No, I haven’t taken on the role of war correspondent. One of my correspondents, Peter Reilly, CPA, backed by the inexhaustible resources of the Forbes empire, sends me 4 Cir’s reversal of the case of Vitaly Baturin, a Russian scientist who claimed exemption from US income tax on the $75K he got from Thomas Jefferson National Accelerator Facility, a USDOE facility where he was boosting their atom-smasher from 6Bev to 12Bev to unravel the source of the universe.

Here’s Baturin v Commissioner, No. 20-1648, 4/6/22.

For the backstory on Vitaly, see my blogpost “Only Be Sure to Call It Please Research – Part Deux,” 12/18/19.

Judge Motz says the US – Russian Federation Tax Treaty is less generous than the old deal with the now-defunct USSR. Anyway, treaties must be liberally construed in favor of the contracting parties, not the claimants thereunder. Grants and wages are two separate categories, whose separation must be maintained. US law governs, and Section 117 only helps Vitaly when the Jeffs get no benefit from his work.

True, the money was allocated before Vitaly ever came on the scene, but that doesn’t matter if the Jeffs got the benefit of his work.

Judge Motz at 4 Cir, though reversing, gives pore l’il ol’ Tax Court the benefit of the doubt.

“The Tax Court, of course, did not have the benefit of our decision when it heard testimony and decided this case. As a result, the record is not entirely clear as to the specifics of Dr. Baturin’s relationship with Jefferson Lab. We are not a fact-finding body, and the question of how best to characterize the payments at issue here is a largely fact-dependent question.

“Thus, on remand, the Tax Court should determine what Jefferson Lab gained from having Dr. Baturin on staff. In doing so, the court should consider, for example, the following questions: If not Dr. Baturin, would Jefferson Lab have brought someone else to work on upgrading the detector? Did the projects Dr. Baturin worked on pre-and/or post-date his tenure at Jefferson Lab, or were they dependent on his presence? Did Jefferson Lab retain the rights to the product of Dr. Baturin’s research? How much discretion did Dr. Baturin have to direct the day-to-day performance of his work? Cf. Rev. Rul. 80-36, 1980 WL 129605, *1 (outlining relevant considerations to determine whether researchers’ income was tax-exempt under U.S.-Japan Income Tax Convention). In short, was there a ‘substantial quid pro quo’ here? We trust the Tax Court to answer these questions, and we think it appropriate to allow that court the opportunity to apply the framework we have described here in the first instance.” Opinion No. 20-1648, at pp. 15-16. (Citation omitted).

Looks like grants are gifts, disinterested love and affection, not payment for services. To Russia with love?