Supreme Court Asked to Review U.S.V.I. Return Filing Issue

JUDITH S. COFFEY et al.,
Petitioners,
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent.

In the
Supreme Court of the United States

On Petition for a Writ of Certiorari to the United
States Court of Appeals for the Eighth Circuit

PETITION FOR A WRIT OF CERTIORARI

Anthony M. Bruce
Counsel of Record
Andreozzi Bluestein LLP
9145 Main Street
Clarence, New York 14031
(716) 565-1100
amb@andreozzibluestein.com

Counsel for Petitioners

QUESTION PRESENTED

The three-year statute of limitations established by Section 6501(a) of the Internal Revenue Code is triggered by filing “the [tax] return required to be filed by the taxpayer.” Under Section 932(c)(2) of the Code, a “bona fide resident” of the U.S. Virgin Islands is required to file her U.S. income tax return with the Virgin Islands Bureau of Internal Revenue. The question presented in this Petition is:

Whether a Form 1040 (U.S. Individual Income Tax Return) filed with the U.S. Virgin Islands Bureau of Internal Revenue (“VIBIR”) pursuant to Section 932(c)(2) is the “return required to be filed by the taxpayer” commencing the statute of limitations on assessment under Section 6501(a), even if it is subsequently determined that the taxpayer was not a bona fide resident of the Virgin Islands.

PARTIES

The parties to this case include:

• Judith S. Coffey (Petitioner)

• The Estate of James Coffey, Judith Coffey Executrix (Petitioner)

• Government of the United States Virgin Islands (Petitioner)

• The Commissioner of Internal Revenue (Respondent)

STATEMENT OF RELATED CASES

• Melissa Coffey Hulett A.K.A. Melissa Coffey, et al. v. Commissioner of Internal Revenue, Nos. 30676-09, 31119-09, 4720-10, 4949-10, United States Tax Court. Judgment entered January 29, 2018, Motion to Vacate granted, and revised Judgment entered July 24, 2018.

• Judith S. Coffey v. Commissioner of Internal Revenue, No. 18-3256, U.S. Court of Appeals for the Eighth Circuit. Judgment entered February 12, 2021, request for rehearing denied May 3, 2021.

• Estate of James Coffey, Judith Coffey Executrix v. Commissioner of Internal Revenue, No. 18-3259, U.S. Court of Appeals for the Eighth Circuit. Judgment entered February 12, 2021, request for rehearing denied May 3, 2021.

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TABLE OF CONTENTS

QUESTION PRESENTED

PARTIES

STATEMENT OF RELATED CASES

TABLE OF CONTENTS

TABLE OF APPENDICES

TABLE OF CITED AUTHORITIES

PETITION FOR A WRIT OF CERTIORARI

OPINIONS BELOW

JURISDICTION

RELEVANT STATUTORY PROVISIONS AND REGULATIONS

INTRODUCTION

STATEMENT OF THE CASE

REASONS FOR GRANTING THE PETITION

CONCLUSION

TABLE OF APPENDICES

APPENDIX A — OPINION OF THE UNITED STATES COURT OF APPEALS FOR THE EIGHTH CIRCUIT, FILED FEBRUARY 12, 2021

APPENDIX B — ORDER OF THE UNITED STATES TAX COURT, FILED JULY 24, 2018

APPENDIX C — ORDER AND DECISION OF THE UNITED STATES TAX COURT, DATED JULY 24, 2018

APPENDIX D — ORDER OF THE UNITED STATES TAX COURT, DATED JULY 24, 2018

APPENDIX E — ORDER AND DECISION OF THE UNITED STATES TAX COURT, FILED JULY 24, 2018

APPENDIX F — OPINION OF THE UNITED STATES TAX COURT, DATED JANUARY29,2018

APPENDIX G — ORDER DENYING REHEARING IN THE UNITED STATES COURT OF APPEALS FOR THE EIGHTH CIRCUIT, FILED MAY 3, 2021

APPENDIX H — ORDER OF THE UNITED STATES COURT OF APPEALS FOR THE EIGHTH CIRCUIT, FILED FEBRUARY 10, 2021

APPENDIX I — RELEVANT STATUTORY PROVISIONS

TABLE OF CITED AUTHORITIES

Cases

Appleton v. Commissioner, 140 T.C. 273 (T.C. 2013)

Atl. Land & Imp. Co. v. United States, 790 F.2d 853 (11th Cir. 1986)

Chicago Bridge & Iron Co. v. Wheatley, 430 F.2d 973 (3d Cir. 1970)

Coffey v. Commissioner, 982 F.3d 1127 (8th Cir. 2020)

Coffey v. Commissioner, 987 F.3d 808 (8th Cir. 2021)

Commissioner v. Estate of Sanders, 834 F.3d 1269 (11th Cir. 2016)

Commissioner v. Lane-Wells Co., 321 U.S. 219 (1944)

Germantown Trust Co. v. Commissioner, 309 U.S. 304 (1940)

In re Colsen, 446 F.3d 836, 840 (8th Cir. 2006)

Law Office of John H. Eggertsen P.C. v. Commissioner, 800 F.3d 758 (6th Cir. 2015)

Melissa Coffey Hulett A.K.A. Melissa Coffey, et al. v. Commissioner, 150 T.C. 60 (T.C. 2018)

Neptune Mut. Ass'n, Ltd. of Bermuda v.United States, 862 F.2d 1546 (Fed. Cir. 1988)

Quezada v. IRS (In re Quezada), 982 F.3d 931 (5th Cir. 2020)

Sayre & Co. v. Riddell, 395 F.2d 407 (9th Cir. 1968)

Siben v. Commissioner, 930 F.2d 1034 (2d Cir. 1991)

Springfield v. United States, 88 F.3d 750 (9th Cir. 1996)

U.S. v. Auffenberg, 1: 07-cr-00047-HB-GWB, ECF Docs. 295 (D.V.I. 2008)

U.S. v. Miller, Crim. No. 2013-07 (D.V.I. Apr. 4, 2013)

United States v. Boitano, 796 F.3d 1160 (9th Cir. 2015)

Winnett v. Commissioner, 96 T.C. 802 (T.C.1991)

Zellerbach Paper Co. v. Helvering, 293 U.S. 172 (1934)

Statutes and Other Authorities

26 CFR § 1.932-12

26 CFR § 1.932-1(c)(2)(ii)

26 USC § 932

26 USC § 932(a)

26 USC § 932(a)(2)

26 USC § 932(a)(3)

26 USC § 932(c)

26 USC § 932(c)(2)

26 USC § 932(c)(3)

26 USC § 932(c)(4)

26 USC § 932(c)(4)(A)

26 USC § 932(d)

26 USC § 9344

26 USC § 6091(b)(4)

26 USC § 6501

26 USC § 6501(a)

26 USC § 6501(g)(1)

26 USC § 6531(5)

26 USC § 7206(1)

26 USC § 7654

28 USC § 1254(1)

33 V.I.C. § 681(i)

Brief Amicus Curiae of the Hon. Stacey Plaskett, Coffey v. Commissioner No. 18-3256 (8th Cir. Apr. 9, 2021)

Brief of Commissioner-Appellant, Coffey v. Commissioner, No. 18 - 3256 (8th Cir. Jan. 4, 2019)

Brief of Commissioner-Appellant, Coffey v. Commissioner, No. 18 - 3256 (8th Cir. Oct. 16, 2020)

I.R.M. 4.12.1.321

Order List: 594 U.S., 2021 U.S. LEXIS 3591 (Jul. 19, 2021)

Revenue Act § 275

Revenue Act § 276

S. Rept. No. 99-313 (1986) (Part 3) C.B. 1, 482

Tax Reform Act of 1986, Pub. L. 99-514, sec. 1274(a) 100 Stat. 2596

Treas. Reg. 1.932-1(c)(2)(ii)

Treas. Reg. 1.6091-2

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PETITION FOR A WRIT OF CERTIORARI

Petitioners Judith S. Coffey, Estate of James Coffey, Judith Coffey, Executrix, and the Government of the United States Virgin Islands respectfully petition for a writ of certiorari to review the decision of the United States Court of Appeals for the Eighth Circuit in No. 18-3256, Coffey v. Commissioner of Internal Revenue, 987 F.3d 808 (8th Cir. 2021).

OPINIONS BELOW

The January 29, 2018 decision of the United States Tax Court in favor of the Coffeys (Melissa Coffey Hulett A.K.A. Melissa Coffey, et al. v. Commissioner, Consolidated Docket No. 4720-10) is reported at 150 T.C. 60 (T.C. 2018) and is found at Appendix F at page 47a. The July 24, 2018 Orders of the United States Tax Court denying the IRS's Motion for Reconsideration in each case are found at Appendix B, page 13a and Appendix D, page 30a. The July 24, 2018 Orders of the United States Tax Court granting the IRS's Motion to Vacate and issuing revised decisions in each case are found at Appendix C, page 27a and Appendix E, page 44a.

The Court of Appeals for the Eighth Circuit issued its original opinion in Coffey v. Commissioner on December 15, 2020, which is reported at 982 F.3d 1127 (8th Cir. 2020). The Eighth Circuit subsequently granted panel rehearing by Order dated February 10, 2021, which is found at Appendix H, page 118a. The February 12, 2021 superseding decision of the Eighth Circuit is reported at 987 F.3d 808 (8th Cir. 2021) and is found at Appendix A at page 1a. The Eighth Circuit's May 3, 2021 Order denying rehearing is found at Appendix G, page 116a.

JURISDICTION

The United States Court of Appeals for the Eighth Circuit issued its final decision on February 12, 2021 and denied the Coffeys' request for rehearing on May 3, 2021. Pursuant to this Court's Order, this Petition is due within 150 days from the date rehearing was denied. Order List: 594 U.S., 2021 U.S. LEXIS 3591 (Jul. 19, 2021). The jurisdiction of this Court is invoked under 28 U.S.C. § 1254(1).

RELEVANT STATUTORY PROVISIONS AND REGULATIONS

The following relevant statutory provisions have been reproduced verbatim at Appendix I beginning at page 120a:

INTRODUCTION

This case is about whether the statute of limitations for assessment of U.S. Virgin Islands (“USVI”) taxpayers is subject to the whim of the Internal Revenue Service (“IRS”). Specifically, the question presented here is whether the IRS can render a Form 1040 (U.S. Individual Income Tax Return) filed pursuant to Section 932(c)(2)¹ to be a nullity for statute of limitations purposes simply by determining that a taxpayer is not a bona fide USVI resident.

In a case heard by all 16 active judges, the Tax Court said “no.” An eight-judge plurality relied on this Court's decisions in Zellerbach Paper Co. v. Helvering, 293 U.S. 172, 180 (1934) and Germantown Trust Co. v. Commissioner, 309 U.S. 304 (1940) in deciding that the statute of limitations under Section 6501(a) commenced when the tax return was filed with the VIBIR. The five-judge lead decision held, based on a concession by IRS counsel, that the statute of limitations would at least commence when the IRS Philadelphia Service Center received a copy of relevant portions of the return from the VIBIR.

The Eighth Circuit reversed, holding that tax returns filed with the VIBIR — for a USVI nonresident, as it assumed for summary judgment purposes — are not federal returns filed with the IRS and that, without such a filing, the “documents are . . . not filed returns.” Appendix A at page 12a.

The Eighth Circuit's decision is contrary to long established case law by this Court and other Circuits holding unequivocally that a tax return is sufficient to trigger the statute of limitations if it (1) contains information sufficient to calculate the filer's tax liability, and (2) “evinces an honest and genuine endeavor to satisfy the law,” even if the positions it takes are ultimately determined to be incorrect. Zellerbach, 293 U.S. at 180; see also Germantown Trust, 309 U.S. at 309-10.

Notwithstanding the clarity of this Court's jurisprudence on this issue, the IRS has a long history of attempting to defeat the protection of the statute of limitations in other cases by claiming that the taxpayer filed the wrong return. This Court has consistently denied its ploy. As the Tax Court plurality stated:

Like the taxpayers in Mabel Elevator, New Capital Fire, and Germantown Trust, the Coffeys filed returns that were appropriate for reporting the positions taken on those returns. In this case, as in these earlier cases, the Commissioner seeks to defeat the statute of limitations by claiming, essentially, that reasonable and honest positions as to the taxpayers' filing status, which were clearly and adequately disclosed on their returns, are somehow not covered by the statute of limitations. Respondent's argument fails in this case for essentially the same reasons it failed in Mabel Elevator, New Capital Fire, and Germantown Trust.

Appendix F at page 106a.

The Eighth Circuit's decision reversing the Tax Court's ruling is irreconcilable with the jurisprudence of this Court and the other Courts of Appeals. The Court should grant this petition for a writ of certiorari and reverse.

STATEMENT OF THE CASE

Understanding the Eighth Circuit's violation of more than a half-century of this Court's jurisprudence requires a brief explanation of the U.S. Virgin Islands' treatment as a “mirror code” jurisdiction for purposes of the Internal Revenue Code; the unique income tax filing regime established by Congress for the U.S. Virgin Islands in Section 932; and the history of the IRS's pursuit of the Coffeys, which is now in its sixteenth year.

A. The U.S. Virgin Islands and the “Mirror Code”

The U.S. Virgin Islands is an insular area of the United States which was historically separated from the United States for federal tax purposes. In 1921, Congress established a “mirror tax system” for the Virgin Islands. This system replaced the term “United States” with the “Virgin Islands,” and vice versa, in the Virgin Islands tax code. Appendix F at page 61a. Under the mirror code, the provisions of the Internal Revenue Code are applicable to the Virgin Islands so long as the specific section to be applied is “'not manifestly inapplicable or incompatible' with a separate territorial income tax”. Chicago Bridge & Iron Co. v. Wheatley, 430 F.2d 973, 976 (3d Cir. 1970) (quoting Sayre & Co. v. Riddell, 395 F.2d 407, 410 (9th Cir. 1968)). This system caused some individual and corporate taxpayers to file two separate returns — one to the United States and one to the Virgin Islands, similar to filing a federal and state income tax return.

But the mirror tax system was dramatically changed in 1986 with the addition of Section 932 — which is not mirrored — as part of the Tax Reform Act of 1986, Pub. L. 99-514, sec. 1274(a) 100 Stat. 2596. That provision reflects Congress's intent to create a unified tax obligation for “bona fide residents and nonresidents of the VI with VI-source income” by creating a single “U.S. tax liability.” Appendix F at page 62a (citing S. Rept. No. 99-313, at 482 (1986), 1986-3 (Part 3) C.B. 1, 482 (“[F]or purposes of determining the tax liability of individuals who are citizens or residents of the United States or the U.S. Virgin Islands, the United States will be treated as including the Virgin Islands (for purposes of determining U.S. tax liability) and, under the Virgin Islands 'mirror' Code, the Virgin Islands will be treated as including the United States (for purposes of determining liability for the Virgin Islands tax)”)).

Therefore, Section 932 provides the current rules for coordinating the U.S. and USVI income taxation and filing requirements for individuals. It creates a “single title 26 liability” that, in some circumstances, is allocated between the United States and Virgin Islands. Appendix F at page 63a.

B. The Section 932 Regime

Title 26 mandates that U.S. citizens and residents file tax returns reporting their worldwide income. Section 932 provides for the coordination of the United States and Virgin Islands income taxes by setting forth the filing rules for taxpayers who live in the USVI and/or receive USVI-sourced or effectively connected income. Taxpayers who reside in the U.S. and receive USVI-sourced or effectively connected income are required to file their returns with IRS under Section 932(a)(2) and send a copy of that return to the VIBIR. The Form 1040 includes a Form 8689 calculating the portion of the tax allocable to VIBIR based upon USVI-sourced income. The USVI gets its allocable portion of the tax liability; the U.S. gets the remainder.

Taxpayers reporting USVI residency file their returns under Section 932(c)(2) with the VIBIR, and all of the tax remitted with those returns stays with the USVI. All Section 932(c)(2) filers must file their returns only with VIBIR. They cannot file a Section 932(c)(2) return with IRS. And they cannot file both a Section 932(c)(2) return and a Section 932(a)(2) return for the same year. They must determine the return that is appropriate for the position they are taking — right or wrong. Both of these returns are filed pursuant to the Internal Revenue Code. The IRS has the sole authority and responsibility for purposes of determining any U.S. tax liability based upon the f iling of returns under Section 932(a)(2) and Section 932(c)(2).

The IRS is authorized to examine Section 932(a)(2) returns and Section 932(c)(2) returns to determine if the correct amount of U.S. tax liability has been paid. It is charged under Federal law with the responsibility of examining Section 932(c)(2) returns to verify compliance with Section 932(c)(4), including that the taxpayers' reporting of USVI residency thereon is correct. Section 932(c)(4)(A). The IRS's authority to examine Section 932(c)(2) returns is expressly recognized and provided for in the 1987 Tax Implementation Agreement between the IRS and the VIBIR. The IRS audits these returns for errors and to ensure correct allocation of tax revenue. To accomplish this, IRS Revenue Agents access the Section 932(c)(2) returns at VIBIR offices where they are maintained, and examine (audit) them to determine if they comply with the requirements of the Internal Revenue Code. VIBIR Revenue Agents are responsible for determining whether the returns comply with the mirror code.

Consistent with its authority over Section 932(c)(2) returns, the IRS refers taxpayers for criminal prosecution by the U.S. Department of Justice based on information and positions taken on those returns, and the U.S. has prosecuted taxpayers for filing false U.S. tax returns if they file Section 932(c)(2) returns with VIBIR that fraudulently claim USVI residency. Appendix F at page 86a-87a (citing U.S. v. Miller, Crim.No. 2013-07, Indictment at 1 (D.V.I. Apr. 4, 2013); U.S. v. Auffenberg, 1:07-cr-00047-HB-GWB, ECF Docs. 295, 429 (D.V.I. 2008)). The U.S. expressly alleges as an element of Title 26 Section 7206(1) charges that such returns are filed² federal returns:

Defendant herein, did willfully make and subscribe a United States Individual Income Tax Return, Form 1040, for year 2001, which was . . . filed with the BIR, which said return Defendant did not believe to be true and correct as to every material matter in that it stated that he was a bona fide resident of the Virgin Islands in the year 2001 . . ., whereas, as Defendant then and there well knew and believed, he was not a bona fide resident of the Virgin Islands in the year 2001. . . . [I]n violation of Title 26, United States Code, Section 7206(1).

Auffenberg, 1:07-cr-00047-HB-GWB, ECF Doc. 429 at 53 (emphasis added).

It is well settled law that returns filed with the VIBIR under Section 932(c)(2) begin the statute of limitations on assessment under Section 6501(a) for bona fide USVI residents, even if those returns contain errors. Appleton v. Commissioner, 140 T.C. 273 (T.C. 2013). However, for tax years ending before December 31, 2006 for taxpayers whose gross income exceeds $75,000,³ the IRS takes the position that the statute of limitations began only if it acquiesced in the taxpayer's USVI residency. It is undisputed that the IRS exercises its authority over the all Forms 1040 filed with the USVI under Section 932(c)(2) and IRS Instructions. But in the Tax Court proceedings in this case, it pretended that these returns are akin to returns filed in a foreign country.⁴ The IRS relied on its age-old trick of claiming that, because its examination determined that a different return was required to be filed, it was unhinged from the assessment restraints imposed by Section 6501(a). This Court has long ago prevented the IRS from accomplishing this ruse in situations where the return that was filed contained sufficient information for the IRS to accomplish its duties.

C. The Coffeys' Tax Returns and Proceedings Below

Judith and James Coffey timely filed their 2003 and 2004 Forms 1040 with the VIBIR pursuant to Section 932(c)(2), which requires that bona fide residents of the Virgin Islands “shall file an income tax return for the taxable year with the Virgin Islands.” Their returns — like all Federal Forms 1040 — reported the Coffeys' worldwide income and deduction items. The returns reflected their home address in St. Croix, USVI, and claimed a USVI economic development credit on Line 52 (2003) and Line 54 (2004) with respect to their Virgin Islands sourced income.

The VIBIR processed the Coffeys' returns, in accordance with Section 932(c). In addition, under protocols established by the Tax Implementation Agreement executed by the IRS and the VIBIR in 1987, the VIBIR also sent copies of the relevant portions of the Forms 1040 and specified attachments to the IRS's Philadelphia Service Center so that the IRS could allocate the Coffey's tax prepayments that it held with respect to those returns between the IRS and VIBIR and refund any excess to the Coffeys, pursuant to Section 7654. The IRS processed the copies of the Coffey's 2003 and 2004 returns with the designation “Tax return filed — USVI return” on March 14, 2005, and March 27, 2006, respectively. Appendix F at pages 58a-59a.

The IRS initiated examinations of the Coffey's 2003 and 2004 returns on August 4, 2005, and March 25, 2006, respectively, within the three-year period of limitations imposed under Section 6501(a). Upon completion of its examination, the agency challenged two positions taken on the returns: (1) Judith Coffey's USVI residency and (2) the income and credit relating to the USVI Economic Development Program. But the IRS made those determinations in Notices of Deficiency that were not issued until September 28, 2009 — after the three-year period of limitations under Section 6501(a) had expired.

The Coffeys timely petitioned the United States Tax Court to challenge the IRS's determinations and subsequently filed a Motion for Summary Judgment on the statute of limitations issue. The Government of the USVI intervened on the Coffeys' behalf. For purposes of summary judgment, the Tax Court assumed that (1) Judith Coffey⁵ would be unable to prove USVI residency and that, as a consequence, the Section 932(c)(2) returns she filed did not satisfy all of the requirements of Section 932(c)(4); and (2) to start the limitations period, those Section 932(c)(2) returns need only enable the IRS to compute the tax liability the Coffeys would owe “if in fact they turn out not to be bona fide VI residents.” Appendix F at page 86a, n.22.

In light of those assumptions, the Coffeys' position is that the federal returns they filed with the VIBIR pursuant to Section 932(c)(2) and the applicable IRS instructions began the statute of limitations on assessment — even if IRS later successfully challenged their assertion of USVI residency. A plurality of Tax Court judges — eight of the sixteen who heard the case — filed a concurring opinion agreeing with the Coffeys' position, relying heavily on this Court's decisions in Germantown Trust and Zellerbach for the proposition that a return is sufficient to trigger the statute of limitations if it “evinces an honest and genuine endeavor to satisfy the law,” even if the positions it takes are ultimately determined to be incorrect.

The lead opinion, joined by only five judges, held that the statute of limitations on assessment began when a copy of the relevant portions of Coffeys' returns were sent to the IRS Philadelphia Service Center. The lead opinion was premised upon the IRS counsel's concession at oral argument that Section 6501(a) would be satisfied if the Coffeys had filed returns with IRS containing all zeros. Appendix F at page 90a. Four judges dissented.

The IRS filed a timely appeal, and the Eighth Circuit reversed. The Eighth Circuit held that, because of the assumption required for summary judgment that Judith Coffey was not a USVI resident, the returns the Coffeys filed with the VIBIR “are not returns filed with the IRS” as required under Section 932(a)(2) and as such, were not “an honest and genuine attempt to satisfy the tax law.” Appendix A at page 12a. Thus, the Eighth Circuit held that the statute of limitations on assessment had not yet begun, and the IRS's Notices of Deficiency were timely. It based its holding on the following erroneous legal and factual premises:

REASONS FOR GRANTING THE PETITION

The Eighth Circuit's decision conflicts with binding precedent of this Court in Germantown Trust, as well as persuasive authority from other Circuits, which hold that the filing of a return on the incorrect Form begins the statute of limitations on assessment if the return that was filed has sufficient information from which the IRS can calculate the correct tax liability on the return that the IRS asserts should have been filed. The decision also has catastrophic consequences for USVI taxpayers — consequences that are inconsistent with Congress's design for the USVI tax regime.

A. The Eighth Circuit Opinion is in direct conflict with this Court's decision in Germantown Trust.

The Eighth Circuit's decision squarely contradicts this Court's decision in Germantown Trust, 309 U.S. 304. There, Germantown Trust filed a Form 1041 (U.S. Income Tax Return for Estates and Trusts) with the IRS office for trust return filers. Id. at 305. Upon examination, the IRS determined that the taxpayer was a corporation and should have filed a Form 1120 (U.S. Corporation Income Tax Return). Id. at 305-06. The IRS claimed that limitations period had not commenced because Germantown Trust failed to file the required corporate return with the correct individual — the IRS office for corporate return filers. Id. at 307. This Court disagreed, finding that the fiduciary return filed by Germantown Trust —

which discloses all of the data from which the tax [imposed upon a corporation] can be computed [cannot] be deemed no return. . . . It cannot be said that the petitioner, whether treated as a corporation or not, made no return of the tax imposed by the statute. Its return may have been incomplete in that it failed to compute a tax, but this defect falls short of rendering it no return whatever.⁶

Id. at 309-10.

In this case, the IRS argued — and the Eighth Circuit found — that because the Coffeys conceded, for summary judgment purposes only, that they would not prevail at trial with respect to their assertion of bona fide USVI residency, that the only return that would have started the Coffeys' statute of limitations is a return filed pursuant to Section 932(a)(2) (return for U.S. residents with USVI sourced income). Appendix A at 11a-12a.

The Eighth Circuit attempts to circumvent Germantown Trust by claiming that the Coffeys failed to file a return for non-USVI residents with the IRS: “As a prerequisite, however, an honest and genuine return must be filed with the correct individual. . . . A filing with the USVI is not automatically a filing with the IRS.” Appendix A at page 10a-11a. While the IRS and the VIBIR are indeed two separate taxing authorities, Section 932 coordinates the income taxes and the required filings with each and actually treats the United States and the Virgin Islands as including each other as it relates to the taxes imposed under Chapter 1 of Title 26. See, Sections 932(a)(3) and 932(c)(3). As a result, a filing with the VIBIR cannot be dismissed as if it were a filing with a foreign country.

There is no dispute that the Coffeys did not file a Section 932(a)(2) return. Likewise, there was also no dispute that Germantown Trust had not filed a Form 1120. But, both the Coffeys and Germantown Trust did file the return required to be filed under the Internal Revenue Code for the position taken on the return — i.e., as a USVI resident and as a trust, respectively. But, both of these returns were filed with the “correct individual” for receiving that return — i.e., the VIBIR and IRS office for trust return filers, respectively. The fact that Congress required the Coffeys to file their return with only the VIBIR, and not the IRS, does not mean that these returns were not filed with the “correct individual.”

The Coffeys could not have filed both a Section 932(c)(2) return and a Section 932(a)(2) return. Likewise, Germantown Trust could not have filed both a Form 1041 and Form 1120. Each return takes a different filing position, calculates a different tax and is required to be filed with a different individual so that it may be properly processed. The IRS had the authority, responsibility and ability to examine these returns to determine if the positions taken on the returns were correct and, if not, to determine the correct tax liability. However, Congress provided that such assessments must be timely made. In both cases, the IRS was untimely. The Eighth Circuit cannot do an end run around Germantown Trust by finding that the return required to be filed was filed with some foreign taxing authority rather than with the office directed under federal published guidance.

The Eighth Circuit further misapplies Germantown Trust. It ignores that a Section 932(c)(2) return is a Federal return filed pursuant to the Internal Revenue Code and it is Congress who mandates that Section 932(c) returns to be filed with the USVI. It is not a “territorial” or “foreign” return.⁷ Indeed, this Court's holding would have been precisely the same if Germantown Trust were, as here, a summary judgment case. The fact that Germantown Trust would have, for summary judgment purposes, been presumed to be a corporation that failed to file a Form 1120, would not have changed this Court's conclusion that the return that was filed had sufficient data to commence the limitations period.

There is no dispute that the Forms 1040 filed by the Coffeys contained enough information for the IRS to compute the tax liability at issue. Indeed, except for two items, the Notices of Deficiency mirrored the items reported on the Coffeys' Section 932(c)(2) returns. See, e.g., Judith Coffey's Petition to the United States Tax Court at Exhibit A (1.g.), No. 4720-10 (Feb. 19, 2010). This makes sense. A Section 932(a)(2) return, like a Section 932(c)(2) return, is filed pursuant to the Internal Revenue Code on the same Federal Form 1040. Both returns report a taxpayer's income, deductions and credits, and contain a jurat attesting to the accuracy of the items contained on that return. Where the returns differ is that a Section 932(c)(2) return reports a USVI home address, and, if applicable, an Economic Development Program credit as an “Other Credit” on Line 52 (2003) and Line 54 (2004). There is no special form or “box” to check to claim USVI residency. Congress directs that Section 932(c) returns are filed directly with the VIBIR, while Section 932(a)(2) returns are filed with the IRS's Philadelphia Service Center with a copy sent to the VIBIR. The IRS can — and did here — determine a deficiency in Federal income tax based on the Section 932(c) return. This Court's seminal invalid, since Congress lacks the authority to require tax filing with foreign countries.

Germantown Trust is alive and well. Subsequent cases have also focused, not on whether the return the IRS claims should have been filed was filed but, rather, on whether the return that was filed contained enough information from which the IRS could compute the correct tax liability. See, e.g., Lane-Wells, 321 U.S. at 223.

The Eighth Circuit ignored all of this. Instead, it erroneously focused solely on the failure to file a return which could never have been filed once the initial return was filed. Germantown Trust could not file both a Form 1041 trust return and a Form 1120 corporate return. Likewise, the Coffeys could not file both a Section 932(c) return and a Section 932(a) return. Indeed, if they had done so, the VIBIR would have received two returns for the same taxpayers for the same year — i.e., a Section 932(c) return reporting and paying taxes solely to the USVI and a copy of a Section 932(a) return allocating a portion of the taxes to the USVI. This Court's holding in Germantown Trust is both legally and practically correct. Its precedential holding is applicable and must be applied in this case.

B. The Eighth Circuit's opinion conflicts with decisions of five other Courts of Appeals.

The Eighth Circuit's holding also clashes with the holdings of several circuits. The Second, Sixth, Ninth, Eleventh, and Federal Circuits have recognized that the filing of a return other than the one prescribed by Treasury Regulations can be “the return.”⁸ See Law Office of John H. Eggertsen P.C. v. Commissioner, 800 F.3d 758, 763 (6th Cir. 2015) (“[T]he limitations clock may start in some settings even when the taxpayer fails to file the right return — say the taxpayer filed the same return for another reason, see Lane-Wells, 321 U.S. at 222-23, or filed the wrong return but with all of the necessary information, see Germantown Trust Co. v. Comm'r, 309 U.S. 304, 308 (1940). A key predicate for this exception is that the return filed must contain 'sufficient data to calculate a tax liability.'”); Springfield v. United States, 88 F.3d 750, 752 (9th Cir. 1996) (finding the relevant inquiry for statute of limitations purposes to be “whether the return filed sets forth the facts establishing liability.” (citing Lane-Wells, 321 U.S. at 223)); Siben v. Commissioner, 930 F.2d 1034, 1036 (2d Cir. 1991) (distinguishing Germantown Trust by finding that a partnership return did not “furnish information necessary to calculate the individual partner's income tax, such as marital status, exemptions, and income, losses, deductions, or credits derived from sources other than the partnership.”); Neptune Mut. Ass'n, Ltd. of Bermuda v. United States, 862 F.2d 1546, 1555 (Fed. Cir. 1988) (“Despite the taxpayer error, it is reasonable to expect prompt attempts at assessment. . . . [t]he controlling question is whether the IRS was apprised of adequate information from which to compute the taxes owed.”); Atl. Land & Imp. Co. v. United States, 790 F.2d 853, 858 (11th Cir. 1986) (“Supreme Court precedent demonstrates that substance should prevail over form in this area: a good faith tax return filed on the wrong form may trigger the limitations period.”).

Most recently, on December 10, 2020, the Fifth Circuit affirmed this precedent by holding that a “taxpayer is not required to file the precise return prescribed by treasury regulations in order to start the limitations clock. Instead, 'the return' is filed, and the limitations clock begins to tick, when the taxpayer files a return that contains data sufficient (1) to show that the taxpayer is liable for the tax at issue and (2) to calculate the extent of that liability.” Quezada v. IRS (In re Quezada), 982 F.3d 931, 935 (5th Cir. 2020). The Fifth Circuit expressly rejected the notion that Lane-Wells precluded such a result, and instead found this Court's rationale in Lane-Wells to be consistent with that of this Court in Germantown Trust —“that the wrong form can be 'the return' so long as the form shows the facts on which liability could be predicated.” Id.

C. The Eighth Circuit's Opinion Creates Catastrophic Consequence for USVI Taxpayers.

After the Eighth Circuit rendered its December, 2020 opinion in this matter, the Honorable Stacey Plaskett, Delegate to the United States House of Representatives representing the U.S. Virgin Islands, filed an amicus brief in support of the Coffeys and Intervenor USVI's requests for rehearing. Brief Amicus Curiae of the Hon. Stacey Plaskett, Coffey v. Commissioner No. 18-3256 (8th Cir. Apr. 9, 2021). Delegate Plaskett serves as the sole elected representative of the USVI in the United States government. Her amicus brief highlights the importance of the Eighth Circuit's decision, as well as the disastrous consequences that it causes USVI taxpayers who file their returns pursuant to Section 932(c)(2) and in accordance with IRS guidance.

Delegate Plaskett warned that the “impact of [the Eighth Circuit's] potential nullification of the millions of tax returns filed in the USVI since 1986 is difficult to overstate.” Specifically, she aptly noted that the Eighth Circuit's decision renders every income tax return filed with VIBIR prior to 2006 vulnerable to audit. Moreover,

in addition to its impact on all returns filed prior to 2006, [the decision] also invalidates 26 C.F.R. §1.932-1(c)(2)(ii), the Treasury regulation that grants all bona fide residents of the USVI the protection of the statute of limitations in §6501(a). Under this Court's ruling, this regulation has been rendered invalid because it conflicts with the statute.

Brief Amicus Curiae of the Hon. Stacey Plaskett at 6, Coffey v. Commissioner No. 18-3256 (8th Cir. Apr. 9, 2021).

The IRS's response that it is its “discretionary” policy, even for “non-filers,” to “not initiate tax proceedings over six years after the tax year in question” provides little solace in this regard. Brief of Commissioner-Appellant at 27, Coffey v. Commissioner, No. 18-3256 (8th Cir. Apr. 9, 2021) (citing I.R.M. 4.12.1.3) (emphasis added). Intervention of this Court is necessary to ensure that Virgin Islands residents receive the same repose as U.S. mainland residents under the Internal Revenue Code.

D. The Coffeys' Section 932(c)(2) returns trigger Section 6501(a)

The Tax Court's plurality opinion remedies the catastrophic consequences described by Delegate Plaskett, is consistent with the Secretary's Treasury Regulation, and sets forth the correct interpretation of the law both in this case and for all USVI taxpayers. Section 6501(a) gives the IRS three years from the date the return was filed to assess taxes on that return. A filing commences the Section 6501(a) limitations period if (1) the document that the taxpayer submitted was the required return required to be filed under the Internal Revenue Code, and (2) the taxpayer properly filed that return.

The IRS conceded the first element before the Eighth Circuit: “the return that the Coffeys filed with the USVI is a return required to be filed under the Internal Revenue Code.” Brief of Commissioner-Appellant at 5, Coffey v. Commissioner, No. 18-3256 (8th Cir. Oct. 16, 2020). Their Section 932(c)(2) returns reported their names, USVI address, gross income, deductions, credits, and taxable income. Appendix F at pages 84a-85a. The relevant question is not whether this information is substantively correct, but whether the return “evince[d] an honest and genuine endeavor to satisfy the law.” Zellerbach, 293 U.S. at 180. “The honesty and genuineness of the filer's attempt to satisfy the tax laws should be determined from the face of the form itself.” In re Colsen, 446 F.3d 836, 840 (8th Cir. 2006). Accordingly, there is no dispute that the Coffeys' Section 932(c)(2) returns are Federal returns.

The second element — proper filing — is a question of whether the taxpayer's mode of filing complied with the prescribed filing requirements. A return is filed when it is transmitted to the office or agent authorized to receive it. Section 6091(b)(4); Treas. Reg. § 1.6091-2. Section 932(c)(2), the IRS's instructions and the Secretary's Treasury Regulations all require “permanent residents of the Virgin Islands” to file that return with the VIBIR in St. Thomas. Section 932(c)(2) returns filed with VIBIR are properly filed under Section 6501(a) and Section 6091(b)(4). Appleton, 140 T.C. 273; Appendix F at page 53a.

Whether a return was properly filed is determined based upon the information on its face — right or wrong. Winnett v. Commissioner, 96 T.C. 802 (T.C. 1991). The Coffeys' Section 932(c)(2) returns report their “Home address” to be in the USVI. Appendix F at page 53a. The IRS's Instructions to Form 1040 instruct permanent USVI residents to file their returns with the VIBIR. Based on the information on the returns' face, the Coffeys properly filed them with VIBIR. Where a taxpayer properly files her return, she has satisfied all of her duties to trigger the statute of limitations period. Section 6501(a).

The IRS has many tools at its disposal to examine a filed return, but must use them within the prescribed limitations period. The IRS exercised its authority here and determined that there was a tax liability due to the United States. What's at issue is whether any assessment is precluded under Section 6501(a). The same sequence of events occurred in Appleton, 140 T.C. 273. In fact, Judith Coffey and Arthur Appleton were partners in the same approved USVI Economic Development Program entity, Stonetree Partnership in Christiansted, and were neighbors on St. Croix. They both filed Section 932(c)(2) returns for the same years as USVI residents. The IRS examined the returns that both Mrs. Coffey and Mr. Appleton filed with the VIBIR and determined, in separate audits, that Mr. Appleton was a USVI resident and that Mrs. Coffey wasn't.⁹

The Eighth Circuit's revised decision acknowledges that the Section 932(c)(2) returns filed by Mr. Appleton starts the statute of limitations but that the Section 932(c)(2) returns filed by Mrs. Coffey do not unless and until she can prove to the IRS's (or the Tax Court's) satisfaction that she was a bona fide USVI resident. But the IRS's determination of a residency error on a return filed under the requirements of the Internal Revenue Code cannot disenfranchise the taxpayer from the protections afforded to all taxpayers filing returns under the Internal Revenue Code that Congress provided in Section 6501(a).

The Tax Court's plurality opinion correctly allows the IRS to exercise its authority over filed Section 932(c)(2) returns, but balances that authority with the need for repose for USVI taxpayers by restricting the IRS's assessment authority to be within the bounds of the statute of limitations set forth by Congress.

CONCLUSION

The Coffeys filed their Section 932(c)(2) returns in satisfaction of their Federal filing obligations. There is nothing in the Internal Revenue Code which states that the failure to satisfy the requirements of Section 932(c)(4) eliminates or otherwise nullifies the Section 932(c)(2) return for purposes of Section 6501(a). And, just as the Court held in Germantown Trust, 309 U.S. 304, the mere fact that the IRS determined upon examination that a different return should have been filed in order to assess the correct tax liability will not eliminate the provisions of Section 6501(a) when the return that was filed contains enough information for the IRS to calculate that liability.

The Eighth Circuit's decision treats the Coffeys' Section 932(c)(2) returns as nullities, and in doing so not only contradicts the jurisprudence of this Court and the Secretary's Treasury Regulation, but also eliminates repose for all USVI taxpayers. This Court should grant the petition and reverse the decision of the Court of Appeals for the Eighth Circuit.

Respectfully submitted,

Anthony M. Bruce
Counsel of Record
Andreozzi Bluestein LLP
9145 Main Street
Clarence, New York 14031
(716) 565-1100
amb@andreozzibluestein.com

Counsel for Petitioners