                           149 T.C. No. 14



                  UNITED STATES TAX COURT



              PEI FANG GUO, Petitioner v.
    COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket No. 4805-16.                          Filed October 2, 2017.



       P, a citizen of Canada, entered the United States in 2010 to
work as a post-doctoral fellow at a university. She resided in the
United States until November 2011 when her employment contract
with the university ended. After unsuccessfully attempting to find
other employment in the United States, P returned to Canada.

      Sometime in 2012 P applied for and received unemployment
compensation from the State of Ohio. For 2012 she timely filed a
Federal income tax return on which she treated her unemployment
compensation as exempt from tax under the Convention Between the
United States of America and Canada With Respect to Taxes on
Income and on Capital (treaty). P was a nonresident alien during
2012.

      P contends that her unemployment compensation is exempt
from U.S. income tax under article XV of the treaty, which covers
“Dependent Personal Services.” R contends that article XV does not
                                          -2-

      apply and that article XXII, which covers “Other Income,” applies
      and allows the United States to tax her unemployment compensation.

           1. Held: Article XV of the treaty does not exempt P’s unem-
      ployment compensation from U.S. income tax.

             2. Held, further, article XXII of the treaty governs the tax treat-
      ment of P’s unemployment compensation and permits the United
      States to tax it.



      Pei Fang Guo, pro se.

      Peter N. Scharff, for respondent.



                                       OPINION


      LAUBER, Judge: The Internal Revenue Service (IRS or respondent) deter-

mined under section 62111 deficiencies in petitioner’s Federal income tax for 2011

and 2012 as follows:

                                Year             Deficiency

                                2011              $3,749
                                2012               1,391




      1
        All statutory references are to the Internal Revenue Code (Code) in effect
for the years at issue, and all Rule references are to the Tax Court Rules of Prac-
tice and Procedure. We round all monetary amounts to the nearest dollar.
                                        -3-

After concessions,2 the sole question remaining for decision is whether U.S.-

source unemployment compensation that petitioner received during 2012 is ex-

empt from Federal income tax under the Convention With Respect to Taxes on

Income and on Capital, Can.-U.S., Sept. 26, 1980, T.I.A.S. No. 11087 (treaty).

This appears to be a question of first impression in this (or any other) Court.

      Petitioner contends that her unemployment compensation is exempt from

U.S. tax under article XV of the treaty, which covers “Dependent Personal Ser-

vices.” Respondent contends that article XV does not apply and that article XXII

of the treaty, which covers “Other Income,” applies to make her unemployment

compensation taxable. We agree with respondent.

                                    Background

      This case was submitted fully stipulated under Rule 122. There is no dis-

pute as to the following facts, which are drawn from the parties’ stipulation of

facts (as amended) and the attached exhibits. Petitioner resided in Montreal, Can-

ada, when she petitioned this Court.




      2
        For 2011 petitioner concedes that wage income of $31,500 was properly in-
cludible in her gross income and that she was not entitled to deduct student loan
interest of $271. Petitioner asks that we abate interest on the 2011 deficiency un-
der section 6404, but we lack jurisdiction to do this in a deficiency case. See sec.
6404(e)(1)(A).
                                        -4-

      Petitioner has been a citizen of Canada from 2003 to the present. In Octo-

ber 2010 she moved to Ohio to take a position as a post-doctoral fellow at the Uni-

versity of Cincinnati (UC). She was employed there from October 2010 through

November 2011 on a nonimmigrant professional visa. She has never applied to be

a lawful permanent resident of the United States.

      Petitioner’s employment contract with UC expired on November 30, 2011.

After unsuccessfully attempting to find other employment in the United States, she

returned to Canada and re-established her Canadian residency on December 1,

2011. She remained a Canadian resident through the end of 2012 and was physi-

cally present in the United States for only two days that year.

      Following termination of her UC employment contract petitioner applied to

the Ohio Department of Job and Family Services (department) for unemployment

compensation. The department approved that application because of her prior

employment with UC. During 2012 she received biweekly unemployment com-

pensation of $15,972 from the department. It issued her a Form 1099-G, Certain

Government Payments, reporting this compensation and reporting that no Federal

income tax had been withheld.

      Petitioner timely filed with the IRS for her 2012 taxable year Form

1040NR-EZ, U.S. Income Tax Return for Certain Nonresident Aliens With No
                                          -5-

Dependents. On Schedule OI, Other Information, she took the position that her

unemployment compensation was exempt from Federal income tax under article

XV of the treaty. She reported the unemployment compensation as taxable on her

Canadian income tax return for 2012; no Canadian tax was due because of offset-

ting deductions and credits.

        The IRS selected petitioner’s 2012 return for examination and, in a timely

notice of deficiency, determined that she had failed to report taxable unemploy-

ment compensation of $15,972. She timely petitioned this Court for redetermina-

tion.

                                      Discussion

        The IRS’ determinations in a notice of deficiency are presumed correct, and

the taxpayer bears the burden of proving them erroneous. Rule 142(a); Welch v.

Helvering, 290 U.S. 111, 115 (1933). Petitioner does not contend that the burden

of proof should shift to respondent under section 7491(a). In any event, only legal

issues remain, so the burden of proof is irrelevant. See, e.g., Nis Family Tr. v.

Commissioner, 115 T.C. 523, 538 (2000).

        The parties agree that petitioner during 2012 was a nonresident alien, i.e., a

person who was neither a citizen nor a resident of the United States. See sec.

7701(b)(1). Nonresident alien individuals generally are taxed on their U.S.-source
                                         -6-

income. See secs. 871, 872. The parties agree that petitioner’s unemployment

compensation, by analogy to other items of income specified in section 861, was

U.S.-source income. They agree that “gross income includes unemployment

compensation,” section 85(a), and that this income was “effectively connected”

with the conduct by petitioner of a U.S. trade or business, see section 871(b). The

sole question presented is whether petitioner’s unemployment compensation was

exempt from Federal income tax under the treaty.

      When interpreting a treaty or other international agreement, we begin with

its text. Volkswagenwerk Aktiengesellschaft v. Schlunk, 486 U.S. 694, 699

(1988). We interpret a treaty according to the ordinary meaning of its terms, con-

sistently with their context and the agreement’s object and purpose. Sanchez-

Llamas v. Oregon, 548 U.S. 331, 346 (2006). Treaties are contracts between sov-

ereigns and, as such, should be construed to give effect to the signatories’ intent.

United States v. Stuart, 489 U.S. 353, 365-366 (1989). Because treaties are con-

strued more liberally than private agreements, we may ascertain their meaning by

looking beyond the written words to the history of the treaty, the parties’ negotia-

tions, and the practical construction they have adopted. Air Fr. v. Saks, 470 U.S.

392, 396 (1985); see Estate of Silver v. Commissioner, 120 T.C. 430, 434 (2003);

N.W. Life Assurance Co. of Can. v. Commissioner, 107 T.C. 363, 378-379 (1996).
                                         -7-

      The treaty was signed on September 26, 1980, and entered into force on

August 16, 1984. The first two amending protocols, signed respectively on June

14, 1983, and March 28, 1984, also entered into force on August 16, 1984.3 The

treaty has since been amended three more times.4

      Neither the treaty nor its protocols specify how unemployment compensa-

tion shall be treated. Only the Third Protocol even mentions unemployment com-

pensation. It does so for the sole purpose of clarifying that such compensation

shall not be included within the category of “[b]enefits under the social security

legislation in a Contracting State” for purposes of article XVIII of the treaty,

which governs “Pensions and Annuities.” See Third Protocol, art. 9(2).




      3
       See Protocol Amending the Convention With Respect to Taxes on Income
and on Capital, Can.-U.S., Sept. 26, 1980, S. Treaty Doc. 98-7 (1983); Second
Protocol Amending the Convention With Respect to Taxes on Income and on
Capital, Can.-U.S., Sept. 26, 1980, as Amended by the Protocol on June 14, 1983,
S. Treaty Doc. 98-22 (1984).
      4
        See Revised Protocol Amending the Convention With Respect to Taxes on
Income and on Capital, Can.-U.S., Sept. 26, 1980, as amended by the Protocols on
June 14, 1983, and Mar. 28, 1984, S. Treaty Doc. 104-4 (1995) (Third Protocol);
Protocol Amending the Convention With Respect to Taxes on Income and on Cap-
ital, Can.-U.S., Sept. 26, 1980, as Amended by the Protocols on June 14, 1983,
Mar. 28, 1984, and Mar. 17, 1995, S. Treaty Doc. 105-29 (1997); Protocol
Amending the Convention With Respect to Taxes on Income and on Capital, Can.-
U.S., Sept. 26, 1980, as Amended by the Protocols on June 14, 1983, Mar. 28,
1984, Mar. 17, 1995, and July 29, 1997, S. Treaty Doc. 110-15 (2008).
                                        -8-

      In contending that her unemployment compensation is exempt from U.S.

tax, petitioner relies on article XV of the treaty, captioned “Dependent Personal

Services.” Paragraph 1 thereof governs the treatment of “salaries, wages, and

other similar remuneration derived by a resident of a Contracting State in respect

of an employment.”

      Petitioner’s unemployment compensation did not take the form of “salaries”

or “wages.” The term “remuneration” is not defined by the treaty, and therefore its

meaning shall “have the meaning which it has under the law of that State concern-

ing the taxes to which the Convention applies.” Art. III(2). We thus look to the

Code for guidance as to the meaning of “remuneration.”

      The term “remuneration” is not defined in title 26. That term makes two

major appearances in the Code. It appears in section 3401, which supplies defi-

nitions for purposes of withholding income tax from wages, and in section 3121,

which supplies definitions for purposes of withholding FICA tax from wages.

      Section 3401(a) provides that “the term ‘wages’ means all remuneration

(other than fees paid to a public official) for services performed by an employee

for his employer, including the cash value of all remuneration (including benefits)

paid in any medium other than cash.” Section 3401(a) then provides 23 excep-

tions for certain types of “remuneration” paid to certain types of employees. Sec-
                                        -9-

tion 3121(a) provides that “the term ‘wages’ means all remuneration for employ-

ment, including the cash value of all remuneration (including benefits) paid in any

medium other than cash.” Like section 3401(b), section 3121(b) provides numer-

ous exceptions for certain types of “remuneration” paid to certain types of em-

ployees.

      Just as unemployment compensation does not constitute “wages” or “salar-

ies,” we conclude that it does not constitute “similar remuneration derived * * * in

respect of an employment” within the meaning of article XV. Although neither

section 3121 nor section 3401(a) supplies a comprehensive definition of “remu-

neration,” both strongly associate that term with wages and benefits paid by an

employer to an employee. Petitioner was not employed by UC when she received

her unemployment compensation. And she received that compensation, not from

her former employer, but from the State of Ohio. Cf. sec. 3402(o)(1)(A) (provid-

ing that a supplemental unemployment compensation benefit received from an

employer shall be treated “as if it were payment of wages by an employer to an

employee for a payroll period” and shall be subject to wage withholding); United

States v. Quality Stores, Inc., 572 U.S. __, __, 134 S. Ct. 1395, 1399-1400 (2014)

(finding severance payments made by an employer to an employee to be “supple-

mental unemployment compensation benefits” under section 3402(o)).
                                       - 10 -

      Even if unemployment compensation were thought to be “remuneration de-

rived * * * in respect of an employment,” article XV(1) would not help petitioner.

Paragraph 1 thereof provides that “salaries, wages and other similar remuneration

derived by a resident of a Contracting State in respect of an employment shall be

taxable only in that State unless the employment is exercised in the other Contract-

ing State.” If the employment is so exercised, “such remuneration as is derived

therefrom may be taxed in that other State.” Ibid.

      If petitioner’s unemployment compensation were thought to be “remuner-

ation derived * * * in respect of an employment,” it would have to be regarded as

remuneration derived in respect of her former employment with UC. See ibid.

That employment was “exercised” in the United States. Paragraph 1 accordingly

provides that such remuneration may be taxed in the United States.

      Paragraph 2 of article XV provides two exceptions to the general rule set

forth above. As applicable here, it would allow Canada rather than the United

States to tax petitioner’s remuneration, notwithstanding that she exercised her em-

ployment in the United States, if: (1) such remuneration did not exceed $10,000 in

U.S. currency or (2) petitioner was present in the United States for 183 or fewer

days during 2012 and her remuneration was “not borne by an employer who is a

resident” of the United States.
                                       - 11 -

      Petitioner’s unemployment compensation, $15,972, exceeded $10,000. And

although she was present in the United States for only two days during 2012, her

remuneration (if such it was) was borne by the department, which is a resident of

the United States. Because paragraph 2 of article XV is thus inapplicable,

paragraph 1 would allow the United States to tax her unemployment compensation

if it were thought to be “remuneration derived * * * in respect of an employment.”

      In short, petitioner’s reliance on article XV is misplaced. Article XV does

not govern unemployment compensation because such income is not “remunera-

tion derived * * * in respect of an employment.” And even if article XV did ap-

ply, its provisions would permit the United States to tax that income.

      Given the inapplicability of article XV, respondent contends that unemploy-

ment compensation is governed by article XXII of the treaty, captioned “Other

Income.” This catchall provision covers items of income not dealt with elsewhere

in the treaty. It provides:

      Items of income of a resident of a Contracting State, wherever arising,
      not dealt with in the foregoing Articles of this Convention shall be
      taxable only in that State, except that if such income arises in the
      other Contracting State it may also be taxed in that other State. [Art.
      XXII(1)]

      This provision expressly permits the United States to tax petitioner’s unem-

ployment compensation because it arose here. The Technical Explanation to arti-
                                       - 12 -

cle XXII states that “[t]he determination of where income arises * * * is made

under the domestic laws of the respective Contracting states unless the Convention

specifies where the income arises.” See Treasury Department Technical Explana-

tion of the Convention Between the United States of America and Canada With

Respect to Taxes on Income and on Capital, Sept. 26, 1980, as amended by the

Protocols on June 14, 1983, and Mar. 28, 1984, 1987-2 C.B. 298, 315. The treaty

does not specify where unemployment compensation arises, and we thus look to

U.S. law to determine its source. Petitioner has conceded that, under the Code, her

unemployment compensation arose in the United States.

      Finally, petitioner contends that if she were required to pay U.S. tax on her

unemployment compensation, she would be subjected to double taxation in contra-

vention of the treaty. Paragraph 1 of article XXIV, captioned “Elimination of

Double Taxation,” provides that double taxation shall be avoided, in the case of a

U.S. citizen or resident, by this country’s allowance of a credit for any Canadian

income tax paid. Because petitioner is not a U.S. citizen or resident, paragraph 1

does not apply to her. Paragraph 2(a) of article XXIV provides that, “[i]n the case

of Canada,” double taxation shall be avoided by Canada’s allowance of a de-

duction from Canadian income tax for (among other things) “income tax paid * * *

to the United States on profits, income or gains arising in the United States.” Be-
                                        - 13 -

cause such relief would be granted by Canada, not by the United States, we lack

jurisdiction to consider petitioner’s entitlement to relief under paragraph 2.

      To reflect the foregoing,


                                                 Decision will be entered for

                                       respondent.
