United Statesman Bhutta v. Comm'r

USMAN BHUTTA, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent

145 T.C. No. 14

Docket No. 26940-13.

UNITED STATES TAX COURT

December 22, 2015

P, a citizen of Pakistan and a foreign medical school graduate, entered the United States in 2009 to participate in an internal medicine residency training program. During the three-year residency training program, for which P received an annual salary, P treated patients, with supervision; conducted and presented research; and supervised and trained third- and fourth-year medical students. P's supervising and training of medical students consisted of having the medical students observe him during "rounds", preparing the students for monthly examinations, and evaluating the students monthly.

For taxable year 2010 P reported his wages from the residency training program as exempt from U.S. income tax under the Convention for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion With Respect to Taxes on Income, U.S.-Pak., art. XII, July 1, 1957, 10 U.S.T. 984 (entered into force May 21, 1959) (hereinafter treaty). Treaty art. XII exempts from U.S. income tax remuneration that a professor or teacher receives for teaching if the professor or teacher is a Pakistani resident who temporarily visits the United States "for the purpose of teaching for a period not exceeding two years at a university, college, school or other educational institution" in the United States.

R subsequently issued P a notice of deficiency disallowing the claimed treaty exemption. P asserts that he is entitled to an exemption under treaty art. XII or, alternatively, that he is entitled to an exemption under treaty art. XIII(3). Treaty art. XIII(3) exempts from income tax compensation up to $10,000 if a Pakistani resident, temporarily present in the United States under arrangements with the United States or any agency or instrumentality thereof solely for the purpose of training, study, or orientation, receives such compensation for the rendition of services directly related to such training, study, or orientation.

Held: P was not in the United States for "the purpose of teaching" in 2010 and therefore is not entitled to the exemption under treaty art. XII.

Held, further, P is not entitled to the exemption under treaty art. XIII(3) because P has not proven that he was in the United States under arrangements with the United States or an agency or instrumentality thereof.

Held, further, R's determination is sustained.

H. Craig Pitts, for petitioner.

William Franklin Castor and H. Elizabeth H. Downs, for respondent.

MARVEL, Judge: In a notice of deficiency, respondent determined a $4,415 deficiency in petitioner's Federal income tax for taxable year 2010. Petitioner timely petitioned this Court for redetermination of the deficiency. After concessions,¹ the sole issue for decision is whether petitioner's wages earned as a medical resident in 2010 are exempt from tax under article XII or article XIII(3) of the Convention for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion With Respect to Taxes on Income, U.S.-Pak., July 1, 1957, 10 U.S.T. 984 (entered into force May 21, 1959) (United States-Pakistan Income Tax Convention or treaty).

FINDINGS OF FACT

Some of the facts have been stipulated and are so found. The stipulated facts are incorporated herein by this reference. Petitioner resided in Oklahoma when he petitioned this Court.²

Petitioner was a citizen of Pakistan at all relevant times. At the time of trial he lived with his wife, a Pakistani citizen whom he married in 2010, and his daughter, who is a U.S. citizen. He has been a practicing physician on the nephrology faculty of OU Physicians, a physicians group within the Oklahoma University Health Sciences Center (university), since August 2014 after completing a three-year residency training program and a fellowship there.

I. Petitioner's Medical Background and Residency Training Program

In 2005 petitioner graduated from Allama Iqbal Medical College, University of Punjab, Lahore, Pakistan, with a medical degree. To obtain the medical degree petitioner completed five to six years of coursework and spent one year working in a hospital.³

Petitioner believed that the medical training in the United States was "far superior" to the training he received in Pakistan and decided to pursue a medical residency in the United States. Before he could begin a residency training program in the United States, however, petitioner had to pass the United States Medical Licensing Examination (USMLE), a three-step examination for medical licensure in the United States. He completed the first step and the clinical knowledge portion of the second step in Pakistan on December 20, 2006, and October 18, 2007, respectively. On December 4, 2007, petitioner was issued a B-1/B-2 visa, which allowed him to enter the United States to take the clinical skills portion of the second step of the USMLE. Petitioner completed the clinical skills portion in the United States on January 30, 2008.

After passing steps 1 and 2 of the USMLE, petitioner was eligible for certification from the Educational Commission for Foreign Medical Graduates (ECFMG). ECFMG is an organization that certifies the qualifications of international medical school graduates before they begin U.S. graduate medical education. ECFMG certification is required before an international medical school graduate may take step 3 of the USMLE, begin a U.S. residency training program, and obtain an unrestricted license to practice medicine in the United States. Petitioner obtained ECFMG certification on March 27, 2008, and he completed the third step of the USMLE in the United States in January 2009.

While in the United States petitioner interviewed at various universities seeking acceptance into an internal medicine residency training program. He interviewed with the university and received by letter dated March 23, 2009, an offer of appointment as a first-year internal medicine resident from the university's department of internal medicine. The offer letter indicated that petitioner's start date would be July 1, 2009, and that he would complete his "residency training" on June 30, 2012. The letter also stated that petitioner would have the opportunity to initiate training in a subspeciality during his second year of residency. The residency position paid an annual salary of $45,666 for the first year, which increased by approximately $1,000 "with each year of training." Petitioner accepted the offer by signing the letter on March 28, 2009, and returning it to the university.

Petitioner's acceptance of the university's offer was memorialized in a contract entitled the University of Oklahoma College of Medicine Residency Agreement, which petitioner and a university representative signed on August 11, 2009 (2009 agreement). The 2009 agreement covers only petitioner's first year of residency and comprises four parts: Appointment; University Responsibilities; Resident Responsibilities; and Reappointment, Promotion, and Termination. Among the university's stated responsibilities is its obligation to provide a "graduate medical education program" with "faculty oversight and supervision of all educational and clinical activities". Resident responsibilities include "fulfill[ing] the educational requirements of the training program" and using "his/her best efforts to provide safe, effective and compassionate patient care". Teaching medical students is not a stated resident responsibility.

Under the 2009 agreement a resident could be suspended without pay or dismissed for failing to obtain an Oklahoma medical license within a prescribed time. The 2009 agreement also states that continuation of the training program requires annual renewals of appointment, which are not automatically offered but rather are "offered yearly based upon meeting the performance standards of the Program." Failure to satisfactorily complete training program requirements or breaching institutional rules could result in "nonpromotion". A resident would not know for certain whether he could continue in the program until the university gave him a renewal contract.⁴

Before he could begin his residency training program, petitioner needed to obtain a U.S. exchange visitor, or J-1, visa. ECFMG, as petitioner's sponsor, issued him a Form DS-2019, Certificate of Eligibility for Exchange Visitor (J-1) Status, which allowed him to go to a U.S. embassy to apply for and receive the visa. See 22 C.F.R. sec. 62.2 (2010) (defining Form DS-2019). The Form DS-2019 described petitioner as a "university post grad medical trainee", an "alien physician", and a "research scholar" and was valid from August 10, 2009, to August 9, 2010, to reflect the dates of the 2009 agreement.⁵

ECFMG had to renew the Form DS-2019 every year for petitioner to continue in the residency training program. ECFMG's criteria for renewing a Form DS-2019 were listed on its Web site and included a requirement that an applicant provide proof of a renewed agreement with a university, a letter of good standing from the director of the applicant's residency training program, andcopies of the applicant's visa and insurance. ECFMG would not renew a Form DS-2019 if the applicant's residency training program or university closed or if the applicant's home country wanted him to return.

Petitioner obtained a J-1 visa on June 5, 2009. The J-1 visa allowed petitioner to remain in the United States for the duration of the residency training program and any postresidency fellowship but required him to return to Pakistan for two years after his training unless he obtained a hardship waiver. See id. sec. 62.27(g)(1). Petitioner entered the United States at the end of July 2009 and began his residency training program at the university on August 10, 2009. The university renewed petitioner's residency agreement yearly, allowing him to obtain a new Form DS-2019 every year and to complete...