elective activities including work with children, juvenile delinquency, adult delinquency, combined with medical consultation to various hospitals in the Pittsburgh area. Those who have no experience in a large mental hospital receive assignments to a nearby state institution.
18. Applicants for a fellowship are not limited to physicians who reside in Pennsylvania. Those accepted in the program have no contractual obligation on completion of their studies to the Institute, the University of Pittsburgh or the Commonwealth of Pennsylvania.
19. The plaintiff was not primarily performing services for the Western State Psychiatric Institute and Clinic, the University of Pittsburgh or the Commonwealth of Pennsylvania but was primarily engaged in the acquisition of training and experience and the furtherance of his education for his individual benefit.
Under Section 117.4 -- (c) of the Income Tax Regulations, whether a payment or allowance to one who is not a candidate for a degree qualifies as a scholarship or fellowship excludable from gross income under Section 117 of the Internal Revenue Code of 1954 depends upon a showing that the primary purpose of the award is to further the education and training of the recipient in his individual capacity as distinguished from an award the primary purpose of which is to serve the interests of the grantor. Once the test of primary purpose is satisfied, the fact that the grantor derives some incidental benefit from the activities of the recipient does not of itself affect the excludability of the amount received from income.
The foregoing Regulation has been applied in a number of informal rulings of the Treasury Department. In Revenue Ruling 57-386 (Mertens, Rulings Volume, p. 839), it was held that stipends allowed interns and residents at a training hospital who assisted in the care of patients as a part of their training represented compensation for services and did not constitute non-taxable fellowship grants. On the facts stated, the interns and residents were said to be primarily performing services for the hospital even though in the process they were acquiring training and experience in their particular specialties. See also Revenue Rulings 57-385 (Mertens, Rulings Volume, p. 838) and 56-101 (Mertens, Rulings Volume, p. 277).
The physicians participating in the training program in psychiatry at the Western State Psychiatric Institute and Clinic are not selected for their abilities to render services as employees but for the purpose of 'taking up the great gap between the number of qualified psychiatrists and the number who are needed as a result of the constantly mounting number of persons needing attention for mental disorders.' 50 P.S.Pa. § 575.1. The aims and purposes of the legislature of the Commonwealth of Pennsylvania in establishing the Institute differentiate it from the ordinary hospital where interns and residents are accepted for training in the performance of the type of services it is customarily the business of hospitals to furnish.
Patients are admitted to the Institute and other persons receive out-patient treatment for they are the subject matter of a complex medical science, the principles of which it is the function of a psychiatric study and research center to investigate. The essential business of the Institute, however, is not the care and treatment of patients. The presence there of physicians in psychiatric training is not required for treatment of patients but for enabling the Institute to discharge its statutory obligation of developing a core of qualified specialists in the field of psychiatry who at the end of their training may be called upon by members of the general public.
The education and training of those physicians goes beyond observation, but observation is not the only or necessarily the best means of learning. Those in charge of the administration of the Institute and the execution of its functions have determined upon a practical program for the instruction and training of physicians in psychiatry, including supervised exposure of the trainee to a wide variety of case problems in clinical settings, and to problems of communication of complex ideas, administration and hospital service. The defendant contends that pursuit of such a program by a physician at the Institute constitutes him, for tax purposes, an employee engaged in the performance of services. In effect, we are asked to set aside the judgment of qualified teachers in the field of psychiatry as to a proper and effective method of training and instruction. Under the facts presented, we decline to do so.
The Institute has, as the proofs show, an ample employed staff. The services of the plaintiff during the course of the training program may supplement those of employees of the Institute but are of themselves not of primary or material benefit to the Institute within the meaning of § 117.4-(c) of the Income Tax Regulations. The result reached here is, in our view, consistent with other rulings of the Department in which it was held that similar grants despite requirements of practical experience were excludable from income. See Revenue Rulings 57-370, IRB 1957-33 (Mertens, Rulings Volume, p. 819); Revenue Rulings 57-560, IRB 1957-48 (Mertens, Rulings Volume, p. 963); see also an unpublished Revenue Ruling dated November 18, 1955, dealing with taxability of teacher traineeship grants of the National Institute of Public Health.
Conclusions of Law.
1. This court has jurisdiction of the parties and of the subject matter.
2. The stipend received by the plaintiff from the University of Pittsburgh in 1956 was for the primary purpose of enabling him to pursue a course of study and research in psychiatry in his individual capacity and constitutes a fellowship grant within the meaning of Section 117 of the Internal Revenue Code of 1954.
3. The stipend received by the plaintiff in 1956 is excludable from gross income under Section 117, subject to the limitations of Section 117(b)(2).
4. The plaintiff is entitled to judgment in accordance with the foregoing findings of fact and these conclusions of law.
Entry of an order for final judgment will be deferred pending receipt of a stipulation as to the amount due and a form of decree.
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