Section 504 prohibits discrimination against an otherwise qualified handicapped person solely by reason of the handicap in any program or activity receiving Federal financial assistance. Several lower courts have suggested that a contagious disease can be a handicap within the meaning of Section 504, and many State administrative agencies have ruled that AIDS is a handicap within the meaning of State laws preventing discrimination against the handicapped. The U.S. Supreme Court, in School Board of Nassau County v. Arline, held that a contagious disease could be a handicap within the meaning of Section 504. The difficulty of determining whether certain actions involving AIDS-infected persons constitute discrimination is that certain restrictions and actions to reduce serious risks of transmission may be justifiable in certain contexts. Additionally, scientific knowledge about AIDS transmission is an evolving enterprise, such that reasonable steps to reduce the risk of AIDS transmission will change according to the current state of knowledge. To assess such issues in a given case, courts must weigh competing claims by experts and make difficult policy decisions. Ultimately, the question of how much risk is acceptable cannot be separated from an understanding of the social context in which the differential treatment occurs, e.g., whether it occurs in an operating room or a schoolroom. The appendix outlines State administrative actions on whether AIDS is a handicap under State law as of March 1987. 98 references.