Federal policies have a significant impact on the policies and practices of research institutions. So, might there be some kind of "magic bullet": one or two key policy changes that would significantly improve the postdoctoral experience?

Maureen Fitch Bruhns, a member of the Stanford University Postdoc Advocacy Committee, suggests that "the most important changes in federal policy will be to classify the National Research Service Award (NRSA) and other fellowship recipients as employees and to allow fellowship stipends to be supplemented from federal grant funds. We could also argue for basic employment protections for postdocs, as well as a greater emphasis on career development."

What will it take to create a single employment class (status) for all postdocs, regardless of funding source? Nothing less than an act of Congress, say some observers. What follows is my understanding of current laws regulating the taxability of fellowships, employee-employer relationships, and special rules for trainees. Because I am not a lawyer, accountant, or tax specialist, however, I strongly urge you to seek the advice of a professional in determining your specific responsibilities.

Do Postdoc Fellows Perform Services?

Looking at the current rules for scholarship taxability (see Part 1), you will recall that the answer to this question hinges upon the use of the grant. The path to this answer is long and contorted. In the defining case, Bingler v. Johnson, 1969 (394 U.S. 741), a corporation subsidized employees who had completed all the preliminary requirements for a doctorate so they could take off up to 9 months to complete their dissertations. As a condition of the grant, the corporation required that the employees sign a written agreement obligating them to work for the corporation at least 2 years following completion of the leave period. The case climbed the judicial ladder from District Court to a Court of Appeals and finally to the U.S. Supreme Court. The high court determined that this particular stipend was received as the quid pro quo for (future) services rendered and thus could not be considered a fellowship or scholarship for tax purposes.

Some federal officials have noted that the Internal Revenue Service (IRS) has been inconsistent in its interpretation of this judgment. In one example, because of the NRSA service-payback obligation, NRSA stipends have been determined to be "loans" against future service. And because "loans" are not subject to income tax, NRSA stipends are not taxable income. This is an aberration, but it points out the regional variation in IRS interpretations.

In Stone v. Commissioner of Internal Revenue (1954; 23 T.C. 254, see Part 1), a fellowship grant to an individual was not considered compensation for research services because he was carrying out work according to his own plan, and the granting foundation exercised no supervision over his work. Bingler v. Johnson clearly established that fellowships are "relatively disinterested, no-strings educational grants, with no requirement of any substantial clear quid pro quo from the recipients." In Bingler, the Court emphasized that any payments made as compensation for services--future or present--are not fellowships.

Are Postdocs Receiving Fellowships Self-Employed?

No, according to Spiegelman v. Commissioner of Internal Revenue (1994, 102 T.C. 394). This means postdocs supported on fellowships are not subject to withholding under the Federal Insurance Compensation Act (FICA) and the Federal Unemployment Tax Act (FUTA).

However, the history of fellowship employee status provides an unstable foundation. To quote the Spiegelman case notes, "We must dig into the lower strata of the history of the Federal tax system to unearth the Rosetta stone that will decipher the issues of fellowship grants in terms of the current self-employment tax."

Marquette Univ. v. United States (1985, 645 F. Supp. 1007) held that when services--in this case, teaching--were rendered by the fellowship recipient, the recipient was considered an employee and therefore subject to employment tax. Prior cases such as Stone v. Commissioner (see above) established that fellowships are defined as not including a service component.

In Revenue Ruling 57-127, the IRS Commissioner determined that funds from a government foundation used by an individual for the purpose of conducting a research project free from direction and control of the institution were not to be considered a fellowship because the foundation reserved rights in patents resulting from the research, thereby establishing a quid pro quo. The recipient was considered an independent contractor and subject to self-employment tax.

In the Spiegelman case, though, the court turned to a different revenue ruling, number 60-378, in which the IRS Commissioner ruled that scholarships and fellowship grants are not subject to tax on self-employment, because they "do not constitute income from a trade or business. ... The terms 'fellowship grant' and 'trade or business' are inconsistent and mutually exclusive." Thus, income from a postdoctoral fellowship is not considered a "wage" for FICA and FUTA purposes.

To quote from the Spiegelman case notes, "It would appear that the same dichotomy between taxable and nontaxable scholarships and fellowship grants used in Marquette Univ. v. United States ? is carried over in determining whether FICA and FUTA taxes are applicable."

Does the IRS Consider Postdocs To Be Employees?

The answer to this question hinges on how one defines what it means to "render a service." The judges in the Spiegelman case ignored the university's classification of the fellowship income as nonemployee compensation and instead based their decision upon a gift analysis used in Stone and upheld in Bingler. The fellowship grant in Spiegelman was considered noncompensatory because it resulted from the "detached and disinterested" largesse of the grantor, requiring no substantial quid pro quo. In essence, there was no employer-employee relationship.

Subsequent IRS private letter rulings (PLRs) on the subject of postdoctoral grants (see PLRs 9851002, 199933021, 200042027, and 200226005), while not precedent setting, buttress this perspective. Consider this language from the first of these PLRs: "A scholarship or fellowship grant represents payment for services when the grantor requires the recipient to perform services in return for the granting of the scholarship or fellowship. A requirement that the recipient pursue studies, research, or activities primarily for the benefit of the grantor is treated as a requirement to perform services. A scholarship or fellowship grant conditioned either upon past, present, or future services by the recipient, or upon services that are subject to the direction or supervision of the grantor, represents payment for services" (PLR 9851002).

However, an institution has latitude and authority to establish a service component for fellows, because the IRS places the onus for determining employer-employee relationships with workers on all employers. For example, if a postdoc signs a patent-rights agreement with the university, this sets up an employer-employee relationship (see Revenue Ruling 57-127). It is interesting to note that Federal law was specifically altered in 1984 to strike reference to patent agreements between fellows and government funding agencies (35 USCS 212): "No scholarship, fellowship, training grant, or other funding agreement made by a Federal agency primarily to an awardee for educational purposes will contain any provision giving the Federal agency any rights to inventions made by the awardee." This means the government is not the employer, but it doesn't rule out the possibility that the institution can become an employer. Remember that Office of Management and Budget (OMB) Circular A-21 (see Part II) specifies that researchers who derive their funding from federal grants to institutions are considered university employees.

Postdocs as Professional Employees

Let's move outside IRS law to look at how employees are defined in other parts of the federal code, for example, in the National Labor Relations Act (NLRA; 29 USCS 152). The NLRA does not precisely distinguish between an independent contractor and an employee. This leaves the determination of whether specific individuals are employees open to interpretation.

Section 152(12) of the NLRA defines a professional employee as:

Any employee engaged in work ... (iv) requiring knowledge of an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction and study in an institution of higher learning or a hospital ... or

(b) any employee who (i) has completed the courses of specialized intellectual instruction and study described in clause (iv) of paragraph (a), and (ii) is performing related work under the supervision of a professional person to qualify himself to become a professional employee as defined in paragraph (a).

Using this definition, the National Labor Relations Board has recognized medical house staff as employees ( Cedars-Sinai Med. Ctr., 223 N.L.R.B. 251 [1976]); and the1974 Healthcare Amendments to the NLRA repealed an exemption of private, nonprofit hospitals from the definition of "employer." (see ML Leib [2000] 42 Ariz. L. Rev. 803). It appears, then, that federal law does not prohibit postdocs from being classified as employees per se. Indeed, the NLRA definition of "professional employee" seems to fit postdocs perfectly.

Conclusion

Postdocs at several institutions are in favor of a uniform classification for postdocs, as are administrators. "Categorizing postdocs according to salary source--'employee' (paid from sponsor's grant) versus 'stipendee' (paid from an NIH fellowship/training grant or from a private foundation fellowship)--is an artificial, essentially administrative classification," said Roslyn Orkin, dean of faculty affairs at Harvard Medical School. "What was undoubtedly set out originally by the NIH as a means to protect postdocs ('trainees') from abusive practices, has paradoxically, in many cases, turned out to harm them, largely in terms of access to benefits."

Trevor Penning, associate dean for postdoctoral research training at the University of Pennsylvania, adds, "Whether a postdoctoral appointee is a full-time employee or a trainee is fundamental to the issue of compensation and benefits. Federal policy and/or institutions must decide on a single classification for [the] postdocs because in reality they [all] do the same work. Once this classification is made, other policies could become uniform."