Kollel Stipends and Taxability

UPDATE:  I found an article on kollel pay in Hamodia from 2010 posted at NCYI's website which looks at the same issues, draws basically the same conclusions except that it also looks at scenario #1 from the perspective of the school and admits the risk.  It looks more from the perspective of what the school should do, although the problem is that the institutions don't always provide the guidance leaving the receipent wondering just what to do with the pay which is where my brief piece came in).  Of course, none of this should be considered tax advice and all should consult their own people.
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An interesting subject came up on imamother and it is clearly the subject of much confusion, so I thought I would give my educated take on tax treatment of kollel stipends [updated:  where the checks came and no 1099 or W-2 was provided and the recipient of the stipend is wondering what they need to consider next]..  Personally I think it much behooves the schools themselves to treat these payments with more formality in order to clear up confusion as I have heard all of the following scenarios when it comes to the treatment of kollel stipends:

1.  They simply aren't claimed as income.
2.  They are treated as self-employment income.
3.  They are treated as a fellowship/scholarship.
4.  They are treated as parsonage.

With the exception of #1, the other scenarios could qualify as proper treatment.  Scenario #1 is highly problematic especially if the taxpayer claims welfare credits on their 1040.

Scenario #3 is probably the most favorable under normal circumstances.  Here the taxable portion of the stipend is subject to federal tax, but not employment taxes. Included in income is the portion of the stipend that was not used to pay for required course tuition, fees, equipment, and materials.  The hitch however is that the academic institution need to be a college of sorts: maintaining regular staff, curriculum, awarding degrees and the recipient must be a degree candidate.  Night kollelim that are connected to synagogues or community kollels normally would not qualify while recognized kollelim could where the recipient is a degree candidate.  One difficulty is that many yeshivot really don't have a straight forward degree program making it challenging to figure out if the student is a degree candidate even where the institution itself awards semicha and other degrees.

A commentor at imamother mentioned that the if a recipient has certain duties the income is parsonage.  I disagree with the interpretation because a recipient of a stipend cannot, unilaterally, declare something to be parsonage.  Certainly a religious institution can pay parsonage, however, the parsonage can only be paid to someone who qualifies to receive parsonage and parsonage must be declared as parsonage in advance of payment of parsonage.  Absent these qualifications and absent the ability to treat the stipend as a fellowship or scholarship, the logical default is self-employment income which, under normal circumstances, would be the least favorable tax treatment, but in the case of low income and a few kids could potentially be the most favorable tax status.

However, if the institution is not a college and the taxpayer is non-Rabbinic but is being required to maintain certain hours and responsibilities, the candidate can report the income as income and file a form declaring that the institution never provided him with a W-2.  However, this is probably the quickest way to lose one's stipend.

Personally I'd encourage the institutions to make the determination of tax treatment for each kollel member based on appropriate (and highly consistent) factors and eliminate confusion.