The reasoning for reporting it as SE income is because it shows up in Box 7 of a MISC-1099 form, which usually used for things like paying contractors (as I understand it), so tax programs mistakenly assume, if you enter a 1099, that it must be 'business income'.
Here are the official FBI instructions applicable to us:
https://www.irs.gov/pub/irs-pdf/p970.pdf
Note on page 6-7:
Given these instructions, can anyone link to any official literature that would indicate we must report as SE income, and why our particular case would be different?How you report any taxable scholarship or fellowship grant income depends on which return you file...
Form 1040. If you file Form 1040, include the taxable
amount in the total on line 7. If the taxable amount was not
reported on Form W-2, also enter “SCH” and the taxable
amount on the dotted line next to line 7"
EDIT:
Here's a couple more relevant pieces:
https://www.irs.gov/taxtopics/tc421
And this would seem to indicate that ASEE reported this incorrectly:How to Report:
Generally, you report any portion of a scholarship, a fellowship grant, or other grant that you must include in gross income as follows:
If filing Form 1040.pdf, Form 1040A.pdf, or Form 1040EZ.pdf, include the taxable portion in the total amount reported on the "Wages, salaries, tips" line of your tax return. If the taxable amount wasn't reported on Form W-2, enter "SCH" along with the taxable amount in the space to the left of the "Wages, salaries, tips" line. If filing Form 1040NR.pdf or Form 1040NR-EZ.pdf, report the taxable amount on the "Scholarship and fellowship grants" line.
https://www.irs.gov/pub/irs-pdf/i1099msc.pdf
However, I find it unlikely that ASEE would make such an obvious mistake. The program is pretty large, and they must have a few lawyers working on stuff like this to make sure they do it right. So something is still off. The only other thing I can think of is if the SMART payments are somehow not considered a fellowship (maybe because of the service agreement or something?).Scholarships. Do not use Form 1099-MISC to report
scholarship or fellowship grants. Scholarship or fellowship
grants that are taxable to the recipient because they are paid
for teaching, research, or other services as a condition for
receiving the grant are considered wages and must be
reported on Form W-2. Other taxable scholarship or
fellowship payments (to a degree or nondegree candidate)
do not have to be reported by you to the IRS on any form.
See section 117(b)–(d) and Regulations section 1.6041-3(n)
for more information.
EDIT 2: I'm going to keep adding relevant stuff here others find here, so this can be a useful reference for others.
ASEE Tax Memo
This was confusing to me before, but it's starting to make a lot more sense. I think they were legally limited in what they could tell us but were trying to help us avoid making expensive mistakes - like filing as SE. (Thanks to @SMART-ish for posting this on another thread)ASEE must report all stipend, internship support, health insurance and book allowance payments made... ASEE will provide participants and the Internal Revenue Service (IRS) with the informational Form 1099-MISC recording the amount paid to the participant during the tax year.
You are considered an independent contractor, and not self-employed, and are not employed by either the United States Government or ASEE. If you have further tax questions, please contact the IRS, as ASEE is prohibited from giving tax advice.
This is unofficial advice - but I think it makes the most sense of all the above information:
TurboTAX Q&A
(Thanks to @kbl2017 for finding this link)1099-MISC for a stipend payment - where do I put it?
If box 7 reports the stipend, you would have to report it as self-employed income, then enter the same amount as your "business" expense. This will ensure that form 1099-MISC is reported for matching purposes, but the amount is not taxable as self-employment income.
**EDIT 3:**
And here is a response from ASEE on the topic:
ASEE made the decision to place all fellowship stipend payments in box 7 based on IRS instructions on identifying the payee relationship, the preparation of the 1099 MISC forms and reporting of various income types, as well as the IRS regulations of handling payments for scholarships, fellowships and other grants. There will be no further advice given in this manner. ASEE cannot provide tax advice so we urge you to seek advice from a tax professional.
