Eleventh Circuit directs Tax Court to grant motion of Virgin Islands to intervene in individual taxpayer cases 

February 20:  The U.S. Court of Appeals for the Eleventh Circuit today reversed the Tax Court in these consolidated appeals, and directed the Tax Court to grant a motion filed by the U.S. Virgin Islands to intervene in individual taxpayer cases concerning which government agency is to receive taxes from these individual residents of the Virgin Islands—the IRS or the Virgin Islands revenue bureau. U.S. Virgin Islands v. Commissioner, Nos. 11-10608, -10617, -10618 (11th Cir. February 20, 2014)

Read the Eleventh Circuit’s decision [PDF 105 KB]

Summary

The taxpayers, U.S. citizens, were residents of the Virgin Islands. They asserted that they had satisfied both their U.S. and Virgin Islands tax obligations by filing a return with the Virgin Islands Bureau of Internal Revenue (BIR) and by paying taxes on their worldwide income to the Virgin Islands. As such, they asserted they were relieved of any obligation to file a return with the IRS or pay taxes to the United States.


They did not file income tax returns with the IRS for the years at issue (2002, 2003, and 2004).


In 2009 and 2010, the IRS issued deficiency notices to the taxpayer for 2002, 2003, and 2004, asserting (1) the taxpayers were not bona fide residents of the Virgin Islands during those years and were to have filed federal tax returns; and (2) some of the income classified as Virgin Islands income was, in fact, U.S. income and was subject to federal income tax.


The IRS deficiency notices were issued more than three years after the Virgin Island returns were filed; however, the IRS asserted that collection was not barred because of the taxpayers’ failure to file federal income tax returns.


The taxpayers filed petitions with the Tax Court, and the Virgin Islands moved to intervene—which the Tax Court denied, and this appeal followed.


The Eleventh Circuit today reversed and remanded the cases to the Tax Court, with instructions to grant the motion to intervene. The appeals court found that the Virgin Islands has an interest in the Tax Court proceedings and that the findings would have practical implications for the Virgin Islands taxation of the same individuals.




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