In Uncategorized on 01/10/2018 at 19:49

If you attended high school with a gaggle of slide-rule-toting bright-eyed types who always wore pocket protectors containing multiple colored pencils, the title hereof should not be new to you. It is a line from a song by a Harvard mathematics professor. And it is music to the ears of Evgeny Kiselev, 2018 T.C. Sum. Op. 2, filed 1/10/18.

I do not know if Evgeny, like the narrator of the aforementioned song, has a friend in Minsk who has a friend in Pinsk, but Evgeny had a wife with a J-1 visa, somewhat like the types you’ll find in my blogpost “At Home Abroad – Part Deux,” 3/16/17.

So Evgeny was in the running for a J-2 visa, which he got and got converted to F-1 (foreign student) a couple years (hi, Judge Holmes) later. Meantime, he got a work permit and worked as a lab tech at Perdue University, where his wife was doing her part to keep her visa.

Evgeny got accepted into Perdue’s Ph.D. program as a cancer researcher, and did the usual graduate research assistant dogsbodying for his mentor. Evgeny was a go-getter, and although his mentor signed off on the grant applications, Evgeny did his own thing and even got articles published in peer-reviewed journals.

Meantime, Evgeny got paid a stipend from Perdue that didn’t vary whether or not he got a grant from Perdue or anyplace else. The Boilermakers’ high command withheld income tax and gave Evgeny a W-2. Evgeny gave the IRS a Form 1040-NR-EZ, claiming nonresident with no dependents (he was his wife’s dependent) and got a refund per Art. 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).

IRS gave Evgeny a refund, and then, at no extra charge, gave him a SNOD, asserting his grants for the entire year at issue (about 70% of his total income from Perdue; the thirty percent everyone concedes he owes) are taxable.

IRS’ threshold argument is that Evgeny got a scholarship, and that the Art. 18 exception for “grant, allowance, or other similar payments” doesn’t apply.

Judge Colvin: “Under article 3(2), an undefined term in the Treaty is given the meaning it has under U.S. tax law. The phrase ‘grant, allowance, or other similar payments’ is not defined by the treaty. Thus, under article 3(2), the phrase ‘grant, allowance, or other similar payments’ is given the meaning it has under U.S. tax law. However, neither that phrase nor a remnant thereof (‘grant, allowance’) appears in title 26 or the regulations thereunder. Because the Treaty phrase does not appear in U.S. tax law, we are unable to discern, or apply, the meaning of that phrase under U.S. tax law in construing article 18.” 2018 T. C. Sum. Op. 2, at pp. 9-10.

Code Section 117 used the word “grant” in defining what is a “qualified scholarship” thereunder, but not the broader version in Art. 18. Moreover, caselaw pre-Section 117 said a scholarship had “no strings,” but Evgeny had to do the research, so the IRC is out of play.

To get Art. 18 benevolence, the primary purpose of one’s stay must be research, hence the title of this blogpost. But Evgeny wasn’t admitted to the Perdue program when he came here as his wife’s dependent; he didn’t get admitted until the next year, and he didn’t get his F-1 foreign student visa for another two years.

Too restrictive, says Judge Colvin. Look at all the facts and circumstances. Evgeny, like my Texan daughters, wasn’t born there but got there as fast as he could.

And of course it was a ”grant.” He was given money for a specific purpose (a mild dictionary nibble accompanies this).

IRS claims all Evgeny got was a salary. His mentor signed the applications, got the checks, got the award letters, and benefitted from having a lackey like Evgeny. Evgeny couldn’t make grant applications.

“We disagree with respondent’s contention that petitioner did not receive the PRFR and SIR grants. Whatever role Professor [Mentor] had in obtaining the grants and whatever benefits he received from supervising a research assistant, the grants were paid to petitioner to fund his work on his research proposals. Article 18 provides no support for respondent’s contention that a grant may not be paid as a salary or that a grantee may not be an employee. We conclude that petitioner was the ‘recipient’ of the PRFR and SIR grants for purposes of article 18.” 2018 T. C. Sum. Op. 2, at pp. 14-15.

IRS, eager for the kill, claims Evgeny was not a resident of the Russian Federation immediately before becoming a student, but was his wife’s dependent living in the USA before that.

Horsefeathers, says Judge Colvin, but much more politely.

He was here doing research. He was here temporarily until he got his green card after the year at issue.

Evgeny got it right. Evgeny wins.

What happens when you get it wrong? See Andrey Andreyevich Dovzhenok, 2017 T. C. Sum. Op. 86, filed 11/30/17.





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