Ti Li Loo v. Commissioner

Ti Li Loo, Petitioner, v. Commissioner of Internal Revenue, Respondent Ti Li Loo v. Commissioner Docket No. 45288 United States Tax Court 22 T.C. 220; 1954 U.S. Tax Ct. LEXIS 223; April 30, 1954, Filed April 30, 1954, Filed *223 Decision will be entered for the respondent. Sec. 22 (a), I. R. C. -- Payments for Research -- Income. -- The University of Maryland received funds from the National Institutes of Health of the United States Public Health Service for carrying on research. The University of Maryland appointed the petitioner to a research fellowship for 1 year in 1947 and renewed the appointment each year until the fellowship was terminated in 1951. Before receiving the fellowship, petitioner received a Ph. D. degree from Oxford University in England. Under the University of Maryland fellowship, petitioner was assigned to do research work under the direction of a professor of the university. Petitioner received a monthly salary and was allowed 1-month vacation. Held, that there is no evidence that the fellowship payments were intended to be gifts. Held, further, that the fellowship payments were compensation for petitioner's services; that the payments constituted income under section 22 (a); and that the payments were not exempt from tax under section 22 (b) (3). Ralph E. Garner, Esq., for the petitioner. John C. Calhoun, Esq., for the respondent. Harron, Judge. HARRON *220 The Commissioner determined a deficiency in income tax for the year 1950 in the amount of $ 643. The only question to be decided is whether the sum of $ 4,500 which was paid to petitioner during 1950 by the University of Maryland from funds granted by the National Institutes of Health of the United States Public Health Service is tax exempt under section 22 (b) (3) of the Code, as petitioner contends, or is income, taxable under section 22 (a), as the Commissioner has determined. FINDINGS OF FACT. The facts which have been stipulated are found as facts. The stipulation of facts is incorporated herein by reference. The petitioner's return for 1950 was filed with the collector for the district of Maryland. Petitioner is now a resident of Cincinnati, Ohio. *221 The petitioner*225 was born in China. He graduated from Ching Hun University in Peking, China. In 1947, before September, he received a Ph. D. degree in chemistry from Oxford University in England. While he was a graduate student at Oxford he carried on research in certain synthetic antimalarial drugs, and in particular his research related to pentaquine drugs. When he was completing his work at Oxford he applied to Dr. Nathan L. Drake, head of the chemistry department of the University of Maryland, for a fellowship which would enable him to continue research in antimalarial drugs. The University of Maryland, acting favorably upon petitioner's application, granted him a fellowship for 1 year beginning in September 1947. At first, the fellowship paid $ 300 per month. The fellowship required the recipient to engage in research for 11 months, and it allowed a 1-month vacation. The University of Maryland paid the stipend out of funds of the National Institutes of Health of the United States Public Health Service which were provided Dr. Drake to carry on research. Petitioner worked under the supervision of Dr. Drake. His work consisted of research on the metabolism of certain antimalarial drugs. *226 Petitioner prepared several written reports on his research which he submitted to Dr. Drake. The purpose of the research was to find a more effective drug for the cure of malaria. In his research the petitioner made compounds of certain drugs. He sent the compounds to Dr. Schmidt at Christ Hospital in Cincinnati for injection into rhesus monkeys. Specimens from the monkeys were returned to the University of Maryland for analysis by petitioner and others. The result of petitioner's research was that none of the compound drugs were any more effective than the parent drug, pentaquine, and that the general problem would require further research over a much longer period of time. Dr. Drake planned the research project and told petitioner, in general, what work he should carry on. Another individual having a Ph. D. degree, a recipient of the same type of fellowship award, did research work similar to the work done by petitioner. Grants of the type in question are made by the National Institutes of Health to persons holding a Ph. D. degree or other doctor's degree in order to promote competent research in medical sciences and to develop competent research workers. If research results*227 in any patentable discoveries they become the property of the United States. The petitioner was admitted into the United States in August of 1947. He began his research work at the University of Maryland in September of 1947. He did not teach; he was not a candidate for any degree; and he did not receive any university credits for his research work. The fellowship carried with it the title "Postdoctorate Research Fellow in Chemistry." *222 The petitioner stayed at the University of Maryland until about April 1, 1951. The fellowship was renewed each year without any change in terms excepting an increase in the award to $ 375 per month, or $ 4,500 per year, in September of 1948. Petitioner received $ 4,500 during 1950. When petitioner was admitted into the United States in 1947, he entered as a student under a visitor's visa. Petitioner, thereafter, was eligible to change his immigrant status from that of a student to a displaced person in which status he was permitted to be gainfully employed. Petitioner continued in the status of a student until April 1, 1951, when it was determined that his research work at the University of Maryland was completed. Thereafter, he accepted*228 employment at Christ Hospital in Cincinnati, Ohio, at a salary of $ 6,120 per year doing work for which his training and research had qualified him. In order to accept employment at Christ Hospital it was necessary for petitioner to make election with the Immigration and Naturalization Service, Department of Justice, to change his status from that of a student to that of a displaced person. Petitioner reported his stipend for 1947 for Federal income tax and paid tax thereon. On January 30, 1948, the Commissioner ruled that the award was a gratuity under section 22 (b) (3) of the Code and therefore was exempt from tax. The tax paid for 1947 was refunded by the Commissioner. After the above ruling was made, petitioner reported the receipt of the award each year in his return, but stated that the award was exempt from tax. The reasons given by the Commissioner for his determination that the award received in 1950 in the amount of $ 4,500 is taxable are as follows: This office has recently reviewed the general subject of the taxability, for Federal income tax purposes, of amounts received by individuals as awards, whether called scholarships, fellowships, grants in aid or simply awards. *229 The conclusion has been reached that if a fellowship or other grant is made for the training or education of an individual either as a part of his educational program in acquiring a degree or in studying toward the completion of his general education, no services being rendered as consideration for such fellowship, the amount of the grant is a gift and excluded from gross income. However, when it is a substantial purpose of the grant to advance research or other scholarly projects, it is believed that the work performed by the recipient of the grant or fellowship is consideration for the grant and that such amount should be included in his gross income. In view of Dr. Loo's advanced educational standing and [sic] the field of endeavor in which he is already engaged, it appears that the work pursued under this fellowship is in furtherance of his chosen profession and, as such, is deemed to be consideration for the amount granted by the fellowship. Accordingly, on the basis of the information submitted, it is held that the stipend received under this award constitutes compensation for services, and is includible in gross income for Federal income tax purposes. *223 OPINION. *230 The petitioner contends that the sum of $ 4,500 which he received in 1950 under a research fellowship is exempt from Federal income tax under the provisions of section 22 (b) (3) of the Internal Revenue Code. He contends, in general, that the fellowship was for the purpose of furthering his training and education. He relies strongly upon the point that he was classified as a "student" when he entered the United States in 1947, and that his status under the immigration statutes and regulations continued to be that of a student until some time in 1951 when he exercised the election to change his immigration status to that of a displaced person. The petitioner argues that the stipend he received under the fellowship in question was only to defray his living expenses; that it was not "commensurate" with his training and experience; and that taxation of such receipts would tend to discourage research. He contends, further (but without evidence in support of the contention), that he understood the fellowship award to be in the nature of a gift, and that the University of Maryland intended it to be a gift. The respondent contends that the facts of this proceeding make it indistinguishable*231 from Ephraim Banks, 17 T. C. 1386. We understand that he relies also upon a ruling of the Treasury Department, I. T. 4056, 1951-2 C. B. 8. Although the petitioner fails to cite any authority in support of his contentions, his arguments suggest the rationale of McDermott v. Commissioner, 150 F. 2d 585, reversing Malcolm McDermott, 3 T. C. 929. Almost all of the facts in this proceeding were stipulated by the parties. Nothing in the record before us supports the petitioner's contention that a gift of the money which he received in 1950 was intended by the grantor. There is no evidence that the fellowship in question was a "prize." On the contrary, the evidence clearly shows that petitioner did not receive the fellowship in any competitive contest. This case is distinguishable on its facts from McDermott v. Commissioner, supra. Before the petitioner received the research fellowship from the University of Maryland he had completed his dissertation for his doctor's degree and he had received that degree from Oxford. Part of his*232 work at Oxford for his doctor's degree in chemistry had been research in the use of drugs known as pentaquine in combating and curing malaria. Petitioner, by his own admission, was a "very good organic chemist." He had developed skill in research in antimalarial drugs such as pentaquine before he received the research fellowship from the University of Maryland, and it is evident that the fellowship was awarded to him on the basis of his qualifications to do the research work required by a specific project. The conclusion is inescapable, *224 upon the evidence before us, that the petitioner gave his skill, training, and experience in consideration for the stipend he received from the University of Maryland which received funds for the specific research project upon which petitioner worked from the National Institutes of Health of the United States Public Health Service. It cannot be said that the monthly payments which aggregated $ 4,500 in 1950 were received by petitioner for nothing. The University of Maryland and the National Institutes of Health derived something tangible from petitioner's research, albeit in a negative way, for his research showed that compounds of certain*233 drugs were not more effective than the parent drug, pentaquine, in combating or curing malaria. Furthermore, if his research had produced any patentable discovery it would have become the property of the United States through the United States Public Health Service. Under these circumstances the necessary elements of a gift as contemplated by section 22 (b) (3) of the Code are not present. United States v. Robertson, 190 F. 2d 680, 683. Also, the evidence negates the proposition that the research fellowship in question was awarded to petitioner for furthering his education without the rendering of any services by petitioner as consideration therefor. A research project was planned by Dr. Nathan L. Drake, of the University of Maryland, who directed petitioner's work in the execution of the project. The petitioner was required to make written reports to Dr. Drake upon the progress and results of his research; he made such reports and they became part of the university's records. It is entirely clear that petitioner's services in the execution of a specific research project were expected by the University of Maryland in return for the monthly *234 payments which the fellowship carried. We agree with the petitioner that the fellowship to which he was appointed in 1947 was for the furtherance of research, but this fact alone does not serve to make the fellowship stipend a gift within the ambit of section 22 (b) (3). The fellowship, as far the record before us shows, was not granted for the training or education of petitioner. Rather, the petitioner applied his skill and training to advance a specific research project. This conclusion is reached upon the entire record before us. It is immaterial in deciding the question before us, under all of the circumstances, that petitioner's immigration status was classified by the United States Immigration and Naturalization Service as student during the period from 1947 until some time in 1951 when the petitioner exercised the election to be classified as a displaced person. The petitioner must establish that the payments under the research fellowship come within section 22 (b) (3) of the Internal Revenue Code if he is to succeed in this proceeding. The mere classification *225 of student in his immigration permit does not in itself establish that the research fellowship was awarded*235 as a gift to petitioner for his training and education. Petitioner appears to assert that his motive in applying for and accepting the research fellowship was not pecuniary. He appears to claim that his acceptance of monthly payments was solely to enable him to meet his living expenses. If petitioner's motives were solely these motives, they are not controlling. But we do not believe that petitioner applied for and accepted the award without the realization that he would give his professional services in a research project planned by others in exchange for money, and without the thought of economic gain. The annual compensation was more than nominal; it was more than a subsistence allowance. The fellowship was renewed beyond the original term of 1 year, and the monthly compensation was increased. Upon the termination of the fellowship in 1951, petitioner applied for and received a position at Christ Hospital in Cincinnati where similar research work was being carried on. The character of the compensation which petitioner received is for tax purposes fixed by the fact that for more than three and one-half years he gave his services as an organic chemist and applied his training*236 and skill in research which was sought by and was for the benefit of others, rather than by his alleged nonpecuniary motive. Herbert Stein, 14 T. C. 494. The facts in this proceeding so closely resemble the facts in Ephraim Banks, supra, that we must arrive at the same conclusion as was reached there. It is held that the monthly payments under the fellowship were made for valuable consideration moving to the grantor; they did not constitute gifts from the viewpoint of either the grantor or the recipient, the petitioner. The respondent's determination is sustained. Decision will be entered for the respondent.