                        T.C. Summary Opinion 2017-45



                        UNITED STATES TAX COURT



            JOANNA KLUBO-GWIEZDZINSKA, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 16501-15S.                       Filed June 28, 2017.



      Joanna Klubo-Gwiezdzinska, pro se.

      Rachel L. Rollins, for respondent.



                             SUMMARY OPINION


      ARMEN, Special Trial Judge: This case was heard pursuant to the

provisions of section 7463 of the Internal Revenue Code in effect when the
                                        -2-

petition was filed.1 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 deficiencies in, and accuracy-related penalties on,

petitioner’s Federal income tax for 2010 and 2011:

                                                             Penalty
              Year               Deficiency                sec. 6662(a)

              2010                  $7,400                   $1,400
              2011                   7,644                    1,529

      After concessions by respondent,2 the issue for decision is whether

payments that petitioner received during 2010 and 2011 from Washington

Hospital Center are exempt from Federal income tax under the Convention For

The Avoidance Of Double Taxation And The Prevention Of Fiscal Evasion With



      1
        Unless otherwise indicated, all subsequent section references are to the
Internal Revenue Code, as amended and in effect for the taxable years in issue.
All Rule references are to the Tax Court Rules of Practice and Procedure. All
monetary amounts have been rounded to the nearest dollar.
      2
        Respondent concedes that: (1) a $1,000 prize awarded to petitioner from
the Endocrine Society in 2010 is not taxable and (2) petitioner is not liable for the
accuracy-related penalty for either of the years in issue. Respondent contends that
he erred in the notice of deficiency by allowing petitioner an exemption of $2,000
for each of the years in issue under Article 18(1)(b)(iv) of the U.S.-Poland income
tax treaty (referred to infra in the text as the Convention); however, respondent
does not seek to undo that allowance by asserting increased deficiencies.
                                          -3-

Respect To Taxes On Income, Pol.-U.S., October 8, 1974, 28 U.S.T. 891 (entered

into force July 22, 1976) (Convention).

                                     Background

      Some of the facts have been stipulated, and they are so found. The Court

incorporates by reference the parties’ stipulation of facts and the accompanying

exhibits.

      Petitioner resided in the Commonwealth of Virginia at the time that the

petition was filed with the Court.

      Petitioner was born in Poland and is a Polish citizen. She is highly

educated, having earned both a medical degree and a Ph.D. degree in Poland. For

most of petitioner’s medical and professional career her focus has been on thyroid

cancer. Petitioner is well respected in her field of expertise, and she has often

been recognized for her work.

      At all relevant times petitioner was (and continues to be) a member of the

Endocrine Society, an international organization whose membership consists

principally of medical doctors, scientists, researchers, and educators in the field of

endocrinology and metabolism. Among other things the Endocrine Society,

through the International Endocrine Scholars Program, helps to connect “the

world’s brightest young endocrinologists with unparalleled research positions at
                                         -4-

top institutions outside of their home countries.”3 It was through this scholars

program that petitioner met Leonard Wartofsky, Chairman of the Department of

Medicine at Medstar Washington Hospital Center in Washington, D.C.

      Washington Hospital Center Corp., which does business as Medstar

Washington Hospital Center (Washington Hospital Center), is a nonprofit U.S.

corporation that is exempt from income tax under section 501(c)(3). Washington

Hospital Center has some 912 hospital beds4 and is “dedicated to delivering

exceptional PATIENT FIRST health care”.5 It is “the busiest and largest hospital

in Washington, D.C. and the surrounding area”, with approximately 500,000

inpatient and outpatient visits per year by individuals from throughout the Mid-

Atlantic area, and “serve[s] as referral center and the central hub for the region’s

most advanced acute medical care”, with “[n]ationally respected programs in * * *

cancer, diabetes and endocrinology,” among other specialized areas.6




      3
        See http://www.endocrine.org/awards/student-and-early-career-awards
/international-endocrine-scholars-program
      4
          See https://www.medstarwashington.org/our-hospital/.
      5
        See https://www.medstarwashington.org/our-hospital/mission-
vision-and-values.
      6
          See https://www.medstarwashington.org/our-hospital/.
                                         -5-

      In February 2009 Dr. Wartofsky wrote a letter to petitioner offering her a

position as a Research Fellow at Washington Hospital Center. The letter stated:

      It is my great pleasure to inform you that you have been awarded a
      position as a Research Fellow in Endocrinology in the Division of
      Endocrinology and Metabolism of the Department of Medicine,
      Washington Hospital Center in Washington, D.C. The training
      program appointment is effective 15 February 2009 for a period of
      one year[], ending on February 14, 2010 with a[n] opportunity for
      renewal for both an additional second and third year. Your focus of
      activity will be in the area of translational thyroid cancer research,
      and the stipend will be for $48,000 plus benefits.

      This will be a fully salaried and supported position * * *. You will
      be eligible for appointment to the faculty of the Georgetown
      University School of Medicine at the rank of Assistant Professor of
      Medicine.

      Petitioner accepted the position with Washington Hospital Center, and on

March 1, 2009, she entered the United States on a J-1 visa under the Exchange

Visitor Program.7

      On April 9, 2009, petitioner entered into a “House Staff Agreement” (HSA)

with Washington Hospital Center. The HSA provided in relevant part:

           IN CONSIDERATION of the mutual promises contained in this
      Agreement and intending to be legally bound, the Hospital and the
      House Staff Member [i.e., petitioner] agree as follows:

      7
         “The Exchange Visitor (J) non-immigrant visa category is for individuals
approved to participate in work- and study-based exchange visitor programs.”
https://j1visa.state.gov/basics. The J-1 visa is for the exchange visitor; the J-2 visa
is for the spouse and dependents of the J-1 visa holder.
                                 -6-

1. TERM. This Agreement shall be binding upon the parties beginning
4/1/09 and ending 3/31/10.

*          *           *           *           *          *              *

5. SALARY AND BENEFITS. During the term of this Agreement,
the House Staff Member shall earn a salary of $51,000. Payments
shall be made in equal installments on a biweekly basis. The Hospital
further agrees to provide the House Staff Member with the following
benefits:

5.1 PROFESSIONAL & GENERAL LIABILITY COVERAGE FOR
ACTS WITHIN THE SCOPE OF THE PROGRAM (REGARDLESS
OF WHEN A CLAIM IS FILED).
5.2 PAID TIME OFF (including vacation, sick or personal time)
5.3 HEALTH INSURANCE
5.4 DISABILITY INSURANCE
5.5 FAMILY OR MEDICAL LEAVE OF ABSENCE
5.6 OTHER LEAVES OF ABSENCE
5.7 MEALS, LAUNDRY, & CALL QUARTERS
5.8 COUNSELING, IMPAIRED PHYSICIAN & OTHER SUPPORT
SERVICES

*          *           *           *           *          *              *

6. OBLIGATIONS OF THE HOUSE STAFF MEMBER. House
Staff Member agrees to comply with the general and specific
obligations, responsibilities and requirements of the Hospital and the
Program, including, without limitation:

6.9 At the time of expiration or in the event of termination of this
Agreement, House Staff Member shall return all Hospital property,
complete all medical records and settle all professional and financial
obligations with the Hospital.
                                        -7-

      13. TERMINATION. This Agreement may be terminated by the
      parties as follows:

      *           *             *         *           *         *             *

      13.2 By the Hospital, effective immediately upon delivery of written
      notice by the Program Director to the House Staff Member, for any
      legitimate reason, which may include, without limitation, failure to
      maintain satisfactory academic progress, workplace misconduct,
      unprofessional behavior, endangerment of the health or safety of
      others, including co-workers, patients or other parties.

      Petitioner successfully renewed her contract with Washington Hospital

Center for two additional one-year periods, at a salary of $53,500 under the second

contract and at a salary of $56,200 under the third contract.

      As a Research Fellow at Washington Hospital Center petitioner worked at

least 40 hours a week during the years in issue researching thyroid cancer.

Petitioner also gave presentations on her research, and her findings appeared in

various medical publications and journals.

      Washington Hospital Center sent petitioner Forms W-2, Wage And Tax

Statement, reporting that she received “Wages, tips, other compensation” of

$49,502 in 2010 and $51,795 in 2011. On both the 2010 and 2011 Forms W-2

Washington Hospital Center checked the box indicating that petitioner was

covered by a retirement plan.
                                        -8-

      On May 2, 2011, petitioner filed a Form 1040NR-EZ, U.S. Income Tax

Return For Certain Nonresident Aliens With No Dependents, for 2010. On page 2

of the Form 1040NR-EZ petitioner disclosed that she was a citizen and resident of

Poland. Also on page 2 petitioner claimed that her income of $49,502 was exempt

from Federal income tax under Article 18, Students and Trainees, of the

Convention.

      Petitioner timely filed a Form 1040NR-EZ for 2011. On page 2 of the Form

1040NR-EZ petitioner again disclosed that she was a citizen and resident of

Poland. Also as before, on page 2 petitioner claimed that her income of $51,795

was exempt from Federal income tax under Article 18 of the Convention.

      On its publicly available Form 990, Return Of Organization Exempt From

Income Tax, for its fiscal year ended June 30, 2011, Washington Hospital Center

is not a school described in section 170(b)(1)(A)(ii) but rather a hospital described

in section 170(b)(1)(A)(iii). On that form Washington Hospital Center reported

total revenue of $1.145 billion, of which $1.109 billion was “program service”

revenue, with the latter amount consisting of the sum of “patient service revenue”

of $1.102 billion and “pharmacy” of $7 million (i.e., $0.007 billion). Other

revenue sources included (but were not limited to) nongovernmental contributions,

gifts, and grants of $7 million. Insofar as expenses were concerned, Washington
                                         -9-

Hospital Center reported on its Form 990 that it employed 7,551 individuals in

2010 and paid compensation and benefits of $587 million. In contrast,

Washington Hospital Center reported that it gave no monetary (i.e., zero) grants or

other assistance to individuals.8

      In March 2015 respondent sent petitioner a notice of deficiency. As

relevant, respondent determined that petitioner received taxable income of

$47,502 and $49,795 for 2010 and 2011, respectively, that was not exempt from

Federal income taxation.9

      In response to the notice of deficiency petitioner filed a timely petition for

redetermination with the Court, alleging that her income from Washington

Hospital Center was exempt from Federal income taxation pursuant to Article 18

of the Convention. At trial and in her posttrial brief petitioner alleges as an




      8
        Washington Hospital Center’s Form 990 for its fiscal year 2011 covers
only six months of each of the two calendar years at issue in the instant case.
However, the reporting on Washington Hospital Center’s Forms 990 for its fiscal
years 2010 and 2012 is comparable to the reporting on its Form 990 for its fiscal
year 2011. In particular, Washington Hospital Center reported on all three Forms
990 that it gave no monetary grants or other assistance to individuals.
      9
        In the notice of deficiency respondent allowed an exemption of $2,000 for
each of the two years under Article 18 of the Convention. However, as previously
noted, see supra note 2, respondent contends that he erred in that regard but has
not asserted an increased deficiency for either year.
                                        - 10 -

alternative ground that the income was also exempt pursuant to Article 17,

Teachers, of the Convention.

                                     Discussion

       In general, the Commissioner’s determination in a notice of deficiency is

presumed to be correct, and the taxpayer bears the burden to show otherwise.

Rule 142(a); INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); Welch v.

Helvering, 290 U.S. 111, 115 (1933). Although the burden may shift to the

Commissioner under section 7491(a) if certain requirements are satisfied,

petitioner has not alleged that the section applies, and the record does not support

its applicability.

I. Governing Statutory Framework

       Under the general rule of section 871(b), a nonresident alien individual

(such as petitioner) who is engaged in a trade or business in the United States is

subject to U.S. income tax on the individual’s taxable income effectively

connected with the conduct of that trade or business. Ordinarily, an individual

who performs personal services within the United States at any time during the

taxable year conducts a “trade or business within the United States”. Sec. 864(b).

Consequently, a nonresident alien who receives compensation for the performance

of personal services in the United States has income effectively connected with the
                                        - 11 -

conduct of a trade or business in the United States and therefore has gross income

under the Internal Revenue Code. See secs. 864(c)(1)(A), (2), 871(a)(1)(A); sec.

1.864-4(c)(6)(ii), Income Tax Regs.; see also sec. 61(a)(1). However, under

section 894(a), the Internal Revenue Code is applied to any taxpayer with due

regard to any treaty obligation of the United States that applies to that taxpayer.

An applicable treaty obligation can therefore alter an individual’s income tax

liability under the Internal Revenue Code.

II. The United States-Poland Income Tax Treaty

      As previously stated, the United States is party to an income tax treaty with

Poland, i.e., the Convention. See supra pp. 2-3. Petitioner contends that the

payments that she received in 2010 and 2011 from Washington Hospital Center

are not taxable income to her pursuant to either Article 17 or Article 18 of the

Convention. Respondent contends that petitioner fails to qualify for the benefits

under either of those articles. As discussed below, the Court agrees with

respondent.

      The interpretation of treaty provisions must begin with the wording of the

treaty. N.W. Life Assurance Co. of Can. v. Commissioner, 107 T.C. 363, 378-379

(1996). The role of the judiciary in interpreting treaty provisions is to decide their

underlying intent or purpose. Estate of Silver v. Commissioner, 120 T.C. 430, 434
                                        - 12 -

(2003). The Court therefore begins its analysis by examining the Convention

itself. Article 18 is considered first because it has been petitioner’s principal focus

throughout this proceeding.

      A. Article 18

      The pertinent part of Article 18, Students and Trainees, provides as follows:

      1(a) An individual who is a resident of one of the Contracting States
      at the time he becomes temporarily present in the other Contracting
      State and who is temporarily present in that other Contracting State
      for the primary purpose of --

      *           *           *           *            *           *           *

      (iii) Studying or doing research as a recipient of a grant, allowance, or
      award from a governmental, religious, charitable, scientific, literary,
      or educational organization,

      shall be exempt from tax by that other Contracting State with respect
      to amounts described in subparagraph (b) for a period not exceeding 5
      taxable years from the date of his arrival in that other Contracting
      State.

      (b) The amounts referred to in subparagraph (a) are--

      *           *           *           *            *           *           *

      (ii) The grant, allowance, or award;

      *           *           *           *            *           *           *

      (iv) Income from personal services performed in that other
      Contracting State in an amount not in excess of 2,000 United States
      dollars * * * for any taxable year.
                                         - 13 -

      Respondent does not dispute that petitioner was a resident of Poland at the

time that she became temporarily present in the United States, that petitioner

became temporarily present in the United States for the primary purpose of

conducting research for Washington Hospital Center, and that Washington

Hospital Center is a charitable organization within the meaning of section

501(c)(3). Rather, respondent contends that the payments petitioner received did

not constitute a “grant, allowance, or award” within the meaning of Article

18(1)(a)(iii) and therefore are not exempt from taxation by the United States under

that article. Instead, respondent contends that those payments constitute

compensation from employment that is taxable by the United States pursuant to

Article 1610 and the Governing Statutory Framework discussed in Part I. in the

Discussion of this Summary Opinion. See supra pp. 10-11.

      Both parties cite Sarkisov v. United States, 95 A.F.T.R. 2d (RIA) 2005-738,

2005-1 U.S. Tax Cas. (CCH) para. 50,218 (Fed. Cl. 2005), to support their

      10
           Article 16, Dependent Personal Services, provides in pertinent part as
follows:

             (1) Salaries, wages, and other similar remuneration derived by
      a resident of a Contracting State in respect of an employment shall be
      taxable only by that Contracting State unless the employment is
      exercised in the other Contracting State. If the employment is so
      exercised, such remuneration as is derived therefrom may be taxed by
      the other Contracting State.
                                       - 14 -

respective positions. In that case the Court of Federal Claims had to decide

whether Mr. Sarkisov, a Russian citizen, was “doing research as a recipient of a

grant” according to the meaning and application of that phrase as it appeared in

the U.S.-Russia tax treaty. The pertinent facts were as follows. Mr. Sarkisov

entered the United States from Russia on a temporary basis on a J-1 visa to

conduct research in physics for the University of Nevada. The university’s

funding came from several grants. Mr. Sarkisov was not the direct recipient of

any of the grants, and none of them specified that the funding depended on Mr.

Sarkisov’s employment. The University of Nevada paid Mr. Sarkisov a salary and

withheld Federal income tax. Mr. Sarkisov reported the salary payments but

ultimately commenced a refund action against the United States in the Court of

Federal Claims, contending that his remuneration was exempt under the treaty as

grants for research.

      In granting summary judgment in favor of the United States, the Court of

Federal Claims held that Mr. Sarkisov’s salary from the University of Nevada was

not exempt from Federal income tax as a grant. In so holding, the court

commented that the record was replete with references to Mr. Sarkisov as an

employee of the university and that the record contained no references to him as
                                        - 15 -

the recipient of a grant. Id. at 2005-741, 2005-1 U.S. Tax Cas. (CCH) para.

50,218, at 87,479.

      In the instant case, the HSA that petitioner entered into with Washington

Hospital Center provided that she would “earn a salary” and receive a variety of

benefits, such as paid time off (including vacation, sick, or personal time), liability

insurance, health and disability insurance, and family or medical leave of absence.

The HSA further provided that petitioner would receive her salary in “equal

installments on a biweekly basis”. Receiving remuneration in the form of a salary

and benefits such as these is generally indicative of an employment relationship.

See Weber v. Commissioner, 103 T.C. 378, 393-394 (1994), aff’d, 60 F.3d 1104

(4th Cir. 1995).

      In addition, the HSA provided that Washington Hospital Center could

terminate petitioner “for any legitimate reason, which may include, without

limitation, failure to maintain satisfactory academic progress, workplace

misconduct, unprofessional behavior, [or] endangerment of the health or safety of

others”. The right to discharge a worker is also indicative of an employer-

employee relationship. See Rodriguez v. Commissioner, T.C. Memo. 2012-286, at

*20 (citing Weber v. Commissioner, 103 T.C. at 391).
                                         - 16 -

        In addition, Washington Hospital Center apparently regarded petitioner as

an employee, as it issued her a Form W-2, for each of the years in issue reporting

her remuneration as compensation. Also notable is the fact that each Form W-2

indicated that petitioner was an active participant in a retirement plan sponsored

by Washington Hospital Center. Participating in a retirement plan is a further

indicium of an employment relationship. Id. at *22. Moreover, Washington

Hospital Center’s Forms 990 reported no monetary grants or other assistance to

individuals for its fiscal years covering the calendar years at issue in the instant

case.

        Petitioner, in contending that she received a grant and not compensation for

her services, claims that certain donations to Washington Hospital Center were

specifically “earmarked” for her salary. However, the record would not support

such a finding. Rather, although petitioner’s research may have helped to

motivate the generosity of certain donors, the record shows only that donations

were made to Washington Hospital Center for cancer research, and not that those

donations were for petitioner’s personal benefit or even that they were contingent

on petitioner’s participation in such research.

        Petitioner also contends that as a research fellow she was not providing

services to Washington Hospital Center. Instead, petitioner contends that her
                                        - 17 -

position allowed her to gain “scientific expertise”. The Court does not doubt that

petitioner’s professional development was meaningfully advanced by her work at

Washington Hospital Center and that such work enhanced her career. However,

the fact that an individual may gain experience and greater knowledge through

work does not mean that the individual is not also providing a service to the

organization for which the individual works or that compensation paid is not a

quid pro quo for the service. See Adams v. Commissioner, 71 T.C. 477, 486-487

(1978); Proskey v. Commissioner, 51 T.C. 918, 925 (1969). Given that

Washington Hospital Center has “[n]ationally respected programs in * * * cancer,

diabetes and endocrinology”, it would be hard to conclude that petitioner was not

providing services to Washington Hospital Center or that her research activities

were not of importance to it.

      In summary, the Court holds that petitioner has failed to prove that she was

the recipient of “a grant, allowance, or award” under Article 18(1)(a)(iii) of the

Convention. See Rule 142(a). Accordingly, the remuneration that petitioner

received during 2010 and 2011 from Washington Hospital is not exempt from

taxation by the United States for those years under that article.

      B. Article 17

      The pertinent part of Article 17, Teachers, provides as follows:
                                        - 18 -

             (1) Where a resident of one of the Contracting States is invited
      by the Government of the other Contracting State, a political
      subdivision or a local authority thereof, or by a university or other
      recognized educational institution in that other Contracting State to
      come to that other Contracting State for a period not expected to
      exceed 2 years for the purpose of teaching or engaging in research, or
      both, at a university or other recognized educational institution and
      such resident comes to that other Contracting State primarily for such
      purpose, his income from personal services for teaching or research at
      such university or educational institution shall be exempt from tax by
      that other Contracting State for a period not exceeding 2 years from
      the date of his arrival in that other Contracting State.

      The phrase “recognized educational institution” is not defined in the

Convention. In the instance of an undefined term, paragraph 2 of Article 3,

General Definitions, of the Convention provides in relevant part: “Any * * * term

used in this Convention and not defined in this Convention shall, unless the

context otherwise requires, have the meaning which it has under the laws of the

Contracting State whose tax is being determined.”

      Both parties cite section 170 in an effort to define the term “recognized

educational institution”. Section 170(b)(1)(A)(ii) defines “educational

organization” as an organization “which normally maintains a regular faculty and

curriculum and normally has a regularly enrolled body of pupils or students in

attendance at the place where its educational activities are regularly carried on.”

Under section 1.170A-9(c)(1), Income Tax Regs., an “educational organization
                                         - 19 -

does not include organizations engaged in both educational and noneducational

activities unless the latter are merely incidental to the educational activities”.

(Emphasis added.)

      Petitioner contends that the payments she received for the years in issue

from Washington Hospital Center are exempt from U.S. taxation under Article 17

because Washington Hospital Center is a teaching hospital and therefore a

“recognized educational institution”. Although respondent might very well

concede that Washington Hospital Center has medical education programs and

styles itself an academic medical center, see https://medstarwashington.org/our-

hospital, respondent nevertheless contends that petitioner fails to qualify for

benefits under Article 17 because she did not establish that Washington Hospital

Center is a “recognized educational institution”. The Court agrees with

respondent.

      On the basis of the record in this case there is insufficient evidence to

conclude that Washington Hospital Center is a “ recognized educational

institution”. Indeed, the available evidence points in the other direction, i.e., that

patient care is not “merely incidental to the educational activities”. See sec.

1.170A-9(c)(1), Income Tax Regs. Rather, as documented by Washington

Hospital Center’s Form 990 and its mission statement, patient care is the
                                        - 20 -

predominant purpose and activity of Washington Hospital Center. See Proskey v.

Commissioner, 51 T.C. at 923 (a university hospital was not operated primarily as

an institution for teaching and research in conjunction with the university’s

medical school but rather was primarily engaged in the care and treatment of

patients); Bayley v. Commissioner, 35 T.C. 288, 293-294 (1960) (a teaching

hospital did not qualify as an educational institution). Notable also is the fact that

on its Forms 990 for all relevant years Washington Hospital Center expressly

stated that it is not a school described in section 170(b)(1)(A)(ii). Accordingly,

the Court holds that payments made to petitioner by Washington Hospital Center

in 2010 and 2011 do not qualify for exemption from Federal income taxation

under Article 17 of the Convention. See Rule 142(a).

                                     Conclusion

      Finally, the Court has considered all of the arguments advanced by

petitioner and, to the extent not expressly addressed above, concludes that those

arguments are insufficient to support a decision in her favor.
                                       - 21 -

      To reflect the Court’s disposition of the disputed issue, as well as

respondent’s concessions, see supra note 2,


                                                     Decision will be entered

                                                under Rule 155.
