Kiselev v. Comm'r
| Decision Date | 10 January 2018 |
| Docket Number | T.C. Summary Opinion 2018-2,Docket No. 30054-14S. |
| Parties | EVGENY KISELEV, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent |
| Court | U.S. Tax Court |
Evgeny Kiselev, pro se.
Rachel L. Rollins, for respondent.
COLVIN, Judge: This case was heard pursuant to the provisions of section 7463 of the Internal Revenue Code in effect when the petition was filed.1Pursuant to section 7463(b), the decision to be entered is not reviewable by any other court, and this opinion shall not be treated as precedent for any other case.
Respondent determined a deficiency in petitioner's Federal income tax for 2011 of $2,316 and an accuracy-related penalty under section 6662(a) of $463. Respondent has since conceded that petitioner is not liable for the penalty.
After concessions, the issue for decision is whether (and if so, to what extent) payments in 2011 from Purdue University to petitioner to fund his work on his scientific research proposals are exempt from Federal income tax under article 18 of the Convention for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion With Respect to Taxes on Income and Capital, Russia-U.S., June 17, 1992, as amended by the Protocol signed on June 17, 1992, 6 Tax Treaties (CCH) para. 8003 (Treaty). We hold that the payments are exempt from Federal income tax to the extent discussed below.2
Some of the facts have been stipulated and are so found. Petitioner resided in Maryland when he filed the petition.
Petitioner is a citizen of the Russian Federation. He arrived in the United States from the Russian Federation in August 2005 on a J-2 visa as the dependent spouse of his wife, who received a J-1 visa sponsored by Purdue University. Under the terms of his J-2 visa, petitioner's ability to enroll in an education program was subject to further approval and was not assured when he entered the United States. Petitioner applied for and was granted an employment authorization card which was valid from November 2005 through May 2009.
On December 12, 2008, petitioner's visa was changed from a J-2 visa to an F-1 visa for students. Petitioner was present in the United States for substantially all of 2011, and he and his wife filed applications to become resident aliens during that year. Petitioner remained in F-1 status for more than three years until January 31, 2012, when he and his wife became permanent residents of the United States.
Petitioner worked as a laboratory technician at Purdue beginning in fall 2005 and continuing through fall 2007. Petitioner was admitted to a Ph.D. program at Purdue on January 10, 2006. Petitioner was a full-time graduate student at Purdue from fall 2007 through May 2012.
As required by his Ph.D. program, during 2011 petitioner was employed by the university as a graduate research assistant and conducted supervised research which culminated in the preparation and defense of a Ph.D. thesis. Petitioner conducted research and pursued his degree under the supervision of Professor Mark Cushman.
Graduate students who perform supervised research for the university receive financial remuneration, including tuition remission, a stipend, and subsidized health insurance. The university considers these individuals university employees.
During 2011 petitioner's stipend included, inter alia, (1) a Purdue Research Foundation Research (PRFR) Grant and (2) a Special Incentive Research (SIR) Grant. Those grants were made to fund specific research proposals prepared by petitioner.
PRFR grants are nominally awarded to university faculty but are paid solely to fund a research proposal developed by a research assistant who assists the faculty member. Research assistants receive the grants in the form of a salary and fringe benefits. A faculty member who applies for a PRFR grant must provide the name of a qualified student and a proposal containing a statement of the problem to be researched, the significance of the problem, and the plan of research.
Professor Cushman submitted an application for a PRFR grant for 2011 which identified petitioner as the student to be supported by the grant. Petitioner prepared the scientific proposal for the PRFR grant application, which reflected his own scientific vision. In April 2010 Professor Cushman received a letter which stated that the grant had been awarded to him.
PRFR grants equal one-half of the minimum annual salary paid to a qualified graduate research assistant. The PRFR grant totaled $16,795 ($15,750 in salary and $1,045 in fringe benefits) to be paid to petitioner from September 15, 2010, through September 14, 2011.
Special Incentive Research Grants (SIR grants) benefit faculty members by supporting outstanding graduate students whom they supervise and who are undertaking cancer-related research. In a call for proposals for SIR grants for 2011, the Purdue University Center for Cancer Research solicited nominations for outstanding Ph.D. degree candidates undertaking cancer-related research. The call for proposals referred to the graduate student who applied for the grant as the awardee of the grant. Either the student, a faculty member, or both may apply for an SIR grant.
Professor Cushman submitted an application for an SIR grant. Petitioner prepared the scientific proposal in the application. The application stated that Professor Cushman would be the recipient, but the grant was paid to petitioner as salary.
In May 2011 petitioner received a letter stating that the SIR grant application had been approved. During 2011 petitioner conducted the research described in the PRFR and SIR grant applications and presented the results in the publicly available peer-reviewed scientific journal.
During 2011 petitioner received a stipend of approximately $22,000 from the university. Approximately 70% of petitioner's stipend during 2011 was funded by the PRFR and SIR grants. Petitioner's stipend for 2011 was in the same amount as it would have been without the grants.
For 2011 Purdue University withheld Federal income tax of $2,005 from petitioner's stipend which was reported on Form W-2, Wage and Tax Statement. On a Form 1040NR-EZ, U.S. Income Tax Return for Certain Nonresident Aliens With No Dependents, for 2011, petitioner reported that his stipend is exempt from U.S. Federal income tax under article 18 of the Treaty. Petitioner requested a refund of the Federal income tax withheld, and respondent issued petitioner a refund on March 12, 2012. In a notice of deficiency respondent determined that petitioner's stipend for 2011 is taxable.
The taxpayer generally bears the burden of proving that the Commissioner's deficiency determination is in error. Rule 142(a)(1). The burden of proving a factual issue relating to tax liability shifts to the Commissioner under certain circumstances. Sec. 7491(a). Because we decide this case on a preponderance of the evidence, the burden of proof does not affect the result and we need not further consider it. See sec. 7491(a); Estate of Turner v. Commissioner, 138 T.C. 306, 309 (2012).
Article 18 of the Treaty, titled Students, Trainees, Researchers, provides as follows:
When interpreting a treaty, we begin with the text of the treaty and the context in which the written words are used. Bhutta v. Commissioner, 145 T.C. 351, 360 (2015) (). The plain meaning of the text of a treaty controls unless its effect is contrary to the intent or expectations of the signatories. Bhutta v. Commissioner, 145 T.C. at 360 ().
The two textual issues in dispute are (1) whether petitioner was "temporarily present [in the United States] * * * for the primary purpose of studying or doing research" and (2) whether he was "a recipient of a grant, allowance, or other similar payments". We discuss those textual issues infra Parts E and F. However, first we consider an argument raised by respondent based on article 3(2) of the Treaty.
Article 3(2) of the Treaty provides:
2. As regards the application of the Convention by a Contracting State, any term not defined therein shall, unless the context otherwise requires or the competent authorities agree to a common meaning pursuant to the provisions of Article 24 (Mutual Agreement Procedure), have the meaning which it has under the...
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