Anderson v. Commissioner , 54 T.C. 1547 ( 1970 )

Irwin S. and Frances H. Anderson, Petitioners v. Commissioner of Internal Revenue, Respondent

Anderson v. Commissioner

Docket No. 1451-70SC

United States Tax Court

54 T.C. 1547; 1970 U.S. Tax Ct. LEXIS 91;

July 28, 1970, Filed

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Decision will be entered under Rule 50.

Petitioner was an intern and a resident physician at Freedmen's Hospital, Washington, D.C., during the year in question, for which he received a stipend of $ 6,501.14. He claims the right to deduct $ 3,600 of the stipend as a fellowship grant under sec. 117(a)(1)(B), I.R.C. 1954, as amended. Held, the stipend received by petitioner from Freedmen's Hospital in 1967 was not a "fellowship grant" within the meaning of sec. 117(a)(1)(B), and petitioner is not entitled to any deduction therefor. Aloysius J. Proskey, 51 T.C. 918 (1969), followed.

Irwin S. Anderson, pro se.

John J. Weiler, for the respondent.

Bruce, Judge.

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BRUCE

Respondent determined a deficiency in petitioners' income tax for 1967 in the amount of $ 330.99. By written stipulation respondent conceded that petitioners are to be allowed the claimed dependency exemption in the amount of $ 600. Petitioners and respondent have further stipulated that a charitable deduction is to be reduced from the claimed amount of $ 1,137.50 to the amount of $ 233. The remaining issue to be decided is whether a stipend in the amount of $ 6,501.14, received by petitioner Irwin S. Anderson during 1967 while an intern and a resident at Freedmen's Hospital, Washington, D.C., constitutes a fellowship grant, $ 3,600 of which is excludable under section 117(a)(1)(B), ^{*1548 FINDINGS OF FACT}

Petitioners are husband and wife, residing at 1328 Whittier Place NW., Washington, D.C. 20012. They filed their joint Federal income tax return for the calendar year 1967 with the district director at Baltimore, Md. Petitioners filed an amended joint Federal income tax return dated April 19, 1969, which sought to exclude the $ 3,600 here in issue. Frances H. Anderson is a party hereto only because she filed a joint return with her husband. Reference to petitioner shall hereinafter refer to Irwin S. Anderson.

Petitioner was a medical intern at Freedmen's Hospital, Washington, D.C., from July 1, 1966, to June 30, 1967. From July 1, 1967, until the present, petitioner has been a resident in internal medicine at Freedmen's Hospital. For many years prior to 1939 Freedmen's had a working relationship with Howard University, Washington, D.C. In 1939 Freedman's Hospital became the teaching hospital for students at Howard University Medical School. However, it wasn't until July 1, 1967, that Freedmen's was completely controlled by Howard. Up until that time the hospital was administered by the Department of Health, Education, and Welfare of the United States.

Freedmen's is a full service hospital, admitting both private and indigent patients and treating outpatients. Private patients are admitted either upon prearrangement by the staff doctors or through doctors having courtesy privileges at the hospital although not on the hospital staff. The doctor having courtesy privileges who brings the private patient in is ultimately responsible for the care of such patient but as far as the treatment given by the staff of the hospital, it is equivalent to what other private patients receive from the staff. Approximately 100,000 outpatients are treated at Freedmen's each year in its general or specialized clinics. In 1967, 86 resident physicians were on the staff along with a smaller group of interns.

The "House Staff Manual" issued by Freedmen's Hospital states that the mission of the hospital, among other things, is "to operate an efficient institution assuring that all patients admitted to the hospital or treated in the outpatient departments receive the best possible care." The duties of residents and interns prescribed therein are as follows:

C. Responsibilities of Resident and Assistant Resident Physicians:

The Residents, under direction of the Head of the Department and the Chief of the Service or Division of the Department concerned, shall supervise the professional work of the Assistant Residents and Interns and shall be accountable for the professional care and treatment of all patients in their respective departments.

The Residents and Assistant Residents in charge shall see that the directions of the staff are carried out. They shall be responsible for the completeness of all of the patients' charts.

D. Responsibilities of Interns:

1. Assignment to Services:

The Interns entering upon duty will be assigned to a service by the Medical Director in accordance with the recommendations of the House Officer's Committee of the Staff. Interns must perform their work promptly, efficiently, and with due courtesy and kindness to the patients and to all concerned.

2. Meeting of Medical Staff:

House Officers are required to attend Medical-Dental Staff meetings, those of the clinical department in which they are working, "Grand Ward Rounds," "Diagnostic Clinics," "Residents' Rounds," "Death Conferences," and the "Pathology Conferences." Schedule of such meetings are displayed in the office of each department head or the Office of the Medical Director.

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4. Responsibility for Work in Outpatient and Emergency Departments:

Members of theHouse Staff shall render service in the Outpatient and Emergency Departments as well as in the hospital wards.

E. General Information for Interns:

1. Routine for Interns:

Interns shall visit immediately each new patient admitted to their wards upon being notified and shall take immediately such history and shall make such physical examination and apply such measures as are in accord with the specific regulations of the service. A complete history and physical examination shall be recorded immediately.

Daily progress notes shall be recorded. In all cases, the Interns shall notify the Assistant Resident who is a member of this team. The Intern shall discuss his history and physical with the Assistant resident who shall independently record his own history and physical examination as his admission note after discussion with the Intern.

2. Ward Rounds:

Interns shall accompany his team members with the Attending on visits to their respective patients and shall render whatever assistance may be necessary.

3. Private Patients:

Interns shall prescribe for or treat private patients only under direction of the Attending Staff or Courtesy Staff with the exception that they may prescribe or treat patients in an emergency in an attempt to save life.

While serving as both an intern and a resident, petitioner performed the various duties mentioned above and was eligible for paid vacation and sick leave, as well as medical benefits. The amount of the stipend the residents and interns receive is based upon the years of service at the hospital. Thus, an assistant resident's stipend is more than an intern's and the chief resident receives more than an assistant resident. This stipend is in no way geared to the financial needs of the recipient. It is the same for all. Similarly, the vacation allowed to professional staff increases after 3 years of service at the hospital.

During the years of his service at Freedmen's Hospital, petitioner was not a candidate for a degree.

Petitioner received a stipend of $ 6,501.14 during 1967 which he reported as "wages" on his Federal income tax return. Federal income tax in the amount of $ 726.24 was withheld from this stipend as shown by Form W-2 attached to his return. However, on April 19, 1969, petitioners filed an amended Federal income tax return for 1967 in which they sought to exclude $ 3,600 of this stipend as a fellowship grant under section 117(a)(1)(B). The Commissioner disallowed the proposed exclusion on the ground that interns and residents at hospitals are performing services for the hospital and as a result any income received from the performance of such services is taxable as compensation under section 61.

OPINION

Petitioner served the first half of 1967 as an intern and the second half of the year as a resident in internal medicine at Freedmen's Hospital, Washington, D.C. It is his contention that $ 3,600 of the stipend that he received in that year is excludable as a fellowship grant under section 117(a)(1)(B). Respondent has determined that the stipend is fully taxable as compensation under section 61.

For the reasons discussed below, we sustain respondent's determination in this case.

Section 117 provides, in the case of an individual, that gross income does not include any amount received as a scholarship or fellowship grant. It is well settled that before the exclusionary provisions of section 117 become operative, it must first be established "that the payment sought to be excluded has the normal characteristics associated with the term 'fellowship.'" Elmer L. Reese, Jr., 45 T.C. 407">45 T.C. 407, 413 (1966), affirmed per curiam 373 F. 2d 742 (C.A. 4, 1967).

Section 1.117-3 of the Income Tax Regulations defines the term "fellowship grant" as "an amount paid or allowed to, or for the benefit of an individual to aid him in the pursuit of study or research." Whether a particular amount satisfies this general definition depends upon the nature of the activities carried on by the recipient. Section 1.117-4(c) ^{*1551 to be a fellowship grant for the purpose of section 117, if "the primary purpose of the studies or research is to further the education and training of the recipient in his individual capacity." If, however, a payment represents compensation for employment services or for services which are subject to the supervision of the grantor, it is not excludable as a fellowship grant.}

In Bingler v. Johnson, 394 U.S. 741">394 U.S. 741, 751 (1969), the Supreme Court approved the definitions contained in these regulations by stating that they "are prima facie proper, comporting as they do with the ordinary understanding of 'scholarships' and 'fellowships' as relatively disinterested, 'no-strings' educational grants, with no requirement of any substantial quid pro quo from the recipients."

In the case of Aloysius J. Proskey, 51 T.C. 918 (1969), we were faced with a situation strikingly similar to that present in the case before us now. Petitioner therein was a resident at University Hospital, Ann Arbor, Mich. He performed duties which were not unlike those performed by petitioner in the present case. He attempted to exclude $ 3,600 of the stipend he received for the year 1965 from income but the Commissioner determined that the total amount of the stipend for that year was includable as compensation for services under section 61.

Petitioner in Proskey maintained, as does petitioner in the present case, that his principal objective in the positions he held was to obtain training in his profession -- to have the opportunity to consult with staff physicians on a variety of medical problems, and, inasmuch as the institution at which he was working was the teaching arm of the medical school, training of doctors was the primary purpose for these positions.

In upholding the Commissioner's determination in Proskey we said:

There can be no serious doubt that work as a resident physician provides highly valuable training, particularly in preparing for specialties in the various fields of medicine. Yet virtually all work as an apprentice, whether in medicine or law, carpentry or masonry, provides valuable training. Nothing in section 117 requires that an amount paid as compensation for services rendered be treated as a nontaxable fellowship grant, merely because the recipient is learning a trade, business, or profession. Whatever training petitioner received during the years of his residency -- and we do not deny that it was substantial -- was merely "incidental to and for the purpose of facilitating the raison d'etre of the Hospital, namely, the care of its patients." Ethel M. Bonn, 34 T.C. 64">34 T.C. 64, 73 (1960); * * *

The above reasoning is apposite to the facts in the present case.

The testimony of the Medical Director of Freedmen's Hospital indicated that, while the educational aspects of the hospital were important, the proper atmosphere for training interns and residents is to maintain the highest degree of care of the patients. By achieving a high degree of patient care, the hospital fosters the best possible educational atmosphere for members of the staff. Thus, the hospital's primary purpose is the care of patients, with the training of staff resulting as a natural corollary. It is the services rendered in the care of these patients for which petitioner receives the stipend in question.

The compensatory nature of the stipend is further evidenced by the fact that the staff member is eligible for paid vacation leave, the amount of which increases after a certain period of time. This "length of service" criteria for salary, as well as paid vacation leave, plus the eligibility for the fringe benefits which usually inure to an employee, are all indications that petitioner was performing services for the hospital in his capacity as intern and resident and the stipend received should properly be considered compensation for these services rendered.

Accordingly, on the basis of the foregoing discussion and our decision in Proskey, the respondent's determination is sustained.

Decision will be entered under Rule 50.

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Footnotes

• 1. All section references are to the Internal Revenue Code of 1954, as amended, unless otherwise stated.↩

• 2. Sec. 1.117-4 Items not considered as scholarships or fellowship grants.

  The following payments or allowances shall not be considered to be amounts received as a scholarship or a fellowship grant for the purpose of section 117:

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  (c) Amounts paid as compensation for services or primarily for the benefit of the grantor. (1) * * * any amount paid or allowed to, or on behalf of, an individual to enable him to pursue studies or research, if such amount represents either compensation for past, present, or future employment services or represents payment for services which are subject to the direction or supervision of the grantor.

  (2) Any amount paid or allowed to, or on behalf of, an individual to enable him to pursue studies or research primarily for the benefit of the grantor. However, amounts paid or allowed to, or on behalf of, an individual to enable him to pursue studies or research are considered to be amounts received as a scholarship or fellowship grant for the purpose of section 117↩ if the primary purpose of the studies or research is to further the education and training of the recipient in his individual capacity and the amount provided by the grantor for such purposes does not represent compensation or payment for the services described in subparagraph (1) of this paragraph. Neither the fact that the recipient is required to furnish reports of his progress to the grantor, nor the fact that the results of his studies or research may be of some incidental benefit to the grantor shall, of itself, be considered to destroy the essential character of such amount as a scholarship or fellowship grant.