1 Unless otherwise indicated, section references are to the

Internal Revenue Code in effect for the year in issue, and Rule

references are to the Tax Court Rules of Practice and Procedure.

T.C. Memo. 1999-84

UNITED STATES TAX COURT

MICHAEL B. STREIFF AND LAUREN D. STREIFF, Petitioners v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 12017-97. Filed March 23, 1999.

Felix S. Jacob, for petitioners.

Helen F. Rogers, for respondent.

MEMORANDUM OPINION

POWELL, Special Trial Judge: This case was heard pursuant

to the provisions of section 7443A(b)(3) and Rules 180, 181, and

183.1

Respondent determined a deficiency in petitioners' 1993

Federal income tax in the amount of $2,213. The sole issue is

whether certain amounts received by petitioners qualify for
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exemption as a qualified scholarship under section 117. 

Petitioners resided in Owings Mills, Maryland, when the petition

was filed.

The facts may be summarized as follows. Michael B. Streiff

(petitioner) is a medical doctor. During 1993, petitioner was

engaged in a program at Johns Hopkins University School of

Medicine (Johns Hopkins) "to train biomedical

scientist/postdoctoral fellows in hematology research." During

1993, petitioner received a stipend in the amount of $14,750 as a

fellowship grant from the National Institutes of Health (NIH). 

The purpose of the grant was to provide financial support for

postdoctoral fellows interested in pursuing academic experimental

hematology. The grant was not contingent upon any services for

or obligations to NIH or Johns Hopkins. Petitioner spent

approximately 50 hours a week in the laboratory at Johns Hopkins

working on research. Petitioner was not a candidate for a degree

at Johns Hopkins.

During 1993, petitioner was also fulfilling the requirements

to become board certified in hematology and medical oncology. 

To qualify for the board exams, petitioner was required to

complete 18 months of experience with inpatient treatment in

hematology and oncology and 24 months of experience with

outpatient treatment. During 1993, petitioner spent 2-1/2 days

per week in a clinic as part of his outpatient experience
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requirement. The board certification process was separate from

the hematology training program. 

 On their joint 1993 Federal income tax return, petitioners

did not include in income the $14,750 fellowship grant received

from NIH. Respondent determined that the grant was includable in

income.

Discussion

Section 61(a) defines gross income to mean all income from

whatever source derived. The internal revenue statutes and/or

case law, however, have recognized in one form or another an

exemption for financial aid to persons pursuing education goals. 

See Spiegelman v. Commissioner, 102 T.C. 394 (1994). Prior to

1986, the exemption from income of scholarship or fellowship

payments focused basically on whether the recipient was required

to perform services or to provide a benefit for another in a quid

pro quo arrangement. Id. at 399-402. The pre-1986 section 117

was amended by section 123 of the Tax Reform Act of 1986, Pub. L.

99-514, 100 Stat. 2085, 2112. The 1986 change was designed to

shift the focus of the tax exemption to the use of the funds. 

The legislative history highlights the congressional intent: 

The committee believes that the exclusion for scholarships

should be targeted specifically for the purpose of

educational benefits, and should not encompass other items

which would otherwise constitute nondeductible personal

expenses. [H. Rept. 99-426, at 100 (1985), 1986-3 C.B.

(Vol. 2) 1, 100.]
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Section 117(a) exempts from gross income "any amount

received as a qualified scholarship by an individual who is a

candidate for a degree at an educational organization described

in section 170(b)(1)(A)(ii)." A "qualified scholarship" means

"any amount received by an individual as a scholarship or

fellowship grant to the extent * * * that * * * such amount was

used for qualified tuition and related expenses." Sec.

117(b)(1). Qualified tuition and related expenses are limited to

"tuition and fees required for the enrollment" and "fees, books,

supplies, and equipment required for courses of instruction". 

Sec. 117(b)(2). For purposes here, we primarily are concerned

with two requirements of section 117--viz, whether petitioner

qualifies as a candidate for a degree and whether amounts

received were used for "qualified tuition and related expenses".

A. Candidate for a Degree

The parties stipulated that petitioner was not a candidate

for a degree in 1993. Ordinarily this would end the matter. 

Petitioner argues, however, that the requirements necessary for

board certification in hematology and medical oncology should be

viewed as the equivalent of a candidacy for a degree for purposes

of section 117. Petitioner relies on an example given by the

proposed regulations:

Example (2). B is a scholarship student during academic

year 1987-1988 at Technical School V located in State W. B

is enrolled in a program to train individuals to become data

processors. V is authorized by State W to provide this

program and is accredited by an appropriate accreditation
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agency. B is a candidate for a degree for purposes of this

section. Thus, B may exclude from gross income any amount

received as a qualified scholarship, subject to the rules

set forth in paragraph (d) of this section. [Sec. 1.117-

6(c)(6), Proposed Income Tax Regs., 53 Fed. Reg. 21692 (June

9, 1988).]

Petitioner contends that his situation is analogous to the

example provided by the regulations. Petitioner argues that,

while he was not receiving a degree, he was receiving training

that would qualify him for board certification, the equivalent of

meeting vocational training requirements. 

Initially we note that these are proposed regulations and

are essentially without precedential value. See Laglia v.

Commissioner, 88 T.C. 894, 897 (1987), and cases cited therein. 

But, even if we were to accept the validity of the position

espoused in the proposed regulations, petitioner does not meet

the requirements. The grant was for financial support while

petitioner was engaged in hematology research, not for the board

certification process. As stipulated by the parties,

petitioner's board certification process was separate from the

grant. The grant neither requires nor contemplates that

petitioner will be involved in the process of achieving board

certification or any other type of training program. 

In addition, even if we were to accept petitioner's argument

that the grant is somehow linked to the board certification

process, the board would have to meet the definitional

requirements of an "educational organization" as provided by
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2 Petitioners also suggest that Johns Hopkins should be viewed

as the entity which provides the grant. Petitioner, however, was

clearly not a degree candidate at Johns Hopkins.

section 170(b)(1)(A)(ii). Section 170(b)(1)(A)(ii) defines an

educational organization as an organization that "normally

maintains a regular faculty and curriculum and normally has a

regularly enrolled body of pupils or students in attendance at

the place where its educational activities are regularly carried

on". Board certification is awarded by the American Board of

Internal Medicine (Board). As far as we know, the Board does not

maintain a curriculum, does not maintain a regular faculty, and

does not have a student body. The Board is not an educational

organization as defined by section 170(b)(1)(A)(ii).2 

B. Qualified Tuition and Related Expenses

Section 117(b)(1) requires that qualified amounts be given

and used for tuition or tuition-related expenses. In

petitioner's case the funds were given for financial support, not

for tuition or related expenses. Indeed, it appears that

petitioner had no such expenses. The amounts received by

petitioner from the grant were not amounts received as a

qualified scholarship under section 117(b)(1).

C. Case Law

Despite the fact that petitioner fails to meet the statutory

requirements of section 117, petitioner insists that the amounts

he received are exempt under case law. Petitioners argue that
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petitioner meets the criteria for exemption established by

Bieberdorf v. Commissioner, 60 T.C. 114 (1973), and Bailey v.

Commissioner, 60 T.C. 447 (1973). The facts in both Bieberdorf

and Bailey are analogous to those of the present case. In

Bieberdorf the taxpayer was a medical doctor who received a grant

from NIH for research in gastroenterology. In Bailey the

taxpayer was a medical doctor who received a grant from NIH as

part of a training program in cardiorenal research. In both

cases, the amount of time spent in activities for the benefit of

the hospital was deemed de minimis compared to the amount of time

spent in research and training related to the grants, and we held

that the taxpayers qualified for exemption under the pre-1986

section 117. 

We may agree that petitioner meets the requirements of

Bieberdorf and Bailey. The problem is that these cases were

decided under different statutory provisions. By the 1986

amendments, Congress adopted a different statutory scheme

requiring that the funds must be used by degree candidates for

qualified tuition and related expenses. Our holdings in

Bieberdorf and Bailey are not germane to the provisions of 

section 117 that apply here. Consequently, Bieberdorf and Bailey

are not reliable precedent. 

As a final matter, petitioner urges us to look beyond the

text of the statute and, as a public policy matter, allow the

grant to be exempt. It is for Congress to resolve tension
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between tax policies, and we apply the law that Congress writes. 

The language of the statute is plain and unambiguous. The only

function of the Court, therefore, is to apply the statute

according to its language. United States v. Ron Pair Enters.,

Inc., 489 U.S. 235, 241 (1989).

Decision will be entered

for respondent.