                  T.C. Summary Opinion 2009-48



                      UNITED STATES TAX COURT



                  FEDOR RATNIKOV, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 3770-07S.                Filed March 30, 2009.



     Fedor Ratnikov, pro se.

     Justin D. Scheid, for respondent.



     GOLDBERG, Special Trial Judge:   This case was heard pursuant

to the provisions of section 7463 of the Internal Revenue Code in

effect at the time the petition was filed.    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.   Unless otherwise indicated, subsequent

section references are to the Internal Revenue Code in effect for
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the years in issue, and all Rule references are to the Tax Court

Rules of Practice and Procedure.

     The sole issue for decision is whether salary payments

petitioner received during 2003 and 2004 from Rutgers University

are exempt from Federal income tax under the Convention for the

Avoidance of Double Taxation, U.S.-Russ., June 17, 1992, 3 Tax

Treaties (CCH) par. 8003 (treaty).

                            Background

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

The stipulation of facts and the attached exhibits are

incorporated herein by this reference.   Petitioner resided in

Illinois when he filed his petition.

     For at least three decades, Rutgers, the State University of

New Jersey (Rutgers), has received grants from the National

Science Foundation (NSF) and has contributed its own funds to

send personnel, predominantly faculty and students, to conduct

research in elementary particle physics at Fermi National

Accelerator Laboratory (Fermilab), near Batavia, Illinois, close

to Chicago.   A significant feature of Fermilab is the Tevatron, a

powerful particle accelerator 4 miles in circumference.

     On October 31, 1999, at the invitation of Rutgers,

petitioner, a citizen of the Russian Federation, entered the

United States under exchange visitor status on a J-1 visa.

Petitioner’s entrance document from the United States Information
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Agency shows that he was joining an existing Rutgers research

program as a postdoctoral research scholar in the area of high-

energy experimental physics “to promote the general interests of

international education and cultural exchange”.   The document

signed by the associate director of Rutgers’s Center for

International Faculty and Student Services notes that Rutgers

agreed to pay petitioner $46,000 for the first year of research,

November 1, 1999, to October 31, 2000, and that petitioner had

not secured funding from any other source.

     Petitioner promptly began conducting research for Rutgers at

Fermilab and settled nearby.   One year later petitioner’s wife

joined him in the United States, and she began working directly

for Fermilab.   Throughout the years at issue they continued to

reside in Illinois and continued to work at Fermilab.   In May

2005 petitioner began employment with the University of Maryland,

College Park.   However, he continued to reside near and conduct

research at Fermilab.

     Rutgers maintained petitioner’s appointments at Fermilab

through annual 1-year employment contracts.   In a letter dated

July 16, 2002, Rutgers’s dean of educational initiatives offered

to hire petitioner for November 1, 2002 through October 31, 2003,

at the rank of research associate in the Department of Physics

and Astronomy, in the Faculty of Arts and Sciences.   The letter

states that Rutgers’s hiring “is a grant-funded appointment
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contingent on the availability of funds to support it”.     The dean

enclosed with the letter a copy of Rutgers’s “Faculty Employment

Agreement” for petitioner to sign.     Petitioner had no teaching

responsibilities.   Rutgers provided petitioner with its standard

vacation, sick leave, and retirement benefits.

     Rutgers’s grant proposal to NSF for the 3-year period

starting October 1, 2003, consisted of four main ongoing projects

and the completion of two earlier projects.     However, because of

NSF streamlining of proposal requirements, Rutgers combined the

projects into one broad proposal entitled “Experimental Research

In Elementary Particle Physics”.   Rutgers requested a total of

$5,035,044 from NSF, based on annual requests of $1,465,447,

$1,757,599, and $1,811,998.   The proposal noted that Rutgers’s

science faculty had requested their university to contribute

about $50,000 per year of its own funds to directly support the

projects.

     Rutgers’s proposal listed 11 senior physicists as leading

its overall research effort, of which petitioner was not one.

Rutgers’s four main projects were:     (1) The observation of the

highest-energy cosmic rays with the Fly’s Eye detector, (2)

operation and upgrade of the CDF (collider detector at Fermilab),

(3) preparation of the CMS (Compact Muon Solenoid) for future

operation at CERN (acronym for Conseil Européen pour la Recherche

Nucléaire (European Organization for Nuclear Research), and (4)
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preparation of “chemical-vapor-deposition diamond detectors” for

the CMS.

     Although petitioner was not one of the 11 senior physicists,

Rutgers did list him in the technical detail section of the

second main project, the CDF operation and upgrade.    The detail

listed, in apparently the order of responsibility, seven senior

physicists, one professional staff member, five doctoral

researchers (including petitioner), four graduate students, and

three undergraduate summer students.    The detail further

highlighted five “Rutgers senior personnel [who] are key members

of the leadership of the CDF Collaboration”, including

petitioner, as follows:    “Postdoc Fedor Ratnikov heads the Tau

Working Group in CDF, and has written the backbone of the tau

finding and triggering code for the experiment.”    The CDF project

incorporated collaboration from about 300 physicists from around

the world.

     Specifically, petitioner was responsible for leading a group

of about 10 people who were supporting the data handling for the

tau particles reconstruction experiment.    This group made it

possible for the experiment to store petabytes of data.

Petitioner reported to Dr. Terence Watts, the head of the Rutgers

CDF data handling group, who was based in New Brunswick, New

Jersey.    But petitioner exercised independent discretion day to

day, and he presented findings at international conferences:
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Beijing in 2001, San Diego in 2003, and Samar, the Philippines in

2004.

     Rutgers paid petitioner biweekly.      For 2003 and 2004 Rutgers

issued petitioner Forms W-2, Wage and Tax Statement, reporting

that petitioner had Federal taxable “Wages, tips, other

compensation” of $47,672.15 and $51,674.04, respectively.

     Before preparing his 1999 Federal income tax return,

petitioner consulted a certified public accountant (C.P.A.)

recommended by his colleagues.    The C.P.A. advised petitioner

that the treaty exempted petitioner’s first 5 years of income

from Federal income tax because petitioner was receiving the

payments from a governmental, scientific, or educational

organization and not from a private source.

     On the C.P.A.’s advice petitioner filed his 1999 through

2004 tax returns excluding the Rutgers payments from income.      For

2003 petitioner filed a Form 1040NR-EZ, U.S. Income Tax Return

for Certain Nonresident Aliens With No Dependents, reporting his

filing status as married filing separate and $47,672.15 in

nontaxable salary, resulting in an overpayment equal to his

withholdings of $7,899.76.   Petitioner reported no other income,

deductions, allowances, or credits.      On page 2 of the form

petitioner fully disclosed that he was from Russia, the purpose

of his visit was research in high-energy physics, he had filed a

2002 Form 1040NR-EZ, his income was exempt from Federal income
                               - 7 -

tax under article 18, paragraph 1(c), of the treaty, and he was

not subject to income tax in Russia for the income he was

excluding in the United States.

     Petitioner reported the 2004 payments from Rutgers in a

similar manner.   He filed a 2004 Form 1040NR-EZ, reporting

$43,061 as nontaxable wages.   The only material difference from

2003 was that for 2004 petitioner reported $8,613.04 in taxable

wages, which represented the final 2 months of the 2004 payments

because petitioner calculated that the 5-year exemption under the

treaty ended on October 31, 2004.   After subtracting a personal

exemption of $3,100, petitioner computed a tax of $553 and netted

the tax against his withholdings of $8,501.73, yielding an

overpayment of $7,948.73.

     In 2006 the IRS examined petitioner’s 2003 and 2004 tax

returns.   The examiner determined that petitioner should have

reported all of his salary from Rutgers as taxable wages.     On the

basis of the examiner’s findings, the IRS issued a notice of

deficiency dated November 14, 2006, determining deficiencies in

income taxes of $7,966 and $8,328 for 2003 and 2004,

respectively.   Petitioner timely petitioned this Court seeking

redetermination of the deficiencies.

     Concurrently, the IRS issued a notice of deficiency to

petitioner’s wife pertaining to her 2003 and 2004 tax returns, in

which she had similarly excluded her income from Fermilab because
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of the treaty and filed using married filing separate status.

The IRS again maintained its position that the treaty did not

exclude her wages from Federal income tax and issued a notice of

deficiency.   Petitioner’s wife also timely petitioned the Court

for redetermination of the deficiencies.

     Petitioner and his wife sent their petitions to the Court in

one envelope.   The Court assigned docket No. 3770-07S to

petitioner’s petition and docket No. 3771-07S to his wife’s

petition.

     Subsequently, petitioner and his wife established to

respondent’s satisfaction that as a couple they were jointly

entitled in 2003 and 2004 to dependency exemptions for their two

children and itemized deductions in the following amounts:

                                         2003       2004
        Dependency exemptions           $6,100     $6,200
        Real estate taxes                4,280      4,645
        Home mortgage interest          14,609     10,952
        Contributions                      100       -0-

     Petitioner also established that he was separately entitled

to deductions in 2003 and 2004 for State income tax that he had

paid in amounts of $1,441.81 and $1,602.77, respectively.

However, section 6013(b)(2)(B) provides a limitation such that

once an individual and his spouse have filed separate returns for

a year, and either spouse has petitioned the Court after
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receiving a notice of deficiency from the Commissioner, then the

spouses are precluded from filing a joint return for that year.

     The Court heard petitioner’s case at a trial session in

Chicago.    The Court did not hear petitioner’s wife’s case, which

was set for trial on the same calendar, because she and

respondent had reached a settlement agreement before trial.        On

March 4, 2008, the Court entered an agreed decision in the

petitioner’s wife’s case at docket No. 3771-07S.       Apparently, the

settlement provided that the petitioner’s wife’s wages from

Fermilab were taxable as income to her, she was entitled to all

of the dependency exemptions for the two children for 2003 and

2004, and she was entitled to one-half of the above-mentioned

“joint” itemized deductions.

     Accordingly, with respect to the exemptions and deductions

for petitioner’s case, the Court ordered respondent and

petitioner to enter into a supplemental stipulation of facts,

which the Court filed on March 13, 2008.       The supplemental

stipulation provided that petitioner is entitled to the following

amounts:

                                             2003        2004
           Dependency exemptions              -0-         -0-
           Personal exemption              $3,050.00   $3,100.00
           Real estate taxes                2,140.00    2,322.50
           Home mortgage interest           7,304.50    5,476.00
           Contributions                       50.00      -0-
           State income tax                 1,441.81    1,602.77
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     Consequently, at trial respondent requested that the Court

enter its decision under Rule 155 to take into account

petitioner’s entitlement to personal exemptions and itemized

deductions listed above.

                             Discussion

     In general, the Commissioner’s determination set forth in a

notice of deficiency is presumed correct, and the taxpayer bears

the burden of showing that the determination is in error.    Rule

142(a)(1); Welch v. Helvering, 290 U.S. 111, 115 (1933).    Under

section 7491(a), the burden regarding factual matters may shift

to the Commissioner if the taxpayer produces credible evidence

and meets the other requirements of the section.    Petitioner did

not argue for a burden shift, and therefore the burden remains

with him.

     The role of the judiciary in interpreting tax treaty

provisions is to decide their underlying intent or purpose.

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).   We therefore begin our analysis by examining the treaty

itself.   The pertinent part of article 18, Students, Trainees and

Researchers, provides as follows:

            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:

                 *      *     *       *    *    *     *
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          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.

          [Treaty art. 18, 3 Tax Treaties (CCH) par. 8003, at
          163,018.]

     Reviewing article 18, we conclude that petitioner satisfies

the requirements in that he was a resident of Russia at the

beginning of his visit to the United States, he was temporarily

present in the United States for the purpose of conducting

research, the payments came from a governmental, scientific, or

educational organization, and he undertook the research for the

public interest and not for private benefit.   The sole remaining

issue, then, is whether under article 18, paragraph 1(c),

petitioner was the “recipient of a grant, allowance, or other

similar payments”.

     In a case with nearly identical facts, the U.S. Court of

Federal Claims had to decide whether Mr. Sarkisov, a Russian
                               - 12 -

citizen, was “doing research as a recipient of a grant” according

to the meaning and application of that phrase as it appears in

the treaty.   Sarkisov v. United States, 95 AFTR 2d 2005-738,

2005-1 USTC par. 50,218 (Fed. Cl. 2005).    Mr. Sarkisov had

entered the United States in 1998 from Russia on a temporary

basis on a J-1 visa to conduct research in physics (optics

spectroscopy) for the University of Nevada.       Id. at 2005-739,

2005-1 USTC par. 50,218, at 87,478.     On the entrance document Mr.

Sarkisov stated that he had financial support from no other

sponsor.   Id.   The University of Nevada’s funding for the project

came from several grants, including grants from Cornell

University, the Department of Energy, and the U.S. Navy.       Id. at

2005-740, 2005-1 USTC par. 50,218, at 87,479.      Mr. Sarkisov was

not a direct recipient of any of the grants, and none of the

grants specified that the funding depended on the university’s

continued employment of Mr. Sarkisov.     Id.    The university paid

Mr. Sarkisov a salary and withheld Federal income tax.       Id. at

2005-739, 2005-1 USTC par. 50,218, at 87,478.      Mr. Sarkisov filed

refund claims for 1998 through 2000 which the IRS denied.       Id.

Mr. Sarkisov then commenced an action against the United States

in the Court of Federal Claims for refunds, contending that the

salary payments were exempt under the treaty as grants for

research pursuant to article 18(1)(c).     Id.

     In granting summary judgment in favor of the United States,

the Court of Federal Claims, while acknowledging that Mr.
                              - 13 -

Sarkisov met the basic requirements of the treaty, held that his

salary from the University of Nevada was not exempt from Federal

income tax as a grant for the following reasons.    First, the

record was replete with references to Mr. Sarkisov as an employee

of the university, but the record contained no references to Mr.

Sarkisov as a grant recipient.   Id. at 2005-741, 2005-1 USTC par.

50,218, at 87,479.   Although Mr. Sarkisov’s employment contract

emphasized that the university made his hiring contingent on the

university’s receiving grant funding, the court found that the

university incorporated the contingency into the contract simply

to protect itself against a shortfall of funds for research,

which in no manner converted Mr. Sarkisov’s salary into a grant.

Id.   Second, although Mr. Sarkisov argued that in the modern

environment grantors make grants to universities, not to

individuals, the court held that treaty terms are matters for

contracting states to address, not the judiciary.    Id.   Third,

the term “grant” carries a special meaning, and the court

concluded that it would create “unintended benefits to parties

outside the scope of the Treaty’s language” to interpret the term

so broadly as to incorporate all payments to researchers,

including a monthly salary, as a grant.   Id. at 2005-740 through

2005-741, 2005-1 USTC par. 50,218, at 87,479.

      Now we compare the facts in petitioner’s case with those in

Sarkisov v. Commissioner, supra.   First, many documents in the

record such as the Faculty Employment Agreement and the Forms W-2
                              - 14 -

refer to petitioner as an employee receiving a salary.    The 3-

year Rutgers grant proposal of about 30 pages mentions petitioner

only briefly as leading one of the subprojects, never as leading

one of the main projects, and not as a senior physicist.    We

believe petitioner and his colleagues when they say petitioner

performed well and that Rutgers could not have proceeded on the

CDF data-handling without his participation.   Petitioner led a

team of 10 people and gave international presentations.     However,

he reported to another physicist who Rutgers listed as one of the

senior physicists on the CDF project.   Similarly, the Court

received into evidence annual NSF grant approval letters for

2000-04 citing the names of other Rutgers physicists but not

petitioner.   Further and importantly, petitioner himself

acknowledged that without his presence Rutgers’s other NSF

projects would have continued and Rutgers might have substituted

a different subproject in its grant request.   In summary, we find

first that Rutgers conditioned petitioner’s employment on

Rutgers’s receipt of funding from the NSF, but critically,

Rutgers’s NSF funding was not contingent on petitioner’s

participation.

     Second, if the modern funding environment has shifted to

providing grants to universities instead of to individuals, we

agree with the Court of Federal Claims that the contracting

states have the responsibility to modify their treaty terms if

they choose, not the judiciary.
                              - 15 -

     Third, in accord with the Court of Federal Claims, we too

recognize that the term “grant” has a precise meaning.    We

likewise hold that it would be overly broad to construe all

payments for research as a grant.

     In summary, we hold that petitioner was not the recipient of

“a grant, allowance, or other similar payments” under article 18,

paragraph 1(c) of the treaty between the United States and the

Russian Federation.   As a result, the salary that petitioner

received during 2003 and 2004 from Rutgers is includable in

income.

     To reflect our disposition of the issues,


                                           Decision will be entered

                                       under Rule 155.
