Evening star., 1954-11-20
Foundation Grants
Ruled Not taxable;
/ 1851 Decision Upset
BY The Assoei1'sd Pres.

NEW YORK, NOV. ZU.-Ine
United States Tax Court has
ruled that researchers and others
who get study grants from foun-
dations and philanthropies do
not have to pay income taxes
on them.
The precedent-making deci-
sion affects some $4,000 foun-
dations and many scientists.
scholars, educators, artists and
musicians who have received
fellowships from them. The
court said these grants are gifts
and therefore not taxable.
The Remember Tax Court
handed down the decision
Wednesday. but the ruling did
not come to light until yesterday.
Five of the judges dissented
from the decision. One of the
remaining judges died two weeks
ago, and it was not known
whether he had concurred in the
opinion before his death.
The decision reverses a ruling
Of July 7. 1851. by the Internal
Revenue Service, that such fell
lowship grants were not gifts.
but taxable income.
,s4 + i
Suit Filed by Virginian.
Mr.. and Mrs. George Win
chester Stone, jr., of Mclean,
Va, brought suit to test this
ruling.
Mr.. Stone had received a pre-
liminary $1,000 grant from the
John Simon Guggenheim Me-
mortal Foundation to do research
on dramatic productions in Lon
don.
He did not list the grant in his
joint income tax return, filed at
Baltimore, in 1851. Later he was
told by the internal revenue
commissioner that he owed
$178.04 income tax on the 1000.
Mr.. Stones attorneys, former
Undersecretary of the Treasury
Roswell Magill and Albert Rosen-
blum. filed suit in 1852. The
case was tried here year ago.
Judge Norman o. Tietjens
asked the entire court to review
the case. which he had heard
originally. The majority con-
Cured with Judge Tietjens
opinion.
The Government contended a
fellowship was ''paid as COM
pensation for services to be rem
dered by the petitioner"
Misconception of Motives.
The decision said "this argu-
ment misconceives the motives
of both petitioner and the foun-
dation." 1t added that the
foundation does not accom-
pliSh its purposes by employing
, scholars or scientists to carry
out projects" as the Govern
ment argued.
Rather, Its method is to make
gifts to persons whose past
achievements and present abill-
ties merit financial assist
ance to enable them to carry
out their own projects of Gre
ative work OF self-improvement," /"
the decision said.
The, decision added, "The ar
rangemeht Between the founda-
tionand the fellow is not an
employment contract; the pay
ments were not for services"
The decision of the Tax Court
AFFECTS returns made under the
1889 internal revenue code
which was in effect until last
August.
1854 Code Mentions Grants.
The 1854 internal revenue
code, enacted in August of this
year, for the first time contains
a specific reference to founda-
ton grants. Income tax returns
under this code will not be filed
until next April Is.
What effect, if any, the de-
cisions will have on this new
revenue code is still to be de-
termlned Mr.. Stones case, of
course, was not affected by the
new code because the income in
question was for 1850.
Mr.. Rosenblum said the Gov
ernment can appeal the decision
to the United States Court of
Appeals within three months if
it desires.
The Guggenheim Foundation
was not a party to the suit, al
though its secretary, Henry Allen
Moe, testified as a witness for
Mr.. Stone.