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Russian Citizen Seeks Rehearing in U.S. Wage Exemption Case

APR. 18, 2022

Vitaly Nikolaevich Baturin v. Commissioner

DATED APR. 18, 2022
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Vitaly Nikolaevich Baturin v. Commissioner

VITALY NIKOLAEVICH BATURIN,
Petitioner-Appellee, Taxpayer
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent-Appellant

UNITED STATES COURT OF APPEALS FOR
THE FOURTH CIRCUIT

PETITION FOR REHEARING BY PANEL

(PETITION FOR WRIT OF CERTIORARI)

04/14/2022

(V. Baturin, (757) 633-5669, vitbaturin01@gmail.com)

According to Notice of Judgment (DOC:74-2), there is a following situation in the Judgment (DOC:73): some material factual and legal matter was overlooked, that is the basis of rehearing on this petition.

For the correct determination of legal status of Dr. Baturin's in US and its relation to the Tax Treaty based on the research project, source of funding, and employment status determined in his DS2019 certificate, it is essential to consider (1) two fundamental IRS documents, known to the Court as DOC:38 and DOC:39, — that provide (2) the resolution of the main question — whether the J visa taxpayer's salary may be exempt from taxation under Tax Treaty and establishes the mechanism for tax return for non-resident J-visa aliens.

These documents of factual and legal matter were addressed by Dr. Baturin during the oral session, but they were overlooked in the Judgment.

Also, the following circumstances are not taken into account: (3) the fact that the ordinary employment of aliens, who enter for the purpose of employment (Treaty Art. 14), is only possible with H-visa, and requires the Department of Labor work authorization.

In contrast to this category, foreign researchers-Exchange Visitors — enter to conduct research in the public interest (Treaty Art. 18). Their entry, employment within the specified research program, as well as all relations with the employee, including reservation of financial funds, is regulated under PL 22 CFR par. 62 (A.78-A.137) and DS2019 certificate regime, which is controlled by the Department of State.

It also not taken into account (4) that according to PL 22 CFR par. 62 (A.78-A.137) the ordinary employment of aliens with J visa is expressly prohibited (A.90, A93), because J-1 visa aliens can not occupy the working places for US residents (A.93, A.90). Ordinary employment assumes the competitive selection of employees from several candidates, via interview etc., from the free market of qualified labor. Also employees are free to select an employer from a variety of employers.

However, this is not a case for the employment of J-visa Exchange Visitors (EV). EV employment may be done only by the sponsor of the Exchange Visitor Program, specified in DS2019 certificate. EV employment is preceded by a complex process of approving the program, securing financial funds in a form of allowance (or similar, or grant), invitation of a certain alien whose name is specified in DS2019 form, and obtaining J visa followed by the arrival of the whole family in the US. Also family members' employment is strictly regulated by the PL 22 CFR par. 62 which is not typical for ordinary employment.

Please note that unlike regular employment, a person not listed on DS2019 cannot be hired by a sponsor to perform activities listed on a DS2019 certificate.

This is why an exchange visitor who entered on a J visa is not subject to Art. 14 (ordinary employment), but falls under the tax exemption regime under Art. 18, as correctly established by the Tax Court.

When qualifying a payment of which the researcher is a recipient, the legal term is used in a restrictive meaning — as a shortcut — “grant”. But the Tax Treaty establishes a significantly wider term“grant, allowance, or similar payment” — to determine all types of finance sources that fall under the regime of Art 18 of the Treaty.

The Judgment does not take into account that the Appellant has not presented any proof that DS2019 funds are not similar to “grant, allowance, or similar funds”, specified in the Tax Treaty.

This is why Exchange Visitor funds (DS2019) fall within the definition of Art. 18 as "grant, allowance or similar funds", which are exempt from taxation.

Also there was no proof presented that funds allocated in the DS2019 certificate (money secured for the specified research program) are not an “allowance” — funds reserved for possible use in future. These funds were reserved prior to arrival of the exchange visitor, following the rules specified in PL 22 CFR par. 62. Therefore, money allocated in the DS2019 certificate obviously constitutes an allowance — funds reserved for use in future, as defined in the financial dictionary.

Thats why funds allocated in the DS2019 certificate falls under the category of “allowance, or similar funds”.

In general taxation of income does not prevent the tax return and there is a difference between tax withholding, regulated by IRS publication 515, and tax returnIRS Publication 519. However, the difference between these terms is not accounted for by the Appellant.

Tax withholding is made on a regular basis from an EV taxpayer's salary in accordance with US law and IRS Publication 515 entitled "Tax Withholding for Non-Resident Aliens and Foreign Organizations."

The tax return is fled at the end of the tax year, after all taxes are paid, and is governed by IRS Publication 519 titled “U.S. Tax guide for foreigners. For use in preparing a 2010 tax return." This document instructs the EV taxpayer how to proceed if there is a Tax Treaty.

The tax treaty is approved by the US State Department and the Department of The Treasury. Although all the definitions given in Art. 18 refers to exchange visitors, their J visa status is not mentioned because such status is a country-specific term, valid locally in the US, while the bilateral tax treaty must apply to both countries.

That's why in Art. 18 of the Treaty they describe visitors in common terms, understandable by both parties of the Treaty. The failure to mention in Art. 18 the specific “J” visa status of researchers does not mean that “J” visa exchange researchers are excluded from the legal regulation established by this Treaty.

Moreover, in order to extend the application of an act of international law (the Tax Treaty) to the national procedures of the United States, the Department of the Treasury (IRS) established a link between foreign taxpayers with a J visa and the Tax Treaty in two founding documents — DOC:38 and DOC:39. In these documents the term “Tax Treaty is cited 130 times, “J-visa” is cited 16 times, and DS2019 certificate3 times.

The main problem formulated in the Judgment is whether the salary of a J-visa alien may be a subject to the Treaty. The solution may be found in the same documents:

1) “U.S. Tax Guide for Aliens For use in preparing 2010 Returns” (DOC:39, IRS Publication 519, instruction for Tax return) and

2) “2010 Internal Revenue Service Instructions for Form 1040NR U.S. Nonresident Alien Income Tax Return” (DOC:38).

According to these documents J-visa holders are considered as nonresident aliens for taxation purposes, and thus exempt from taxation, if they comply with the substantial presence test, regardless of the way they are compensated. However, even if the substantial presence test is negative, J–visa holders still may be considered as non-resident aliens for taxation purposes if there is a Tax Treaty.

Under these documents, J visa holders are considered non-resident aliens for tax purposes and are thus exempt from taxation if they meet the substantial presence criterion, regardless of how they are compensated. However, even if the substantial presence test is negative, J visa holders may still be considered non-resident aliens for tax purposes if a relevant Tax Treaty exists.

These documents also contain key information that allows to resolve another question — whether the J-visa alien salary may be a subject to the Tax Treaty. The direct answer to this question is given in Doc:38, p.11, section “INCOME CONNECTED WITH TRADE OR BUSINESS”. From this section we read that a J-1 visa taxpayer must

1) include his salaries (!) on line 22 of 1040NR form. This line is labeled as “Tax Income Exempt by a Treaty” (!) The form 1040NR form is titled as “Tax return form for nonresident aliens” (A.308).

2) attach W2 form (!) — salary,

3) indicate Tax Treaty (!), country of residence, and Article (A.312),

4) attach his Exchange Visitor Certificate-DS2019 form (A.314) which specifies his J-visa (!) status and funds reserved for him (see DOC:39, p.26, Section “Identification number for J-1 visa holders”).

All that obviously means that in practice the Department of The Treasury (IRS) recognizes the “J”-visa Exchange Visitor funds, specified in his DS2019 form, including salary, as the subject of the Tax Treaty, for the period specified in the Treaty (5 years).

Therefore, conditions provided for art.18 of Tax Treaty were met: (1) I arrived to USA for the primary purpose of research; (2) I am the recipient of allowance or other similar payments from a scientific organization; (3) research, which I take part in, is undertaken in the public interest and not fore any private benefit of a specific person or persons; (4) my request for the refund of overpaid (withheld) tax from my income was stated within a 5-years period of taxation exemptions acting.

That's why a positive decision was made by IRS officials for the Tax Year 2010 and before. Details are in my Brief (DOC:40,pp. 24-28) and my talk at the oral session https://www.ca4.uscourts.gov/OAarchive/mp3/20-1648-20220308.mp3

All the above-mentioned regulations, the status of my stay in the USA on J-visa, the circumstances of my activities within the framework of the research program under the DS2019 certificate confirm that the sources of funding fall under the scope of Art.18 of the Tax Treaty, establishing exemptions from taxation for five years.

The equal regime based on this Tax Treaty is applicable to American researchers, acting in the Russian Federation.

Unfortunately, the aforementioned documents are not mentioned in the decision addressed to the Tax Court. Therefore, I respectfully ask for a rehearing of my case in the Court of Appeal. Please give me 20 minutes for the oral presentation.

Respectfully submitted,

Appellee/Taxpayer
Dr. Vitaly N. Baturin

04/14/2022

Cell: (757) 633-5669, e-mail: vitbaturin01@gmail.com

Terms and References.

“RESIDENT ALIEN OR . . .”

DOC:38, p.2 Treaty and J-visa

Exchange Visitor Certificate

A.157-A.158

Detailed Procedures for DS2019

A.286-A.290 or A.181-A.183

PL 22 CFR par.62

A.78-A.137.

“Teachers & Trainee” def.

DOC:39, p. 6.

Sponsor funds reservation

DOC:40, p.40-43 and A.78-A.137.

“Substantial presence test”

DOC:40, A.4, 5, p.44-47, DOC:38, p.2

FORM 1040NR stamped

A.308-A.312

PL 87-256

A.48-A.77 and A.286-A.287

Financial Terms

A.283-A284 and A.181

Tax Treaty

A.22-A.47

Fin. Support of EV, allowance

A.181-A.183

Pretrial Memorandum

A.174-A.184

Not ordinary employment

A.90 62.16 a, b and A.93 62.22 (ii) Q.8

Special Accounts

A.51, 103(a) Q.9

Fin Obligation “simply work”

A.86(e)(1)-(3) Q.10

ART. 18

A.36

REFERENCED DOCUMENTS.

[1] https://www.irs.gov/pub/irs-prior/i1040nr--2011.pdf

[2] https://www.irs.gov/pub/irs-prior/p519--2010.pdf

[3] https://www.irs.gov/pub/irs-trty/russia.pdf

[4] https://studyinthestates.dhs.gov/sites/default/files/EVandDep-Initial% 20status.pdf

[5] https://www.irs.gov/pub/irs-prior/f1040nr--2011.pd

[6] https://drive.google.com/file/d/13jR5gbPcV_LOXxM01vK8hEkVtLiiN2gi/view

[7] https://www.govinfo.gov/content/pkg/STATUTE-75/pdf/STATUTE-75-Pg527.pd f#page=12

[8] https://www.law.cornell.edu/cfr/text/22/part-62

[9] https://hodgen.com/sarkisov-v-united-states-when-are-you-a-grant-recip ient-under-a-tax-treaty/

[10] https://www.irs.gov/pub/irs-prior/p515--2011.pdf

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