From the IRS tax code:
http://www.irs.gov/publications/p970/ch01.html#en_US_publink1000178024
Payment to Service Academy Cadets
An appointment to a United States military academy is not a scholarship or fellowship. Payment you receive as a cadet or midshipman at an armed services academy is pay for personal services and will be reported to you in box 1 of Form W-2. Include this pay in your income in the year you receive it unless one of the exceptions, discussed earlier under
Payment for services , applies.
Payment for services. Generally, you must include in income the part of any scholarship, fellowship, or tuition reduction that represents payment for past, present, or future teaching, research, or other services. This applies even if all candidates for a degree must perform the services to receive the degree. (See the next page for
exceptions.)
Exceptions. You do not have to include in income the part of any scholarship or fellowship that represents payment for teaching, research, or other services if you receive the amount under:
The National Health Service Corps Scholarship Program, or
The Armed Forces Health Professions Scholarship and Financial Assistance Program,
and you:
Are a candidate for a degree at an eligible educational institution, and
Use that part of the scholarship or fellowship to pay qualified education expenses.