Bingler v. Johnson
394 U.S. 741 (1969)

  • Johnson worked for Westinghouse. Westinghouse gave him a scholarship so he could go back to school and get a PhD.
    • The scholarship gave Johnson a stipend and paid for his tuition. He had to agree to provide reports of his progress, and commit to come back to work for Westinghouse after he finished his degree.
  • The IRS stepped in and said that the scholarship money was taxable as gross income. Johnson disagreed.
    • Johnson argued that the scholarships were excludable based on 26 U.S.C. 117.
  • The Tax Court found for the IRS. Johnson appealed.
  • The Trial Court affirmed. Johnson appealed.
    • The Trial Court looked to the IRS's regulation interpreting 117 (Treas. Reg. 1.117-4(c)) which said that amounts representing "compensation for ... employment services" and amounts paid "to enable [an individual] to pursue studies ... primarily for the benefit of the grantor," are not excludable as scholarships.
  • The Appellate Court reversed. The IRS appealed.
    • The Appellate Court found that the IRS regulation was invalid.
  • The US Supreme Court reversed and found for the IRS.
    • The US Supreme Court found that Treas. Reg. 1.117-4(c) was valid, and the money Johnson received was not an excludable scholarship, but taxable "compensation."
  • Basically, this case said that if your employer gives you money to go to school, then it is considered to be compensation for your work, and not really a scholarship.
    • Note that the Tax Reform Act of 1986 changed 117, so the holding in this case may no longer be applicable.