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Government Files Response in U.S.V.I. Statute of Limitations Appeal

OCT. 16, 2020

Judith S. Coffey et al. v. Commissioner

DATED OCT. 16, 2020
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Judith S. Coffey et al. v. Commissioner

JUDITH S. COFFEY,
Petitioner-Appellee,
GOVERNMENT OF THE UNITED STATES VIRGIN ISLANDS (“USVI”),
Intervenor-Appellee,
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent-Appellant;

ESTATE OF JAMES COFFEY, Judith S. Coffey, Executrix,
Petitioner-Appellee,
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent-Appellant.

IN THE UNITED STATES COURT OF APPEALS
FOR THE EIGHTH CIRCUIT

APPELLANT'S RESPONSE TO THE COFFEYS' MOTION TO FILE A SUPPLEMENT TO THEIR BRIEF & ORAL ARGUMENT

The Coffeys have filed a motion seeking leave to supplement their briefing and oral argument to address this Court's decision in Heckman v. Commissioner, 788 F.3d 845 (8th Cir. 2015). We briefly address their motion so as to clarify the applicability of Heckman and to respond to the Coffeys' misstatement of the issue in the appeal.

As an initial matter, we note that the Coffeys do not explain why supplemental briefing — which has not been requested by the Court — is justified here. Unlike other situations where this Court has granted a party's motion for supplemental briefing, the Coffeys' proposed supplement does not address a recent decision published after briefing or a new issue raised by the Court. E.g., United States v. Hollingshed, 940 F.3d 410, 415 (8th Cir. 2019) (granting party's “motion to file supplemental briefing on the impact, if any” of an intervening decision by the Supreme Court). To the contrary, Heckman was cited by the Commissioner in both his opening brief and his reply brief. See Commissioner Br. 51; Commissioner Reply Br. 40. The Coffeys simply chose to ignore Heckman in their answering brief, as well as the other authorities cited by the Commissioner to support his argument that “the IRS's ability to obtain information about the Coffeys' tax liability from VIBIR has no bearing on whether the Coffeys have filed the return required to trigger their federal limitations period.” Commissioner Reply Br. 7; see Commissioner Br. 50-51.

Moreover, the Coffeys' discussion of Heckman disregards the point for which we cited it and related precedent. In Heckman, this Court rejected a taxpayer's argument that the extended six-year statute of limitations period provided in Section 6501(e) of the Internal Revenue Code — which applies when taxpayers omit certain gross income on their tax returns — did not apply because the IRS obtained “actual knowledge” of the taxpayer's omitted income during the normal three-year limitations period after the return was filed. 788 F.3d at 847. In so ruling, the Court held that the taxpayer's argument conflicted with “the text and structure” of Section 6501, pursuant to which the relevant limitations period runs “after the return was filed, not three years after the [IRS's] acquisition of actual knowledge.” Id. at 847-848 (emphasis in original). As we explained in our briefing, the conclusion by the Tax Court that the USVI's cover-over requests triggered the Coffeys' federal limitations period because “the IRS had the information” concerning the Coffeys' finances “and was able to process it” (Add.95-96) conflicts with Heckman and the other binding precedent cited in our briefs. See Commissioner Br. 50; see also id. at 25, 51 and Commissioner Reply Br. 7, 40.

The Coffeys repeat the Tax Court's error in their motion, arguing that their federal limitations period was triggered because the IRS has the ability to “know of the Section 932(c) filings” that the Coffeys made with the USVI (Motion at 8) and received a copy of a portion of that “return and the information on it” from the USVI (Motion at 7). That argument not only conflicts with Heckman, it also ignores the critical predicate for the appeal. In this appeal, we must assume that the Coffeys were not USVI residents (Add.11, 69), and as such, Section 932(c) — which applies only to actual USVI residents — does not apply; Section 932(a)(2) applies instead. See Commissioner Reply Br. 9-10. Pursuant to Section 932(a)(2), non-USVI residents must file a return with both the United States and the USVI to trigger the three-year federal limitations period, just like the taxpayer in Heckman was required to file a return that did not omit certain gross income in order to be able to rely on the three-year limitations period. That the IRS received information about the Coffeys from the USVI's cover-over requests and could obtain more information about the Coffeys through the IRS-VIBIR information-sharing protocols (Motion at 4-8) is irrelevant to the statute-of-limitations issue here (see Commissioner Reply Br. 4-8), just as the IRS's “actual knowledge” about the taxpayer's omitted income was irrelevant in Heckman. Information obtained about a taxpayer — whether from another taxing authority, a whistleblower, or from the taxpayer herself — is no substitute for the taxpayer's filing the required return with the IRS. See Commissioner Br. 50-51; Commissioner Reply Br. 7, 40.

The Coffeys' motion also misstates the issue here. The “issue” is not whether the “return the Appellees filed with the [VIBIR] under 26 U.S.C. § 932(c)” is a “'return required to be filed' under the Internal Revenue Code” (Motion at 4). As previously explained, there is no dispute that the return that the Coffeys filed with the USVI is a return required to be filed under the Internal Revenue Code. See Commissioner Br. 50; Commissioner Reply Br. 6. The issue is whether if a taxpayer has a dual-filing requirement, as taxpayers like the Coffeys have under Section 932(a), can the taxpayer satisfy that requirement by filing only with the territorial taxing authority. As explained in our briefs and at argument, the answer to that question is no, as four circuits1 — including the Eleventh Circuit in Sanders, on facts almost identical to the facts here — have correctly held. See Commissioner Br. 35, 54-59; Commissioner Reply Br. 17-18, 43-48. And the cover-over requests that the USVI delivered to the IRS cannot satisfy the Coffeys' dual-filing requirement under Section 932(a) because (among other things) they were not presented to the IRS as filings by the Coffeys, only cover-over requests by the USVI. See Commissioner Br. 34-42; Commissioner Reply Br. 38-41.

Finally, the Coffeys also briefly reference (Motion at 9-10) this Court's decision in In re Colsen, 446 F.3d 836 (8th Cir. 2006). As previously explained, however, Colsen does not stand for the proposition that the “face of the return filed” (Motion at 9 (emphasis omitted)) determines all limitations questions, including proper-filing questions; it determines only whether a properly filed document is a “return.” See Commissioner Reply Br. 14-17; Commissioner Br. 59-60. Indeed, the Court in Heckman recognized this point and refused to determine the limitations question there based on the face of the return. In this regard, the Court (i) rejected the taxpayer's argument that he “reasonably believed” that he had not omitted taxable income on the return that he filed with the IRS, and (ii) held that the filing requirement under “Section 6501(e)(1)(A) creates no exception for omissions caused by a taxpayer's mistaken tax position.” Heckman, 788 F.3d at 849. So, too, here. Even if Judith Coffey mistakenly believed that she did not need to file returns with the United States during the tax years at issue, such belief cannot satisfy the mandatory dual-filing requirement under Sections 932(a)(2) and 6501(a).

Respectfully submitted,

JUDITH A. HAGLEY (202) 514-8126
Attorney
Tax Division
Department of Justice
Post Office Box 502
Washington, D.C. 20044
Counsel for the Appellant

October 16, 2020

FOOTNOTES

1See Commissioner v. Estate of Sanders, 834 F.3d 1269, 1276-1279 (11th Cir. 2016); Condor Int'l, Inc. v. Commissioner, 78 F.3d 1355, 1358-1359 (9th Cir. 1996); Helvering v. Campbell, 139 F.2d 865, 866-868 (4th Cir. 1944); Robinette v. Commissioner, 139 F.2d 285, 287-288 (6th Cir. 1943).

END FOOTNOTES

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