Attorney-at-Law

“ONLY BE SURE ALWAYS TO CALL IT PLEASE ‘RESEARCH’” – PART DEUX

In Uncategorized on 12/18/2019 at 17:18

Again I quote Harvard’s mathematical funnyman Dr. Tom Lehrer. Today Vitaly Nikolaevich Baturin, 135 T. C. 10, filed 12/18/19, takes the stage in place of the celebrated mathematician whom Lehrer apostrophized.

Vitaly is a physicist, who left Mother Russia on a research visa to UCLA, but got shifted to Thomas Jefferson National Accelerator Facility (JSA), doing public interest research.

“Jefferson Lab researches the structure of matter in the universe.  It uses a particle accelerator to accelerate, or heat up, particles.  Complex equipment called detectors record the event and use computers to analyze and construct models.  The goal is to try to find new particles which establish the universe.  Petitioner’s role was to help construct the detectors for their upgrade from the 6 GeV accelerator to the 12 GeV accelerator.  Petitioner understood that JSA characterized him as an employee because he used very complex equipment requiring a lot of training, security tests, security exams, and insurance.” 153 T. C. 10, at p. 4.

IRS claims his $75K stipend is wages, and thus taxable, but Vitaly interposes 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, Russ.-U.S., June 17, 1992, S. Treaty Doc. No. 102-39 (1992) (U.S.-Russia Treaty).

If this sounds familiar, check out my blogpost “Only Be Sure Always to Call It Please ‘Research,’” 1/10/18.

But Vitaly joins Evgeny Kiselev, the star of the aforesaid blogpost. His work is not for profit. Although there is some argy-bargy about whether what Vitaly got was a grant, the “grant” language in the US-Russia Treaty is broader than Code Section 117. That Vitaly got W-2s from JSA is nothing to the point.

“The special relief of Article 18 exists within the context of a treaty intended to foster greater exchange of scientific knowledge in the public sector.  The U.S Russia Treaty preamble states that the United States and the Russian Federation desired ‘to develop and strengthen the economic, scientific, technical and cultural cooperation between both States’.” 153 T. C. 10, at p. 12.

Now the old treaty with the USSR was even broader, but the present treaty is still better than the US Model Treaty or the OECD Model Treaty.

“Respondent contends that wages are categorically excluded from Article 18. We disagree.  Article 18 has no requirements for how the ‘grant, allowance, or other similar payments’ must be characterized.  Considering the intent to foster greater scientific research, we hold that Article 18 should be treated consistently as an exception to both Articles 13 and 14.  Article 18 exempts from taxation payments made in exchange for the service of “doing research”, whether the individual is paid as an independent contractor or an employee, so long as the payment is similar to a grant or an allowance.  Whether an individual who otherwise meets the U.S.-Russia Treaty requirements receives a Form 1099 or a Form W-2, the question should be the same:  whether he or she is the recipient of a grant, allowance, or similar payment.” 153 T. C. 10, at p. 14.

Like Evgeny, Vitaly gets a grant via JSA, but the application named him and was not transferable. This is different from an institution getting a grant, and hiring whomever they like to do the work.

Vitaly wins.

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