The Freeman Letters On George Washington

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[ A writer working under foundation grants can have Internal Revenue Bureau problems, as Freeman found out. He tells about it: ]

A grant for a specific historical project manifestly is not expected to develop into a study of the rulings of the Bureau of Internal Revenue, but in the present instance, exactly that has happened.

At the beginning of 1952, when the Guggenheim Grant became effective, I notified the Collector of Internal Revenue of this district that the money had been voted, through Johns Hopkins University, and that I would assume that I should not report it as income because I received none of it personally. I added that even if I had to report it as income, I would counterbalance it by entering it as expense. To my consternation, there came back a letter which set forth this extraordinary policy: The whole of the grant might be taxable as personal income in the year in which it was voted; and even if this were not done, it was doubtful in the extreme whether I could charge off the amount of the grant year by year as expenses.

If, from the research, a book developed, then the expenses of research were chargeable against the revenue from the copyright, not against current taxable income. It might be necessary for me to amortize the grant and the other expenses over the life of the copyright. I figured that this would clear my account at the age of 91, and I saw, as everyone would, that insistence on this ruling would put an end to my enterprise. …

This was too serious a matter to be met with surrender or acquiescence. I sought the best counsel I could get and, by happy chance, found in our leading Richmond law firm a man who had been one of those who wrestled with the problem of General Eisenhower’s copyright. We were lucky in two other particulars: I had assigned the copyright of George Washington to the publisher, and, second, in accepting the Guggenheim Grant, I had stipulated that I personally would use none of the money for my own compensation or living and travel expenses, and I had requested that the grant be disbursed, as the Carnegie funds had been, through Johns Hopkins University. On this basis, counsel asked for a ruling and not long ago he received it.

All question of amortization of the copyright was put aside; the grant was said to be taxable, if at all, over the three-year period instead of in the year of the grant; and, though the tax officer did not formally rule that the grant could be charged off as expense, because that issue was not before him, he said unofficially that when it did arise in connection with the tax return for 1952, he would rule so.

I am no lawyer and do not understand all the ramifications of the case but it seems to me the matter has importance to foundations in this: If a grant is made to an institution of learning and is used entirely for the expenses of research on a project, and not for the living of the grantee, then it is not subject to taxation or to amortization against the life of a copyright if the copyright has been assigned. This will not be of any help to a man who receives a grant to keep him in food and raiment while he is making a research, but it may be protective where the grant is used only for expenses.