                          T.C. Summary Opinion 2018-2



                         UNITED STATES TAX COURT



                    EVGENY KISELEV, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 30054-14S.                         Filed January 10, 2018.



      Evgeny Kiselev, pro se.

      Rachel L. Rollins, for respondent.



                              SUMMARY OPINION


      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.1



      1
        Section references are to the Internal Revenue Code, as amended and in
effect for the year at issue. Rule references are to the Tax Court Rules of Practice
and Procedure. Monetary amounts are rounded to the nearest dollar.
                                        -2-

Pursuant 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




      2
        On November 30, 2017, the Court filed its opinion in Dovzhenok v.
Commissioner, T.C. Summary Opinion 2017-86, which as noted therein may not
be treated as precedent. That case also involves application 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.
However, in Dovzhenok we reached a different result on facts than are different
from those in this case.
                                          -3-

                                     Background

      Some of the facts have been stipulated and are so found. Petitioner resided

in Maryland when he filed the petition.

A.    Petitioner’s Presence in the United States and Immigration Status

      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.

B.    Petitioner’s Employment and Enrollment in a Ph.D. Program

      Petitioner worked as a laboratory technician at Purdue beginning in fall

2005 and continuing through fall 2007. Petitioner was admitted to a Ph.D.
                                        -4-

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.

C.    The Grant Programs

      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.

      1.      Purdue Research Foundation Research Grant

      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
                                        -5-

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.

      2.     Special Incentive Research Grant

      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
                                        -6-

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.

      3.     Summary

      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.

D.    Petitioner’s 2011 Tax Return

      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.
                                            -7-

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.

                                     Discussion

A.    Burden of Proof

      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).

B.    The Treaty

      Article 18 of the Treaty, titled Students, Trainees, Researchers, provides as

follows:
                                         -8-

      1. An individual who is a resident of a Contracting State at the
      beginning of his visit to the other Contracting State and who is
      temporarily present in that other State for the primary purpose of:

                    *      *     *      *      *      *      *

             (c) studying or doing research as a recipient of a grant,
      allowance, or other similar payments from a governmental, religious,
      charitable, scientific, literary, or educational organization,

      shall be exempt from tax by that other State with respect to payments
      from abroad for the purpose of his maintenance, education, study,
      research, or training, and with respect to the grant, allowance, or other
      similar payments.

      2. The exemption in paragraph 1 shall apply only for such period of
      time as is ordinarily necessary to complete the study, training or
      research, except that no exemption for training or research shall
      extend for a period exceeding five years.

      3. This Article shall not apply to income from research if such
      research is undertaken not in the public interest but primarily for the
      private benefit of a specific person or persons.

      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) (citing E. Airlines, Inc. v. Floyd, 499 U.S. 530, 534 (1991), and

Sumitomo Shoji Am., Inc. v. Avagliano, 457 U.S. 176, 179-180 (1982)). 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

(citing Sanchez-Llamas v. Oregon, 548 U.S. 331, 346 (2006), Sumitomo Shoji
                                        -9-

Am., Inc., 457 U.S. at 180, and Amaral v. Commissioner, 90 T.C. 802, 812

(1988)).

      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.

C.    Whether To Apply Section 117 (“Qualified Scholarships”) or Related
      Caselaw in Construing Article 18

      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 laws of that
      State concerning the taxes to which this Convention applies.
      [Emphasis added.]

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,
                                       - 10 -

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.

      Respondent does not contend that the Treaty draftspersons intended to mean

“scholarship” when they used the broader phrase “grant, allowance, or similar

payment”. Respondent contends, however, that we should consider the definition

of “scholarship” in section 117 (“Qualified Scholarships”) in construing “grant,

allowance, or other similar payments”. Under section 117, “qualified

scholarships” are excluded from gross income. Section 117(b)(1) defines

“qualified scholarship” as follows:

      The term “qualified scholarship” means any amount received by an
      individual as a scholarship or fellowship grant to the extent the
      individual establishes that, in accordance with the conditions of the
      grant, such amount was used for qualified tuition and related
      expenses.

Section 117 uses the word “grant” in defining “qualified scholarship”. But section

117 does not define “grant” or use the additional words in the phrase at issue here,

“allowance, or other similar payments”, that broaden the scope of article 18

beyond a “grant”.
                                        - 11 -

      Under caselaw established before the enactment of section 117 in its present

form, the Supreme Court said that scholarships are paid on a “no-strings” basis.

Bingler v. Johnson, 394 U.S. 741, 751 (1969).3 A grant, however, may (as with

the PRFR and SIR grants at issue here) be provided specifically to undertake

specific research proposed by the grantee. If a grant is made to fund specific

research, then, upon the award of the grant the recipient of that grant would

reasonably be expected to conduct that research. Thus, unlike scholarships, some

grants may come with “strings”, and the term “grant” includes at least some

arrangements unlike “scholarships” as described by the Supreme Court in Bingler.

Because U.S. tax law does not use or provide a meaning of the Treaty phrase at

issue, “grant, allowance, or other similar payments”, article 3(2) does not direct us

to apply U.S. law in construing that phrase.

D.    Whether Petitioner Was Temporarily Present in the United States for the
      “Primary Purpose of Studying or Doing Research”

      As stated above, the two textual issues in dispute are (1) whether petitioner

was “temporarily present * * * for the primary purpose of studying or doing


      3
        Like the current verison of sec. 117, its predecessor did not include, much
less define, the Treaty phrase at issue here. Neither did the Supreme Court. Thus,
by its terms, article 3(2) does not cause us to consider Bingler v. Johnson, 394
U.S. 741 (1969), in deciding the meaning of “grant, allowance, or other similar
payments.”
                                        - 12 -

research” and (2) whether he was “a recipient of a grant, allowance, or other

similar payments”. We next consider whether petitioner was “temporarily present

in * * * [the United States] for the primary purpose of studying or doing research”.

      Petitioner was admitted to a Ph.D. program five months after he arrived in

the United States in 2005, and he remained in that program for more than five

years until he was granted permanent resident status in 2012. This chronology

shows that petitioner was engaged in study and research during almost all of the

time he was in the United States before becoming a permanent resident.

      Respondent contends that petitioner’s “primary purpose” is determined by

his initial purpose when he came to the United States in 2005. Respondent points

out that upon petitioner’s entry to the United States in August 2005, petitioner’s

visa status was J-2 (as the dependent spouse of his wife) and that, even though he

was admitted to a Ph.D. program in January 2006, his visa status did not change to

F-1 (for students) until December 12, 2008.

      We disagree that the “primary purpose” of petitioner’s stay in the United

States from 2005 until 2011 can be learned solely by considering his intent when

he arrived here or the range of activities allowed under his original J-2 visa.

Instead, to consider his “primary purpose” we will consider all of the facts and

circumstances relating to his activities during the more than five years he was a
                                       - 13 -

temporary U.S. resident. See Bhutta v. Commissioner, 145 T.C. at 363 (stating

that the Court examines the entire record and considers all of the relevant facts and

circumstances to discern a taxpayer’s primary purpose in coming to the United

States). We conclude that petitioner’s primary purpose during his period of

temporary residence in the United States was to study and perform research. The

record shows that his primary purpose during those years, for purposes of article

18, was study and research.

E.    Whether Petitioner “Received a Grant, Allowance, or Other Similar
      Payments”

      The other textual issue in dispute is whether petitioner “received a grant,

allowance, or other similar payments” in 2011.

      1.     Whether Payments Under the PRFR and SIR Programs Are Grants,
             Allowances, or Similar Payments

      Respondent contends that neither PRFR grants nor SIR grants are grants,

allowances, or similar payments. In construing a treaty, the Court gives the

language its ordinary meaning in the context of the Treaty unless a more restricted

sense is clearly intended. See Am. Air Liquide, Inc. & Subs. v. Commissioner,

116 T.C. 23, 29 (2001) (citing De Geofroy v. Riggs, 133 U.S. 258, 271 (1890)).

“Grant” has been broadly defined as an amount of funds given for a specific

purpose. See American Heritage Dictionary 765 (4th ed. 2006). We see no reason
                                        - 14 -

based on article 18 to narrow this definition, particularly because the drafters of

article 18 included “grant” in the broader phrase “allowance, or other similar

payments”. Respondent has provided no persuasive reason for us to conclude that

the payments petitioner received under the PRFR and SIR programs were not

“grants, allowances, or other similar payments”.

      2.     Whether Petitioner “Received” a Grant, Allowance, or Similar
             Payment

      Respondent argues that Professor Cushman (not petitioner) was the

recipient of the PRFR and SIR grants and that because he was a salaried employee,

petitioner did not receive grants. Respondent points out that Purdue disburses

funding for PRFR and SIR grants in part to assist Purdue faculty; that Professor

Cushman signed the applications for the PRFR and SIR grants; that petitioner

could not have applied for them on his own; that the award letter for the PRFR

grant was issued to Professor Cushman; that Professor Cushman benefited from

supervising a research assistant; and that petitioner received a salary.

      We disagree with respondent’s contention that petitioner did not receive the

PRFR and SIR grants. Whatever role Professor Cushman 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
                                        - 15 -

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.

F.    Whether Petitioner Fails To Qualify Under Article 18 Because He Was Not
      a Resident of the Russian Federation Immediately Before He Was Present in
      the United States as a Student

      Respondent contends that petitioner is not eligible under article 18 because

he was not a resident of the Russian Federation immediately before he became a

student in 2007. We disagree; as discussed next, it appears that respondent’s

argument embellishes two separate phrases in article 18.

      Article 18 provides in pertinent part that

      [a]n individual who is a resident of a Contracting State at the
      beginning of his visit to the other Contracting State and who is
      temporarily present in that other State for the primary purpose of
      * * * (c) studying or doing research * * * shall be exempt from tax by
      that other State * * *

      Article 18 does not say that, to qualify, an individual must be a resident of

the other contracting state immediately before becoming a U.S. student.

Expressed in terms of the facts of this case, article 18 requires petitioner to have

been a resident of the Russian Federation at the beginning of his visit to the United

States. Petitioner clearly was a resident of the Russian Federation when he came
                                         - 16 -

to United States in August 2005. Therefore, petitioner does not fail to qualify

because of this provision.

      Article 18 also requires petitioner to have been temporarily present in the

United States for the primary purpose of studying or doing research. Petitioner

was temporarily present in the United States from August 2005 through the tax

year at issue, 2011, and his primary purpose for being in the United States from

fall 2007 through 2011 was to study or do research. Petitioner did not become a

permanent resident until he received a green card on January 31, 2012. Therefore,

petitioner does not fail to qualify under article 18 because of this requirement.

      Respondent points out the definition of “resident” in section 7701(b)(5)(A)

and that days spent in the United States as a student are generally disregarded in

counting the length of time a noncitizen is a U.S. resident. In deciding petitioner’s

eligibility under article 18, we need not consider petitioner’s status as a U.S.

resident for two reasons. First, respondent points out that the result of this case is

not affected by whether petitioner is a U.S. resident.

      Second, while article 18 requires petitioner to have been a resident of the

Russian Federation before coming to the United States, it does not refer to

petitioner’s status as a U.S. resident. Instead, to qualify under article 18, it

requires petitioner to have been “temporarily present” in the United States. Thus,
                                        - 17 -

our application of article 18 is not affected by the definition of U.S. resident in

section 7701.

G.    Conclusion

      Approximately 70% of petitioner’s stipend paid during 2011 was funded

through the PRFR and SIR grants and is excludible from U.S. tax under article 18.

The parties agree that the remaining 30% of his salary is taxable to petitioner.

      To reflect the foregoing,


                                                      Decision will be entered under

                                                 Rule 155.
