Internal Revenue Service
Revenue Ruling
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smRev. Rul. 75-10
1975-1 C.B. 389
IRS Headnote
Japan; National Institutes of Health fellowship. A U.S. nonresident alien Japanese scientist granted a fellowship to perform research at the National Institutes of Health, which do not maintain a regular faculty or established curriculum, have no organized student body, and do not have student education as their primary purpose, is not exempt from U.S. income tax by reason of Article 19 of the U.S.-Japan Income Tax Convention.
Full Text
Rev. Rul. 75-10
Advice has been requested whether, under the circumstances described below, the National Institutes of Health (NIH) qualifies as an "accredited educational institution" under Article 19 of the United States-Japan Income Tax Convention, 1973-1 C.B. 630, (entered into force on July 9, 1972).
A Japanese scientist, a nonresident alien individual of the United States, is appointed to a fellowship at NIH to perform research at NIH pursuant to the authority of 42 CFR part 61 subpart B (1973) of the Public Health Regulations. Section 61.31 of these regulations provides for the establishment of service fellowships in the Public Health Service, the designation of persons to receive such fellowships, and the appointment of service fellows under authority of 42 U.S.C. section 209(g) (1969). Section 61.30(a) of these regulations provides that a service fellow is an employee of the Public Health Service.
NIH, an agency of the United States Department of Health, Education, and Welfare, is a focal point for Federal biomedical research and support of research. NIH conducts biomedical research in its own laboratories, provides grants to nonprofit organizations and institutions for research and for medical education, provides grants for the training of research investigators, and supports biomedical communications through programs and activities of the National Library of Medicine. Although NIH trains researchers in its own facilities, the primary purpose of NIH is to conduct and promote research.
The division of NIH that offers the service fellowships is the Fogarty International Center (Center). The Center invites distinguished, talented, and promising scientists at all career levels to NIH for an interchange of scientific information and training. The purpose of the fellowship programs is to broaden the utility of the physical facilities and intellectual environment of NIH as a natural research source and to strengthen the mutually productive scientific centers throughout the world and NIH.
Neither NIH nor the Center offers structured courses or training programs, maintains a regular faculty or curriculum, has an organized body of students, gives course credit, or awards degrees.
Article 19 of the Convention provides that an individual, who is a resident of a Contracting State at the beginning of his visit to the other Contracting State, or who was, immediately before receiving the invitations referred to below, exempt from tax in the other Contracting State under paragraph (1)(a) of Article 20 of the Convention, and who at the invitation of the Government of that other Contracting State or of a university or other accredited educational institution situated in the other Contracting State, is temporarily present in that other Contracting State for the primary purpose of teaching or engaging in research, or both, at a university or other accredited educational institution shall be exempt from tax by that other Contracting State on his income from personal services for teaching or research at such university or educational institution, for a period not exceeding two years from the date of his arrival or the date he completed the study, training, or research in that other Contracting State with respect to which the exemption in paragraph (1)(a) of Article 20 applied.
The term "accredited educational institution" is not defined in the Convention. However, Article 2(2) of the Convention provides that any term used in this convention and not otherwise defined shall, unless the context otherwise requires, have the meaning which it has under the tax laws of that Contracting State. Although the term "accredited educational institution" is not defined in the Internal Revenue Code of 1954 or the regulations thereunder, the term "educational institution" is defined. Thus, the term "educational institution" is interpreted as this term is defined in section 151(e)(4) of the Code and section 1.151-3(c) of the Income Tax Regulations. See Rev. Rul. 70-196, 1970-1 C.B. 359, which interprets the term "educational institution" in Article XI of the United States-Japan Income Tax Convention of 1954 as that term is defined in section 151(e)(4) and section 1.151-3(c). Also see Rev. Rul. 74-484, 1974-2 C.B. 342. Section 151(e)(4) of the Code and section 1.151-3(c) of the regulations define the term "educational institution" to mean a school maintaining a regular faculty and established curriculum, and having an organized body of students in attendance. It includes primary and secondary schools, colleges, universities, normal schools, technical schools, mechanical schools, and similar institutions, but does not include noneducational institutions, on-the-job training, correspondence schools, night schools, and so forth. Rev. Rul. 68-604, 1968-2 C.B. 63, holds that to qualify as an educational institution, as defined in section 151(e)(4), the primary purpose of an institution or division thereof must be educating students.
Since neither NIH nor the Center maintains a regular faculty or established curriculum, has an organized body of students, or has a primary purpose of educating students, neither NIH nor the Center is an "educational institution" as defined in section 151(e)(4) of the Code and section 1.151-3(c) of the regulations.
Accordingly, neither NIH nor the Center is an "accredited educational institution" within the meaning of the term as used in Article 19 of the United States-Japan Income Tax Convention.