Rev. Rul. 80-98
1980-1 C.B. 368, 1980-14 I.R.B. 25.
Internal Revenue Service
Revenue Ruling
NIH VISITING FELLOWS PROGRAM
Published: April 7, 1980
United States-Japan Income Tax Convention, 1973-1 C.B. 630
(Also income tax conventions between the United States and Belgium, Finland, France, Inceland, the Netherlands, Norway, Poland, Romania, and Trinidad and Tobago.)
(Also Part I, Section 894; 26 CFR 1.894-1.)
NIH Visiting Fellows Program. Amount received from the National Institutes of Health under the Visiting Fellows Program by residents of the following countries are exempt from federal income tax under the respective countries' tax conventions with the U.S.: Belgium, Finalnd, France, Iceland, Japan, the Netherlands, Norway, Poland, Romania, and Trinidad and Tobago. Rev. Rul. 80-36 amplified.
ISSUE
Are the amounts received by residents of Japan from the National Institutes of Health ('NIH') exempt from federal income taxation pursuant to Article 20 of the United States-Japan Income Tax Convention ('Treaty'), 1973-1 C.B. 630, under the circumstances described in the facts below?
FACTS
NIH has established and continues to maintain the Visiting Fellows Program ('Program') through which it invites distinguished and talented scientists from foreign countries, including Japan, to NIH for a limited amount of time (up to 3 years) for an interchange of scientific information and training at the postdoctoral research level for the purpose of furthering their development in their bio-medical specialties.
Visiting Fellows are awarded between $10,000 and $12,500 under the Program as a yearly stipend from NIH to support their postdoctoral research training. These awards are made to individuals whose postgraduate experience does not exceed 3 years in a relevant health science at the time of the award. Visiting Fellows are not required to perform any services for NIH while participating in the Program and are expected to devote their time exclusively to their research training.
LAW AND ANALYSIS
Section 894(a) of the Internal Revenue Code provides that income of any kind, to the extent required by any treaty obligation of the United States, shall not be included in gross income and shall be exempt from taxation.
Article 20(1)(a)(iii) of the Treaty provides that an individual who is a resident of Japan at the beginning of a visit to the United States and who is temporarily present in the United States for the primary purpose of studying or doing research as a recipient of a grant, allowance, or an award from a governmental, religious, charitable, scientific, literary, or educational institution shall be exempt from federal income taxation with respect to amounts described in Article 20(1)(b) for a period not exceeding 5 taxable years from the date of the individual's arrival in the United States.
Article 20(1)(b) of the Treaty provides that the following amounts shall be exempt from federal income taxation: (i) gifts from abroad for the purpose of maintenance, education, study, research, or training; (ii) the grant, allowance, or award itself; and (iii) income for personal services performed in the United States in an aggregate amount not in excess of $2,000 for any taxable year.
Section B(3)(a) of a National Institutes of Health Manual Transmittal Sheet (Subject: 2300-320-3, The NIH Visiting Program) released May 8, 1978, provides that Visiting Fellows are expected to devote their time exclusively to their research training and are not to perform services for NIH nor are they to be provided training assignments in grants, contracts, or any other administrative functions.
The amounts received by Visiting Fellows as fellowship awards granted by NIH to visiting scientists under the Program fall within the scope of the kind of amounts contemplated by the use of the term 'grant, allowance, or award' in Article 20(1)(b)(ii) to be exempt from federal income taxation. Such amounts are not compensation for services and Visiting Fellows are not employees of NIH since it is specifically provided that they are not to perform services for NIH under the Program. Moreover, any amounts received by the Visiting Fellows while in the Program that qualify as gifts from abroad for the purpose of maintenance, education, study,
research, or training under Article 20(1)(b)(i) or as income not in excess of $2,000 per year for personal services performed in the United States under Article 20(1)(b)(iii) are also exempt from federal income taxation.
In Rev. Rul. 76-567, 1976-2 C.B. 491, the taxpayer, a citizen and resident of Japan, received funds from a charitable organization paid in connection with the taxpayer's research work at an institute located in the United States. The ruling concludes that the amount paid to the taxpayer for the research work is a grant, allowance, or award from a charitable organization within the meaning of Article 20(1)(a)(iii) of the United States-Japan Income Tax Convention and, thus, is exempt from federal income tax. However, the ruling does not distinguish between an amount paid under a grant for research and an amount paid as compensation for services rendered in performing research.
HOLDING
The amounts received by residents of Japan from NIH under the Program are exempt from federal income taxation under Article 20 of the Treaty under the circumstances described in the facts above.
Tax treaties with the following countries contain provisions that are identical or substantially similar to Article 20 of the Japanese Treaty: Belgium (Article 21), Finland (Article 21), France (Article 18), Iceland (Article 22), Netherlands (Article XVIII), Norway (Article 16), Poland (Article 18), Romania (Article 20), and Trinidad and Tobago (Article 19). Therefore, amounts received by residents of these countries from NIH under the Program are exempt from federal taxation pursuant to the applicable provisions (parenthetically cited) of the tax treaties with these countries.
EFFECT ON OTHER REVENUE RULINGS
Rev. Rul. 76-567 is amplified.
Rev. Rul. 80-98, 1980-1 C.B. 368, 1980-14 I.R.B. 25.