United States Supreme Court
394 U.S. 741 (1969)
An employer provided a program whereby an employee could pursue a doctorate in a field related to the employer’s work. In the first phase of the program, a participating employee continued working for the employer, and the employer paid for the employee’s after-hours academic work. In the second phase, the employer granted a substantial leave of absence to the employee. While on leave, the employee received a stipend from the employer based on the employee’s regular salary. The employee also kept all employer benefits and lost no seniority as a result of the leave. The employer had to approve the employee’s dissertation topic, and required regular academic-progress reports from the employee. After completing the second phase, the employee had to work for the employer for at least two more years. Johnson (plaintiff) participated in the program and claimed that his stipend was a tax-exempt scholarship under § 117 of the Internal Revenue Code of 1954. The Internal Revenue Service (IRS) denied Johnson’s claim. Johnson then sued Bingler, the IRS’s district director (defendant). At trial in the United States District Court for the Western District of Pennsylvania, the jury found that Johnson’s stipend was taxable income. Johnson appealed, and the United States Court of Appeals for the Third Circuit reversed the district court’s judgment. The United States Supreme Court granted certiorari because of a split between the circuit courts on the taxability of these stipends.
Rule of Law
Holding and Reasoning (Stewart, J.)
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