T.C. Memo. 1996-453

UNITED STATES TAX COURT

IRVIN HEARD, JR., Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 13685-94. Filed October 7, 1996.

Howard S. Press, for petitioner.

Leon St. Laurent and Francis J. Strapp, Jr., for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

VASQUEZ, Judge: By separate notices of deficiency,

respondent determined deficiencies and additions to tax in

petitioner's Federal income taxes as follows:
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 Additions to Tax 

Year Deficiency Sec. 6651(a) Sec. 6654

1989 $7,011 $1,711 $463

1990 6,653 1,663 441

Unless otherwise indicated, all section references are to

the Internal Revenue Code in effect for the years in issue, and

all Rule references are to the Tax Court Rules of Practice and

Procedure. The issues for our consideration are whether amounts

received by petitioner qualify as a fellowship grant excludable

from income under section 117 and whether petitioner is liable

for the additions to tax stated above.

FINDINGS OF FACT

Some of the facts have been stipulated and are so found. 

The stipulation of facts and the attached exhibits are

incorporated herein by this reference. Petitioner resided in

Palisades Park, New Jersey, at the time the petition was filed in

this case. 

Petitioner attended Southern University in New Orleans,

Louisiana, from June 1968 to May 1973, earning a B.S. in physics

and a minor in math. From August 1974 to May 1980 petitioner

attended Howard University in Washington, D.C., earning a

master's degree in physics. After receiving his master's degree,

petitioner remained at Howard for an additional 2 years pursuing

a Ph.D. degree in physics, but he did not complete the required

Ph.D. thesis research during that time. Petitioner left Howard
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in May 1982, lectured at the University of Maryland from August

1982 to June 1983, and thereafter accepted a position as an

assistant professor at Lincoln University in Pennsylvania

beginning in August 1983.

In June 1985, petitioner applied to the National Institute

of General Medical Sciences (NIGMS), a division of the National

Institutes of Health (NIH), for a Minority Access to Research

Careers (MARC) faculty fellowship. The MARC program is a

division of the National Research Service Award (NRSA) program, a

program designed for the provision of grants for biomedical and

behavioral research or research training. The MARC program was

designed to provide research and training opportunities to

faculty and students at 4-year colleges that have a substantial

enrollment of students from underrepresented minority groups. 

The MARC faculty fellowship is designed to strengthen the

research and research training opportunities of minority

institutions by providing an opportunity for eligible faculty who

lack the Ph.D. degree (or equivalent) to obtain the research

doctorate. The expectation of the faculty fellowship program is

that the candidate's training in a setting away from the

candidate's home institution would expose the candidate to new

ideas and would enhance the research and teaching environment of

the home institution when the candidate returned. 

At the time he applied for the MARC faculty fellowship,

petitioner's home institution was Lincoln University. The
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1 The institutional allowance is a payment to the sponsoring

institution to help defray the cost of research supplies,

equipment, travel to scientific meetings, and other related

items. 

Lincoln University officials who wrote in support of petitioner's

MARC application expected petitioner to return to Lincoln. In

his application, petitioner indicated that if granted a MARC

faculty fellowship, he would be able to complete his Ph.D. thesis

research and thereafter return to Lincoln University to teach

physics and establish a research program. Petitioner requested a

fellowship award extending for a period of 2 years and 9 months

during which time petitioner would attend Drexel University to

pursue his Ph.D. thesis research with Dr. Frank A. Ferrone, an

assistant professor there. Under the direction of Dr. Ferrone,

petitioner was to pursue biophysics research, specifically

studying depolymerization of sickle cell hemoglobin. Petitioner

indicated on his MARC application that he expected to receive his

Ph.D. at the conclusion of the faculty fellowship in May 1989.

On January 15, 1986, petitioner was notified by NIGMS that

he had been awarded a MARC faculty fellowship. The notification

of award received by petitioner indicated that he would receive a

$25,000 stipend and a $3,000 institutional allowance1 for the

initial 12-month period. The award notice listed additional

funds for the second and third year of petitioner's requested

grant in a box containing the preprinted statement "Future

Support Recommended (Subject to Availability of Funds and
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2 An institutional allowance of $3,000 was presumably

included in the total support amount.

3 A prorated institutional allowance of $2,250 was

presumably included in the total support amount. 

Satisfactory Progress)". The column labeled "Budget Period 02"

listed a stipend of $25,000 and total support of $28,000.2 The

funds listed for "Budget Period 03" were prorated for a 9-month

period as requested by petitioner in his MARC application and

included a stipend of $18,750 and total support of $21,000.3 

In September 1986, petitioner enrolled at Drexel University

and submitted a research fellowship activation notice to NIGMS

whereby petitioner's MARC award was to be activated for the 12-

month period extending from September 15, 1986, to September 14,

1987. In addition to his research activity, petitioner was

expected to take a Ph.D. qualifying examination during his first

year at Drexel. Petitioner took the examination in the spring of

1987 but did not pass. Thereafter, petitioner was expected to

take a set of practice qualifiers in the ensuing year and

demonstrate marked progress in his grades to maintain his

admission status at Drexel. 

In July 1987, petitioner wrote to two NIH officials

requesting a 1-year deferral of the remaining portions of his

MARC fellowship grant. In his request, petitioner indicated that

he intended to return to Lincoln University to complete the final

year of an Office of Naval Research (ONR) grant project that
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petitioner had worked on prior to his departure to attend Drexel. 

Petitioner had expected another individual to finish the ONR

project in his absence, but that individual was unable to do so

and had resigned from the project. Upon completion of the ONR

project, petitioner expected to return to his doctoral research;

however, he was aware that his decision to return to Lincoln

University could jeopardize his chance to continue his studies at

Drexel. In a July 27, 1987, letter to Elward Bynum, an NIH

Program Administrator, petitioner wrote: 

I have enclosed a copy of a letter requesting postponement

of the second and third year of my fellowship. As

indicated, the set of circumstances involving the ONR

contract was totally unanticipated. This request has been

discussed with my sponsor, Dr. Ferrone, and in his opinion,

this could have an adverse effect on my progress if I fail

to continue my preparation for the Ph.D. qualifying exam

this year off. * * * Thus, there are some uncertainties with

regards to my re-admission into Drexel even if NIH approves

my request. Although Drexel is my first choice for

completion of my studies, if re-admission is denied, I am

willing to pursue my work at another institution.

On August 10, 1987, an NIH official wrote to petitioner to

notify him that his request for a 1-year leave of absence from

his MARC faculty fellowship had been approved. The approval

letter indicated that petitioner's funding would resume at the

conclusion of his year off and thereafter continue through June

1990, which "will provide the approved two years and nine months

of fellowship support." The letter also stated: "In the event

you do not return to Drexel to complete your approved research
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4 In his original application for a MARC faculty fellowship,

petitioner requested an award period of 2 years and 9 months. 

Petitioner's request to postpone his MARC award was granted after

he had received 11 months of support in the initial award year,

resulting in the deferral of 1 year and 10 months of unused

support. 

training, we would be willing to consider a request to transfer

your fellowship to another institution." 

In the ensuing academic year, petitioner returned to Lincoln

University and assumed full-time faculty status while working on

the ONR project. Unfortunately, petitioner was unable to

continue his preparation for and did not retake the Ph.D.

qualifying exam. On April 28, 1988, petitioner was notified that

the Department of Physics and Atmospheric Science at Drexel

University did not support petitioner's readmission to the

institution. Petitioner furnished a copy of this notification to

NIH on June 22, 1988. 

On July 14, 1988, petitioner submitted an NRSA application

requesting a transfer of the remaining 1 year and 10 months4 of

support under his MARC fellowship grant to the City College of

the City University of New York (CUNY). According to the

application, petitioner intended to continue his Ph.D. thesis

research under the sponsorship of Dr. Joseph A. Johnson III, a

professor of physics at CUNY. Under the direction of Dr.

Johnson, petitioner was to study blood circulatory flow at low
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5 An NIGMS grants management official indicated at trial

that petitioner's request to transfer his MARC fellowship to CUNY

was reviewed in detail by NIH staff to assure that the proposed

Ph.D. research activities with Dr. Johnson as sponsor were of

similar or comparable quality to the originally approved research

project at Drexel. 

fluid velocities.5 Petitioner also expected to prepare for and

pass the Ph.D. qualifying exam by January 1989. 

On August 26, 1988, NIH granted petitioner's request to

transfer his fellowship to CUNY and indicated that he would

receive a stipend of $25,000 and an institutional allowance of

$3,000 for the 12-month period extending from August 20, 1988, to

August 19, 1989. The award notification contained the preprinted

statement "Future Support Recommended (Subject to Availability of

Funds and Satisfactory Progress)" and thereafter contained a

prorated stipend and institutional allowance for a 10-month

period commencing at the end of the current award period. 

In the summer after his first academic year at CUNY,

petitioner submitted an Award Continuation Application to NIH

wherein petitioner requested activation of the remaining 10

months of his NRSA grant. Petitioner's request was granted on

July 24, 1989. Petitioner received a prorated stipend of $20,833

and an institutional allowance of $2,500 for the period August

20, 1989, to June 19, 1990. 

On April 27, 1990, petitioner wrote to an NIH program

administrator requesting a 1-year extension of his MARC faculty

fellowship. Petitioner indicated in his letter that he needed
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the additional time to complete his dissertation research and the

requirements for the Ph.D. degree. The extension request was

granted by NIGMS in June 1990. Petitioner received a stipend of

$25,000 and an institutional allowance of $3,000 for the period

June 20, 1990, to June 19, 1991. Petitioner remained at CUNY for

the extended period of his MARC fellowship; however, he did not

complete his Ph.D. degree. 

OPINION

Section 117(a) excludes from gross income any amount

received as a scholarship or fellowship grant. Generally, a

"scholarship" or "fellowship grant" includes an amount paid to or

for the benefit of an individual to aid him or her in the pursuit

of study or research. Sec. 1.117-3, Income Tax Regs. The fact

that the recipient is required to furnish reports of his or her

progress to the grantor does not destroy the essential character

of such an amount as a scholarship or fellowship grant. Sec.

1.117-4(c)(2), Income Tax Regs. In Bingler v. Johnson, 394 U.S.

741, 751 (1969), the Supreme Court sustained the validity of

these regulations as comporting 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."

Prior to amendment by the Tax Reform Act of 1986 (TRA 1986),

Pub. L. 99-514, sec. 123, 100 Stat. 2085, 2112, section 117

permitted the entire amount of a fellowship grant to be excluded
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from gross income provided that the grant did not represent

payment for teaching, research, or other services in the nature

of part-time employment and as long as the recipient was a

candidate for a degree. For individuals who were not candidates

for a degree, the exclusion was limited to $300 per month for a

maximum of 36 months. Sec. 117(b)(2)(B).

TRA 1986 sec. 123, 100 Stat. 2112, modified the income tax

treatment of scholarships and fellowship grants by making

amendments to section 117. Section 117(a), as amended, excludes

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)." 

The term "qualified scholarship" refers to "any amount received

by an individual as a scholarship or fellowship grant to the

extent the individual establishes that, in accordance with the

conditions of the grant, such amount was used for qualified

tuition and related expenses." Sec. 117(b)(1), as amended. The

term "qualified tuition and related expenses" means (a) tuition

and fees required for enrollment or attendance of a student at an

educational organization described in section 170(b)(1)(A)(ii),

and (b) fees, books, supplies, and equipment required for courses

of instruction at such an educational organization. Sec.

117(b)(2), as amended. The amendments to section 117 eliminated

the exclusion for individuals who are not degree candidates.
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The amendments to section 117 are effective for taxable

years beginning on or after January 1, 1987, except that the

prior law continues to apply to scholarships and fellowships

granted before August 17, 1986. H. Conf. Rept. 99-841 (Vol. 2),

at II-17 (1986), 1986-3 C.B. (Vol. 4) 1, 17. Section 1.117-

6(f)(3), Proposed Income Tax Regs., 53 Fed. Reg. 21688 (June 9,

1988), states a transitional rule for determining whether a

scholarship or fellowship is to be considered granted before

August 17, 1986, as follows:

(3) Scholarships or fellowships granted before

August 17, 1986--(i) In general. For purposes of this

section, a scholarship or fellowship is considered

granted before August 17, 1986, to the extent that, in

a notice of award made before that date, the grantor

made a firm commitment to provide the recipient with a

fixed cash amount or a readily determinable amount. A

notice of award is treated as containing a firm

commitment even if the scholarship or fellowship grant

is subject to a condition that the recipient remain in

good standing or maintain a specific grade point

average. In addition, a requirement that the recipient

file a financial statement on an annual basis to show

continuing financial need is not treated as a

requirement to reapply to the grantor. If a

scholarship or fellowship, initially awarded before

August 17, 1986, is granted for a period exceeding one

academic period (for example, a semester), amounts

received in subsequent academic periods are treated as

granted before August 17, 1986, only if--

(A) The amount awarded for the first academic

period is described in the original notice of award

as a fixed cash amount or readily determinable

amount;

(B) The original notice of award contains a firm

commitment by the grantor to provide the

scholarship or fellowship grant for more than one

academic period; and
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(C) The recipient is not required to reapply to

the grantor in order to receive the scholarship or

fellowship grant in future academic periods.

We note at the outset that proposed regulations "generally

carry no more weight than a position advanced by respondent." 

Estate of Wallace v. Commissioner, 95 T.C. 525, 547 (1990), affd.

965 F.2d 1038 (11th Cir. 1992). However, because both parties in

this case accept the criteria stated in the proposed regulation

in question, the Court will use it as a framework for resolving

their dispute.

Petitioner argues that, pursuant to the proposed regulation,

the fellowship amounts he received in 1989 and 1990 should be

considered granted before August 17, 1986, and that he is

therefore entitled to exclude those fellowship amounts from

income under the earlier version of section 117. Respondent

argues that the requirements of subdivisions (B) and (C) in the

above excerpt of the proposed regulation have not been met, that

section 117 as amended therefore applies, and, in any case, that

petitioner was not a candidate for a degree during the years in

issue.

We will first address the aspects of the transitional rule

over which the parties are in disagreement. Respondent argues

that petitioner's initial MARC fellowship grant did not contain a

"firm commitment" to provide fellowship support for more than one

academic period--thus, in respondent's view, the requirements of

subdivision (B) of the proposed regulation have not been met. 
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The award notice received by petitioner indicated that he would

receive a $25,000 stipend in the initial 12-month period and that

future support was recommended for two additional budget periods

"subject to availability of funds and satisfactory progress". 

Respondent contends that petitioner's fellowship support beyond

the initial 12-month period was not guaranteed pursuant to the

preprinted conditions for future support stated in the award

notice. In our view, however, those conditions do not prevent

the award from being a firm commitment within the meaning of the

proposed regulation.

As noted in the regulation itself, a firm commitment to

provide support exists "even if the scholarship or fellowship

grant is subject to a condition that the recipient remain in good

standing or maintain a specific grade point average." Thus, the

requirement that petitioner maintain "satisfactory progress" is

clearly addressed by the regulation and does not prevent his

award from being considered a firm commitment for support beyond

the initial award year.

Similarly, the preprinted condition in the award notice

indicating that petitioner's future support was "subject to

availability of funds" does not, in our view, preclude us from

holding that the award was a firm commitment of support for a

period of 2 years and 9 months. An NIGMS grants management

official indicated at trial that the agency had single fiscal

year spending authority and that approval had to be obtained from
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Congress each year prior to making scholarship or fellowship

disbursements. The NIGMS official also indicated that the agency

has never discontinued a fellowship award due to a lack of

funding. We find that the listing of approved or recommended

stipend amounts for three budget periods in the notification of

award received by petitioner is indicative of NIGMS's single

fiscal year spending authority and that petitioner's fellowship

support after the initial award period had little, if any, chance

of being discontinued for lack of funding. 

We also note that the MARC faculty fellowship program is

designed to provide an opportunity for eligible faculty who lack

the Ph.D. degree to obtain the research doctorate. At the time

he submitted his MARC application, petitioner anticipated that it

would take 2 years and 9 months to complete his Ph.D. degree, and

he requested a fellowship award period commensurate with

achieving that goal. We find that the MARC award petitioner

received was intended to provide sufficient fellowship support to

allow him to obtain his Ph.D. degree, in line with the objectives

of the MARC program. Indeed, we would not expect a prospective

Ph.D. candidate to enroll in a multiyear degree program if his

requested and seemingly approved source of funding was not

reasonably secure for the duration of the program. In sum, we 

find that the award notice received by petitioner contained a

firm commitment to provide support for more than 1 academic year,
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i.e., for 33 months, and therefore the award meets the

requirements of subdivision (B) of the proposed regulation.

Respondent next argues that petitioner has failed to meet

the requirements of subdivision (C) of the proposed regulation. 

Pursuant to that paragraph, the fellowship payments petitioner

received in 1989 and 1990 are to be treated as granted prior to

August 17, 1986, only if petitioner was not required to reapply

to NIH to receive the fellowship grant. Respondent argues that

petitioner fails to comply with the requirements of subdivision

(C) because he was required to submit an application to NIH in

conjunction with his request to transfer his fellowship to CUNY.

The appropriate inquiry on this issue, in our view, is

whether the original notification of award received by petitioner

required him to submit additional NRSA applications as a

condition to receiving continued fellowship support. In that

regard, we note our finding above that the award notice received

by petitioner was a firm commitment to provide fellowship support

for 33 months. We find no evidence that petitioner would have

been required to reapply to NIH to receive the approved

fellowship support had he remained at Drexel and demonstrated

satisfactory progress toward his Ph.D. degree throughout the

award period.

As the events transpired, however, petitioner withdrew from

Drexel after obtaining a 1-year leave of absence from his MARC

fellowship and thereafter sought to transfer the suspended
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portions of his fellowship grant to CUNY. In these particular

circumstances, we find that petitioner's submission of an

application to NIH for the sole purpose of transferring his

existing fellowship grant to a new institution does not run afoul

of the requirements of subdivision (C) of the proposed

regulation. As long as petitioner continued his Ph.D. studies

(at an approved institution), a firm commitment to provide him

with a total of 33 months of funding remained. Based on our

review of the record in this case, we find that petitioner was

not required to reapply to NIH in order to secure fellowship

funding in future academic periods. We also find that the

transfer of the unused portion of petitioner's fellowship award

to CUNY after his 1-year leave of absence from his Ph.D. studies

at Drexel demonstrates a firm commitment to provide support to

petitioner for a total of 2 years and 9 months, as requested in

his original MARC application.

The above analysis does not apply, however, to petitioner's

request for a 1-year extension of his MARC fellowship after it

became apparent that he needed additional time to complete his

Ph.D. degree. Petitioner submitted the extension request on

April 27, 1990, and it was granted shortly thereafter. The

additional funding petitioner received pursuant thereto cannot be

considered part of his original MARC award, which, as described

above, was a firm commitment to provide fellowship support for 2

years and 9 months. Consequently, we hold that the fellowship
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payments received by petitioner pursuant to the extended

fellowship period commencing on June 20, 1990, do not meet the

requirements of the transitional rule noted above, and section

117 as amended by TRA 1986 applies to those amounts. 

Next, we must address respondent's claim that petitioner was

not a candidate for a degree during the years in issue. While

petitioner was enrolled in physics courses at CUNY, respondent

argues that those classes were taken solely to enable him to

prepare for and pass the Ph.D. qualifying exam, and that until

petitioner did so, he was not a candidate for a degree within the

meaning of section 117. Petitioner explained at trial, however,

that prospective Ph.D. candidates at CUNY who have not passed the

qualifying exam are required to enroll in a master's degree

program as a precursor to, and in preparation for, eventual

enrollment as a "formal" Ph.D. candidate (upon completing the

qualifying exam). Petitioner introduced into evidence a letter

from the CUNY registrar's office corroborating his claim that he

was enrolled in a master's degree program in physics from

September 1, 1988, to June 1, 1992. Respondent, on the other

hand, argues that petitioner had previously received a master's

degree in physics from Howard University and therefore could not

have been enrolled for that same degree at CUNY.

Section 1.117-3(e), Income Tax Regs., states that a

candidate for a degree is an individual undergraduate or graduate

studying or conducting research to meet the requirements for a
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degree given by a college or university. We note that

petitioner's goal in obtaining a MARC faculty fellowship was to

continue his Ph.D. thesis research and ultimately receive the

research doctorate. Based on the record in this case, we are

satisfied that petitioner was required to enroll in the master's

program at CUNY as a stepping stone toward reaching his ultimate

goal, the Ph.D. degree. Thus, we find that petitioner took

courses in the master's program at CUNY designed to meet the

requirements for receiving a degree from that institution, and

that petitioner was a candidate for a degree during the years in

issue within the meaning of section 117.

As we have concluded above, section 117 prior to amendment

by TRA 1986 applies to the fellowship payments petitioner

received in 1989 and during approximately the first half of 1990;

section 117 as amended applies to the fellowship payments

received thereafter (i.e., pursuant to petitioner's request for a

1-year extension of his MARC fellowship commencing on June 20,

1990). Since petitioner was a candidate for a degree during the

years in issue, he is entitled to exclude all fellowship amounts

received under the earlier version of section 117, and only those

fellowship amounts used for "qualified tuition and related

expenses" under amended section 117. Petitioner, however, failed

to provide any evidence of the amount he spent on tuition, books,

fees, and other related expenses while at CUNY, nor did he

provide a copy of his transcript or other notification from the
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6 Pursuant to our findings herein, petitioner is entitled

to exclude from income the fellowship payments he received during

1989. As a result, petitioner did not have sufficient income to

require him to file a return for that year. Consequently, the

additions to tax under sec. 6651(a) and sec. 6654 are not

applicable to petitioner's 1989 taxable year.

7 At trial, petitioner indicated for the first time that if

he had filed returns for 1989 and 1990, his filing status would

have been "head of household". Petitioner attached two documents

to his posttrial brief purporting to support this claim. In the

(continued...)

school indicating how many courses he took during the latter half

of 1990. Therefore, we hold that petitioner has not met his

burden of establishing that any of the payments he received

during the extended fellowship period commencing on June 20,

1990, were used for qualified tuition and related expenses.

Finally, we must determine whether petitioner is liable for

additions to tax under section 6651(a) and section 6654 for the

year 1990.6 In the case of failure to file an income tax return

on the date prescribed for filing, section 6651(a) imposes an

addition to tax equal to 5 percent of the amount required to be

shown on the return, with an additional 5 percent to be added for

each month or partial month during which such failure continues,

not to exceed 25 percent in the aggregate. The addition to tax

under section 6651(a) does not apply if it is shown that the

failure to file was due to reasonable cause and not to willful

neglect.

The parties stipulated that petitioner did not file an

income tax return for 1989 or 1990.7 Petitioner indicated at
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7(...continued)

notices of deficiency, respondent determined that petitioner's

filing status was "single".

We will not, as a general rule, consider an issue raised for

the first time at trial since it has not been properly pleaded. 

See Estate of Mandels v. Commissioner, 64 T.C. 61, 73 (1975). 

Additionally, we note that the documents attached to petitioner's

posttrial brief were not introduced at trial and therefore are

not part of the record in this case. Rule 143(b). Consequently,

even if petitioner's filing status were an issue before us, we

would nevertheless find that petitioner has not established that

he is eligible to file as "head of household" during the years in

issue.

trial that he believed his fellowship award was excludable from

income and that he was not required to file returns for those

years. Petitioner claimed in his testimony that he based his

belief on the advice of an unnamed IRS employee whom petitioner

contacted shortly after he received a notice in his student

mailbox at Drexel that there had been a change in the law

regarding the taxability of scholarships and fellowships. Even

assuming arguendo that petitioner did contact an IRS employee

while he was attending Drexel, any advice he received at that

time would not exculpate him from his failure to file a tax

return for 1990 after his transfer to CUNY and subsequent request

for a 1-year extension of his MARC fellowship had been granted. 

Accordingly, we sustain respondent's determination that

petitioner is liable for the addition to tax under section

6651(a) for 1990.

Respondent also determined an addition to tax against

petitioner under section 6654(a) for failure to make timely
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estimated tax payments. This addition to tax is mandatory and

cannot be waived due to reasonable cause. Grosshandler v.

Commissioner, 75 T.C. 1, 21 (1980); sec. 1.6654-1(a), Income Tax

Regs. However, no addition to tax is imposed under section

6654(a) if one of the exceptions set forth in section 6654(e) is

satisfied. Under section 6654(e)(2), no addition to tax is

imposed under section 6654(a) if: (1) The taxpayer's preceding

taxable year was a taxable year of 12 months; (2) the taxpayer

did not have any tax liability for the preceding taxable year;

and (3) the taxpayer was a citizen or resident of the United

States throughout the preceding taxable year. Pursuant to our

finding above that petitioner's MARC fellowship was excludable

from income during 1989, petitioner had no tax liability and was

not required to file a tax return for that year. In addition,

petitioner was a resident of the United States throughout 1989. 

Consequently, petitioner has satisfied the exception under

section 6654(e)(2) for his 1990 taxable year. We hold that

petitioner is not liable for the addition to tax under section

6654(a).

To reflect the foregoing,

Decision will be entered

under Rule 155.