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
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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.
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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
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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/.
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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.
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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.
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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.
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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
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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.
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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
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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
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(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.
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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.
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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
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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).
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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
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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:
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(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
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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
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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.
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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.