Order”), aimed at cutting
off resources to terrorists and terrorist organizations. The Order prohibits

WASHINGTON NONPROFIT HANDBOOK -128- 2018