Wolfson v. Commissioner
| Decision Date | 07 November 1978 |
| Docket Number | Docket No. 7711-74. |
| Citation | 37 TCM (CCH) 1847,1978 TC Memo 445 |
| Parties | William Q. Wolfson and Elizabeth Wolfson v. Commissioner. |
| Court | U.S. Tax Court |
Filed November 7, 1978. Appealable, barring stipulation to the contrary, to CA-6. — CCH.
Allan Adelson, 26211 Central Pk. Blvd., Southfield, Mich., for the petitioners. Thomas R. Ascher, for the respondent.
Memorandum Findings of Fact and Opinion
Respondent determined deficiencies in petitioners' income tax and additions to the tax for the calendar years as follows:
Addition to Tax
Year Deficiency Sec. 6651(a)
1968 ............. $56,981.62 $5,665.68
1969 ............. 4,596.94
1970 ............. 6,827.03
Concessions having been made, the following issues remain for our consideration:1
(1) Whether petitioners received taxable income in 1968 as a result of a settlement with Wayne State University. Resolution of this issue turns on whether the settlement represented compensation for lost income or an amount received for injury excludable under section 104.2
(2) Whether funds received by petitioner-husband while engaged in the Northville Hospital Psychiatric Residency Program are excludable from gross income as a scholarship under section 117.
(3) Whether petitioners are entitled to trade or business deductions under section 162 during the years 1968 through 1970.
Some of the facts have been stipulated. The stipulation of facts, together with the exhibits attached thereto, are incorporated herein by this reference.
Petitioners William Q. Wolfson and Elizabeth Wolfson, husband and wife, resided in Detroit, Michigan, at the time of filing their petition herein.3 Petitioners filed joint Federal income tax returns for the taxable years 1968, 1969, and 1970 with the District Director of Internal Revenue at Detroit, Michigan. Petitioners' returns for the taxable years 1969 and 1970 were timely filed; for the taxable year 1968, petitioners' return was filed on November 15, 1969. A request for extension of time for filing was filed and received July 14, 1969, and granted. A request for additional time was received on October 16, 1969, and an extension of time until November 15, 1969, was granted.
Petitioner attended New York University School of Medicine from 1939 to 1941, satisfactorily completing two years of study. The following year, he suffered an illness which required him to leave school. Although able to continue his studies after recovering, New York University was unwilling to permit his return, and he was thus unable to obtain admission to any other class A medical school in the United States due to a rule of the Association of American Medical Colleges. As a result, petitioner enrolled at Middlesex University School of Medicine, a class B college. In 1943, he received his M.D. degree and obtained licenses to practice medicine in New York and Massachusetts.
Thereafter, petitioner served an internship at Greenpoint Hospital in New York City followed by a three-year residency in metabolic and endocrine diseases at Michael Reese Hospital in Chicago, Illinois. From 1947 to 1950, he was assistant director of the department of biochemistry at Michael Reese Hospital and assistant chief of its arthritis out-patient clinic.
In March 1950, petitioner accepted an offer by the University of Michigan to become associated with its Rackham Arthritis Research Unit (hereafter Rackham). While at Rackham, petitioner demonstrated that a treatment he developed was capable of restoring normal or useful vision to patients suffering from certain eye diseases previously considered untreatable.
In 1951, Dr. Gordon B. Myers (hereafter Myers), then chairman of medicine at Wayne University Medical College (hereafter Wayne), was referred to petitioner for treatment of an inflammatory disorder of the retina which resulted in loss of one eye and deterioration of sight in the second despite conventional therapy. Under petitioner's care, Myers regained normal vision in the second eye. As a result, Myers became personally interested in petitioner's work.
Petitioner desired a position as a full-time academic physician doing teaching, clinical and basic research. Although he engaged in such activities at Rackham, petitioner believed it was necessary to obtain a medical degree from a class A medical school in order to advance his career. Middlesex was not recognized by the Michigan Board of Registration in Medicine as a basis for permanent licensing. Myers suggested to petitioner that he enroll as a medical student at Wayne, a class A school, to satisfy the requirements of the Association of American Medical Colleges. On May 19, 1953, petitioner moved to Wayne with his equipment from Rackham. On the same day, Myers prepared and signed a nomination for petitioner's appointment as research associate.
Petitioner was appointed by the dean of the medical college to the voluntary faculty of Wayne as a non-salaried research associate in medicine. As such, his appointment was not subject to the Board of Education, the governing body of the University. On May 19, 1953, Myers wrote to Dr. Pemberthy, chairman of the Michigan Volunteer Advisory Committee, requesting that petitioner be reclassified as essential to the college of medicine in order to maintain his deferment from the Armed Services. Although the Selective Service had granted petitioner a deferment while he was employed at Rackham, he would lose his deferment if he came to Wayne unless the college satisfied the Selective Service that petitioner was a full-time faculty member and his work was essential for the national health and welfare.
Wayne did not have any clinical facilities of its own and depended primarily on Detroit Receiving Hospital (hereafter Hospital). Since petitioner's work involved study on patients, he had to make use of the Hospital's facilities. Upon Myers' recommendation, petitioner received an appointment as a fellow in medicine at the Hospital entitling him to study patients there.
Requests for public and private grants were sought by petitioner, with the support of Myers, to finance the newly established Unit for Metabolic Research. Grants of $8,500 in 1953 and $8,000 in 1954 were received from Armour Laboratories. An additional grant of $15,000 in 1953 was received from the U.S. Army, which noted petitioner's position as associate of medicine. Other grants were awarded Wayne for use in petitioner's research, all of which described petitioner as director of the unit for metabolic research to which petitioner devoted his time and effort until his entry into the Army in October 1954.
On September 14, 1953, petitioner registered as a third-year medical student. He was to satisfy all student requirements by doing the work of a full-time member of the faculty and by passing the examinations in such third-and fourth-year courses unless exempted by the chairman of the department giving the examination. Petitioner was allowed to practice medicine while a student at Wayne under a cease and desist order.4
On August 1, 1954, Wayne was notified that petitioner (a reserve officer in the Army) was to be called to active duty. A request that petitioner be considered essential was made at a meeting on July 12, 1954, where his status as a full-time research associate in medicine was reaffirmed. Several other documents were prepared to obtain a deferment for petitioner, but despite these efforts, he was ordered into active service on October 16, 1954.
Just prior to his induction, letters were received by Wayne from Italy from a father bringing his two blind children to Detroit to be treated by petitioner. This incident received national publicity resulting in television interviews of petitioner. During the interviews, the visit of the children was linked to petitioner's induction and continuing efforts by patients at the unit for metabolic research to obtain petitioner's deferment. The following day, the Detroit Free Press stated that petitioner was a student without license to practice medicine in Michigan. The paper also quoted Dr. Bromme, a faculty member at Wayne, of accusing petitioner of exploiting the children's plight to keep out of the Army.
The press then interviewed Myers concerning petitioner's status. In the interview Myers praised petitioner highly, noted he was considered essential to Wayne, and that petitioner had nothing to do with the patients writing letters of support. When asked if petitioner was licensed to practice medicine, Myers replied he was not; when asked if petitioner was a student, Myers replied he was.
On November 1, 1954, Wayne replied to the editor of Audio Digest, a widely distributed medical publication considering petitioner for a position as a contributing editor. The reply, signed by the assistant dean of the medical college, stated:
While in active service, petitioner sought a retraction from Dr. Bromme and the Detroit Free Press and support from Dean Scott of the medical college. Dean Scott suggested in strong language that petitioner not pursue the matter further. It was apparent Wayne would not support petitioner in his efforts to gain retractions, and petitioner felt he was being called a liar by the school.
While petitioner was on active duty, Dr. Young continued the work in the Unit for Metabolic Research. However, on July 11, 1956, Myers wrote Wilson Laboratories that the unit had been terminated in 1955 and all grants were returned to the donors unused. Despite these available grants, Myers advised Dr. Oren of the Miami Medical School...
To continue reading
Request your trial