Tice v. Comm'r of Internal Revenue
| Decision Date | 10 April 2023 |
| Docket Number | 24983-15 |
| Parties | DAVID W. TICE, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent |
| Court | U.S. Tax Court |
P, a U.S. citizen, filed one income tax return for 2002 and one income tax return for 2003, each with the Virgin Islands Bureau of Internal Revenue (VIBIR) and each claiming residency in the U.S. Virgin Islands (USVI). R determined that P was not a bona fide USVI resident under I.R.C. § 932(c) but rather a U.S. citizen other than a bona fide USVI resident under I.R.C. § 932(a) and therefore was required to file income tax returns "with both the United States and the Virgin Islands." See I.R.C. § 932(a)(2). R determined deficiencies for P and in 2015 issued a notice of deficiency.
P moves for summary judgment that the three-year period of limitations under I.R.C. § 6501(a) began to run upon his filing of returns with the VIBIR for 2002 and 2003 in 2003 and 2004, respectively, making the 2015 notice of deficiency untimely. For purposes of deciding whether to grant summary judgment, we assume that P was not a bona fide USVI resident under I.R.C. § 932(c) but rather a taxpayer other than a bona fide USVI resident under I.R.C. § 932(a).
Held Taxpayers who filed a return only with the VIBIR for taxable years ending before December 31, 2006, do not trigger the statute of limitations under I.R.C § 6501(a) unless they are bona fide residents of the USVI to whom I.R.C. § 932(c) applies. See Cooper v Commissioner, T.C. Memo. 2015-72.
Held further, as a taxpayer "other than a bona fide resident of the Virgin Islands" to whom I.R.C. § 932(a) applies (for purposes of this Motion), P's filing of returns only with the VIBIR did not trigger the statute of limitations under I.R.C. § 6501(a) and therefore the notice of deficiency could be issued "at any time" under I.R.C. § 6501(c)(3).
Held, further, P's Motion for Summary Judgment will be denied.
Joseph M. Erwin, for petitioner.
Matthew R. Delgado and Jeffrey D. Heiderscheit, for respondent.
In this case we again consider the timeliness of a notice of deficiency issued to a U.S. citizen who claimed to be a resident of the U.S. Virgin Islands (USVI) for 2002 and 2003 (years in issue). Taxpayers like petitioner-those who claimed bona fide residency in the USVI and filed returns only with the Virgin Islands Bureau of Internal Revenue (VIBIR) for the years in issue-seek the repose offered by the statute of limitations in section 6501(a).[1] Petitioner therefore moves for summary judgment that a notice of deficiency issued in 2015 for the years in issue was untimely because the three-year period of limitations in section 6501(a) began to run upon his filing of returns with the VIBIR for the years in issue.[2] The Internal Revenue Service (IRS or respondent) maintains that, for these years, petitioner's filing of returns only with the VIBIR does not meet the section 6501(a) requirements for triggering the statute of limitations unless he was a bona fide resident of the USVI within the meaning of section 932.
The facts required to decide petitioner's Motion are straightforward; they are derived from the pleadings, the First Stipulation of Facts, and the parties' Motion papers. They are stated solely for the purposes of deciding petitioner's Motion for Summary Judgment and not as findings of fact in this case. See Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992), aff'd, 17 F.3d 965 (7th Cir. 1994).
Petitioner, a U.S. citizen, filed one income tax return for 2002 in October 2003 and one income tax return for 2003 in December 2004, each with the VIBIR and each claiming residency in the USVI. The IRS determined that petitioner was not "a bona fide resident of the Virgin Islands" under section 932(c) but rather a U.S. citizen "other than a bona fide resident of the Virgin Islands" under section 932(a) and therefore was required to file income tax returns "with both the United States and the Virgin Islands," as mandated by that subsection. The IRS determined deficiencies, additions to tax, and a penalty for the years in issue and in 2015 issued a notice of deficiency. Petitioner resided in Texas when he timely filed his Petition.
The purpose of summary judgment is to expedite litigation and avoid costly, time-consuming, and unnecessary trials. Fla. Peach Corp. v. Commissioner, 90 T.C. 678, 681 (1988). The Court may grant summary judgment when there is no genuine dispute as to any material fact and a decision may be rendered as a matter of law. Rule 121(a)(2). In deciding whether to grant summary judgment, we construe factual materials and inferences drawn from them in the light most favorable to respondent as the nonmoving party. Sundstrand, 98 T.C. at 520.
Section 6501(a) generally requires that income tax be assessed "within 3 years after the return was filed." It defines "return" as "the return required to be filed by the taxpayer." Thus, in determining whether the three-year statute of limitations has been triggered, we consider both (1) whether the document submitted was the "return" required to be filed and (2) whether it was properly "filed by the taxpayer." See Appleton v. Commissioner, 140 T.C. 273, 284 (2013).
"[L]imitations statutes barring the collection of taxes otherwise due and unpaid are strictly construed in favor of the Government." Badaracco v. Commissioner, 464 U.S. 386, 392 (1984) (quoting Lucia v. United States, 474 F.2d 565, 570 (5th Cir. 1973)). Lucia, 474 F.2d at 570.
A taxpayer must show "meticulous compliance" with all filing requirements in the Code or regulations to begin the period of limitations. Lucas v. Pilliod Lumber Co., 281 U.S. 245, 249 (1930); see also Allnutt v. Commissioner, 523 F.3d 406, 412 (4th Cir. 2008), aff'g T.C. Memo. 2002-311; Winnett v. Commissioner, 96 T.C. 802, 807-08 (1991). "[I]n order for returns to be considered 'filed' for purposes of setting the period of limitations in motion, the returns must be delivered, in the appropriate form, to the specific individual or individuals identified in the Code or Regulations." Allnutt v. Commissioner, 523 F.3d at 413. "In other words, a return does not trigger the running of the statute of limitations unless it is filed in the place required by the statute or regulations." Commissioner v. Estate of Sanders, 834 F.3d 1269, 1274 (11th Cir. 2016), vacating and remanding 144 T.C. 63 (2015).
If the filing requirement is not satisfied-i.e., "[i]n the case of failure to file a return"-the statute of limitations is not triggered and "the tax may be assessed . . . at any time." § 6501(c)(3) (emphasis added).
The USVI is an insular area of the United States; it is classified as an unincorporated territory by 48 U.S.C. § 1541(a) (2006) and is not part of one of the 50 States or the District of Columbia. It generally is not a part of the United States for tax purposes. See § 7701(a)(9). Congress established the "mirror tax system" as the tax law of the USVI in 1921. Act of July 12, 1921, ch. 44, § 1, 42 Stat. 122, 123 (); see also United States v. Calhoun, 566 F.2d 969, 975 (5th Cir. 1978) ("This statute effectively established separate and distinct taxing jurisdictions in the United States and the Virgin Islands . . . .").
Originally, U.S. citizens permanently residing in the USVI who had both U.S.-source and USVI-source income "were required to file returns and pay taxes to both jurisdictions." Appleton, 140 T.C. at 278. In 1954 Congress established an "inhabitant rule" that treated these individuals as having satisfied their U.S. tax obligation by paying tax directly to the USVI. See id. at 279; Revised Organic Act of the Virgin Islands, ch. 558, § 28, 68 Stat. 497, 508 (1954). In 1986 Congress repealed the "inhabitant rule" and enacted section 932 to coordinate the U.S. and USVI tax systems.[3] See Tax Reform Act of 1986, Pub. L. No. 99-514, § 1274(a), 100 Stat. 2085, 2596.
Under section 932, the filing requirement for a taxpayer with USVI-source income depends on the taxpayer's residency. Subsection (a), titled "Treatment of United States Residents," applies to an individual for the taxable year if the individual "is a citizen or resident of the United States (other than a bona fide resident of the Virgin Islands at the close of the taxable year)," § 932(a)(1)(A)(i), and "has income derived from sources within the Virgin Islands . . . for the taxable year," § 932(a)(1)(A)(ii). Subsection (c), titled "Treatment of Virgin Island Residents," applies to an individual for the taxable year if the individual "is a bona fide resident of the Virgin Islands at the close of the taxable year." § 932(c)(1)(A).[4]
Section 932 then provides different filing requirements depending on which mutually exclusive subsection applies. "Each individual to whom" subsection (a) applies-i.e., a U.S. citizen or resident with USVI-source income who is not a USVI resident-"shall file his income tax return for the taxable year with both the United States and the Virgin Islands." § 932(a)(2) (emphasis added). By contrast, "[e]ach individual to whom" subsection (c) applies-i.e., a bona fide resident of the Virgin Islands-"shall file an income tax return for the taxable year with the Virgin Islands." § 932(c)(2).
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