On August 10, 1987, an NIH official wrote to petitioner to notify him that his request for a 1-year leave of absence from his MARC faculty fellowship had been approved. The approval letter indicated that petitioner's funding would resume at the conclusion of his year off and thereafter continue through June 1990, which "will provide the approved two years and nine months of fellowship support." The letter also stated: "In the event you do not return to Drexel to complete your approved research training, we would be willing to consider a request to transfer your fellowship to another institution."

In the ensuing academic year, petitioner returned to Lincoln University and assumed full-time faculty status while working on the ONR project. Unfortunately, petitioner was unable to continue his preparation for and did not retake the Ph.D. qualifying exam. On April 28, 1988, petitioner was notified that the Department of Physics and Atmospheric Science at Drexel University did not support petitioner's readmission to the institution. Petitioner furnished 1996 Tax Ct. Memo LEXIS 472">*479 a copy of this notification to NIH on June 22, 1988.

On July 14, 1988, petitioner submitted an NRSA application requesting a transfer of the remaining 1 year and 10 months ⁴ of support under his MARC fellowship grant to the City College of the City University of New York (CUNY). According to the application, petitioner intended to continue his Ph.D. thesis research under the sponsorship of Dr. Joseph A. Johnson III, a professor of physics at CUNY. Under the direction of Dr. Johnson, petitioner was to study blood circulatory flow at low fluid velocities. ^{51996 Tax Ct. Memo LEXIS 472">*480} Petitioner also expected to prepare for and pass the Ph.D. qualifying exam by January 1989.

On August 26, 1988, NIH granted petitioner's request to transfer his fellowship to CUNY and indicated that he would receive a stipend of $ 25,000 and an institutional allowance of $ 3,000 for the 12-month period extending from August 20, 1988, to August 19, 1989. The award notification contained the preprinted statement "Future Support Recommended (Subject to Availability of Funds and Satisfactory Progress)" and thereafter contained a prorated stipend and institutional allowance for a 10-month period commencing at the end of the current award period.

In the summer after his first academic year at CUNY, petitioner submitted an Award Continuation Application to NIH wherein petitioner requested activation of the remaining 10 months of his NRSA grant. Petitioner's request was granted on July 24, 1989. Petitioner received a prorated stipend of $ 20,833 and an institutional allowance of $ 2,500 for the period August 20, 1989, to June 19, 1990.

On April 27, 1990, petitioner wrote to an NIH program administrator requesting a 1-year extension of his MARC faculty fellowship. Petitioner indicated 1996 Tax Ct. Memo LEXIS 472">*481 in his letter that he needed the additional time to complete his dissertation research and the requirements for the Ph.D. degree. The extension request was granted by NIGMS in June 1990. Petitioner received a stipend of $ 25,000 and an institutional allowance of $ 3,000 for the period June 20, 1990, to June 19, 1991. Petitioner remained at CUNY for the extended period of his MARC fellowship; however, he did not complete his Ph.D. degree.

OPINION

Section 117(a) excludes from gross income any amount received as a scholarship or fellowship grant. Generally, a "scholarship" or "fellowship grant" includes an amount paid to or for the benefit of an individual to aid him or her in the pursuit of study or research. Sec. 1.117-3, Income Tax Regs. The fact that the recipient is required to furnish reports of his or her progress to the grantor does not destroy the essential character of such an amount as a scholarship or fellowship grant. Sec. 1.117-4(c)(2), Income Tax Regs. In Bingler v. Johnson, 394 U.S. 741">394 U.S. 741, 394 U.S. 741">751 (1969), the Supreme Court sustained the validity of these regulations as comporting with the ordinary understanding of scholarships and fellowships as "relatively disinterested, 'no 1996 Tax Ct. Memo LEXIS 472">*482 strings' educational grants, with no requirement of any substantial quid pro quo from the recipients."

Prior to amendment by the Tax Reform Act of 1986 (TRA 1986), Pub. L. 99-514, sec. 123, 100 Stat. 2085, 2112, section 117 permitted the entire amount of a fellowship grant to be excluded from gross income provided that the grant did not represent payment for teaching, research, or other services in the nature of part-time employment and as long as the recipient was a candidate for a degree. For individuals who were not candidates for a degree, the exclusion was limited to $ 300 per month for a maximum of 36 months. Sec. 117(b)(2)(B).

TRA 1986 sec. 123, 100 Stat. 2112, modified the income tax treatment of scholarships and fellowship grants by making amendments to section 117. Section 117(a), as amended, excludes from gross income "any amount received as a qualified scholarship by an individual who is a candidate for a degree at an educational organization described in section 170(b)(1)(A)(ii)." The term "qualified scholarship" refers to "any amount received by an individual as a scholarship or fellowship grant to the extent the individual establishes that, in accordance with the conditions 1996 Tax Ct. Memo LEXIS 472">*483 of the grant, such amount was used for qualified tuition and related expenses." Sec. 117(b)(1), as amended. The term "qualified tuition and related expenses" means (a) tuition and fees required for enrollment or attendance of a student at an educational organization described in section 170(b)(1)(A)(ii), and (b) fees, books, supplies, and equipment required for courses of instruction at such an educational organization. Sec. 117(b)(2), as amended. The amendments to section 117 eliminated the exclusion for individuals who are not degree candidates.

The amendments to section 117 are effective for taxable years beginning on or after January 1, 1987, except that the prior law continues to apply to scholarships and fellowships granted before August 17, 1986. H. Conf. Rept. 99-841 (Vol. 2), at II-17 (1986), 1986-3 C.B. (Vol. 4) 1, 17. Section 1.117-6(f)(3), Proposed Income Tax Regs., 53 Fed. Reg. 21688 (June 9, 1988), states a transitional rule for determining whether a scholarship or fellowship is to be considered granted before August 17, 1986, as follows:

(3) Scholarships or fellowships granted before August 17, 1986--(i) In general. For purposes of this section, a scholarship or fellowship 1996 Tax Ct. Memo LEXIS 472">*484 is considered granted before August 17, 1986, to the extent that, in a notice of award made before that date, the grantor made a firm commitment to provide the recipient with a fixed cash amount or a readily determinable amount. A notice of award is treated as containing a firm commitment even if the scholarship or fellowship grant is subject to a condition that the recipient remain in good standing or maintain a specific grade point average. In addition, a requirement that the recipient file a financial statement on an annual basis to show continuing financial need is not treated as a requirement to reapply to the grantor. If a scholarship or fellowship, initially awarded before August 17, 1986, is granted for a period exceeding one academic period (for example, a semester), amounts received in subsequent academic periods are treated as granted before August 17, 1986, only if--

We note at the outset that proposed regulations "generally carry no more weight than a position advanced by respondent." Estate of Wallace v. Commissioner, 95 T.C. 525">95 T.C. 525, 95 T.C. 525">547 (1990), affd. 965 F.2d 1038">965 F.2d 1038 (11th Cir. 1992). However, because both parties in this case accept the criteria stated in the proposed regulation in question, the Court will use it as a framework for resolving their dispute.

Petitioner argues that, pursuant to the proposed regulation, the fellowship amounts he received in 1989 and 1990 should be considered granted before August 17, 1986, and that he is therefore entitled to exclude those fellowship amounts from income under the earlier version of section 117. Respondent argues that the requirements of subdivisions (B) and (C) in the above excerpt of the proposed regulation have not been met, that section 117 as amended therefore applies, and, in any case, that petitioner was not a candidate for a degree during the years in issue.

We will first address the aspects of the transitional rule over which the parties are in disagreement. 1996 Tax Ct. Memo LEXIS 472">*486 Respondent argues that petitioner's initial MARC fellowship grant did not contain a "firm commitment" to provide fellowship support for more than one academic period--thus, in respondent's view, the requirements of subdivision (B) of the proposed regulation have not been met. The award notice received by petitioner indicated that he would receive a $ 25,000 stipend in the initial 12-month period and that future support was recommended for two additional budget periods "subject to availability of funds and satisfactory progress". Respondent contends that petitioner's fellowship support beyond the initial 12-month period was not guaranteed pursuant to the preprinted conditions for future support stated in the award notice. In our view, however, those conditions do not prevent the award from being a firm commitment within the meaning of the proposed regulation.

As noted in the regulation itself, a firm commitment to provide support exists "even if the scholarship or fellowship grant is subject to a condition that the recipient remain in good standing or maintain a specific grade point average." Thus, the requirement that petitioner maintain "satisfactory progress" is clearly addressed 1996 Tax Ct. Memo LEXIS 472">*487 by the regulation and does not prevent his award from being considered a firm commitment for support beyond the initial award year.

Similarly, the preprinted condition in the award notice indicating that petitioner's future support was "subject to availability of funds" does not, in our view, preclude us from holding that the award was a firm commitment of support for a period of 2 years and 9 months. An NIGMS grants management official indicated at trial that the agency had single fiscal year spending authority and that approval had to be obtained from Congress each year prior to making scholarship or fellowship disbursements. The NIGMS official also indicated that the agency has never discontinued a fellowship award due to a lack of funding. We find that the listing of approved or recommended stipend amounts for three budget periods in the notification of award received by petitioner is indicative of NIGMS's single fiscal year spending authority and that petitioner's fellowship support after the initial award period had little, if any, chance of being discontinued for lack of funding.

We also note that the MARC faculty fellowship program is designed to provide an opportunity for 1996 Tax Ct. Memo LEXIS 472">*488 eligible faculty who lack the Ph.D. degree to obtain the research doctorate. At the time he submitted his MARC application, petitioner anticipated that it would take 2 years and 9 months to complete his Ph.D. degree, and he requested a fellowship award period commensurate with achieving that goal. We find that the MARC award petitioner received was intended to provide sufficient fellowship support to allow him to obtain his Ph.D. degree, in line with the objectives of the MARC program. Indeed, we would not expect a prospective Ph.D. candidate to enroll in a multiyear degree program if his requested and seemingly approved source of funding was not reasonably secure for the duration of the program. In sum, we find that the award notice received by petitioner contained a firm commitment to provide support for more than 1 academic year, i.e., for 33 months, and therefore the award meets the requirements of subdivision (B) of the proposed regulation.

Respondent next argues that petitioner has failed to meet the requirements of subdivision (C) of the proposed regulation. Pursuant to that paragraph, the fellowship payments petitioner received in 1989 and 1990 are to be treated as granted 1996 Tax Ct. Memo LEXIS 472">*489 prior to August 17, 1986, only if petitioner was not required to reapply to NIH to receive the fellowship grant. Respondent argues that petitioner fails to comply with the requirements of subdivision (C) because he was required to submit an application to NIH in conjunction with his request to transfer his fellowship to CUNY.

The appropriate inquiry on this issue, in our view, is whether the original notification of award received by petitioner required him to submit additional NRSA applications as a condition to receiving continued fellowship support. In that regard, we note our finding above that the award notice received by petitioner was a firm commitment to provide fellowship support for 33 months. We find no evidence that petitioner would have been required to reapply to NIH to receive the approved fellowship support had he remained at Drexel and demonstrated satisfactory progress toward his Ph.D. degree throughout the award period.

As the events transpired, however, petitioner withdrew from Drexel after obtaining a 1-year leave of absence from his MARC fellowship and thereafter sought to transfer the suspended portions of his fellowship grant to CUNY. In these particular circumstances, 1996 Tax Ct. Memo LEXIS 472">*490 we find that petitioner's submission of an application to NIH for the sole purpose of transferring his existing fellowship grant to a new institution does not run afoul of the requirements of subdivision (C) of the proposed regulation. As long as petitioner continued his Ph.D. studies (at an approved institution), a firm commitment to provide him with a total of 33 months of funding remained. Based on our review of the record in this case, we find that petitioner was not required to reapply to NIH in order to secure fellowship funding in future academic periods. We also find that the transfer of the unused portion of petitioner's fellowship award to CUNY after his 1-year leave of absence from his Ph.D. studies at Drexel demonstrates a firm commitment to provide support to petitioner for a total of 2 years and 9 months, as requested in his original MARC application.

The above analysis does not apply, however, to petitioner's request for a 1-year extension of his MARC fellowship after it became apparent that he needed additional time to complete his Ph.D. degree. Petitioner submitted the extension request on April 27, 1990, and it was granted shortly thereafter. The additional funding 1996 Tax Ct. Memo LEXIS 472">*491 petitioner received pursuant thereto cannot be considered part of his original MARC award, which, as described above, was a firm commitment to provide fellowship support for 2 years and 9 months. Consequently, we hold that the fellowship payments received by petitioner pursuant to the extended fellowship period commencing on June 20, 1990, do not meet the requirements of the transitional rule noted above, and section 117 as amended by TRA 1986 applies to those amounts.

Next, we must address respondent's claim that petitioner was not a candidate for a degree during the years in issue. While petitioner was enrolled in physics courses at CUNY, respondent argues that those classes were taken solely to enable him to prepare for and pass the Ph.D. qualifying exam, and that until petitioner did so, he was not a candidate for a degree within the meaning of section 117. Petitioner explained at trial, however, that prospective Ph.D. candidates at CUNY who have not passed the qualifying exam are required to enroll in a master's degree program as a precursor to, and in preparation for, eventual enrollment as a "formal" Ph.D. candidate (upon completing the qualifying exam). Petitioner introduced 1996 Tax Ct. Memo LEXIS 472">*492 into evidence a letter from the CUNY registrar's office corroborating his claim that he was enrolled in a master's degree program in physics from September 1, 1988, to June 1, 1992. Respondent, on the other hand, argues that petitioner had previously received a master's degree in physics from Howard University and therefore could not have been enrolled for that same degree at CUNY.

Section 1.117-3(e), Income Tax Regs., states that a candidate for a degree is an individual undergraduate or graduate studying or conducting research to meet the requirements for a degree given by a college or university. We note that petitioner's goal in obtaining a MARC faculty fellowship was to continue his Ph.D. thesis research and ultimately receive the research doctorate. Based on the record in this case, we are satisfied that petitioner was required to enroll in the master's program at CUNY as a stepping stone toward reaching his ultimate goal, the Ph.D. degree. Thus, we find that petitioner took courses in the master's program at CUNY designed to meet the requirements for receiving a degree from that institution, and that petitioner was a candidate for a degree during the years in issue within the 1996 Tax Ct. Memo LEXIS 472">*493 meaning of section 117.

As we have concluded above, section 117 prior to amendment by TRA 1986 applies to the fellowship payments petitioner received in 1989 and during approximately the first half of 1990; section 117 as amended applies to the fellowship payments received thereafter (i.e., pursuant to petitioner's request for a 1-year extension of his MARC fellowship commencing on June 20, 1990). Since petitioner was a candidate for a degree during the years in issue, he is entitled to exclude all fellowship amounts received under the earlier version of section 117, and only those fellowship amounts used for "qualified tuition and related expenses" under amended section 117. Petitioner, however, failed to provide any evidence of the amount he spent on tuition, books, fees, and other related expenses while at CUNY, nor did he provide a copy of his transcript or other notification from the school indicating how many courses he took during the latter half of 1990. Therefore, we hold that petitioner has not met his burden of establishing that any of the payments he received during the extended fellowship period commencing on June 20, 1990, were used for qualified tuition and related expenses. 1996 Tax Ct. Memo LEXIS 472">*494

Finally, we must determine whether petitioner is liable for additions to tax under section 6651(a) and section 6654 for the year 1990. ⁶ In the case of failure to file an income tax return on the date prescribed for filing, section 6651(a) imposes an addition to tax equal to 5 percent of the amount required to be shown on the return, with an additional 5 percent to be added for each month or partial month during which such failure continues, not to exceed 25 percent in the aggregate. The addition to tax under section 6651(a) does not apply if it is shown that the failure to file was due to reasonable cause and not to willful neglect.

The parties stipulated that petitioner did not file an income tax return for 1989 or 1990. ^{71996 Tax Ct. Memo LEXIS 472">*496} Petitioner indicated at trial that he believed his fellowship award was excludable from income and that he was not 1996 Tax Ct. Memo LEXIS 472">*495 required to file returns for those years. Petitioner claimed in his testimony that he based his belief on the advice of an unnamed IRS employee whom petitioner contacted shortly after he received a notice in his student mailbox at Drexel that there had been a change in the law regarding the taxability of scholarships and fellowships. Even assuming arguendo that petitioner did contact an IRS employee while he was attending Drexel, any advice he received at that time would not exculpate him from his failure to file a tax return for 1990 after his transfer to CUNY and subsequent request for a 1-year extension of his MARC fellowship had been granted. Accordingly, we sustain respondent's determination that petitioner is liable for the addition to tax under section 6651(a) for 1990.

Respondent also determined an addition to tax against petitioner under section 6654(a) for failure to make timely estimated tax payments. This addition to tax is mandatory and cannot be waived due to reasonable cause. Grosshandler v. Commissioner, 75 T.C. 1">75 T.C. 1, 75 T.C. 1">21 (1980); sec. 1.6654-1(a), Income Tax Regs. However, no addition to tax is imposed under section 6654(a) if one of the exceptions set forth in section 6654(e) is satisfied. Under section 6654(e)(2), no addition to tax is imposed under section 6654(a) if: (1) The taxpayer's preceding taxable year was a taxable year of 12 months; (2) the taxpayer did not have any tax liability for the preceding taxable year; and (3) the taxpayer 1996 Tax Ct. Memo LEXIS 472">*497 was a citizen or resident of the United States throughout the preceding taxable year. Pursuant to our finding above that petitioner's MARC fellowship was excludable from income during 1989, petitioner had no tax liability and was not required to file a tax return for that year. In addition, petitioner was a resident of the United States throughout 1989. Consequently, petitioner has satisfied the exception under section 6654(e)(2) for his 1990 taxable year. We hold that petitioner is not liable for the addition to tax under section 6654(a).

To reflect the foregoing,

Decision will be entered under Rule 155.