Document: 394 U.S. 741 89 S.Ct. 1439 22 L.Ed.2d 695 John H. BINGLER, District Director of Internal Revenue, Petitioner,v.Richard E. JOHNSON et al. No. 473. Argued March 3 and 4, 1969. Decided April 23, Harris Weinstein, Washington, D.C., for petitioner. James C. Larrimer, Pittsburgh, Pa., respondents. Mr. Justice STEWART delivered the opinion Court. 1 We are called upon in this case to examine first time § 117 Revenue Code 1954, which excludes from a taxpayer's gross income amounts received as 'scholarships' 'fellowships.' The question before us concerns tax treatment payments by respondents1 their employer, Westinghouse Electric Corporation, while they were on 'educational leave' jobs with Westinghouse. 2 During period here respondents held engineering positions at Bettis Atomic Power Laboratory Pennsylvania, operates under 'costplus' contract Energy Commission. Their employment status enabled them participate what is known Fellowship Doctoral Program. That program, designed both attract new employees seeking further education give advance training persons already employed Bettis, offers two-phase schedule subsidized postgraduate study engineering, physics, or mathematics. Under first, 'work-study,' phase, participating employee holds regular job addition pursues course either University Pittsburgh Carnegie-Mellon University.2 paid 40-hour work week, but may receive up eight hours 'release time' per week purpose attending classes.3 'Tuition remuneration,' well reimbursement various incidental academic expenses, provided company.4 4 When an has completed all preliminary requirements his doctorate, he apply educational leave absence, constitutes second phase He must submit proposed dissertation topic approval AEC. Approval based, inter alia, determination that least some general relevance done Bettis. If absence secured, devotes full attention several months,5 fulfilling requirement. receives 'stipend' Westinghouse, amount based specified percentage (ranging 70% 90%) prior salary plus 'adders,' depending size family.6 also retains seniority benefits, such insurance stock option privileges. In return not only periodic progress reports, written agreement participants program sign, obligated employ two years following completion leave.7 Upon is, according agreement, 'assume * duties commensurate experience,' 'commensurate assigned.' 5 took leaves Program varying times during 1960—1962,8 eventually doctoral degrees engineering. Respondents Johnson Pomerantz nine months $5,670 each, representing 80% salaries Respondent Wolfe, whose lasted year, $9,698.90, 90% previous salary. Each returned required leave. 6 its own accounting system listed 'indirect labor' withheld federal those amounts.9 filed claims refund, contending had 'scholarships,' hence excludable Code, provides pertinent part: 7 '(a) General rule. individual, does include— 8 '(1) any received— 9 '(A) scholarship institution (as defined section 151(e)(4)), 10 '(B) fellowship grant *.'10 11 rejected, instituted suit Court Western against Revenue. After basically undisputed evidence regarding been presented, trial judge instructed jury accordance Treas.Reg. Income Tax (1954 Code) 1.117—4(c), 26 CFR 1.117—4(c) 'compensation past, present, future services,' 'paid individual enable him pursue studies research primarily benefit grantor,' scholarships.11 found taxable income. then sought review Appeals Third Circuit, court reversed, holding Regulation referred was invalid, instructions therefore improper, essentially facts it clear matter law 117. 396 F.2d 258. 12 respect contrary decisions other circuits—most notably, Fifth Circuit Ussery v. United States, 296 582, explicitly sustained attack arrangement quite similar be income.12 Accordingly, Director's petition, we granted certiorari resolve conflict determine proper scope involved here. 393 949, 374, 21 361. 13 invalid limits definitions 'scholarship' 'fellowship' so exclude 'compensation,' emphasized statute itself expressly adverts certain situations funds students thought remuneration. basic rule excluding set out 117(a), instance, subsection (b)(1) stipulates: 14 'In who candidate degree *, (a) shall portion represents payment teaching, research, services nature part-time condition receiving grant.'13 15 addition, (b)(2) exclusion regard nondegree candidates respects: grantor governmental agency, international organization, organization exempt 501(a), (c)(3) Code; second, maximum available $300 month more than 36 months. Since these exceptions statute, Appeals, relying canon construction expressio unius est exclusio alterius, concluded no additional restrictions put (a)—a conclusion forcefully pressed 16 Congress' express reference limitations just concededly lends support respondents' position. difficulty position, however, lies implicit assumption education. Section provides, 'fellowships' excludable. And Congress never meant quoted terms. As observed: 17 reading requires comes into play there excluded normal characteristics associated term 'scholarship." Reese Commissioner, 45 T.C. 407, 413, aff'd, 373 742. 18 regulation effort Commissioner supply omitted.14 fundamental, course, 'contemporaneous constructions charged administration of' Regulations 'must unless unreasonable plainly inconsistent revenue statutes,' 'should overruled except weighty reasons.' South Texas Lumber Co., 333 496, 501, 68 695, 698, 92 L.Ed. 831. our statement last Term States Correll, 389 299, 88 445, 19 537, bears emphasis: '(W)e do sit committee revision perfect laws. delegated courts, task prescribing 'all needful rules regulations enforcement' Code. U.S.C. 7805(a). area limitless factual variations 'it province make appropriate adjustments." Id., 306 307, 449. 20 Here, supplied clearly prima facie proper, comporting ordinary understanding relatively disinterested, 'no-strings' grants, requirement substantial quid pro quo recipients. implication reasoning supporting one pursuing scholarly should long fall within specific 117(b). Pay $30,000 year engineer executive would, reasoning, could perform degree. This result presumably would altered fact might performing, satisfaction requirements, precisely same doing employer after 'employment'—or fruits made directly exploited employer. Such anomalous indeed, especially view comparatively modest sums teaching assistants subject taxation.15 Particularly light principle exemptions taxation construed narrowly,16 decline assume intended sanction—indeed, have it, compel—such inequitable situation.17 legislative history underlying recognized, 'far clear.'18 believe, precludes, 'plainly inconsistent' definition reac compensation performed. 1939 like predecessor Codes, contained provision dealing grants. Whether grants includable depended simply whether fell broad 'gifts.'19 Thus case-by-case determinations grantors' motives necessary. cases decided approach 1954 generally types financial assistance: assistants—graduate stipends—and foundation post-doctoral researchers. shortly enacted, Court, 'gift' scholarships fellowships, assistant income,20 reached divergent results involving researchers.21 23 enacting indicated wished eliminate necessity reliance 'case-by-case' 'gifts.' premise hinge argument laid down standard 1.117—4(c)—are unnecessary improper. indicated, reluctance believe amounts, how large source, given happens student. sounder inference merely 'recogni(zing) fellowships sufficiently unique merit (tax) separate accorded gifts,'22 attempting provide falling categories treated consistently—as instances, generic provisions arguably been. Delineation precise contours left Commissioner. 24 Furthermore, congressional intention necessarily reasonably inferred history. explaining basis version 117(b) (2),23 House Ways Means Committee stated 'tax effect recipient job.'24 comment related, true, exception (a). But, open 'fellowship,' conclude adding (b) problems come attention—viz., assistantships grants—without intending forbid application problems. One justifiably suppose taxed 'part-time' assistants, ground really represented performed,25 deem comparable sorts compensation—which often, present case, significantly greater amount—are likewise taxable.26 providing definition, permissibly implemented concern.27 cannot say taxes 'compensation' 'unreasonable statut(e).'28 25 provision, court's instructions,29 properly rather 'scholarships.'30 employer-employee relationship immediately suggestive, close relation between 'stipends.' benefits continued. Topics relate Laboratory. Periodic reports submitted. And, most importantly, unquestionably extracted quo. hold throughout 'work-study' Westinghouse's leave.31 thrust bargained-for payments, 'quo' rendered—whether future—should funds.32 covers case. judgment reinstated. 27 It ordered. 28 Judgment reversed 29 DOUGLAS affirm reasons refer Richard Johnson, A. Martin L. Pomerantz; wives parties action solely because joint returns question. Formerly Carnegie Institute Technology. A 156 release allowed. funded jointly AEC, channeled through company's payroll office. Maximum monthly placed paid. Wolfe began when did require writing two-year 'return' commitment. formally advised went leave, 'expected' equal duration honored obligation. 1, 1960, February 28, 1961; respondent October June 30, November 1961, July 31, 1962. Tuition fees withholding t issue Although conceptually income, offset expense deductions. See 1.162—5, 1.162—5. entire reads follows: '§ Scholarships rule.— grant, including value contributed accommodations; '(2) cover expenses for— travel, '(C) clerical help, '(D) equipment, 'which incident extent expended recipient. '(b) Limitations.— Individuals degrees.— grant. (whether recipients grants) particular degree, teach- ing, regarded meaning paragraph. if subparagraph (A) satisfied (B). Conditions exclusion.— 'The is— '(i) described 501(c)(3) '(ii) foreign government, '(iii) binational multinational cultural commission created continued pursuant Mutual Educational Cultural Exchange Act '(iv) instrumentality agency thereof, State, territory, possession political subdivision thereof Columbia. Extent (a)(1) limited number allowed entitled consecutive) 151(e)(4)).' 1.117—4. Items considered allowances 117: '(c) Amounts grantor. (1) Except paragraph 1.117—2, to, behalf of, direction supervision Any 'However, primary capacity represent Neither furnish grantor, nor shall, itself, destroy essential character grant.' Generally accord 742 (C.A.4th Cir.); Stewart 363 355 (C.A.6th Woddail 321 721 (C.A.10th Cir.). Reiffen 376 883, 180 Ct.Cl. 296. Subsection goes limitation 'teaching, *.' situations, nontaxable. n. 10, supra. §§ 1.117 3(a), (c), 1.117—3(a), 'normal characteristics' fellowships: 1.117—3 Definitions. Scholarship. means student, undergraduate graduate, aid studies. includes valud accomodations (see (d) action) tuition, matriculation, furnished remitted student family allowance part scholarship. However, include friend, where motivated philanthropic considerations. maintains participates plan whereby tuition child faculty member attended child, b pursuit research. accommodations section) relative, considerations.' concerned distinctions terms 'fellowship.' Cf. J. Mertens, Law Federal Taxation 7.42, p. 110 (P. Zimet & W. Oliver rev. ed. 1962). Jacobson, 336 48—49, 69 358, 368—369, 93 477; Helvering Northwest Steel Rolling Mills, Inc., 311 46, 49, 61 109, 85 29. reiterates stipends 'reasonable.' Those approximated, salaries. event, source 'reasonableness' bona fide difficult identify. F.2d, 263. Int.Rev.Code 1939, c. 22(b)(3), 53 Stat. 10; see 102. See, e.g., Banks 1386. Compare Ti Li Loo 220 (university National Health Service taxable), Stone 254 (foundation nontaxable). Gordon, Scholarship Grants Income: Search Treasury Policy, 1960 Wash.U.L.Q. 144, 151. that, together recipient's former less 75% preceding year. Noting bill many earned Senate rejected formulation substituted month, 36-month 117(b)(2). H.R.Rep. 1337, 83d Cong., 2d Sess., 17, Cong. Admin. News 4025; S.Rep. 1622, 18, 4629. H.R.Rep.No.1337, supra, 17; U.S.Code Admin.News 4042. 117(b)(1) services. amended 'other services' well. S.Rep.No.1622, 18; 4648. connection denote noteworthy Report stated, 'Such small usually individuals little liability case.' 17. viewed 'primary purpose' 'encourage(ment of) relief.' 262. But desire doubt underlay enactment reconciled apparent intent—manifested (b)—to text makes clear, Commissioner's attempt achieve reconciliation seems recognized circumstances justified. Its stated: 'A significant commitment place outside category 'scholarship', For grantee barter stipend, giving hardly serve exclusion: encourage position can squared Appeals' invalid. suggest infra, agree 'bartered for.' included, passage: 'You one, money services, 'Two, laws.' 30 thus endorse Sixth Circuits 355. Ussery, specifically upheld Mississippi Department Public Welfare secure master's social work. taxpayer department Tennessee thereafter her Cir.), affirming 407 (student-teacher); Cir.) (resident physician; remain participation program); cf. (relying characterization 'primarily grantor'). Several point direction, although marked great deal consistency. Tabac, Grants: An Administrative Merry-Go-Round, 46 Taxes 485 (1968). acquiesced Evans 34 720 1965—1 Cum.Bull. 4), where, studies, relationship. Rev.Rul. 65—146, 66. informed Solicitor General, acquiescence will modified. Broniwitz P—H 1968 TC Mem.Dec. 68,221 (Sept. 1968) (requirement summer grantor; excludable). 31 contract's avail themselves assigned (their) compensated rates with' duties, sufficient avoid fully bargained compensation. featured recruiting efforts attractive potential employees. Moreover, suggested text, undeniably right take remunerative elsewhere considerable time. Had company modified spread over educa ional leave—as increments salary, aside company-administered fund'—there persuasive reason why different actual There oblique suggestion somehow different, us, deferred anticipatory payments. 32 accept Government's brief 1.117—4(c)—which excepts 'to grantor'—is adjunct initial provision: 'By paragraph, supplemented order impose arrangements create relation, as, example, independent contractor. idea same: quo.' Brief Petitioner 22. considering possible revisions informs 'conform reached' Wells 40 40, changes contemplated Reply 3, 2; 65—59, 67.

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