T.C. Memo. 2018-104
ESTATE OF TRAVIS L. SANDERS, DECEASED, THOMAS S. HOGAN, JR., PERSONAL REPRESENTATIVE, Petitioner, AND THE GOVERNMENT OF THE UNITED STATES VIRGIN ISLANDS, Intervenor
COMMISSIONER OF INTERNAL REVENUE, Respondent[*]
United States Tax Court
July 5, 2018
William M. Sharp, David S. Barnhill, and Vernon Jean Owens,
Vincent F. Frazer, Peter N. Hiebert, and Geoffrey P. Eaton,
Christopher A. Pavilonis and Anne. M. Craig, for respondent.
SUPPLEMENTAL MEMORANDUM FINDINGS OF FACT AND
matter is before the Court on remand from the Court of
Appeals for the Eleventh Circuit for further consideration
consistent with its opinion in Commissioner v. Estate of
Sanders (Sanders II), 834 F.3d 1269 (11th Cir.
2016), vacating and remanding Estate of Sanders v.
Commissioner (Sanders I), 144 T.C. 63 (2015).
Court of Appeals held that the period of limitations pursuant
to section 6501(a) was triggered only if decedent, Travis L.
Sanders, was a bona fide resident of the United States Virgin
Islands (USVI). Id. at 1285. The Court of
Appeals' remand instructed this Court to make factual
findings regarding the amount of time decedent spent in the
determined the following deficiencies and additions to tax
with respect to tax years 2002, 2003, and 2004:
Additions to tax Sec. 6651(a)(2)
2, 754 |
issue for consideration on remand is whether decedent was a
bona fide resident of the USVI. Unless otherwise indicated,
all section references are to the Internal Revenue Code
(Code) in effect for the years in issue, and all Rule
references are to the Tax Court Rules of Practice and
Procedure. We round all monetary amounts to the nearest
with respect to this case were found in our original opinion,
Sanders I, and are incorporated by this reference.
We clarify and add to the facts to address the holding in
Sanders II, 834 F.3d at 1284, that "facts
relied upon by the Tax Court are insufficient to establish
that Sanders ever became a bona fide resident of the
a U.S. citizen, lived in Florida when he filed the petition.
On November 13, 2012, decedent died.
built his own companies to both manufacture and distribute
surge suppression devices. Decedent owned three surge
suppression companies, ITD of Destin, Inc., Surge
Suppression, Inc., and Surge Technology, Inc. (collectively
decedent's companies or his companies). Decedent owned
100% of the stock of all of his companies at all times during
tax years 2002, 2003, and 2004. Surge Suppression, Inc., and
Surge Technology, Inc., had management agreements with ITD of
Destin, Inc. Under the terms of the management agreements,
ITD of Destin, Inc., was to provide administrative and labor
services to both Surge Suppression, Inc., and Surge
Technology, Inc. Effective December 30, 2003, Surge
Suppression, Inc., and Surge Technology, Inc., merged into
ITD of Destin, Inc., which was renamed Surge Suppression,
Inc. (SSI). Surge Suppression, Inc., Surge Technology, Inc.,
and ITD of Destin, Inc., filed Forms 1120S, U.S. Income Tax
Return for an S Corporation, for tax years 2002 and 2003. SSI
filed Form 1120S for tax year 2004.
decedent started his companies, he was an independent
distributor for Innovative Technology, where he met Thomas
Hogan, a legal representative to Innovative Technology. In
approximately 1995 decedent and Mr. Hogan traveled to St.
Croix, USVI, to explore opportunities to work with another
company. The two became friends and built a business and
social relationship. In 1997 Mr. Hogan began to represent
decedent on legal matters and continued the representation
until decedent's death.
considered selling his companies in 2002 but decided not to
go through with the sale. The potential buyer expressed
concern that the companies were too dependent on
decedent's personal involvement and that they might fail
to flourish in his absence. After the unsuccessful sale
effort, decedent wanted to make changes to his companies'
management and operations structure in order to exert less
control. Decedent planned to operate his companies from the
USVI and ultimately retire there.
Mr. Hogan partnered with Rick Roberts, Victor Taglia, and
Alan Teegardin to start Madison Associates, L.P. (Madison), a
designated services business in the USVI. Madison provided
scientific, electronic, investment, economic, and management
consulting services to businesses in the United States. Mr.
Teegardin was licensed to practice law in the USVI. Mr.
Roberts was a certified public accountant in Florida. This
group hired USVI attorney Vince Fuller to organize Madison
and serve as the general partner. They were interested in
benefiting from the USVI economic development program (EDP),
which had recently expanded to include consulting businesses.
Madison established a USVI office at the American Yacht
Harbor, in an area known as Red Hook.
published a pamphlet about becoming a limited partner in
Madison. Madison advertised that each of its limited partners
received a 90% tax credit on distributions from Madison as a
result of being a USVI resident. Each limited partner was
entirely responsible for bringing in his or her own revenue
to Madison. Limited partners did not share each other's
revenue, and each partner had his or her own capital account.
Each limited partner paid Madison up to a 5% fee of the
revenue attributable to that limited partner. After overhead
and general partner allocations were paid, the limited
partner was entitled to a distribution of the remaining
capital in his or her own account.
Hogan introduced decedent to Madison. On September 25, 2002,
decedent signed a Supplemental Agreement to Agreement of
Limited Partnership of Madison Associates, which made him a
limited partner of Madison. Decedent also signed an
employment agreement with Madison on that date. The contract
stated that the "[e]mployee agrees to devote his
full-time talent and abilities to Employer for so long as
this Agreement is in effect." The contract required
decedent to maintain records "including, but not limited
to Affidavits of residency or other certification for filing
with the Economic Development Commission."
September 25, 2002, decedent executed an agreement on behalf
of ITD of Destin, Inc., whereby ITD of Destin, Inc., would
pay Madison fees for consulting. Decedent was to provide the
consulting services on behalf of Madison to ITD of Destin,
Inc. Decedent's two other companies, Surge Technology,
Inc., and Surge Suppression, Inc., never entered into
consulting agreements with Madison.
beginning of 2002 decedent was divorced and the father of a
minor son (minor son) and an adult daughter. Decedent and
Kathleen Hennessy, decedent's fiancee and future wife,
lived in a home in Destin, Florida (Destin). The home was
approximately 2, 500 to 3, 000 square feet. The value of the
Destin home was approximately $275, 000. Decedent continued
to own this home through 2004.
daughter was a college student who...