V.I. gains standing in tax case
Published: February 25, 2014
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ST. THOMAS - A federal appeals court ruled that the V.I. government can intervene in a collection of lawsuits involving V.I. taxpayers. The ruling may help the territory preserve its Economic Development Commission program.
The U.S. Court of Appeals for the 11th Circuit reversed the U.S. Tax Court's decision to prohibit the V.I. government from becoming a party in several ongoing tax cases, which have been consolidated.
The V.I. government had sought to intervene in the cases of George Huff v. Commissioner, Barry Cooper v. Commissioner and Patrick McGrogan v. Commissioner, just as it had sought to intervene in a number of other tax cases involving V.I. taxpayers who had participated in the EDC program, according to a Government House news release.
The Internal Revenue Service had issued tax deficiency notices in all of these cases, claiming that the taxpayers either were not V.I. residents or had underpaid their taxes to the territory, or both, and should have filed their tax returns with the IRS instead of the Virgin Islands Bureau of Internal Revenue, the release said.
"In 2009 and 2010, the IRS issued deficiency notices to the taxpayers for tax years 2002, 2003, and 2004. The IRS claimed, first, that the taxpayers were not bona fide Virgin Islands residents during those tax years and, therefore, they should have filed returns with the IRS and paid taxes to the United States on the income they reported from United States sources," the 11th Circuit opinion states.
The V.I. government has taken the position that taxpayers who have duly filed and reported their income to the V.I. Bureau of Internal Revenue are subject to a three-year statute of limitations, which means that the IRS notices in the Tax Court cases are moot because they were filed after that time period.
The Tax Court had denied the territory's motion to intervene in all of the cases, but the U.S. Court of Appeals for the 3rd and 8th Circuit overruled the decision and allowed the Virgin Islands to intervene in Appleton v. Commissioner and Coffey v. Commissioner.
Last year, in the Appleton case, the Tax Court ruled in favor of the territory's legal position that the statute of limitations applies to V.I. taxpayers who timely filed their tax returns with the Bureau of Internal Revenue and therefore prohibits the IRS from suing the taxpayer.
The Coffey case, and the Huff, Cooper and McGrogan cases considered by the 11th Circuit, have a similar statute of limitations argument but involve residency issues as well, according to Government House.
The territory has filed a motion for summary judgment in the Coffey case to extend the Appleton ruling to all cases in which the taxpayer "claims in good faith to be a V.I. resident, but where the IRS challenges that claim," according to the Government House release.
The Virgin Islands' motion in the Coffey case is pending in the Tax Court.
Gov. John deJongh Jr. instructed V.I. Attorney General Vincent Frazer to seek intervention in the tax cases to protect the integrity of the EDC program from IRS challenge, according to Government House.
"Our success in these rulings gives an assurance to not only those that participate in our economic development programs, but to every resident of the Virgin Islands. It further ensures that there is equity in how our system operates and is evaluated. Our engagement in this arena was not our first choice, but it became a necessary action to ensure fairness," deJongh said in a written statement.
A three judge panel of the 11th Circuit unanimously agreed that the Virgin Islands Government had a "direct and substantial interest" in the tax cases.
- Contact reporter Aldeth Lewin at 714-9111 or email firstname.lastname@example.org.