WILLIAM E. MILLER, Circuit Judge.
This is an appeal by the government from a judgment awarding taxpayers, Barbara D. Logan and husband Robert L. Logan, Jr., a refund of $814.71, plus interest, on income taxes paid for the calendar year 1969. The sole issue for decision is whether the amount received by Mrs. Logan from the University of Toledo in the taxable year 1969 for a “graduate assistantship” is excludable from taxpayers’ gross income under Section 117 of the Internal Revenue Code.
Throughout the calendar year 1969 Mrs. Logan was enrolled as a full-time graduate student in the English Department at the University of Toledo. From January through August of that year she was a candidate for the degree of Master of Arts and from September through December she was a candidate for the degree of Doctor of Philosophy.
The University of Toledo hired a number of graduate students as graduate assistants to teach certain courses. These graduate assistants were required to teach one course per quarter. They were not selected on the basis of financial need but were compensated according to their seniority in the graduate program and at a rate determined on the basis of competition with other local universities.
Mrs. Logan served as a graduate assistant for the taxable year 1969, teaching one course per quarter and receiving $2,638.59, from which the university withheld federal income taxes on the assumption that she was an employee of the State of Ohio.
At the time of Mrs. Logan’s candidacy for the master’s degree, candidates for that degree were not required to teach courses as a condition for obtaining the degree. Candidates for the Ph.D. degree, on the other hand, were required to teach college courses in conjunction with certain required instructional seminars, a requirement which could be waived in the case of candidates who had had prior college teaching experience. During 1969, Mrs. Logan was not enrolled in any of the instructional seminars requiring teaching. The record does not reveal the amount of teaching experience necessary to obtain a waiver of such instructional seminars, nor is there any indication that the reason Mrs. Logan was not enrolled in an instructional seminar was that a waiver had been obtained.
On their 1969 joint federal income tax return, Mrs. Logan and her husband excluded from their gross income the $2,638.59 received from the University of Toledo for her graduate assistantship. It is claimed that this amount was ex-cludable under Section 117 of the Internal Revenue Code of 1954 as a scholarship or fellowship grant. The Internal Revenue Service audited the return and determined that the amount received was not excludable. A deficiency was assessed and duly paid by the taxpayers. A timely claim for refund was filed and denied. The present action was then instituted in the district court resulting in summary judgment in favor of the taxpayers.
[145]*145Section 117(a)1 of the Internal Revenue Code of 1954 provides for an exclusion from taxable income of “a scholarship at an educational institution” or for a fellowship grant. The terms “scholarship” and “fellowship grant” are not defined in the statute and it is therefore necessary to look to the case law for interpretation of the terms.
The courts have followed the guidelines set forth in the applicable regulations promulgated by the Internal Revenue Service in deriving the meaning of these terms.2 Thus, the Supreme Court [146]*146in Bingler v. Johnson, 394 U.S. 741, 89 S.Ct. 1439, 22 L.Ed.2d 695 (1969), relied upon and upheld Reg. § 1.117-4(c), which excepts from the definition of scholarship or fellowship grant any amount paid as compensation for services or primarily for the benefit of the grantor. In formulating its interpretation of Section 117(a), the Court thus stated:
The thrust of [Reg. § 1.117^4(c)] is that bargained-for payments, given only as a “quo” in return for the quid of services rendered — whether past, present, or future — should not be ex-cludable from income as “scholarship” funds. That provision clearly covers this case. 394 U.S. at 757-58, 89 S.Ct. at 1448 — 49. [Footnote omitted]
This court in interpreting these regulations has expressed the belief that “consideration of the facts as indicia of compensation for services is a more meaningful test than that of whether the stipend was primarily for the benefit of the grantors.” Stewart v. United States, 363 F.2d 355, 357 (6th Cir. 1966). This preference is consistent with the statement of the Supreme Court in Bingler that the “primary benefit” test is “merely an adjunct to the initial ‘compensation’ provision” of the regulation. 394 U.S. at 758, n. 32, 89 S.Ct. at 1449, n. 32.
It is evident, however, under either formulation of the test, that the payments made here to the student-taxpayer were payments for services rendered for the primary benefit of the university. Affidavits filed in connection with motions for summary judgment showed that the school required a service in return for its payments, that approximately 1300 of the university’s undergraduate students were taught English courses by graduate assistants each year, and that graduate assistants were paid approximately the same amount as other part-time teachers. Other evidence established that graduate assistants were added to fill the gap when other personnel resigned, that budget requests indicate that graduate students were hired to meet increased teaching requirements resulting from expanded undergraduate enrollment, and that salaries for graduate assistants were determined on the basis of competition with other local universities.
Any employment relationship is, of course, theoretically for the benefit of both the employer and employee. It would, therefore, be possible in this case to demonstrate a substantial benefit conferred upon the university’s graduate assistants. This does not alter the fact, however, that payments made to such [147]*147teachers constitute compensation for teaching services and, as such, are not excludable under Section 117(a). The mere conclusory statement by the Chairman of the English Department of the University of Toledo that the primary function of the Graduate Assistants program was to provide the financial means for such students to pay for their education is insufficient to compel the opposite conclusion since it appears without dispute that financial need was never a factor considered by the university in appointing graduate assistants. Payments under virtually identical programs have been found by numerous courts not to be excludable. See, e. g., Worthington v. Commissioner, 476 F.2d 589 (10th Cir. 1973); Steinmetz v. United States, 343 F.Supp. 384 (N.D.Cal.1972); Reese v. Commissioner, 45 T.C. 407 (1966), aff’d per curiam, 373 F.2d 742 (4th Cir. 1967).
Free access — add to your briefcase to read the full text and ask questions with AI
WILLIAM E. MILLER, Circuit Judge.
This is an appeal by the government from a judgment awarding taxpayers, Barbara D. Logan and husband Robert L. Logan, Jr., a refund of $814.71, plus interest, on income taxes paid for the calendar year 1969. The sole issue for decision is whether the amount received by Mrs. Logan from the University of Toledo in the taxable year 1969 for a “graduate assistantship” is excludable from taxpayers’ gross income under Section 117 of the Internal Revenue Code.
Throughout the calendar year 1969 Mrs. Logan was enrolled as a full-time graduate student in the English Department at the University of Toledo. From January through August of that year she was a candidate for the degree of Master of Arts and from September through December she was a candidate for the degree of Doctor of Philosophy.
The University of Toledo hired a number of graduate students as graduate assistants to teach certain courses. These graduate assistants were required to teach one course per quarter. They were not selected on the basis of financial need but were compensated according to their seniority in the graduate program and at a rate determined on the basis of competition with other local universities.
Mrs. Logan served as a graduate assistant for the taxable year 1969, teaching one course per quarter and receiving $2,638.59, from which the university withheld federal income taxes on the assumption that she was an employee of the State of Ohio.
At the time of Mrs. Logan’s candidacy for the master’s degree, candidates for that degree were not required to teach courses as a condition for obtaining the degree. Candidates for the Ph.D. degree, on the other hand, were required to teach college courses in conjunction with certain required instructional seminars, a requirement which could be waived in the case of candidates who had had prior college teaching experience. During 1969, Mrs. Logan was not enrolled in any of the instructional seminars requiring teaching. The record does not reveal the amount of teaching experience necessary to obtain a waiver of such instructional seminars, nor is there any indication that the reason Mrs. Logan was not enrolled in an instructional seminar was that a waiver had been obtained.
On their 1969 joint federal income tax return, Mrs. Logan and her husband excluded from their gross income the $2,638.59 received from the University of Toledo for her graduate assistantship. It is claimed that this amount was ex-cludable under Section 117 of the Internal Revenue Code of 1954 as a scholarship or fellowship grant. The Internal Revenue Service audited the return and determined that the amount received was not excludable. A deficiency was assessed and duly paid by the taxpayers. A timely claim for refund was filed and denied. The present action was then instituted in the district court resulting in summary judgment in favor of the taxpayers.
[145]*145Section 117(a)1 of the Internal Revenue Code of 1954 provides for an exclusion from taxable income of “a scholarship at an educational institution” or for a fellowship grant. The terms “scholarship” and “fellowship grant” are not defined in the statute and it is therefore necessary to look to the case law for interpretation of the terms.
The courts have followed the guidelines set forth in the applicable regulations promulgated by the Internal Revenue Service in deriving the meaning of these terms.2 Thus, the Supreme Court [146]*146in Bingler v. Johnson, 394 U.S. 741, 89 S.Ct. 1439, 22 L.Ed.2d 695 (1969), relied upon and upheld Reg. § 1.117-4(c), which excepts from the definition of scholarship or fellowship grant any amount paid as compensation for services or primarily for the benefit of the grantor. In formulating its interpretation of Section 117(a), the Court thus stated:
The thrust of [Reg. § 1.117^4(c)] is that bargained-for payments, given only as a “quo” in return for the quid of services rendered — whether past, present, or future — should not be ex-cludable from income as “scholarship” funds. That provision clearly covers this case. 394 U.S. at 757-58, 89 S.Ct. at 1448 — 49. [Footnote omitted]
This court in interpreting these regulations has expressed the belief that “consideration of the facts as indicia of compensation for services is a more meaningful test than that of whether the stipend was primarily for the benefit of the grantors.” Stewart v. United States, 363 F.2d 355, 357 (6th Cir. 1966). This preference is consistent with the statement of the Supreme Court in Bingler that the “primary benefit” test is “merely an adjunct to the initial ‘compensation’ provision” of the regulation. 394 U.S. at 758, n. 32, 89 S.Ct. at 1449, n. 32.
It is evident, however, under either formulation of the test, that the payments made here to the student-taxpayer were payments for services rendered for the primary benefit of the university. Affidavits filed in connection with motions for summary judgment showed that the school required a service in return for its payments, that approximately 1300 of the university’s undergraduate students were taught English courses by graduate assistants each year, and that graduate assistants were paid approximately the same amount as other part-time teachers. Other evidence established that graduate assistants were added to fill the gap when other personnel resigned, that budget requests indicate that graduate students were hired to meet increased teaching requirements resulting from expanded undergraduate enrollment, and that salaries for graduate assistants were determined on the basis of competition with other local universities.
Any employment relationship is, of course, theoretically for the benefit of both the employer and employee. It would, therefore, be possible in this case to demonstrate a substantial benefit conferred upon the university’s graduate assistants. This does not alter the fact, however, that payments made to such [147]*147teachers constitute compensation for teaching services and, as such, are not excludable under Section 117(a). The mere conclusory statement by the Chairman of the English Department of the University of Toledo that the primary function of the Graduate Assistants program was to provide the financial means for such students to pay for their education is insufficient to compel the opposite conclusion since it appears without dispute that financial need was never a factor considered by the university in appointing graduate assistants. Payments under virtually identical programs have been found by numerous courts not to be excludable. See, e. g., Worthington v. Commissioner, 476 F.2d 589 (10th Cir. 1973); Steinmetz v. United States, 343 F.Supp. 384 (N.D.Cal.1972); Reese v. Commissioner, 45 T.C. 407 (1966), aff’d per curiam, 373 F.2d 742 (4th Cir. 1967).
Although a finding that the payments to the student-taxpayer did not constitute a scholarship or fellowship grant within the meaning of Section 117(a) is sufficient to disallow the exclusion, it is clear that the taxpayers’ claim also fails for another reason.3 Assuming arguendo that the amounts received would otherwise qualify as a scholarship or fellowship grant under Section 117(a), it is evident to us that the payments would fall within the limitation of Section 117(b)(1).4 This limitation disallows the scholarship exclusion for payments for teaching or other services in the nature of part-time employment required as a condition to receiving a scholarship. Taxpayers argue that this case comes within the exception to the limitation found in the last paragraph of Section 117(b)(1). Under this exception, the scholarship exclusion is still allowed for payments for such teaching or other services if required of all candidates for a particular degree. It is apparent from the record that payments to Mrs. Logan fall squarely within the limitation of Section 117(b)(1) and not within the narrow exception to that limitation. The evidence is undisputed that the student-taxpayer was paid for teaching which was not required of all candidates for the degrees for which she was a candidate.
While the district court found that “[a]ll those involved in the master’s or doctoral program are required to teach”, there is no basis in the record to sustain such finding. At the time Mrs. Logan was a master’s candidate, teaching was not a requirement for that degree. Doctoral candidates were required to teach only in conjunction with certain instructional seminars in which Mrs. Logan was not enrolled. While it is true that a few doctoral candidates had had this requirement waived by reason of prior college teaching experience, there was no showing that the teaching performed by Mrs. Logan was the equivalent of the re[148]*148quired teaching of the candidates taking the required seminars or that she was able to obtain a waiver of those seminars on the basis of her teaching as a graduate assistant. The exception to the Section 117(b)(1) limitation applies only to “such teaching . . . required of all candidates.” The fact that some teaching is required of all candidates is not a sufficient reason for excluding payments for teaching in excess of the minimum required for a degree.
Since taxpayers offered no evidence to rebut the government’s showing that the payments received were for teaching in the nature of part-time employment and that such teaching was not a condition to receiving either the master’s or doctoral degree, the government was entitled to prevail on its motion for summary judgment.
The judgment of the district court is therefore reversed and the action is remanded for entry of summary judgment in favor of the government. .