T.C. Memo. 2017-216
UNITED STATES TAX COURT
ZHONGXIA YE, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 23538-13. Filed November 6, 2017.
Stuart H. Clements, Adrian Ochoa, Rita Renee Huey, Jaime Vasquez, and
Juan F. Vasquez, Jr., for petitioner.
Bryan J. Dotson and Sheila R. Pattison, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
NEGA, Judge: Respondent determined a deficiency in petitioner’s Federal
income tax for tax years 2008 and 2009 of $18,275 and $11,750, respectively.
The issues for decision are: (1) whether petitioner was a resident of the United
States for tax purposes for tax years 2008 and 2009 and (2) whether the wages
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[*2] paid to petitioner as an assistant professor at Kennesaw State University
(KSU) during tax years 2008 and 2009 are exempt from tax under article 191 of the
Agreement for the Avoidance of Double Taxation and the Prevention of Tax
Evasion with Respect to Taxes on Income, China-U.S., Apr. 30, 1984, T.I.A.S.
No. 12,065 (Agreement).
FINDINGS OF FACT
Some of the facts have been stipulated and are so found. The stipulation of
facts and the attached exhibits are incorporated herein by this reference. Petitioner
resided in Georgia when the petition was timely filed.
I. Petitioner’s Personal History
Petitioner was born in the People’s Republic of China (China) and at all
relevant times was a citizen of China.
From 1989 through 1996 petitioner attended Southwestern University of
Finance and Economics in Chengdu, China, where she obtained her bachelor’s
degree in auditing and her master’s degree in international accounting. From 1996
1
Unless otherwise indicated, all article references are to the Agreement for
the Avoidance of Double Taxation and the Prevention of Tax Evasion with
Respect to Taxes on Income, China-U.S., Apr. 30, 1984, T.I.A.S. No. 12,065, all
section references are to the Internal Revenue Code (Code) in effect for the years
at issue, and all Rule references are to the Tax Court Rules of Practice and
Procedure. All monetary amounts are rounded to the nearest dollar.
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[*3] through 1999 petitioner worked as a certified public accountant (C.P.A.) for a
private firm in China. From 1999 through 2001 petitioner worked as an auditor
for a state-owned company in China. From 1996 through 2001 petitioner paid
income tax to China.
II. Petitioner’s Move to the United States
Petitioner’s career goal was to become a college professor. In order to
achieve that goal, petitioner thought she needed to obtain a doctor of philosophy
degree (Ph. D.). On September 3, 2001, petitioner entered the United States on an
F-1 visa to pursue a Ph. D. in business administration with a concentration in
accounting at Temple University.2
Since petitioner’s arrival in 2001, she has left the United States only twice.
On December 16, 2004, petitioner left the United States to visit her family in
China. Petitioner returned from that trip approximately one month later. On
December 8, 2005, petitioner left the United States to take part in an academic
presentation in Canada. Petitioner returned from that trip approximately three
days later.
2
From petitioner’s arrival in the United States through August 15, 2006,
petitioner remained in the United States on an F-1 visa, completing her studies at
Temple University.
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[*4] III. Petitioner’s Teaching Career at Kennesaw State University
In 2006 during petitioner’s final year at Temple University,3 she applied for
teaching positions in the United States, Canada, and Hong Kong. Petitioner
received three job offers, all of which were extended by universities in the United
States.
On April 26, 2006, petitioner accepted a permanent, full-time, nine-month
employment year, tenure track position as an assistant professor of accounting in
the Department of Accounting, Michael J. Coles College of Business (assistant
professor) at KSU, effective August 14, 2006. KSU’s offer letter stated in
pertinent part:
Kennesaw State University will initiate on your behalf a petition for
an H1B visa. Obtaining a proper visa can take several months and
there is no guarantee that one will be granted by our government. We
will facilitate the process on our end as much as we can, and trust that
you will do likewise. However, your employment at this institution
will be contingent upon your having an appropriate status with
USCIS.[4]
3
On August 25, 2006, Temple University conferred on petitioner a Ph. D. in
business administration with a concentration in accounting.
4
From August 14, 2006, through August 11, 2011, petitioner remained in the
United States on an H-1B visa, permitting her to work as an assistant professor at
KSU.
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[*5] In March 2007, the chair of KSU’s Department of Accounting (department
chair) evaluated petitioner’s overall performance for 2006 as “At Expectations”.
In June 2007 KSU renewed petitioner’s annual employment contract for the 2007-
08 academic year, which started on August 9, 2007, and ended on May 12, 2008.
On August 16, 2007, petitioner submitted to the United States Citizenship
and Immigration Services (USCIS) Form I-485, Application to Register Permanent
Residence or Adjust Status, to apply for permanent residency. On that same day,
KSU sent to the USCIS an employment verification letter on behalf of petitioner.
That letter stated in pertinent part: “Her employment will be on an ongoing basis
pending approval of her permanent residency.”5
In March 2008 the department chair evaluated petitioner’s overall
performance for 2007 as “Meets Expectations”. In June 2008 KSU renewed
petitioner’s annual employment contract for the 2008-09 academic year, which
started on August 11, 2008, and ended on May 15, 2009. In November 2008, the
department chair sent petitioner a letter stating in pertinent part:
[Y]ou have made appropriate progress in your first years at KSU, and
you are already a valued colleague in the School. I encourage you to
continue the improvements you already have demonstrated in
5
On August 12, 2011, the USCIS approved petitioner’s Form I-485, granting
her request for permanent residency.
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[*6] teaching and service and to maintain your excellent record in
scholarship as you progress toward tenure.
In June 2009 the department chair evaluated petitioner’s overall
performance for 2008 as “Meets Expectations”. That same month, KSU renewed
petitioner’s annual employment contract for the 2009-10 academic year, which
started on August 10, 2009, and ended on May 14, 2010.
In August 2010 the director of KSU’s School of Accountancy evaluated
petitioner’s overall performance for 2009 at “At Expectations”.
IV. Petitioner’s Returns for Tax Years 2008 and 2009
Since petitioner’s arrival in 2001, she has not filed an income tax return for
China nor paid tax to China.
In 2008 petitioner earned wages of $94,747 from working as an assistant
professor at KSU. Petitioner hired a C.P.A. to prepare her 2008 Form 1040NR,
U.S. Nonresident Alien Income Tax Return (return). In that return, petitioner
claimed her wages of $94,747 were “income exempt by a treaty”. A Form 8833,
Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b), attached
to petitioner’s 2008 return states in pertinent part:
Taxpayer is hired as an assistant professor by the Kennesaw State
University (a public state university of Georgia) primarily to teach,
lecture and conduct research on August 14, 2006 on a H1B1 visa
status.
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[*7] For the year ending December 31, 2008, taxpayer wished to claim
exemption from U.S. income tax on remuneration for teaching,
lecturing and research totaling $94,747 under Article 19 of the United
States - People’s Republic of China Tax Treaty.
In her 2008 return, petitioner reported that she was physically present in the
United States for more than 183 days in 2008. On March 12, 2009, petitioner
signed her 2008 return, which reported a refund due of $20,140.
In 2009 petitioner earned wages of $96,483 from working as an assistant
professor at KSU. Petitioner hired the C.P.A. who had prepared her 2008 return to
prepare her 2009 return. In that return petitioner claimed that $48,098 of her
wages was “income exempt by a treaty”. A Form 8833 attached to petitioner’s
2009 return states in pertinent part:
Taxpayer is hired as an assistant professor by the Kennesaw State
University (a public state university of Georgia) primarily to teach,
lecture and conduct research on August 14, 2006 on a H1B1 visa
status.
For the year ending December 31, 2009, taxpayer wished to claim
exemption from U.S. income tax on remuneration for teaching,
lecturing and research totaling $48,098 under Article 19 of the United
States - People’s Republic of China Tax Treaty. (For remuneration
from January 1 to May 31, 2009).
In her 2009 return petitioner reported that she was physically present in the
United States for more than 183 days in 2009. On March 11, 2010, petitioner
signed her 2009 return, which reported a refund due of $13,019.
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[*8] For each of the tax years 2008 and 2009, petitioner filed Form 9210, Alien
Status Questionnaire, and Form 9250, Questionnaire - Tax Treaty Benefits, in
which she stated that she intended to stay in the United States “until my
employment contract is not renewed”.
On July 18, 2013, respondent mailed to petitioner a notice of deficiency
(notice) for tax year 2008 and a notice for tax year 2009. In those respective
notices respondent determined that (1) petitioner was a resident alien of the United
States for tax years 2008 and 2009 and (2) the wages she earned as an assistant
professor at KSU during tax years 2008 and 2009 were not exempt from tax under
article 19 of the Agreement.
OPINION
The Commissioner’s determinations in a notice are generally presumed
correct, and the taxpayer ordinarily bears the burden of proving those
determinations erroneous. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115
(1933).
I. Resident and Nonresident Alien Status
We first address whether petitioner was a resident of the United States for
tax purposes for tax years 2008 and 2009.
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[*9] An alien individual is treated as a resident of the United States with respect
to any calendar year if the individual: (1) is a lawful permanent resident of the
United States at any time during the calendar year; (2) meets a substantial presence
test; or (3) makes a first-year election to be treated as a resident of the United
States. Sec. 7701(b)(1). There is no evidence that petitioner was lawfully
admitted for permanent residence in the United States at any time in 2008 or 2009
or that she made an election to be treated as a U.S. resident. Accordingly,
petitioner will be treated as a resident alien only if she meets the substantial
presence test provided in section 7701(b)(3).
The substantial presence test is an objective test: “[A]n individual meets the
substantial presence test * * * if * * * such individual was present in the United
States on at least 31 days during the calendar year”, and for at least 183 days
during the calendar year and the two preceding calendar years, calculated pursuant
to a weighted formula. Sec. 7701(b)(3)(A); see Luján v. Commissioner, T.C.
Memo. 2000-365, slip op. at 9; sec. 301.7701(b)-1(c)(1), Proced. & Admin. Regs.
An individual is treated as present in the United States on any day that the
individual is physically present in the United States at any time during the day.
Sec. 7701(b)(7)(A). While an individual may be treated as “not” being in the
United States for any day where the individual is considered exempt, such as a
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[*10] teacher who is temporarily present in the United States pursuant to a J or Q
visa, such an exception does not apply here, where petitioner held an H-1B visa in
2008 and 2009. See sec. 7701(b)(3)(D)(i), (5)(A)(ii), (C).
Respondent argues that petitioner was a resident alien under the substantial
presence test for tax years 2008 and 2009.
In her 2008 return and 2009 return petitioner reported that she was
physically present in the United States for more than 183 days in each tax year
2008 and 2009. At trial petitioner did not address this issue with the Court.
On the record before us, we find that petitioner meets the substantial
presence test for tax years 2008 and 2009. On that record, we find that petitioner
was resident of the United States for tax purposes for those tax years.6
6
The saving clause in this Agreement states:
Notwithstanding any provision of the Agreement, the United States
may tax its citizens. Except as provided in paragraph 2 of Article 8,
paragraph 2 of Article 17, and Articles 18, 19, 20, 22, 23, 23, 24 and
26 of this Agreement, the United States may tax its residents (as
determined under Article 4).
Therefore, despite the fact that petitioner is a resident of the United States
for tax purposes for tax years 2008 and 2009, if petitioner meets the requirements
of article 19, then she is exempt from tax under that article of the Agreement.
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[*11] II. The United States-China Income Tax Agreement
We next address whether the wages paid to petitioner as an assistant
professor at KSU during tax years 2008 and 2009 were exempt from tax under
article 19 of the Agreement.
When a treaty is interpreted, its words are construed according to their
ordinary meaning. Amaral v. Commissioner, 90 T.C. 802, 812 (1988); see
Sumitomo Shoji Am., Inc. v. Avagliano, 457 U.S. 176, 180 (1982). Where the
Code provides for the taxation of income, “[w]hatever basis there may be * * * for
relieving * * * [such] tax must be found in the words or implications of the * * *
[treaty].” Maximov v. United States, 373 U.S. 49, 51 (1963). While neither a
treaty nor U.S. revenue laws have preferential status, the Code’s provisions
nonetheless are to be applied with due regard to germane tax treaty provisions.
Secs. 894, 7852(d)(1); see Amaral v. Commissioner, 90 T.C. at 812.
Article 19 of the Agreement, entitled “Teachers, Professors, and
Researchers”, provides:
An individual who is, or immediately before visiting a Contracting
State was, a resident of the other Contracting State and is temporarily
present in the first-mentioned Contracting State for the primary
purpose of teaching, giving lectures, or conducting research at a
university, college, school or other accredited educational institution
or scientific research institution in the first mentioned Contracting
State shall be exempt from tax in the first mentioned Contracting
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[*12] State for a period not exceeding three years in the aggregate in respect
of remuneration for such teaching, lectures, or research.
By its terms, the exemption in article 19 is available only for persons who are
“temporarily present” in the United States.
Petitioner contends that the wages she earned as an assistant professor at
KSU during tax years 2008 and 2009 are exempt from tax under article 19 of the
Agreement because at the time she filed her 2008 return and 2009 return, she was
temporarily present in the United States as a variety of contingencies could have
resulted in her returning to China. Respondent counters that petitioner was not
temporarily present in the United States at the time she filed her 2008 return and
2009 return because the occurrence of those contingencies was too remote.
The record in this case shows that petitioner did not have any plans to move
out of the United States. See Zhang v. Commissioner, T.C. Memo. 2011-118, slip
op. at 14. In 2001 petitioner moved to the United States to achieve her career goal
of becoming a college professor. Since then, petitioner has left the country only
twice--once in 2004 for approximately 30 days, and once in 2005 for
approximately 3 days. In 2006 petitioner achieved her career goal when she
accepted a permanent, full-time, nine-month employment year, tenure track
position as an assistant professor at KSU. In 2007 petitioner submitted to the
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[*13] USCIS her application for permanent residency, indicating her intent to stay
in the country.7 In short nothing in the record suggests petitioner had any plans to
move out of the United States.
With respect to petitioner’s contention that various contingencies, including
her employment status at KSU, would affect her presence in the United States,
there is nothing in the record before us that suggests she or the university intended
or considered her employment to be temporary. See id. Petitioner was in a tenure
track position. KSU had evaluated her performance for 2006, 2007, 2008, and
2009, as “At Expectations” or “Meets Expectations”. KSU renewed her
employment contract in 2007, 2008, and 2009. Finally, in 2009, the department
chair sent petitioner a letter stating that she was making sufficient progress toward
tenure.
On the record before us, we find that petitioner was not “temporarily
present” in the United States for tax years 2008 and 2009. On that record, we find
that the wages petitioner earned as an assistant professor at KSU during tax years
2008 and 2009 are not exempt from tax under article 19 of the Agreement.
We have considered all the other arguments of the parties, and to the extent
not discussed above, find those arguments to be irrelevant, moot, or without merit.
7
See supra note 5.
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[*14] To reflect the foregoing,
Decision will be entered
for respondent.