Special rule relating to income of handicapped dependents

(A) In general For purposes of paragraph (1)(B), the gross income of an individual who is permanently and totally disabled (as defined in section 22(e)(3)) at any time during the taxable year shall not include income attributable to services performed by the individual at a sheltered workshop if— (i) the availability of medical care at such workshop is the principal reason for the individual’s presence there, and (ii) the income arises solely from activities at such workshop which are incident to such medical care.

(B) Sheltered workshop defined For purposes of subparagraph (A), the term “sheltered workshop” means a school— (i) which provides special instruction or training designed to alleviate the disability of the individual, and (ii) which is operated by an organization described in section 501(c)(3) and exempt from tax under section 501(a), or by a State, a possession of the United States, any political subdivision of any of the foregoing, the United States, or the District of Columbia.