UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT

No. 20-1648

VITALY NIKOLAEVICH BATURIN,

Petitioner – Appellee,

v. COMMISSIONER OF INTERNAL REVENUE,

Respondent – Appellant. ------------------------------ AARON Z. ROPER,

Court-Assigned Amicus Counsel.

Appeal from the United States Tax Court. (Tax Ct. No. 014796-14)

Argued: March 8, 2022 Decided: April 6, 2022

Before MOTZ and DIAZ, Circuit Judges, and KEENAN, Senior Circuit Judge.

Reversed and remanded by published opinion. Judge Motz wrote the opinion, in which Judge Diaz and Senior Judge Keenan joined.

ARGUED: Ivan C. Dale, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Appellant. Aaron Z. Roper, WILLIAMS & CONNOLLY LLP, Washington, D.C., for Court-Assigned Amicus Counsel. Vitaly Nikolaevich Baturin, Appellee Pro Se. ON BRIEF: David A. Hubbert, Acting Assistant Attorney General, Joan I. Oppenheimer, Tax Division, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Appellant.

2 DIANA GRIBBON MOTZ, Circuit Judge:

The Tax Court held that payments to a Russian scientist working in the United States were exempt from taxation under the United States-Russia Tax Treaty. 1 In doing so, the Tax Court misunderstood the basis of the Treaty’s distinction between a tax-exempt “grant, allowance, or other similar payments” and taxable “salaries, wages, and other similar remuneration.” For this reason, we reverse and remand for further proceedings consistent with this opinion.

I.

In 2010 and 2011 (the two years at issue here), Dr. Vitaly Baturin, a Russian national and physicist, worked at Jefferson Lab, a Department of Energy facility in Newport News, Virginia. Jefferson Lab operates a particle accelerator, which smashes particles together to help researchers learn about the structure of the universe. Dr. Baturin’s work involved a detector that would better enable researchers to see what happens at the sub-atomic level inside the accelerator.

During this period, Dr. Baturin held a J-1 exchange visitor visa as a researcher sponsored by Jefferson Lab. He received W-2s from Jefferson Lab that reflected income of $76,729 and $79,061, in 2010 and 2011, respectively, for “wages, tips, [or] other comp[ensation].” He filed 1040-NR (nonresident) forms with the IRS, which claimed an

1 The Treaty’s full title is the “Convention Between the United States of America and the Russian Federation for the Avoidance of Double Taxation and the Prevention off Fiscal Evasion with Respect to Taxes on Income and Capital.” See June 17, 1992, T.I.A.S. No. 93-1216; S. Treaty Doc. No. 102-39. The United States signed the Treaty in 1992 and the Senate ratified it in 1993, shortly after the dissolution of the Soviet Union. 3 exemption as to the entire amount he earned from Jefferson Lab each year pursuant to the United States-Russia Tax Treaty. In 2014, the IRS issued Dr. Baturin a Notice of Deficiency, stating that he owed a total of $22,229 in income taxes on his payments from Jefferson Lab for 2010 and 2011. After some administrative discussions, Dr. Baturin pro se petitioned the Tax Court, arguing that the Treaty exempted his income from taxation.

The Tax Court agreed with Dr. Baturin, holding that the Treaty shielded from taxation his entire income in 2010 and 2011 as “a grant, allowance, or similar payments.” The Tax Court rejected the argument of the Commissioner of Internal Revenue that wages are categorically ineligible for exemption from taxation under the Treaty, reasoning that “wages may be eligible for exemption so long as they are similar to a grant or allowance.” Tax Ct. Op. at 19.

The Commissioner then noted this