17 T.C. 1386">*1387 The respondent has determined a deficiency in income tax for 1948 in the amount of $ 441.76. The petitioner Ephraim Banks received $ 2,562.50 from Polytechnic Institute of Brooklyn in 1948. He contends that the foregoing amount of payments is exempt from tax and alleges that the respondent1952 U.S. Tax Ct. LEXIS 265">*267 erroneously included it in taxable income. In the event that the chief question is decided for the respondent, there is an alternative contention that $ 509 represents deductible expense.

The petitioners filed a joint income tax return with the collector for the first district of New York.

FINDINGS OF FACT.

The petitioners are husband and wife. They lived in Brooklyn, New York, during 1948. The petitioner Libby K. Banks earned income during 1948 which was reported in a joint income tax return. The questions to be decided relate only to the petitioner Ephraim Banks, and he is referred to hereinafter as the petitioner.

The petitioner attended the College of the City of New York where he received the A. B. degree in 1937. He was employed at the Brooklyn Navy Yard from 1938 until 1944 when he was drafted and served in the United States Navy. He was separated from the Navy in February 1946. His service in the Navy qualified him for benefits under the so called G. I. Bill of Rights (Servicemen's Readjustment Act of 1944, 58 Stat. 284, Public Law 346, 78th Cong., 2d Sess.), which included payment by the Government of tuition fees, books, and other expenses connected with further education1952 U.S. Tax Ct. LEXIS 265">*268 for a period of 32 months of actual attendance at an educational institution, and subsistence allowances. During 1948, the petitioner received subsistence 17 T.C. 1386">*1388 allowance amounting to about $ 240 each month, and his expenses for tuition and books at the Polytechnic Institute of Brooklyn in the amount of $ 509 were paid by the Veterans Administration. The allowances for subsistence and education expenses are exempt from income tax.

In 1946, after he was separated from service in the Navy, the petitioner enrolled as a part time student at the Polytechnic Institute of Brooklyn. He planned to continue working at the Brooklyn Navy Yard and to take evening courses at the Polytechnic Institute. The petitioner received the M. A. degree from Polytechnic Institute prior to January 1, 1948, and during 1948 he began work for the Ph. D. degree in chemistry which he received in June 1949.

In 1947, the Polytechnic Institute held a United States Navy, Bureau of Ships, contract -- Contract NObsr 39045. Under this contract the Institute was to carry on a research project which involved investigating the qualities of certain inorganic materials such as infra-red sensitive phosphorus, and in1952 U.S. Tax Ct. LEXIS 265">*269 particular the reaction of the materials to light. The research project was carried on in the Department of Chemistry under the direction of Dr. Roland Ward and his associates. The Institute appointed research fellows to work on the Navy contract. In 1947, the petitioner was appointed to a research fellowship for the period October 1, 1947, to June 30, 1948. He received a reappointment for the period July 1, 1948, to September 30, 1948, and he was again appointed to a research fellowship for the period October 1, 1948, to January 31, 1949. Each appointment assigned the petitioner to work on Navy contract NObsr 39045. Each appointment required that the petitioner devote 35 hours each week to doing research work on the Navy contract, and provided that he would receive a monthly salary and a vacation at the rate of 3 weeks per year. His salary was $ 230 per month under the first appointment of September 19, 1947, for each month except June 1948, in which month his salary was $ 175. His salary was $ 175 per month during the period July 1 to September 30, 1948, and it was $ 237.50 during the period October 1948 to January 31, 1949.

During the year 1948 the petitioner received the1952 U.S. Tax Ct. LEXIS 265">*270 total amount of $ 2,562.50 under the research fellowships, and he devoted the specified amount of time to doing research on the Navy contract. The Institute withheld Federal income tax on the payments in the amount of $ 206.40, and filed Form W-2, Withholding Statement, with the United States Treasury, Bureau of Internal Revenue.

The research work which the petitioner did included making spectroscopic measurements of the light output and light absorption of various materials, and studying the structure of materials by X-ray techniques. The work was not fundamental scientific research but 17 T.C. 1386">*1389 was for the purpose of developing a weapon, and had practical uses. There was, however, some scientific interest in the materials, and the petitioner described his research (as he was allowed to do) in a paper entitled "The Luminescence and Conduction in Solid Solution of Cerium Sulphide." The paper was accepted in partial satisfaction of the requirements for the doctor's degree which the petitioner received in 1949.

The petitioner took about five graduate courses in the preparation for his doctorate degree in chemistry. He enrolled as a full time graduate student and attended classes1952 U.S. Tax Ct. LEXIS 265">*271 in addition to working 35 hours each week on the Navy contract. The work which he did on the Navy contract was done under the supervision of Dr. Ward and his associates in the Department of Chemistry. The petitioner submitted the results of his research on the Navy contract to Dr. Ward in written reports which he submitted periodically. There were about seven others engaged in the same research work, about four of whom also were working for graduate degrees.

The first appointment to a research fellowship which was made on September 19, 1947, by the Dean of the Graduate School, provided as follows:

Upon the recommendation of Professor Ward, and with the approval of Mr. Wile, I am happy to appoint you Research Fellow, Senior Grade, in the Department of Chemistry. Your primary assignment will be to work on Contract NObsr 39045, Bureau of Ships. This appointment is to be effective from October 1, 1947 and to end June 30, 1948.

Your stipend will be $ 230.00 per month for the months of October through May inclusive, and $ 175.00 for the month of June 1948. You will be expected to devote 35 hours per week to research work on this contract, as directed by Professor Ward and his associates. 1952 U.S. Tax Ct. LEXIS 265">*272 You will be entitled to vacation at the rate of three weeks per year. This vacation is to be taken at a time that will suit the needs of the project and the convenience of Professor Ward.

The research which you do on this contract or any portion of it approved by Professor Ward, may be submitted for a graduate dissertation under the general regulations of the Department of Chemistry and of the graduate faculty, and with the approval of your guidance committee. You will be expected to register as a full time graduate student, paying full time graduate tuition during each semester of the academic year 1947-1948. Your registration will be subject to the general regulations regarding registration, of the Department of Chemistry and of the Graduate School.

I suggest that you visit the Bursar's office at your earliest convenience in order to file a tax withholding certificate. Please permit me to welcome you to the research staff of the Polytechnic Institute of Brooklyn.

The reappointment which was made on May 19, 1948, for a period of 3 months contained the same general provisions as the original appointment except for the amount of the salary which was $ 175 per month, and it was1952 U.S. Tax Ct. LEXIS 265">*273 stated that it was not anticipated that the petitioner would 17 T.C. 1386">*1390 enroll for any graduate courses nor for any graduate thesis credits during the period of the extension of the appointment.

The second appointment which was made on October 21, 1948, for the period ending on January 31, 1949, provided for a monthly salary of $ 237.50, and stated that "All the conditions involved in your first letter of appointment are hereby extended during the period noted." Also, it was stated that the petitioner would be expected to register as a full time graduate student during the Fall semester of the 1948-1949 academic year and to pay full time tuition at the rate of $ 250 for each semester.

During 1948, the charges for the petitioner's tuition amounted to $ 473, and charges for books amounted to $ 36, total $ 509. The Bursar of the Institute made claim to the Veterans Administration for payment of $ 509 under Public Law No. 346 -- Servicemen's Readjustment Act of 1944, and the Veterans Administration made payment directly to Polytechnic Institute. None of the above amount was paid to the petitioner. The petitioner did not report the $ 509 in his income tax return for 1948 as either income1952 U.S. Tax Ct. LEXIS 265">*274 or expense.

In appointing the petitioner to its research staff, the Institute intended to engage the petitioner's services to work on the Navy contract and to compensate him for his services. The petitioner received $ 2,562.50 during 1948 as compensation for his services. The Institute did not intend to make and did not make a gift to the petitioner of $ 2,562.50.

OPINION.

Issue 1. The petitioner contends that the payments aggregating $ 2,562.50 were gifts and that they should be excluded from his gross income under the provisions of section 22 (b) (3) of the I. R. C.

The respondent contends that the appointments by the Institute of the petitioner to its research staff contained the elements of a contract of employment; that the monthly payments were compensation for petitioner's services, and that, therefore, they are includible under section 22 (a) of the Code.

In this proceeding, the question to be decided is primarily a question of fact. The facts are to be determined from the letters of appointment which were filed in evidence, and from the general facts.

The evidence shows that the petitioner had received the A. B. and the M. A. degrees in chemistry, and that he received1952 U.S. Tax Ct. LEXIS 265">*275 the appointments from the Institute because he possessed the education, skill, and training to do research work on the Navy contract which had been awarded to the Institute. The original and subsequent appointments appointed the petitioner to the Institute's research staff as a research 17 T.C. 1386">*1391 fellow, and they clearly specified that the petitioner would be expected to work on the Navy contract research project 35 hours each week and that he would receive a salary ("stipend") of a designated amount (which varied under each appointment). We must conclude, and we have found, that in making the appointments the Institute intended to engage the petitioner's services and to compensate him for his services, and that the Institute did not intend to make a gift of the payments to the petitioner.

One of the essential requirements of a gift is the lack of consideration. Old Colony Trust Co. v. Commissioner, 279 U.S. 716">279 U.S. 716; Noel v. Parrott, 15 F.2d 669, certiorari denied 273 U.S. 754">273 U.S. 754; Bothin Real Estate Co. v. Commissioner, 90 F.2d 91; Virgil P. Ettinger, 36 B. T. A. 264.1952 U.S. Tax Ct. LEXIS 265">*276 And if the payment is intended as payment for services, as we think clearly was the intent here, it must follow that there was no gift within the intendment of section 22(b) (3) of the Code. Intent is to be found from the payor's characterization of the payments. The Institute, in the respective appointments, characterized the monthly payments as either a "stipend" (a literary expression meaning salary or compensation), or a "salary." The petitioner accepted the payments as compensation for his services. The appointments provided that the petitioner would be entitled to take vacation leave on the basis of 3 weeks per year, at such time as would suit the needs of the project and the convenience of the research director, Dr. Ward. The provision for and allowance of a vacation is now customary in contracts of employment.

Other indication of an intent to establish an employer-employee relationship is found in the specification that the petitioner would be assigned to do research work on the project under the direction of Dr. Ward and his associates and that he would be expected to work 35 hours each week, which was close to a 40-hour work week of 5 days of 8 hours each day. The petitioner1952 U.S. Tax Ct. LEXIS 265">*277 was required to give periodic written reports on his findings and research to the director of the research. Also, the petitioner was advised, in the original appointment, that the Bursar's office would withhold Federal income tax on the salary payments, which was done, which is additional evidence of intent to make payments of salary rather than gifts of funds.

The respondent relies upon a recent ruling of the Treasury Department, I. T. 4056, I. R. B. No. 17, p. 2 (August 20, 1951) ^* where it was held that research fellowship awards, of four types described in the ruling, may not be regarded as gifts but constitute compensation for services rendered by the recipient of the fellowship award, taxable as income under section 22 (a). The facts in this proceeding support the conclusion that payments under fellowship awards here 17 T.C. 1386">*1392 involved are includible in the gross income of the recipient with greater force than the facts set forth in I. T. 4056 because in the examples given there the research was not directed or supervised by the grantor, and was planned and devised by the grantees, and the grantor did not require reports from the grantees.

1952 U.S. Tax Ct. LEXIS 265">*278 Although the petitioner was a graduate student while doing research work under the appointments, i. e., while he was a member of the Institute's research staff, he had training and skill and evidently received the appointment because he was qualified to do skilled and technical research work. He, therefore, gave something of value for the payments he received, and he received compensation for his skilled work. It cannot be said that the Institute made the monthly payments and received nothing in return. It received the skilled services of the petitioner on a project which the Navy had awarded to the Institute for the purpose of obtaining scientific information and analysis. Cf. United States v. Robertson (C. A. 10), 190 F.2d 680; Herbert Stein, 14 T.C. 494, 501.

It is true that the petitioner, while working under the appointments, was enrolled as a full time graduate student, attended graduate courses, and was allowed to use some if not all of the research work he did in satisfaction of part of the requirements for his doctorate degree. However, he paid, i. e., payment was made for him under the Veterans statute, 1952 U.S. Tax Ct. LEXIS 265">*279 the full graduate school tuition, and the payments under the appointments were not at all in lieu of the Institute's tuition fees. The appointments of the Institute did not leave the petitioner free to devote all of his time and efforts to the pursuit of his graduate courses and educational work in satisfaction of his doctorate requirements. No doubt the research appointment enabled the petitioner to enroll as a full time rather than as a part time graduate student, and provided him with the employment and income for which, otherwise, he would have had to look elsewhere. Also, the appointment may have shortened the time within which he was able to complete all of his preparations for receipt of his Ph. D. degree in chemistry. Nevertheless, the evidence shows clearly and beyond any doubt that the appointments to the Institute's research staff under a research fellowship were not grants or fellowships which were solely or primarily for the training and education of the petitioner without his rendering services in consideration for the monthly payments which he received. It is true that the petitioner made use of the research which he did for pay, all or part of it, in his doctorate1952 U.S. Tax Ct. LEXIS 265">*280 dissertation, but this was merely the fortuitous circumstance that the work he was paid to do could be utilized in partial fulfillment of his work for his doctorate, and that he was permitted to make such use 17 T.C. 1386">*1393 of the research. However that may be, the fact remains that the petitioner rendered services for compensation.

The essential elements of a gift are not present here. It is held that the amount of $ 2,562.50 is includible in petitioner's income under section 22 (a) of the Code, and is, therefore, subject to Federal income tax.

Issue 2. Having decided the first question against the petitioner, we must consider an alternative contention which he makes, which is whether he is entitled to deduct $ 509 as an expense. This contention is wholly without merit, and it is unnecessary to discuss aspects of the question which are apparent. The petitioner did not include the payment in his income, and whether he did or did not, the payment of his tuition and book expenses by the Veterans Administration in his behalf was not to be included in his income and was exempt from tax. I. T. 3702, 1944 C. B. 74. That being true, the petitioner did not1952 U.S. Tax Ct. LEXIS 265">*281 have an expense of $ 509 from a tax standpoint. Section 24 (a) (5). No income is taxed which was devoted to the expense. We need not and do not decide whether the educational expenses for tuition and books would be allowable in any event as a business expense under section 23 (a) (1) (A). The point is that if the deduction claimed were to be allowed, the effect would be to give the petitioner a double deduction for one item, since it is not includible in his taxable income. The claimed deduction is denied. Cf. Regulations 111, sec. 29.24-4.

Decision will be entered for the respondent.