Amicus Argues Russian Physicist’s Wages Exempt Under Treaty

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

In the United States Court of Appeals
for the Fourth Circuit

ON APPEAL FROM THE UNITED STATES TAX COURT

BRIEF OF COURT-APPOINTED AMICUS CURIAE 
IN SUPPORT OF AFFIRMANCE

AARON Z. ROPER
WILLIAMS & CONNOLLY LLP
725 Twelfth Street, N.W.
Washington, DC 20005
(202) 434-5000
aroper@wc.com

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TABLE OF CONTENTS

INTRODUCTION

STATEMENT OF THE ISSUE

RELEVANT TREATY PROVISIONS

STATEMENT OF THE CASE

SUMMARY OF ARGUMENT

STANDARD OF REVIEW

ARGUMENT

I. An Article 18 “Grant” Includes Specific Funds for Specific Research

II. A Grant Dispersed as Compensation for Services Is Still a Grant

III. Ample Record Evidence Demonstrates that Dr. Baturin Received Specific Funds for His Specific Research

CONCLUSION

TABLE OF AUTHORITIES

CASES

Am. Roll-On Roll-Off Carrier, LLC v. P&O Ports Balt., Inc., 479 F.3d 288 (4th Cir. 2007)

Baxter v. Comm'r, 910 F.3d 150 (4th Cir. 2018)

Bingler v. Johnson, 394 U.S. 741 (1969)

Black & Decker Corp. v. United States, 436 F.3d 431 (4th Cir. 2006)

Dominion Res., Inc. v. United States, 219 F.3d 359 (4th Cir. 2000)

Dovzhenok v. Comm'r, 2017 WL 5956889 (T.C. Nov. 30, 2017)

Equinor USA Onshore Props., Inc. v. Pine Res., LLC, 917 F.3d 807 (4th Cir. 2019)

Gustafson v. Alloyd Co., 513 U.S. 561 (1995)

Hurlburt v. Black, 925 F.3d 154 (4th Cir. 2019) (en banc)

In re Durability Inc., 212 F.3d 551 (10th Cir. 2000)

In re Nat'l Gas Distribs., LLC, 556 F.3d 247 (4th Cir. 2009)

Kiselev v. Comm'r, 2018 WL 357633 (T.C. Jan. 10, 2018)

Lyashenko v. United States, 41 Fed. Cl. 626 (1998)

Medellín v. Texas, 552 U.S. 491 (2008)

Mellow Partners v. Comm'r, 890 F.3d 1070 (D.C. Cir. 2018)

NLRB v. SW Gen., Inc., 137 S. Ct. 929 (2017)

Ratnikov v. Comm'r, 2009 WL 814087 (T.C. Mar. 30, 2009)

Retfalvi v. United States, 930 F.3d 600 (4th Cir. 2019)

Sanchez-Llamas v. Oregon, 548 U.S. 331 (2006)

Sarkisov v. United States, 95 A.F.T.R.2d 2005-738 (Fed. Cl. 2005)

Sea Hunt, Inc. v. Unidentified Shipwrecked Vessel or Vessels, 221 F.3d 634 (4th Cir. 2000)

Sebberson v. Comm'r, 781 F.2d 1034 (4th Cir. 1986)

Tabion v. Mufti, 73 F.3d 535 (4th Cir. 1996)

United States v. Al-Hamdi, 356 F.3d 564 (4th Cir. 2004)

United States v. Briggs, 141 S. Ct. 467 (2020)

United States v. Charleston County, 365 F.3d 341 (4th Cir. 2004)

United States v. Hawley, 919 F.3d 252 (4th Cir. 2019)

STATUTES, TREATIES, REGULATIONS, AND RULES

Mutual Educational and Cultural Exchange Act, 22 U.S.C. § 2454

26 U.S.C.

American Rescue Plan Act of 2021, Pub. L. No. 117-2, § 5003

DHHS Appropriations Act, 2021, Pub. L. No. 116-260, § 202 (2020)

Economic Aid to Hard-Hit Small Businesses, Non-Profits, and Venues Act, Pub. L. No. 116-260, § 324 (2020)

Tax Reform Act of 1986, Pub L. No. 99-514, § 123, 100 Stat. 2085, 211234

U.S.-Austrl. Treaty art. 20 (1982)

U.S.-Barb. Treaty art. 20 (1984)

U.S.-Belg. Treaty art. 21 (1970)

U.S.-Can. Treaty art. 20 (1980)

U.S.-China Treaty arts. 19, 20 (1984)

U.S.-Cyprus Treaty art. 21 (1984)

U.S.-Den. Treaty arts. 13, 14 (1948)

U.S.-Egypt Treaty art. 23 (1980)

U.S.-Fin. Treaty art. 20 (1989)

U.S.-Fin. Treaty art. 20 (1970), in 7 Legislative History of United States Tax Conventions, at Finland 70 (William H. Manz ed. 2020)

U.S.-Fr. Treaty art. 18 (1967), in 8 Legislative History of United States Tax Conventions, at France 503 (William H. Manz ed. 2020)

U.S.-Greece Treaty arts. 12, 13 (1950)

U.S.-Ice. Treaty art. 22 (1975)

U.S.-Japan Treaty art. 20 (1971)

U.S.-Kaz. Treaty art. 19 (1993

U.S.-Morocco Treaty art. 18 (1977)

U.S.-N.Z. Treaty art. 20 (1982)

U.S.-Neth. Supplementary Convention art. 11 (1966) (amending U.S.-Neth. Treaty art. 18 (1948)), in 15 Legislative History of United States Tax Conventions, at Netherlands 18 (William H. Manz ed. 2020)

U.S.-Nor. Treaty art. 16 (1971)

U.S.-Pak. Treaty art. 13 (1957)

U.S.-Phil. Treaty art. 22 (1976)

U.S.-Pol. Treaty art. 18 (1974)

U.S.-Rom. Treaty art. 20 (1973)

U.S.-Russ. Treaty (1992)

U.S.-S. Kor. Treaty art. 21 (1976)

U.S.-Trin. & Tobago Treaty art. 19 (1970)

U.S.-Tunis. Treaty art. 20 (1985)

U.S.-Ukr. Treaty art. 20 (1994)

U.S.-USSR Treaty art. 6 (1973)

26 C.F.R.

Federal Grants Not Includible in Income in Certain Cases, 50 Fed. Reg. 27,231 (July 2, 1985)

Tax Ct. R.

OTHER AUTHORITIES

12 GeV Upgrade Technical Scope, Jefferson Lab, https://bit.ly/3i7dfxU

2018 Science & Engineering Indicators, Nat'l Sci. Bd. (2018), https://bit.ly/3zFtZ4Y

American Heritage Dictionary (3d ed. 1992)

American Heritage Dictionary (4th ed. 2006)

At a Glance, NSF, https://bit.ly/3o47oNu

At a Glance: Thomas Jefferson National Accelerator Facility, Jefferson Lab (Jan. 2021), https://bit.ly/3o5ieCX

Jean-Laurent Casanova et al., Immigration in Science, 217 J. Experimental Med. e20202055 (2020)

Corporate Grantmaking Guidelines, GM, https://bit.ly/2Yvh5du

Loren Graham & Irina Dezhina, Science in the New Russia (2008)

Grants & Funding, NIH, https://bit.ly/3i4WvXZ

Hall B Scientific Staff Bios: Vitaly Baturin (Batourine), Experimental Hall B (June 25, 2013), https://bit.ly/3mkleZP

How Particle Accelerators Work, Dep't of Energy (June 18, 2014), https://bit.ly/3kC1TmV

How We Work, Bill & Melinda Gates Found., https://gates.ly/3zFxzfI 

IRS, United States Income Tax Treaties — A to Z (Sept. 15, 2021), https://www.irs.gov/businesses/international-businesses/united-states-income-tax-treaties-a-to-z

MacArthur Fellows Frequently Asked Questions, MacArthur Found., https://bit.ly/3EP9jLH

NIH Grants Policy Statement, NIH (Apr. 2021), https://bit.ly/3uRR6sh

OECD, Model Double Taxation Convention on Income and on Capital  (1977)

Open the Door to “Invitation Only” Grant Funders, GrantsPlus, https://bit.ly/3zHdtlb

Peter Buck Fellowship Program, Smithsonian, https://s.si.edu/3kF3ZTc

Professional Researchers, Alzheimer's Ass'n, https://bit.ly/3ojKXnR

Proposal and Award Policies and Procedures Guide,NSF (June 1, 2020), https://bit.ly/3o6sv1Q

Research and Development: U.S. Trends and International  Comparisons, Nat'l Sci. Bd. (Jan. 15, 2020), https://bit.ly/3BlpKNI

Restatement (Third) of Foreign Relations Law of the United States (1986)

Rev. Rul. 80-36, 1980-1 C.B. 366 (1980)

Rev. Rul. 87-40, 1987-1 C.B. 372 (1987)

S. Exec. Rep. No. 103-17 (1993)

S. Hrg. No. 103-335 (Oct. 27, 1993)

S. Treaty Doc. No. 102-39 (1992)

Antonin Scalia & Brian A. Garner, Reading Law (2012)

The State of U.S. Science & Engineering, Nat'l Sci. Bd. (Jan. 2020), https://bit.ly/3BipoYo

Treasury Department's Model Income Tax Treaty (1981), reprinted in IRS, Doc. 6743, Tax Haven Information Book 112 (1982)

Treasury Department Technical Explanation, in 17 Legislative History of United States Tax Conventions, at Russian Federation 135 (William H. Manz ed. 2020)

United Nations, Model Double Taxation Convention Between Developed and Developing Countries (1980)

Webster's New International Dictionary (2d ed. 1959)

Webster's Third New International Dictionary (1993)

Noah Weiland & Gina Kolata, Francis Collins, Who Guided N.I.H. Through Covid-19 Crisis, Is Exiting, N.Y. Times (Oct. 5, 2021)

What Does NIH Look for?, NIH (May 24, 2016), https://bit.ly/2XVZ088

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INTRODUCTION

When Russian physicist Dr. Vitaly Baturin came to the United States in 2007 to study subatomic particles, he hardly could have anticipated spending nearly a decade fighting the Internal Revenue Service (IRS) over $22,229. After all, a tax treaty singles out Russian researchers like Dr. Baturin for special benefits to encourage international scientific cooperation.

The Convention Between the United States of America and the Russian Federation for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital (“U.S.-Russia Treaty”) offers a special tax exemption to certain researchers receiving a “grant, allowance, or other similar payments.” As the Tax Court correctly held, Dr. Baturin qualifies for that exemption. Dr. Baturin testified without contradiction that Jefferson Science Associates (“Jefferson Lab”), the private operator of the Department of Energy's Thomas Jefferson National Accelerator Facility, set aside guaranteed funding exclusively for his research on subatomic particle detectors.

Dr. Baturin accordingly received a “grant” as that term is understood in the Treaty's research context, i.e., specific money for his specific project. That Jefferson Lab characterized its subsequent dispersal of that money as a salary and supervised Dr. Baturin as an employee does not negate the grant.

The IRS's contrary view combines an untenable reading of the Treaty with a meritless factual dispute. On the law, the IRS proposes a categorical rule that compensation for services cannot be a grant. But grantors commonly disperse research grants as salaries. The IRS's alternative reading contravenes the Treaty's text, context, and structure, and risks nullifying the special exemption for researchers.

On the facts, the IRS argues Dr. Baturin could not have really meant to swear under oath that Jefferson Lab set aside money for his project; he must have mixed up his reading of regulations with what actually happened. The Tax Court reasonably understood the record differently. This Court should affirm the judgment below.

STATEMENT OF THE ISSUE

Whether payments to a research scientist are tax exempt as a “grant, allowance, or other similar payments” pursuant to the terms of the U.S.-Russia Treaty.

RELEVANT TREATY PROVISIONS

Pertinent provisions are set forth in an addendum to this brief.

STATEMENT OF THE CASE

A. Scientific Research in the United States

For researchers, grants are a fact of life. The United States spends $91 billion a year on basic science research. Research and Development: U.S. Trends and International Comparisons, Nat'l Sci. Bd. 19 (Jan. 15, 2020), https://bit.ly/3BlpKNI. The bulk of that money comes from the federal government. Id. at 20. The National Science Foundation (NSF), for example, directs 27% of federal support for basic research conducted at colleges and universities, “chiefly by issuing limited-term grants . . . to fund specific research proposals.” At a Glance, NSF, https://bit.ly/3o47oNu. The National Institutes of Health (NIH) offers grants as “the largest public funder of biomedical research in the world,” making over 50,000 grants to over 300,000 researchers last year. Grants & Funding, NIH, https://bit.ly/3i4WvXZ; Noah Weiland & Gina Kolata, Francis Collins, Who Guided N.I.H. Through Covid-19 Crisis, Is Exiting, N.Y. Times (Oct. 5, 2021), https://nyti.ms/3uMjCvA.

Private foundations and businesses also make grants. The Bill & Melinda Gates Foundation offers grants to “global health research.” How We Work, Bill & Melinda Gates Found., https://gates.ly/3zFxzfI. General Motors provides grants to support “vehicle & road safety.” Corporate Grantmaking Guidelines, GM, https://bit.ly/2Yvh5du. The Alzheimer's Association awards grants for Alzheimer's research. Professional Researchers, Alzheimer's Ass'n, https://bit.ly/3ojKXnR. In American science, grants are everywhere.

Immigrants play an important role in this scientific ecosystem. In the United States, foreign-born individuals make up 30% of scientists and engineers, 38% of doctorate holders in those fields, and 40% of Nobel laureates. The State of U.S. Science & Engineering, Nat'l Sci. Bd. 7 (Jan. 2020), https://bit.ly/3BipoYo; Jean-Laurent Casanova et al., Immigration in Science, 217 J. Experimental Med. e20202055, at 1 (2020).

In 2015, over half a million workers entered the United States on highly skilled visas, including the J-1 and H-1B visas used by Dr. Baturin. 2018 Science & Engineering Indicators, Nat'l Sci. Bd., at 3-131 (2018), https://bit.ly /3zFtZ4Y. In the early 1990s, many scientists left Russia for the West in the aftermath of the Soviet Union's collapse. Loren Graham & Irina Dezhina, Science in the New Russia 23-24 (2008). Those numbers declined significantly in the late 1990s, and by 2015, Russians made up only 1.9% of foreign-born individuals in the United States with a science or engineering doctorate. Id.; 2018 Science, supra, at 3-129.

B. The U.S.-Russia Treaty

In 1992, the United States and the new Russian Federation signed a tax treaty “to develop and strengthen the economic, scientific, technical and cultural cooperation between both States.” U.S.-Russ. Treaty pmbl. (1992). The preexisting U.S.-Soviet tax treaty offered a blanket two-year exemption on taxes for any “income” that Soviet residents temporarily in the United States received for “teaching or research or participating in . . . conferences.” U.S.-USSR Treaty art. 6(1)(c)(1), (f)(2) (1973).¹ A Soviet researcher simply had to be invited by a U.S. governmental, educational, or scientific institution; come for the “primary purpose” of teaching, research, or conferences; and not research for private benefit. Id. art. 6(1)(c).

The new U.S.-Russia Treaty offered “[s]pecial relief” “to visiting students, trainees, and researchers” but with more limitations than the USSR Treaty. S. Treaty Doc. No. 102-39, at VI (1992); accord S. Hrg. No. 103-335, at 26 (Oct. 27, 1993); see S. Exec. Rep. No. 103-17, at 40 (1993). Generally, the U.S.-Russia Treaty permits the host country to tax “[i]ncome derived . . . from the performance of independent personal services” under Article 13 and “salaries, wages, and other similar remuneration derived . . . in respect of an employment” under Article 14. U.S.-Russ. Treaty arts. 13(1), 14(1). The Treaty's special researcher exemption, Article 18, then provides:

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 . . . 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.

Id. art. 18(1).

That exemption lasts up to five years (or “such period of time as is ordinarily necessary to complete the study, training or research”). Id. art. 18(2). And research must be undertaken “in the public interest.” Id. art. 18(3). Identical provisions appear only in contemporaneous treaties with Kazakhstan and Ukraine. See U.S.-Kaz. Treaty art. 19 (1993); U.S.-Ukr. Treaty art. 20 (1994).

C. Factual Background

Appellee Vitaly Baturin is a Russian particle physicist with a Ph.D. from the Russian Academy of Science. (A.154.) He specializes in “high energy nuclear reactions” plus topics like “Muon Catalyzed Fusion.” Hall B Scientific Staff Bios: Vitaly Baturin (Batourine), Experimental Hall B (June 25, 2013), https://bit.ly/3mkleZP. Dr. Baturin has authored over 90 peer-reviewed publications and studied in laboratories from Switzerland to South Korea. Id.

In 1997, Pennsylvania State University invited Dr. Baturin to the United States as part of an exchange program. (A.155.) Around 2006, the University of California, Los Angeles (UCLA) invited Dr. Baturin to Mainz, Germany to study “meson decays and production and cascade hyperon production.” (A.156, 267.) UCLA obtained a J-1 exchange visitor visa for Dr. Baturin and “filled” a “box” of money for him, but it is unclear whether he entered the United States at the time. (See A.155-56, 267-68.)

After six months in Germany, Dr. Baturin received an invitation from Jefferson Lab to study the structure of matter for two years. (A.202, 256, 267-69.) Jefferson Lab operates a U.S. Department of Energy facility in Virginia where scientists smash subatomic particles together at extremely high speeds and identify new particles in the aftermath. (A.225, 256-57); see also How Particle Accelerators Work, Dep't of Energy (June 18, 2014), https://bit.ly /3kC1TmV. Jefferson Lab invited Dr. Baturin to study how to detect particles at increased energy levels — the “12 GeV Upgrade Project.” (A.256-57); see 12 GeV Upgrade Technical Scope, Jefferson Lab, https://bit.ly/3i7dfxU.

Dr. Baturin accepted Jefferson Lab's invitation and started his research in May 2007. (A.203.) Jefferson Lab transferred Dr. Baturin's J-1 visa program from UCLA and designated $75,000 in “Current Program Sponsor funds.” (A.201.) Jefferson Lab put Dr. Baturin's funds “into some box and locked” it. (A.254.) No one else could receive those funds. (A.269.) Dr. Baturin then received payments from those set-aside funds. (A.253.) Had Jefferson Lab gone bankrupt, Dr. Baturin understood that he would still be paid. (A.270.) Jefferson Lab also sponsored visas for Dr. Baturin's wife, who lost her job due to the move, and his son. (A.247-48, 314-15.)

Jefferson Lab's invitation letter described Dr. Baturin as an “employee” receiving a $75,000 “salary” plus benefits for a “term position ending two years from hire date.” (A.202.) The letter noted that his “continued employment” would be “contingent upon satisfactory performance and the continuing availability of funds and work.” (A.203.) And the letter described Dr. Baturin as having an “immediate supervisor.” (A.202.) As Dr. Baturin testified, “employment and following the rules of the company” were necessary to complete his research given the “very, very complex equipment” he was using. (A.263.)

In 2009 and 2011, Jefferson Lab offered Dr. Baturin three-year extensions. (A.204-05.) For the second extension, Jefferson Lab successfully sponsored Dr. Baturin for an H-1B visa. (A.225, 232.) Dr. Baturin's time at the Lab concluded in May 2015. (A.225.)

D. Procedural History

1. Jefferson Lab issued W-2 forms to Dr. Baturin reflecting that he received $76,729 in 2010 and $79,061 in 2011 as “wages, tips, [or] other comp[ensation]” and that the Lab withheld taxes on those amounts. (A.307, 319.) Dr. Baturin timely filed U.S. tax returns for those years, claiming an exemption under Article 18 of the U.S.-Russia Treaty. (A.246; see A.312, 324.) The IRS specifically verified his 2010 return and issued a refund. (A.246-47.)

In January 2013, the IRS changed its mind. (A.249.) An IRS examiner wrote Dr. Baturin: “Article 18 says doing research as a recipient of a grant, allowance, or other similar payments from abroad. . . . You are working and receiving wages from a US institution, not receiving grants, allowances, or other similar payments from abroad.” (A.141 (emphasis added).)

Dr. Baturin responded, observing that the examiner had inaccurately paraphrased the Treaty. (A.139.) Article 18 applies to “payments from abroad for the purpose of [an individual's] maintenance, education, study, research, or training, and with respect to the grant, allowance, or other similar payments.” U.S.-Russ. Treaty art. 18(1) (emphasis added). Payments for “maintenance, education, study, research, or training” have to be from abroad, but no such requirement applies to “the grant, allowance, or other similar payments” — the exemption Dr. Baturin claimed. (A.139.)

The IRS examiner demurred, and the case moved to the IRS Appeals Office. (A.249.) The appeals officer affirmed the examiner's determination in December 2013 on a different ground: “the W-2 wages received are not exempt from taxation under the US/Russia Treaty.” (A.217.)

Dr. Baturin replied, this time pointing out that the Treaty does not mention W-2s. (A.215.) The appeals officer declined to revisit her determination. (A.216.) At an in-person conference, Dr. Baturin asked why then IRS agents had specifically approved his 2010 return, but he received “no feedback.” (A.261.) In April 2014, the IRS issued a notice of deficiency ordering Dr. Baturin to pay $22,229 in taxes and a $2,218 penalty. (A.192.)

2. Dr. Baturin timely petitioned the Tax Court for review. (A.4.) The IRS's pretrial memorandum offered yet another reading of Article 18. The IRS acknowledged that “[w]ages earned by certain employees of scientific organizations that are Russian citizens temporarily in the United States may be exempt from income tax in certain circumstances under the Convention.” (A.169.) But the IRS argued that Dr. Baturin did not fall into this category because he had not received a “grant, allowance or other similar payment.” (A.170.) The IRS conceded that Dr. Baturin met Article 18's other requirements and conceded the proposed penalty without explanation. (A.169-70.)

In his petition, Dr. Baturin asked to use simplified “small tax case procedures” because he contested less than $50,000. (A.4); see 26 U.S.C. § 7463(a). Those procedures offer informal rules for pro se taxpayers contesting small amounts. See Tax Ct. R. 172, 174(b). Under those rules, neither side could have appealed the Tax Court's decision. 26 U.S.C. § 7463(b). Ninety minutes before trial, however, the Tax Court, with the IRS's agreement, upgraded the case to “Regular status” with appeal rights and formal evidentiary rules. (A.297.) Although Dr. Baturin initially agreed, after the court explained that the IRS could appeal, Dr. Baturin asked “to be advised by someone.” (A.297.) The court did not address his request. (See A.297-301.)

The Tax Court held a 46-minute trial in April 2015. (A.239, 242, 273.) Proceeding pro se, Dr. Baturin testified under oath, explaining how Jefferson Lab “filled” a “box” or “bank account” of money for him. (A.266.) As he put it: “I come here, and this money, since the moment they decided to invite me, they are secured as allowance, or as a grant, or whatever — how you can call it.” (A.267.) Dr. Baturin's testimony covered specific actions taken by Jefferson Lab (e.g., A.253, A.254, A.266-68) as well as generally applicable statutes and regulations (e.g., A.251-52, 258-61, 268, 271).

On cross-examination, IRS counsel asked Dr. Baturin nine questions, none of which sought to clarify what Dr. Baturin had been told by Jefferson Lab and what he surmised from his legal research. (See A.264-70.) The IRS called no witnesses and offered no evidence. (A.272.)

The Tax Court ordered simultaneous post-trial briefing. (A.1.) After Dr. Baturin filed his brief, the court granted the IRS an extension over Dr. Baturin's objection. (A.2, 335.) In its brief, the IRS reversed its pretrial position that “[w]ages” could be exempt (A.169) and argued that “compensation for services” categorically cannot qualify for an Article 18 exemption. (A.359.)

3. Four and a half years later, in a December 2019 opinion, the Tax Court concluded that Dr. Baturin's payments from Jefferson Lab were a “grant, allowance, or other similar payments” and therefore tax exempt. (A.386.) Because the Treaty and the Tax Code do not define “grant” or “allowance,” the Tax Court interpreted the terms “in context, taking into account the intent, purpose, or expectations of the signatories.” (A.378.) The court noted that dictionary definitions of “grant” are broad and that the “signatories placed great emphasis on facilitating the exchange of scientific research.” (A.378, 380.) In light of this context, the court held that “wages may be eligible for exemption so long as they are similar to a grant or allowance.” (A.386.) Given ongoing “difficulty” in unpublished Tax Court decisions over how to define the “recipient” of a grant, the court also discussed how to attribute indirect grants to researchers. (A.382-83.)

The court concluded that “taken as a whole the facts in the record” showed that Dr. Baturin received a “grant, allowance, or other similar payments.” (A.386.) The court rejected Dr. Baturin's argument that his J-1 visa established that he received a grant. (A.383-84.) Instead, the court relied on facts including Dr. Baturin's testimony that “funding was earmarked specifically for him,” that he was “singled out and invited by [Jefferson Lab] to perform his research,” that he received “a specific amount of money for a specific term,” and “that his funding could not have been directed to another scientist.” (A.385.) The court deemed “credibl[e]” Dr. Baturin's testimony “that he moved his life and his family to the United States on the basis of a promise that the funds pledged to him had been set aside for his maintenance.” (A.386.)

The Tax Court entered final judgment for Dr. Baturin in March 2020, and the IRS timely appealed. (A.393, 397.)

SUMMARY OF ARGUMENT

I. Dr. Baturin received a “grant” as that term is understood in the research context: specific funds for his specific project. The Treaty's references to “doing research” and “scientific . . . organizations” make clear that Article 18 refers to grants in the research context. Research grants are a common and familiar concept. Grantors give specific amounts of money towards specific projects. That well-understood meaning controls here.

The rest of the key phrase — “grant, allowance, or other similar payments” — confirms that meaning of “grant.” “Allowance,” like “grant” has a research-specific meaning. And “or other similar payments” broadens the preceding terms.

The Treaty's express goal of furthering scientific cooperation bolsters this reading. The U.S.-Russia Treaty gives researchers unique benefits. Dr. Baturin's collaborative study of the structure of matter is exactly what the United States and Russia hoped to encourage. Countervailing concerns for the public fisc are overstated and cannot justify overriding the Treaty.

II. The research context also defeats the IRS's proposed categorical rule that compensation for services cannot be a “grant.” Research grants are routinely dispersed as employee compensation. Grantors typically work with large institutions, not individuals. When an individual researcher receives a grant, the money often flows through an institution, which may dispense the grant as a salary.

Notwithstanding this common practice, the IRS argues that the Treaty's general rule permitting taxation of employment income implicitly limits Article 18's benefits for researchers to income not derived from employment. The IRS's interpretation relies on a misplaced negative inference that would either garble the Treaty's comprehensive approach to personal services or render Article 18 a nullity for researchers.

The IRS also proposes that a regulatory exception to the definition of “fellowship grant,” as used in a now-superseded Tax Code provision, narrows the meaning of “grant” in Article 18. But Article 18 exempts “grants,” not “fellowship grants.” The IRS's invocation of the regulatory exception does not account for the different meaning of “grant” in the research context, subsequent changes in the Tax Code, or the sweeping consequences of applying that regulation to Article 18.

III. The Tax Court's conclusion that Dr. Baturin received a grant, allowance, or similar payments was not clear error. Dr. Baturin repeatedly stated under oath that Jefferson Lab set aside money for him to study subatomic particle detectors. That money is a “grant” — a specific payment for a specific project. That Jefferson Lab structured subsequent dispersals of that money as a salary and described Dr. Baturin as an employee does not change that fact. The IRS's contrary reading of Dr. Baturin's testimony is a mistaken effort to contest the Tax Court's well-supported factual findings.

STANDARD OF REVIEW

This Court reviews Tax Court decisions in the same manner as district court decisions in civil bench trials. Baxter v. Comm'r, 910 F.3d 150, 156 (4th Cir. 2018); 26 U.S.C. § 7482(a)(1). Treaty interpretation is a question of law reviewed de novo. United States v. Al-Hamdi, 356 F.3d 564, 569 (4th Cir. 2004). How to characterize income is a question of fact reviewed for clear error. Sebberson v. Comm'r, 781 F.2d 1034, 1036 (4th Cir. 1986).

ARGUMENT

I. An Article 18 “Grant” Includes Specific Funds for Specific Research

Article 18 of the U.S.-Russia Treaty provides a limited tax exemption for certain Russian researchers in the United States. Of Article 18's many requirements, the IRS disputes only one here: whether Dr. Baturin's funding from Jefferson Lab was a “grant, allowance, or other similar payments.” Br. 2; (A.170, 243). The Treaty's text, context, and purpose establish that a “grant” includes specific allocations to specific research projects. Dr. Baturin's payments fit that definition and are therefore tax exempt.

A. The Research Context Provides the Meaning of “Grant”

The Treaty does not define “grant, allowance, or other similar payments” and directs that an undefined term shall “have the meaning which it has under the laws of that State concerning the taxes to which this Convention applies” (here, the United States). U.S.-Russ. Treaty art. 3(2). But the “laws” of the United States use “grant” or “allowance” in over 7,000 sections of the U.S. Code, without supplying a uniform definition. The IRS (at 27) concedes that the Tax Code does not define “grant” or “allowance.”

Absent a definitional provision, the Treaty must be read “in accordance with the ordinary meaning to be given to its terms in their context and in the light of its object and purpose.” Sanchez-Llamas v. Oregon, 548 U.S. 331, 346 (2006) (quoting 1 Restatement (Third) of Foreign Relations Law of the United States § 325(1) (1986)); accord Tabion v. Mufti, 73 F.3d 535, 537 (4th Cir. 1996). “The meaning of a statement often turns on the context in which it is made.” United States v. Briggs, 141 S. Ct. 467, 470 (2020). Where a term has a “well understood” meaning in a particular context, that meaning controls. See Gustafson v. Alloyd Co., 513 U.S. 561, 575 (1995).

Here, context dictates that “grant” receive its well-accepted meaning in the research setting. Article 18 applies to an individual “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.” U.S.-Russ. Treaty art. 18(1)(c). Looking to the “specific context in which the language is used,” Hurlburt v. Black, 925 F.3d 154, 158 (4th Cir. 2019) (en banc) (citation omitted), the Treaty refers to a “grant” specifically in the research context. Article 18 sandwiches the key phrase — “grant, allowance, or other payments” — between “doing research” and a list of grantor organizations including “educational” and “scientific” ones.

1. Every researcher knows what a grant is: specific funds for specific research. As the National Science Foundation has expounded: “Grants establish a relationship between [the grantor] and the grantee in which” the grantor “agrees to provide up to a specified amount of financial support for the project to be performed under the conditions and requirements of the grant,” and the grantee agrees to perform the project pursuant to the grant terms. Proposal and Award Policies and Procedures Guide, NSF, at xv (June 1, 2020), https://bit.ly/3o6sv1Q (NSF Guide).

Researchers request support for projects that align with the grantor's mission. E.g., What Does NIH Look for?, NIH (May 24, 2016), https://bit.ly /2XVZ088; NSF Guide, supra, at II-10. Grantors award grants for specific periods, sometimes with potential renewal. E.g., NIH Grants Policy Statement, NIH, at I-37 (Apr. 2021), https://bit.ly/3uRR6sh (NIH Guide); NSF Guide, supra, at V-1. Although researchers usually apply, some grantors select recipients directly. E.g., MacArthur Fellows Frequently Asked Questions, MacArthur Found., https://bit.ly/3EP9jLH; Open the Door to “Invitation Only” Grant Funders, GrantsPlus, https://bit.ly/3zHdtlb.

Supervision can vary widely. A few private grants impose no conditions. E.g., MacArthur Fellows, supra. But most grantees face extensive oversight. NSF grantees must update NSF on developments like sabbaticals for lead researchers. NSF Guide, supra, at VII-3. The NSF may drop in “at all reasonable times . . . to review project accomplishments” and “provide technical assistance as may be required.” Id. at VII-1. Federal grantees face a web of restrictions, from having to use U.S.-flagged airlines for international travel to allowing military recruiters on campus. NIH Guide, supra, at IIA-24, -40. The federal government even sometimes refers to “cooperative agreements” as “grants,” permitting “substantial involvement” by the grantor in the project itself. Id. at ii, I-15.

In sum, a research grant requires specific funding to support a specific project. Extensive supervision is also pervasive.

2. Dictionary definitions align. The Tax Court noted that “grant” generally means “an amount of funds given for a specific purpose.” (A.378 (citing American Heritage Dictionary 765 (4th ed. 2006)); accord American Heritage Dictionary 365 (3d ed. 1992) (“A giving of funds for a specific purpose.”); Webster's Third New International Dictionary 989 (1993) (“something granted; esp: a gift (as of land or a sum of money) usu. for a particular purpose”). Again, “grants” involve specific funds for a specific purpose. In context, that “specific purpose” must be research. Article 18 requires that the taxpayer be “doing research as a recipient of a grant, allowance, or other similar payments.” U.S.-Russ. Treaty art. 18(1)(c) (emphasis added). The Treaty links the grant to the research. Even if “grant” generally might include other purposes (say a “grant” to repair highways), Article 18 is narrower.

The IRS (at 34) criticizes the Tax Court's definition as “overly broad” and applicable “to almost any form of remuneration.” But the IRS ignores the contextual limitations on “grant” that exclude many forms of remuneration. Take a law clerk's salary, which would plainly not qualify as a “grant” under Article 18. A clerk does not receive specific funds. The Judiciary does not earmark money in advance for specific clerks. Pay also depends on time worked. If a clerk works an extra week while her successor takes the bar exam, she gets paid for an extra week. And the clerk has no entitlement to her salary. In contrast, a grant specifies in advance what money the recipient will receive. Grants may be renewed or, in extreme cases, rescinded, e.g., NSF Guide, supra, at XII-2, but the grant identifies an amount up front.

Clerk salaries also do not support specific research. Clerks research what their judge asks. No clerkship offer letter says in advance what cases the clerk will work on. A judge could even assign a clerk no research at all — say one clerk was just the “Bluebook clerk” — but that clerk would still be paid the same. Again, research grants are more limited. Grants support specific projects, identified in advance.

B. Neighboring Terms Confirm the Meaning of “Grant”

1. Article 18's pairing of “grant” with “allowance” confirms that the research meaning of “grant” — specific funds for a specific project — controls. “Allowance” has a similar, research-specific meaning. Like grants, allowances involve specially allocated funds. But instead of going to projects generally, “allowances” cover specific expenses. The Smithsonian offers certain fellows a “research allowance” up to $4,000 to cover “equipment, supplies, research-related travel costs, and other support required to conduct research.” Peter Buck Fellowship Program, Smithsonian, https://s.si.edu/3kF3ZTc. NSF and NIH cover “travel allowances” or “per diem or subsistence allowances.” NSF Guide, supra, at II-18; NIH Guide, supra, at IIA-98, IIB-34. NIH also provides “institutional allowance[s]” to cover costs like “scientific meeting travel, health insurance, and books.” NIH Guide, supra, at IIB-43.

Because Jefferson Lab did not earmark Dr. Baturin's payments for discrete expenses, his payments were a “grant,” not an “allowance.” Still, the research-specific meaning of “allowance” confirms that the U.S.-Russia Treaty uses both “grant” and “allowance” in the research context.

2. The trailing phrase “or other similar payments” also “broaden[s] the scope of article 18.” Kiselev v. Comm'r, 2018 WL 357633, at *4 (T.C. Jan. 10, 2018); cf. In re Nat'l Gas Distribs., LLC, 556 F.3d 247, 253 (4th Cir. 2009) (recognizing that “or any other similar agreement” at the end of a definition provides “flexibility” (citation omitted)); In re Durability Inc., 212 F.3d 551, 558 (10th Cir. 2000) (observing that “any other similar act” serves as a “broad catchall” that is “broader than listed items” (internal quotation marks omitted)).

Article 18 thus reaches beyond grants and allowances to “other similar payments” as well. As explained below, infra pp.38-40, Dr. Baturin received a “grant” and does not need the catchall. But Dr. Baturin can prevail so long as his payments were sufficiently “similar” to a “grant” or “allowance.”

C. Purpose Confirms the Meaning of “Grant”

“Courts construe treaties liberally to give effect to the purpose which animates them.” Retfalvi v. United States, 930 F.3d 600, 610 (4th Cir. 2019) (internal quotation marks omitted). Here, purpose confirms the research-specific meaning of “grant” — specific funds for a specific project.

1. The U.S.-Russia Treaty aimed to “strengthen the economic, scientific, technical and cultural cooperation” between the United States and Russia. U.S.-Russ. Treaty pmbl. Model tax treaties at the time offered no special benefits to visiting researchers. See OECD, Model Double Taxation Convention on Income and on Capital art. 20, at 37 (1977); Treasury Department's Model Income Tax Treaty art. 20 (1981), reprinted in IRS, Doc. 6743, Tax Haven Information Book 112, 120 (1982); United Nations, Model Double Taxation Convention Between Developed and Developing Countries art. 20, at 34 (1980).

The U.S.-Russia Treaty though, like the USSR Treaty before it, offered “[s]pecial relief” to visiting researchers. S. Treaty Doc. No. 102-39, at VI. While the Russia Treaty did not match the USSR Treaty's unusual generosity, it still deviated from the model treaties as well as at least eight prior treaties. S. Exec. Rep. No. 103-17, at 40; see U.S.-Austl. Treaty art. 20 (1982); U.S.-Barb. Treaty art. 20 (1984); U.S.-Can. Treaty art. 20 (1980); U.S.-Den. Treaty arts. 13, 14 (1948); U.S.-Fin. Treaty art. 20 (1989); U.S.-Greece Treaty arts. 12, 13 (1950); U.S.-N.Z. Treaty art. 20 (1982); U.S.-Tunis. Treaty art. 20 (1985).

Giving “grant” its well-accepted meaning in the research context honors this intentional choice by ensuring that Article 18 covers real-world research grants. Any other definition risks a mismatch between Article 18's coverage and the grants bona fide researchers like Dr. Baturin actually receive. Dr. Baturin “moved his life and his family to the United States” to work alongside “researchers from around the world” to study the structure of the universe at a federally sponsored laboratory. (A.257, 386.) That “scientific . . . cooperation” is exactly what the Treaty seeks to promote. See U.S.-Russ. Treaty pmbl.

2. No policy argument justifies denying these benefits. The IRS appeals the loss of a claimed $22,229 deficiency, fearing (at 34) that the Tax Court's approach will allow “almost any form of remuneration” to qualify. That is simply untrue. Not all salaries are grants. Supra p.19. This case turns on Jefferson Lab's decision to set aside Dr. Baturin's funding for a specific project in advance. Infra pp.38-39.

Article 18 hardly risks a flood of litigation. The IRS (at 39 & n.15) has identified one published decision and two unpublished decisions involving Article 18.² Identical provisions in the Kazakh and Ukrainian tax treaties have produced no decisions to amicus's knowledge. In 2015, fewer than 10,000 Russian-born scientists and engineers with doctorates worked in the United States. 2018 Science, supra, at 3-127, -129. (Numbers for Ukraine and Kazakhstan are small enough to be lumped with “other.” See id.) While other tax treaties use the term “grant,” these provisions have important textual differences. Infra pp.36-37 & n.4. Dr. Baturin's case does not presage a wave of claims by immigrant researchers.

Article 18 also imposes numerous restrictions on who can receive an exemption, including a five-year limit on benefits and a “public interest” requirement. U.S.-Russ. Treaty art. 18(2), (3). The IRS conceded all of those restrictions here (A.170, 243), but they further cabin the class of eligible claimants. Concern for the public fisc does not justify unduly narrowing Article 18.

II. A Grant Dispersed as Compensation for Services Is Still a Grant

The IRS primarily argues that compensation for services categorically cannot be a “grant, allowance, or other similar payments.” Because record evidence refers to Dr. Baturin as an “employee” receiving a “salary,” the IRS (at 35-36) contends that Dr. Baturin received “compensation for services” and therefore cannot have received a “grant” as a matter of law. But “grant” means only specific funds for specific research. How that grant is ultimately dispensed does not change whether a grant occurred. In practice, grants are regularly dispensed as compensation for services. The IRS's per se rule contradicts that common practice. The IRS therefore attempts to narrow the meaning of “grant” by looking to a different Treaty provision and IRS regulations on “fellowship grants,” but neither theory carries the day.

A. Research Grants Are Routinely Dispersed as Compensation

1. In the research context, grants are routinely dispensed as employee salaries. Federal law recognizes as much. The current appropriations statute directs that NIH funds (like those from the Department of Health and Human Services generally) not “pay the salary of an individual, through a grant or other extramural mechanism, at a rate in excess of Executive Level II” (currently $199,300). DHHS Appropriations Act, 2021, Pub. L. No. 116-260, § 202 (2020) (emphasis added). NIH grants can pay salaries less than that amount. NIH Guide, supra, at IIB-96. The NSF guidelines likewise allow a portion of salaries, including for senior personnel, to come from grants. NSF Guide, supra, at II-15.

Accordingly, when an individual receives a grant, the grantor often gives the actual funds to an intermediary like a university or laboratory. How the intermediary choses to dispense the money to the grantee does not change whether a grant occurred. The NSF does not even allow individuals to apply for grants unless “specifically authorized” by the NSF. Id. at I-5. The NSF thus “strongly encourage[s]” individuals seeking grants to affiliate with an institution. Id. Reflecting this same reality, federal grants under the Mutual Educational and Cultural Exchange Act — the statute that creates the J-1 visa program — “may be made to or for individuals either directly or through foundations or educational or other institutions.” 22 U.S.C. § 2454(e)(1).

Two of the few Article 18 cases illustrate this practice. In Kiselev, a Russian Ph.D. student received grants to study cancer. 2018 WL 357633, at *2, *6. Instead of handing a graduate student a check, the grantors nominally gave the money to his faculty supervisor, who then paid out the funds as a salary. Id. at *2. The Tax Court recognized that the student was still the “recipient” of these grants. Id. at *6. After all, “Article 18 provides no support for [the IRS's] contention that a grant may not be paid as a salary or that a grantee may not be an employee.” Id.

Similarly, in Lyashenko, a Russian postdoctoral fellow received a fixed research stipend but was also “considered a full-time employee of the University.” 41 Fed. Cl. at 627. Despite this arrangement, the IRS had no qualms about mooting the case by issuing a refund. Id. at 630.

Even outside the research context, “grants” are often dispensed in exchange for services. Recent coronavirus relief acts explicitly permit the use of “grants” to fund “payroll.” Economic Aid to Hard-Hit Small Businesses, Non-Profits, and Venues Act, Pub. L. No. 116-260, § 324(d)(2)(B)(i) (2020); American Rescue Plan Act of 2021, Pub. L. No. 117-2, § 5003(c)(5)(A). The Tax Code describes stock options both as “grants” and as “[p]roperty transferred in connection with performance of services.” 26 U.S.C. § 83(i); see id. §430(c)(7)(D)(i), (iv)(I) (recognizing that stock “grant[s]” can be “employee compensation”). The Tax Code likewise defines a dependent care center as a facility which “receives a fee, payment, or grant for providing services.” Id. §21(b)(2)(D) (emphasis added). And Webster's defines “grant” to include a bestowal “with or without compensation.” Webster's New International Dictionary 1089 (2d ed. 1959).

In short, in the research context, the tax context, and in ordinary usage, nothing precludes a grant from being dispersed as an employee's salary. The only essential requirements are that the grantee receive specific funds for specific research.

2. How the dispersed payments are characterized, if relevant at all, speaks to Article 18's requirement that the researcher be the “recipient” of the grant, not whether a grant exists. See U.S.-Russ. Treaty art. 18(1)(c). In other cases, researchers have argued that they were the true “recipient[s]” of grants awarded to their employers. E.g., Sarkisov v. United States, 95 A.F.T.R.2d 2005-738 (Fed. Cl. 2005); Ratnikov v. Comm'r, 2009 WL 814087 (T.C. Mar. 30, 2009). As the Tax Court recognized below, the “characterization of payments” may be a “relevant fact” in those cases. (A.383.)

Take Sarkisov, which the IRS (at 39) wrongly counts in its column. Sarkisov was an associate professor at the University of Nevada. 95 A.F.T.R.2d 2005-738. The University indisputably “received grants” from the federal government. Id. But “[n]one of the grants was directed to Mr. Sarkisov.” Id. Indeed, none of the grants was “dependent upon Mr. Sarkisov's continued employment as a researcher . . . [or] his participation in the research.” Id. The fact that the University characterized its payments to Sarkisov as a salary and not, say, a grant distribution, thus supported the conclusion that the University, not Sarkisov, “received” the relevant grants.

Here, the situation is flipped: Dr. Baturin indisputably “received” funding from the purported grantor, Jefferson Lab; the only question presented is whether that funding counts as a “grant, allowance, or other similar payments.” See IRS Br. 2. On that question, the manner of dispersal is irrelevant. Grants are routinely paid out as salaries.

B. Article 14 Does Not Alter the Meaning of “Grant”

In support of its alternative reading, the IRS (at 22-23) argues that Article 14 of the Treaty, which permits some taxation of “salaries, wages, and other similar remuneration,” means that wages categorically cannot be a “grant, allowance, or other similar payments.”

1. By leading with Article 14, the IRS starts on the wrong foot. It is a “commonplace [rule] of statutory construction that the specific governs the general.” NLRB v. SW Gen., Inc., 137 S. Ct. 929, 941 (2017) (citation omitted). Article 18, which governs limited payments to students, trainees, and researchers, is more specific than Article 14's general rule for “[i]ncome from [e]mployment.” Thus, the question is whether Dr. Baturin received a “grant, allowance, or other similar payments,” not whether some broader label might also apply.

To avoid that framing, the IRS turns to negative inference. Article 14 states that it is “[s]ubject to the provisions of Articles 15 (Directors' Fees), 16 (Government Service), and 17 (Pensions).” U.S.-Russ. Treaty art. 14(1). Because Article 14 does not explicitly mention Article 18, the IRS posits that Article 14 implicitly excludes salaries and wages from Article 18.

But the negative-implication canon “must be applied with great caution, since its application depends so much on context.” Antonin Scalia & Brian A. Garner, Reading Law 107 (2012); see United States v. Hawley, 919 F.3d 252, 256 (4th Cir. 2019) (declining to apply the canon given context). Here, caution is particularly warranted since Article 14 is not even at issue — Dr. Baturin claims an Article 18 exemption; the IRS does not claim an independent power to tax him under Article 14. Instead, the IRS seeks to use negative implication to interpret Article 14 and then use that reading of Article 14 to imply a limitation on Article 18.

The Treaty does not support such a roundabout approach. Article 14 logically cross-references three provisions that routinely involve employment income: compensation for serving on a board of directors (Article 15), government-employee compensation (Article 16), and pensions (Article 17). Research grants, by contrast, can but need not stem from employment. The Treaty drafters' decision to list the provisions most likely to overlap with Article 14 without noting that Article 18 might, on occasion, overlap as well, does not create an implied limitation on Article 18.

2. The IRS's treatment of Articles 14 and 18 also creates significant anomalies with the Treaty's other personal-services provision, Article 13. By isolating Articles 14 and 18, the IRS violates the rule of treaty interpretation that “particular provisions may not be divorced from the document as a whole.” See Sea Hunt, Inc. v. Unidentified Shipwrecked Vessel or Vessels, 221 F.3d 634, 646 (4th Cir. 2000).

The U.S.-Russia Treaty contains two general rules on personal services. The IRS (at 19-22) focuses on Article 14, which covers “[i]ncome from [e]mployment,” namely “salaries, wages, and other similar remuneration.” U.S.-Russ. Treaty art. 14. The IRS (at 20 n.7) relegates to a footnote Article 13, which provides a parallel rule for “[i]income derived” from “independent personal services” including “independent scientific . . . activities.” U.S.-Russ. Treaty art. 13. Article 13 lacks enumerated exceptions but, like Article 14, contains no proviso that it is “subject to Article 18.”

The IRS (at 22) argues that Article 14 implicitly limits Article 18 by carving out “salaries, wages, and other similar remuneration” from what qualifies as a “grant, allowance, or other similar payment.” How, though, does the IRS think Articles 13 and 18 relate? Does Article 13 also implicitly limit Article 18 or can “[i]ncome derived” from “independent personal services” be a “grant” even if salaries and wages cannot? The IRS does not say, and both possible answers produce textually implausible interpretations of the Treaty.

If the IRS thinks that a “grant” can derive from “independent personal services,” i.e., that Article 14 limits Article 18, but Article 13 does not, then the IRS makes a hash of the Treaty. Articles 13 and 14 offer parallel, general rules for independent and dependent (employment-based) personal services. See Treasury Department Technical Explanation, in 17 Legislative History of United States Tax Conventions, at Russian Federation 135, 153 (William H. Manz ed. 2020) (Manz). The two provisions use parallel language (particular income “derived by an individual who is a resident of a Contracting State . . . shall be taxable only in that State” unless particular conditions are met) to regulate the field.

Treating Article 14 but not Article 13 as an implied limit on Article 18 destroys that parallelism. Under this approach, when a payment is arguably both a “grant” and a “salar[y],” Article 14's rule for salaries trumps Article 18's rule for grants, but when a payment is arguably both a “grant” and “[i]ncome derived” from “independent personal services,” Article 18's rule for grants trumps Article 13's rule for independent personal services. Article 14's enumeration of three employment-specific exclusions cannot justify this topsy-turvy approach to Article 18.

The IRS's other potential way to read Articles 13, 14, and 18 makes even less sense. If a “grant” cannot derive from “independent personal services,” i.e., Articles 13 and 14 both implicitly limit Article 18, then Article 18 is a dead letter for researchers. The IRS recognizes that “scientific research” is a “personal service.” IRS Informal Reply Br. 9 n.5. But Articles 13 and 14 cover the waterfront of personal services. If they both limit the meaning of “grant,” then income derived from scientific research can never count.

That proves far too much. Treaties are contracts between sovereigns, Medellín v. Texas, 552 U.S. 491, 505 (2008), and, like all contracts, “should be interpreted as so to give effect to each provision,” see Am. Roll-On Roll-Off Carrier, LLC v. P&O Ports Balt., Inc., 479 F.3d 288, 293 (4th Cir. 2007). The United States and Russia did not include special benefits for researchers just to see them never apply. Instead, Article 18's specific exception takes precedence over both Articles 13 and 14, ensuring harmony in the Treaty and protection for researchers.

3. The IRS also cannot account for the Treasury Department's “official guide” to the Treaty, which describes Article 18 alongside Articles 15-17 as “exceptions and additions” to Articles 13 and 14. Technical Explanation, supra, at Russian Federation 135, 153. The IRS (at 26) points to Article 18's five-year limit and public-interest requirement, suggesting that Treasury might have simply meant that Article 18 is an “addition” to Articles 13 and 14. But the fact that Article 18 only applies in certain circumstances in no way adds to what is taxable. Where Article 18 does not apply, Articles 13 and 14's default rules kick in; new income does not suddenly become taxable. As Treasury correctly recognized from the outset, Article 18's more specific rule takes precedence over Article 14. Article 14 does not implicitly modify the well-understood meaning of “grant.”

C. IRS Regulations Do Not Alter the Meaning of “Grant”

The IRS (at 27) acknowledges that the Tax Code does not define the terms “grant” or “allowance,” but asks this Court to draw “some guidance” from its own regulation limiting another IRS regulation's definition of a different term in a statute that has not been on the books for 35 years. That is not a valid approach to treaty interpretation.

1. Before 1986, the Tax Code excluded a “fellowship grant” from gross income. 26 U.S.C. § 117(a)(1)(B) (1982). That version of the Code had separate exclusions for a “scholarship” and “any amount received to cover expenses for . . . research.” Id. § 117(a)(1)(A), (2).³ IRS regulations applying that version of the Code (and not updated since) state that a “fellowship grant generally means an amount paid or allowed to, or for the benefit of, an individual to aid him in the pursuit of study or research.” 26 C.F.R. § 1.117-3(c). So far so good. Jefferson Lab certainly “paid” Dr. Baturin “an amount” “to aid him in the pursuit of . . . research.”

The IRS (at 28) thus turns to an exception. Another IRS regulation interpreting the former version of the Tax Code excludes from a “fellowship grant” any amount that “represents either compensation for past, present, or future employment services or [that] represents payments for services which are subject to the direction or supervision of the grantor” or that enables the individual “to pursue studies or research primarily for the benefit of the grantor.” 26 C.F.R. § 1.117-4(c).

That exception does not overcome the well-accepted understanding that research grants can be dispersed as salaries. To start, the regulation helps define a different term (“fellowship grant”) in a different context. In upholding this regulation, the Supreme Court noted that it comports “with the ordinary understanding of 'scholarships' and 'fellowships' as relatively disinterested, 'no-strings' educational grants, with no requirement of any substantial quid pro quo from the recipients.” Bingler v. Johnson, 394 U.S. 741, 751 (1969). But, “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.” Kiselev, 2018 WL 357633, at *4; see supra p.18. By substituting “fellowship grant” for “grant,” the IRS by-passes the actual language of the Treaty.

The regulatory definition of “fellowship grant” is especially inapt here given subsequent changes to the Tax Code. The IRS last updated this regulation in 1985. See Federal Grants Not Includible in Income in Certain Cases, 50 Fed. Reg. 27,231, 27,232 (July 2, 1985). At the time, the Code separately exempted “fellowship grant[s]” and “expenses for . . . research.” 26 U.S.C. §117(a)(1)(B), (2) (1982 & Supp. III 1985). A year later, Congress did away with that distinction — subsuming “fellowship grant” into the definition of “qualified scholarship” and deleting the separate research-expense exemption. Tax Reform Act of 1986, Pub L. No. 99-514, § 123, 100 Stat. 2085, 2112. The regulations, then, bake in an assumption that fellowship grants and research expenses are distinct — an assumption that is no longer true. Using an outdated regulatory definition to define “grant” in the research context would therefore be particularly inappropriate.

The IRS's proposed exclusion of grants “subject to the direction or supervision of the grantor” is also staggeringly broad. Essentially all grants are “subject to the direction or supervision of the grantor.” Supra p.18. Taken seriously, the IRS's position means that recipients of the no-strings-attached MacArthur “genius grant” might qualify for an Article 18 exemption, but basically no one else will. The United States and Russia did not craft Article 18's special exemption to cover such a tiny sliver of grantees.

2. The IRS (at 29-33) seeks to bolster the regulatory exception by pointing to its own administrative guidance on a 1971 treaty with Japan. As the IRS concedes, these revenue rulings are due “'considerably less deference' than that accorded Treasury regulations.” Br. 32 (quoting Dominion Res., Inc. v. United States, 219 F.3d 359, 366 (4th Cir. 2000)). While some other circuits accord revenue rulings “some degree of deference,” Br. 32 (quoting Mellow Partners v. Comm'r, 890 F.3d 1070, 1077 (D.C. Cir. 2018)), the Tax Court affords these rulings no deference at all, treating them as “merely the contention of one of the parties to the litigation,” Dominion Res., 219 F.3d at 366 (citation omitted). The standard in this Circuit remains “unclear.” Black & Decker Corp. v. United States, 436 F.3d 431, 440 (4th Cir. 2006).

Whether due some modicum of deference or not, the revenue rulings do not resolve this case. The since-superseded 1971 U.S.-Japan Treaty included an exemption for an individual “doing research as a recipient of a grant, allowance, or award.” U.S.-Japan Treaty art. 20(1)(a)(iii) (1971). In a 1980 ruling, the IRS used its “fellowship grant” regulations to interpret that provision. Rev. Rul. 80-36, 1980-1 C.B. 366, 367 (1980) (superseding Rev. Rul. 76-567, 1976-2 C.B. 491 (1976)). The IRS later applied that ruling in Revenue Ruling 87-40, 1987-1 C.B. 372 (1987).

The U.S.-Russia Treaty has two textual distinctions from the 1971 U.S.-Japan Treaty that render the revenue rulings inapplicable. First, the Japan Treaty covered a “grant, allowance, or award,” art. 20(1)(a)(iii) (emphasis added), and lacked the broadening “or other similar payments” in the Russia Treaty. Second, the Japan Treaty separately exempted up to $2,000 of researchers' “[i]ncome from personal services.” Art. 20(1)(b)(iii). The 1980 ruling relied on this exclusion, concluding that a “grant” could not include “income from personal services” since the Treaty treated such income separately. 1980-1 C.B. at 368. The Russia Treaty lacks any such exclusion. The IRS (at 33) claims that these revenue rulings are “relevant” to interpreting the U.S.-Russia Treaty. But to the extent the rulings show anything, it is that the drafters of the Russia Treaty chose different language.⁴

The revenue rulings are also unpersuasive in their own right. Like the IRS's briefing here, the 1980 ruling simply observes that “grant” is undefined and immediately jumps to the IRS's own regulations on “fellowship grants.” 1980-1 C.B. at 367. The ruling does not grapple with the research-specific meaning of “grant,” the differences between a “fellowship grant” and a research “grant,” or the staggering consequences of denying an exemption to anyone whose research is subject to “supervision.” See id. The 1987 ruling does not address the intervening changes in the Tax Code, applying the 1980 ruling uncritically. 1987-1 C.B. at 373. Decades-old guidance interpreting a different treaty with materially different language does not control this case.

3. The IRS (at 34 n.13) gestures to one other regulation interpreting the phrase “grant to an individual for travel, study, or other similar purposes” in an excise-tax provision, 26 U.S.C. § 4945(d)(3), to “not ordinarily include salaries or other compensation to employees,” 26 C.F.R. § 53.4945-4(a)(2). But this provision involves a narrower context (grants for “travel, study, or other similar purposes”) without the same research practice of dispersing grants as salaries. If anything, that regulation demonstrates that grants can include salaries, by limiting its application to the “ordinar[y]” course. See id.

III. Ample Record Evidence Demonstrates that Dr. Baturin Received Specific Funds for Specific Research

Dr. Baturin received specific funds for specific research, i.e., a grant. The Tax Court's finding to that effect was not clearly erroneous.

A. Jefferson Lab specially allocated funds to Dr. Baturin in advance. As the Tax Court found, “the funding was earmarked specifically for him” and “issued on the basis of [his] participation.” (A.385.) Dr. Baturin testified repeatedly that Jefferson Lab set aside money in a “box” or “bank account” for his benefit. (A.254, 266, 268, 269.) No one else could receive these funds (A.269), and if Jefferson Lab went bankrupt, Dr. Baturin would still be paid (A.270). In order for Dr. Baturin to come to Jefferson Lab, the Lab had to “transfer[ ]” his program from UCLA and fill a new “box” of money for him. (A.267-68.) Supporting Dr. Baturin's understanding, his immigration paperwork lists $75,000 — the amount received in his first year — as “Current Program Sponsor funds.” (A.201.) In short, Dr. Baturin “credibly testified that he moved his life and his family to the United States on the basis of a promise that the funds pledged to him had been set aside for his maintenance.” (A.386.)

Jefferson Lab also earmarked the payments for specific research. Dr. Baturin testified that he participated in the “12 GEV upgrade project.” (A.256.) Accordingly, Jefferson Lab's invitation letter described him as a “12 GeV Upgrade Research Scientist.” (A.202.) And his immigration paperwork included a numerical “Subject/Field Code,” describing the “specific activity” he was working on. (A.201, 258.) Dr. Baturin received specific funds to work on a specific project.

The fact that Jefferson Lab characterized Dr. Baturin as an “employee” and subsequent distributions as a “salary” does not undo the grant. The grant was complete the moment Jefferson Lab “pledged” funds to Dr. Baturin that were “set aside for his maintenance.” (See A.386.) As the Tax Court observed, there was “no evidence in the record that [Jefferson Lab] was entitled to rescind the promised payments for the specified term.” (A.385.)

Grants are routinely dispersed as salaries. Supra pp.24-26. While money often passes through an institutional intermediary, e.g., Kiselev 2018 WL 357633, at *2, Jefferson Lab cut out the middle man, serving as both grantor and distributor. That simplification does not alter the analysis.

Likewise, there was nothing unusual about Jefferson Lab supervising Dr. Baturin's research. Grantors like to ensure their money is spent well. Supra p.18. The IRS (at 35) objects that Dr. Baturin had an “immediate supervisor” and had to “follow the rules of the company.” But as Dr. Baturin explained, this was because of the “very, very complex equipment” he was using. (A.263.) The IRS's vision — that if Dr. Baturin was a real grantee, Jefferson Lab would have tossed him the keys to a half-billion-dollar⁵ particle accelerator and told him to have at it — is divorced from scientific reality.

Dr. Baturin's grant was unusual in that Jefferson Lab reached out to him without an application. (See A.268-69.) But invited grants, like the MacArthur “genius grant,” are not unheard of. Supra p.17. Regardless, Article 18 does not impose an application requirement. Such a rule would bizarrely exclude internationally recognized experts like Dr. Baturin who have funders coming to them.

B. The IRS's factual argument largely rests on disbelief of Dr. Baturin's testimony. But the Tax Court deemed Dr. Baturin “credibl[e].” (A.386.) This Court “may not reverse a trier of fact, who had the advantage of hearing the testimony, on a question of credibility.” Equinor USA Onshore Props., Inc. v. Pine Res., LLC, 917 F.3d 807, 815 (4th Cir. 2019) (citation omitted).

The IRS (at 37) claims that Dr. Baturin's testimony was “based upon his reading of the financial requirements” in State Department regulations. In essence, the IRS takes Dr. Baturin to have offered legal arguments, not factual testimony. Dr. Baturin did repeatedly reference regulations. (E.g., A.251, 254, 258-59, 268, 271.) But he also testified about actions taken by Jefferson Lab. (E.g., A.253 (“THE WITNESS: The source of this funds is coming from the sponsor of the program. THE COURT: Jefferson Lab? THE WITNESS: Jefferson Lab, yeah.”); A.266 (“This box is filled by Jefferson Lab.”); A.267-68 (“[T]he program was transferred to Jefferson Lab. . . . [O]ne box was filled by university, another box filled by Jefferson Lab.”).)

The Tax Court's findings reflect that the court understood Dr. Baturin to have offered case-specific testimony. (E.g., A.372 (“Petitioner was told that Jefferson Lab funded his program and set aside these funds for his maintenance before his arrival in the United States, pursuant to Department of State requirements.”); A.386 (“Petitioner credibly testified that he moved his life and his family to the United States on the basis of a promise that the funds pledged to him had been set aside for his maintenance.”)). Those findings are not clearly erroneous.

To the extent the IRS viewed Dr. Baturin's testimony as ambiguous or unsupported, the IRS could and should have pointed that out at trial. Instead, the IRS offered minimal cross-examination and never asked Dr. Baturin whether he was speaking from personal knowledge or legal research. (See A.264-70.) Dr. Baturin largely reiterated his story on cross-examination, and IRS counsel responded: “I understand, and I believe I understand, it is clear.” (A.270.) Having “present[ed] no evidence to contradict [Dr. Baturin's] testimony” (A.38586), the IRS cannot now ask this Court to “reweigh the evidence” on clear-error review. See United States v. Charleston County, 365 F.3d 341, 349 (4th Cir. 2004).

The IRS (at 36 n.14) quibbles with one other finding, claiming that Jefferson Lab could have withheld Dr. Baturin's funding at any time. Jefferson Lab told Dr. Baturin that his “continued employment” was “contingent upon satisfactory performance and the continuing availability of funds and work.” (A.203.) The Tax Court understood that statement to mean that Dr. Baturin had no right to a renewed award beyond the stated term. (See A.385.) After all, the only evidence of “continued employment” in the record was “the two-time extension and reawarding of specified funds for [Dr. Baturin] to continue his research.” (A.385.) And the IRS offered no evidence that Jefferson Lab could “rescind the promised payments for the specified term.” (A.385.) Regardless, grantors routinely reserve the right to terminate funding early if grantees violate grant conditions. E.g., NSF Guide, supra, at XII-1.

Finally, the IRS (at 38) suggests that the Tax Court misapplied its own “proposed multi-factor test.” That misunderstands the Tax Court's opinion. The Tax Court opined on relevant considerations when deciding when an individual researcher counts as the “recipient” of a grant funneled through a “conduit” institution, a “common difficulty” faced in other cases. (A.382-83.)

This case presents a distinct question: was there a “grant, allowance, or other similar payment[ ]” at all? The Tax Court's weighing of the evidence on that issue reflected holistic consideration, not a mechanical test. The court simply asked “whether, under all of the facts and circumstances, [Dr. Baturin's] wages were 'similar payments' to a grant or allowance.” (A.383; see A.385-86.) The court's finding that the payments qualified was not clear error in light of Dr. Baturin's uncontradicted testimony.

CONCLUSION

The Tax Court's judgment should be affirmed.

OCTOBER 12, 2021

Respectfully submitted,

AARON Z. ROPER
WILLIAMS & CONNOLLY LLP
725 Twelfth Street, N.W.
Washington, DC 20005
(202) 434-5000
aroper@wc.com