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U.S.V.I. Government Claims Return Triggered Limitations Period

AUG. 12, 2019

Judith S. Coffey et al. v. Commissioner

DATED AUG. 12, 2019
DOCUMENT ATTRIBUTES

Judith S. Coffey et al. v. Commissioner

JUDITH S. COFFEY,
PETITIONER-APPELLEE,
GOVERNMENT OF THE UNITED STATES VIRGIN ISLANDS
(“V.I. GOVERNMENT”),
INTERVENOR-APPELLEE,
v.
COMMISSIONER OF INTERNAL REVENUE,
RESPONDENT-APPELLANT

ESTATE OF JAMES COFFEY, JUDITH COFFEY EXECUTRIX,
PETITIONER-APPELLEE,
v.
COMMISSIONER OF INTERNAL REVENUE,
RESPONDENT-APPELLANT

United States Court of Appeals for the Eighth Circuit

BRIEF FOR INTERVENOR-APPELLEE
GOVERNMENT OF THE UNITED STATES VIRGIN ISLANDS

CAROL JACOBS
Virgin Islands Department of Justice
GERS Complex, 34-38 Kronprindsens Gade
St. Thomas, U.S. Virgin Islands 00802
(340) 774-5666

GEOFFREY P. EATON
Winston & Strawn LLP
1700 K Street N.W.
Washington, DC 20006
(202) 282-5000

Counsel for Appellee Government of the United States Virgin Islands


TABLE OF CONTENTS

STATEMENT OF THE ISSUES

INTRODUCTION

STATEMENT OF THE CASE

I. The Virgin Islands' Interest in This Litigation

II. The Tax Court Proceedings

A. The Coffeys' 2003 and 2004 Filings with VIBIR

B. The Tax Court Opinions

1. The five-judge lead opinion

2. The eight-judge concurrence

3. The four-judge dissent

III. Statutory and Regulatory Background: The “Choreographed Interplay” of the U.S. and Virgin Islands Income Tax Regimes.

A. For 100 years, Virgin Islands residents have satisfied their federal tax obligations by filing with the Virgin Islands.

B. In §932(c), Congress continued to allow Virgin Islands residents to satisfy federal tax obligations by filing in the Virgin Islands

1. The separate filing regimes of §932(a) and (c)

2. Coordination under the 1987 IRS–VIBIR Tax Implementation Agreement

C. The IRS failed for decades to promulgate regulations implementing §932, and all available guidance instructed Virgin Islanders to file with VIBIR

D. The three-year statute of limitations in §6501(a)

1. A tax submission is a “return” that triggers the SOL if it represents an “honest and genuine” attempt to satisfy the law

2. Filings with VIBIR under §932(c) can constitute “returns” that trigger the SOL

E. The IRS's shifting positions on the application of the statute of limitations to VIBIR-filed returns

SUMMARY OF ARGUMENT

ARGUMENT

I. The Concurrence Correctly Applied Established Tax Principles to Determine That the Coffeys' Forms 1040 Filed with VIBIR Triggered the Limitations Period

A. The Coffeys' filings with VIBIR under §932 qualified as “returns” under the Beard test

B. Because the Coffeys' submissions were §932 “returns,” their filing with VIBIR triggered the statute of limitations

1. It is undisputed that a filing with VIBIR pursuant to §932(c) can trigger the federal statute of limitations

2. Because a VIBIR-filed return that satisfies §932 triggers the SOL, a VIBIR-filed return “evincing” an “honest attempt” to satisfy §932 does also

3. The concurrence correctly found that the Coffeys made an “honest and genuine” attempt to comply with §932

4. Allowing VIBIR-filed returns to trigger the federal SOL is consistent with Congress' design

II. Other Principles of Tax Law Also Support the Concurring Opinion.

A. The concurring opinion is consistent with the requirement that taxpayers “meticulously comply” with available IRS filing guidance

1. Treasury Regulation 1.6091-3(c)

2. IRS Publication 570

B. The concurring opinion is consistent with the IRS's own interpretation of §932 as expressed in current regulations

III. The IRS's Arguments Against the Concurrence Are Without Merit.

A. The concurrence did not propose a “good faith exception” to §932(c), making IRS's arguments against such an “exception” irrelevant here

B. The Eleventh Circuit's rejection of a strawman “good faith exception” in Sanders also does not support reversal

C. The other authorities on which the IRS relies are neither controlling nor persuasive

D. The IRS's position produces absurd results

CONCLUSION

CERTIFICATE OF COMPLIANCE

CERTIFICATE OF SERVICE

TABLE OF AUTHORITIES

Cases

Abramson Enters., Inc. v. Gov't of the Virgin Islands, 994 F.2d 140 (3d Cir. 1993)

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

Beard v. Commissioner, 82 T.C. 766 (1984)

Bizcap, Inc. v. Olive, 892 F.2d 1163 (3d Cir. 1989)

Coffey v. Comm'r, 663 F.3d 947 (8th Cir. 2011)

Cohen v. United States., 578 F.3d 1 (D.C. Cir. 2009)

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

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

Condor Int'l, Inc. v. Comm'r, 98 T.C. 203 (1992)

Condor International v. Commissioner, 78 F.3d 1355 (9th Cir. 1996)

Cooper v. Comm'r, Nos. 11810–10, 11811–10, 2015 WL 1546460 (Tax Court April 8, 2015)

Gangi v. United States, 453 F. App'x 255 (3d Cir. 2011)

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

Twin Palms Resort, LLC ex rel. Harbour v. United States, 676 F. Supp. 2d 1350 (S.D. Fla. 2009)

In re Hatton, 220 F.3d 1057 (9th Cir. 2000)

Helvering v. Campbell, 139 F.2d 865 (4th Cir. 1944)

Huff v. Comm'r, 743 F.3d 790 (11th Cir. 2014)

Huff v. Comm'r (Huff I), 135 T.C. 222 (2010

Huff v. Comm'r (Huff II), 138 T.C. 258 (2012)

Lucas v. Polliod Lumber Co., 281 U.S. 245 (1930)

New Capital Fire, 2017 WL 4021368

Puerto Rico v. Sanchez Valle, 136 S. Ct. 1863 (2016)

United States v. McHenry, 552 F. Supp. 2d 571 (E.D. Va. 2008)

Winnett v. Comm'r, 96 T.C. 802 (1991)

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

Statutes

26 U.S.C. § 932

26 U.S.C. § 934

26 U.S.C. § 6012

26 U.S.C. § 6091

26 U.S.C. § 6501

26 U.S.C. § 7602

26 U.S.C. § 7654

48 U.S.C. § 1541

48 U.S.C. § 1642

Rules and Regulations

26 C.F.R. § 1.932-1

25 FED. REG. 12137 (1960)

73 FED. REG. 19350-01 (Apr. 9, 2008)

TREAS. REG. § 1.6091-3 (2003)


STATEMENT OF THE ISSUES

Did eight Tax Court judges correctly determine that the sworn IRS Forms 1040 submitted by Judith and James Coffey to the Virgin Islands Bureau of Internal Revenue under 26 U.S.C. §932(c) were “returns” sufficient to trigger the statute of limitations, where (1) §932(c) expressly provides that bona fide Virgin Islands residents were required to file a single return with the Virgin Islands, and not with the IRS; and (2) long-established principles of federal income tax law provide that a taxpayer's submission to a revenue agency constitutes a “return” that triggers the statute of limitations if it “evinces an honest and genuine endeavor to satisfy the law,” Zellerbach Paper Co. v. Helvering, 293 U.S. 172, 180 (1934); and (3) it is undisputed that the Coffeys' forms “on the face of the form[s]” an honest and genuine attempt to comply with the filing requirements of § 932(c) under this Court's decision in In re Colsen, 446 F.3d 836 (8th Cir. 2006).

The most apposite authorities are:

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

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

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

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

26 U.S.C. §§ 932, 6501, 7654.

INTRODUCTION

The Government of the U.S. Virgin Islands agrees with the Coffeys' defense of the Tax Court's majority opinion, which correctly held that receipt by the Internal Revenue Service (“IRS”) from the Virgin Islands Bureau of Internal Revenue (“VIBIR” or the “Bureau”) of portions of the Coffeys' tax returns was sufficient to trigger the statute of limitations. The Virgin Islands writes separately to urge the Court to adopt the rationale of the Tax Court's concurring opinion, joined by as many judges as joined the majority and dissenting opinions combined, under which the filing of the Coffeys' IRS Forms 1040 with VIBIR was sufficient to trigger the limitations period.

The argument for treating the initial filing with VIBIR as the trigger for the limitations period is straightforward. Under §6501 of the Internal Revenue Code, the limitations period is triggered by the filing of “the return required to be filed by the taxpayer.” The Supreme Court long ago established that “[p]erfect accuracy and or completeness” of a return is not necessary to trigger the limitations period, “if it purports to be a return, is sworn to as such . . . and evinces an honest and genuine endeavor to satisfy the law.” Zellerbach Paper Co. v. Helvering, 293 U.S. 172, 180 (1934). In finding that the Coffeys' initial 1040 filings with VIBIR were “returns” sufficient to trigger the limitations period, the concurring judges correctly determined that the Coffeys' filings with VIBIR “evinced an honest and genuine endeavor” to file the required return, where:

  • §932(c) expressly provides that bona fide Virgin Islands residents were required to file a single return with the Virgin Islands, and not with the IRS;

  • It is undisputed that the Coffeys took the position that they were bona fide Virgin Islands residents; and

  • It is undisputed that the Coffeys' Forms 1040 filed with the Virgin Islands evinced “on the face of the form[s]” an honest and genuine attempt to comply with the filing requirements of §932(c) under this Court's decision in In re Colsen, 446 F.3d 836 (8th Cir. 2006).

In these circumstances, and in light of the well-established principle that the tax laws do not “demand clairvoyance” from taxpayers, see Cohen v. United States., 578 F.3d 1, 11 (D.C. Cir. 2009), aff'd in part, rev'd in part, 650 F.3d 717 (D.C. Cir. 2011), the concurring judges were amply justified in concluding that the Forms 1040 filed by the Coffeys in 2003 and 2004 were “an honest and genuine endeavor” to file “the returns required to be filed by the taxpayer,” and so triggered the statute of limitations under §6501(a).

The IRS's arguments to the contrary are rooted in its claim that the Tax Court concurrence would create a “good faith exception” to the requirements of §932(c) that is inconsistent with the statutory text and was rejected by the Eleventh Circuit in Commissioner v. Sanders, 834 F.3d 1269, 1279 (11th Cir. 2016). IRS Br. 53-55. But the concurrence does no such thing. Rather, the concurrence merely takes the generally applicable principle that an “honest and genuine” attempt to comply with the tax laws is sufficient to trigger the limitations period and applies that principle to the Coffeys' attempt to comply with the requirements of §932(c). Because the concurrence did not create a “good faith exception” to §932(c), both the IRS's argument and the Sanders decision it is based on are irrelevant here.

The same is true of the IRS's claim that the Zellerbach principle does not apply where the taxpayer “fail[s] to file a return at all.” IRS Br. 60. The Coffeys did file returns: they filed complete and sworn federal Forms 1040 with the Virgin Islands, which (1) is expressly authorized by federal statute to accept such forms from Virgin Islands residents, (2) was identified in all relevant IRS guidance as the correct recipient for such forms, and (3) was required by Congress to (and routinely did) exchange tax information with the IRS to ensure close coordination between the two taxing authorities.

In these circumstances, the eight concurring Tax Court judges were correct in concluding that the Coffeys' filings with VIBIR were sufficient to trigger the limitations period, such that the IRS's assessments for tax years 2003 and 2004 were time-barred. This Court should affirm the judgment below on that ground.

STATEMENT OF THE CASE

I. The Virgin Islands' Interest In This Litigation

This case is one small but important battle in a long-running war being waged by the IRS on one of the Virgin Islands Government's most important economic development programs. Although Congress has repeatedly endorsed the program — which relies on tax incentives that Congress created specifically to promote the program's success and thus reduce the need for federal subsidies to the Virgin Islands — the IRS has long been hostile. In an apparent effort to chill interest in those tax incentives, the IRS launched protracted audits of hundreds of program participants, including Judith and James Coffey, the taxpayers in this action — and in so doing deterred participation by many existing and potential participants, including many who could legitimately claim the program's tax benefits.

One of the most potent weapons the IRS has wielded in this war of attrition is a novel and unprecedented construction of the applicable three-year statute of limitations. Specifically, the IRS argues that Virgin Islands taxpayers who made an honest attempt to comply with federal law and the IRS's own regulations commanding that they file returns only with VIBIR can be treated as though they never filed any return at all — and thus cannot claim protection under the statute of limitations. And that, in turn, means that virtually all Virgin Islands taxpayers, especially those who legitimately take advantage of tax incentives to participate in the Government's economic development program, must live under threat of an IRS audit forever. It is no wonder, then, that since the IRS began its audit campaign, interest in the Government's congressionally authorized economic development program has plummeted.

The Virgin Islands Government intervened in a series of Tax Court cases in which taxpayers challenged IRS assessments on statute of limitations grounds, including this one. When the Tax Court denied the Government's motion to intervene, the Government appealed to this Court, which reversed, holding that “the [Virgin Islands] has a legally protected interest in an effective [economic development program], which could be concretely and particularly impacted by the tax court's interpretation of the statute of limitations,” such that the Territory “presented sufficient evidence of an injury in fact” to warrant intervention. Coffey v. Comm'r (Coffey I), 663 F.3d 947, 950-51 (8th Cir. 2011).

II. The Tax Court Proceedings

A. The Coffeys' 2003 and 2004 Filings With VIBIR

The facts of the Coffeys' tax filings and dealings with the IRS are largely undisputed and are set forth in detail in the Tax Court's opinion and the IRS and taxpayer briefs. For purposes of this brief, the salient facts are these:

  • In 2003, Judith Coffey took measures to become a resident of the Virgin Islands, including purchasing a home, establishing a Virgin Islands-based business, obtaining a Virgin Islands driver's license, and registering to vote. IRS Addendum (“Add.”) 14.

  • On October 15, 2004, Judith Coffey filed with VIBIR a sworn IRS Form 1040 for tax year 2003, complete with schedules, listing her Virgin Islands address and claiming certain tax credits available only to bona fide Virgin Islands residents. Add.16-17. The IRS Form 1040 for that year instructed “permanent residents” of the Virgin Islands to file a single tax return with VIBIR. JA265-267.

  • On October 24, 2005, Mrs. Coffey filed with VIBIR another sworn IRS Form 1040 for tax year 2004, complete with schedules, again listing her Virgin Islands address and again claiming tax credits available only to bona fide Virgin Islands residents. Add.16-17. The Form 1040 for that year also instructed “permanent residents” of the Virgin Islands to file a single return with VIBIR. JA269-271.

  • In early 2005, VIBIR — acting in accordance with the 1987 Tax Implementation Agreement mandating the sharing of certain taxpayer information with the IRS — electronically sent the first two pages of Mrs. Coffey's 2003 Form 1040 to the IRS, which stamped it “received” on February 8, 2005. Add.17.

  • In August 2005, the IRS selected Mrs. Coffey's 2003 return for audit. Add.23.

  • In early 2006, VIBIR electronically sent the first two pages of Mrs. Coffey's 2004 Form 1040 to the IRS, which stamped it “received” on March 27, 2006. Add.17.

  • In May 2006, the IRS selected Mrs. Coffey's 2004 return for audit. Add.23.

  • In September 2009 — more than three years after Mrs. Coffey's returns were filed with VIBIR, and indeed more than three years after the IRS selected them for audit — the IRS issued notices of deficiency for both tax years 2003 and 2004. Add.24.

The Coffeys timely filed petitions in Tax Court to contest the deficiencies, and the Government of the Virgin Islands intervened to support its Economic Development Program and tax sovereignty.

Following this Court's decision allowing intervention, the taxpayers and the Virgin Islands moved for summary judgment in the Tax Court, arguing that the IRS's notices of deficiency for tax years 2003 and 2004 — which did not issue until 2009 — were barred by the three-year statute of limitations established by 26 U.S.C. §6501(a). After initially denying the motion, the Tax Court granted a motion for reconsideration and entertained additional briefing and argument on the limitations issue.

B. The Tax Court Opinions

More than four years later, the Tax Court issued a reviewed — i.e., en banc — opinion in which twelve of the sixteen active Tax Court judges held that the IRS's assessments on the Coffeys were time barred by the three-year statute of limitations.1

1. The five-judge lead opinion

In what was deemed the opinion of the court, five judges held that the limitations period was triggered not by the Coffeys' filing of their Forms 1040 with VIBIR, but by VIBIR's subsequent submission to the IRS of portions of those returns. Applying the four-part test from Beard v. Commissioner, 82 T.C. 766 (1984), under which a document submitted to the revenue agency is a return if it (1) “contain[s] sufficient data to calculate tax liability,” (2) “purport[s] to be a return,” (3) is “executed under penalties of perjury,” and (4) represents “an honest and reasonable attempt to satisfy the requirements of the tax law,” id. at 777, the lead opinion concluded that the portions of the Coffeys' IRS Forms 1040 that VIBIR forwarded to the IRS were “returns” that triggered the limitations period, rendering the IRS's 2009 deficiency notices time barred.

2. The eight-judge concurrence

Eight judges — half the active Tax Court judges — concurred in the result but would have held that the Coffeys' initial filings of their IRS Forms 1040 with VIBIR were “returns” sufficient to trigger the statute of limitations. Applying well-established Supreme Court precedent, the concurring judges observed that “the relevant question is not whether the positions the taxpayers took on their returns were substantively correct, but rather whether the returns 'evince[d] an honest and genuine endeavor to satisfy the law.'” Add.71 (Thornton, J., concurring in the result) (alteration in original) (quoting Zellerbach, 293 U.S. at 180).

In light of that principle, the concurring judges readily found that the Coffeys' Forms 1040 triggered the statute of limitations. They noted that “the Coffeys' returns represented honest and reasonable attempts to file correctly” and were “appropriate for reporting the positions taken on those returns.” Id. at 65. Acknowledging the IRS's argument that “the returns the Coffeys filed with the VIBIR” could not trigger the limitations period because they “did not clearly disclose their residency position to the IRS,” the concurrence concluded that “whether the IRS happens to have been informed . . . is not controlling” because “under the plain statutory text, §6501(a) applies where a return has been filed, and §932(c) directs the taxpayer to file a 'return' with the Virgin Islands in some circumstances.” Id. at 68 (emphasis added). Put another way, Zellerbach and Beard require only that the taxpayer make an “honest and reasonable attempt to satisfy the requirements of the tax law” — and the “requirements of the tax law” that the Coffeys attempted to satisfy were those of §932(c), which required a filing with VIBIR, not the IRS. Beard, 82 T.C. at 777.

3. The four-judge dissent

A four-judge dissent rejected the lead opinion's analysis and would have concluded that the portions of the Coffeys' Forms 1040 that VIBIR forwarded to the IRS could not trigger the limitations period because they were not “filed by the taxpayer” and did not constitute “an honest and reasonable attempt to satisfy the requirements of Federal tax law.” The dissent did not address the concurring opinion.

The IRS timely appealed.

III. Statutory And Regulatory Background: The “Choreographed Interplay” Of The U.S. And Virgin Islands Income Tax Regimes.

The relationship between the United States' and the Virgin Islands' tax systems has been described as one of “choreographed interplay.” Appleton v. Comm'r, 140 T.C. 273, 281 (2013). For nearly 100 years, that “interplay” has allowed Virgin Islands residents to fulfill their federal income tax obligations by filing tax returns with the Virgin Islands, not the IRS. Understanding how this carefully coordinated tax regime works is important to an informed understanding of the Tax Court's concurring opinion.

A. For 100 Years, Virgin Islands Residents Have Satisfied Their Federal Tax Obligations By Filing With The Virgin Islands.

The U.S. Virgin Islands is an unincorporated territory of the United States, purchased from Denmark in 1917 and governed by the Revised Organic Act of 1954, as amended. See generally 48 U.S.C. §§ 1541 et seq. (Revised Organic Act of 1954). As such, unlike a state, it is subject to plenary control by Congress under Article IV of the Constitution.

Since 1922, the Virgin Islands has had a “separate taxing structure mirroring the provisions of the federal tax code.” Bizcap, Inc. v. Olive, 892 F.2d 1163, 1165 (3d Cir. 1989) (citing the Naval Service Appropriations Act of July 12, 1921, c. 44, § 1, 42 Stat. 123). This “Mirror Code,” which simply “substitutes 'Virgin Islands' for 'United States'” in the Code, is imposed by federal — not local — law. Coffey I, 663 F.3d at 949; see also Huff v. Comm'r, 743 F.3d 790, 793 n.2 (11th Cir. 2014); Appleton, 140 T.C. at 277. As a result of the Mirror Code, residents of the Virgin Islands generally “do not pay taxes to the IRS,” Abramson Enters., Inc. v. Gov't of the Virgin Islands, 994 F.2d 140, 144 (3d Cir. 1993), but instead pay the same amount of tax to VIBIR, subject to any authorized Virgin Islands tax credits. 26 U.S.C. §932(c)(1), (2); Coffey I, 663 F.3d at 949. As this Court has recognized, although Virgin Islands residents pay federal income tax to VIBIR rather than the IRS, “the IRS retains audit and assessment powers” over those residents' tax returns. Coffey I, 663 F.3d at 949.

Although Congress authorized the Mirror Code system in 1921, “until 1935, the IRS and the United States Treasury treated the Virgin Islands as a collection district for United States taxes, rather than recognizing the distinct tax jurisdiction of the Virgin Islands.” Bizcap, 892 F.2d at 1165. Under the collection district approach, “all taxpayers with attachments to both locations filed only one return, either in the Virgin Islands or the United States, depending upon where the taxpayer resided on the last day of the tax year.” Id. However, after 1935, when the Mirror Code system was actually implemented, some taxpayers had to file two returns.

In 1954, the Revised Organic Act changed the regime again for Virgin Islands residents, and “eliminated the need for an individual to file two returns.” Bizcap, 892 F.2d at 1165 (quoting 26 U.S.C. § 7651(5)(B)); see 48 U.S.C. § 1642 (section 28(a) of the Revised Organic Act of 1954); Appleton, 140 T.C. at 279. Rather, “an inhabitant of the Virgin Islands could file one form and report all income earned, both Virgin Islands and worldwide sources, to the VIBIR and pay taxes to the VIBIR,” Bizcap, 892 F.2d at 1165, thereby satisfying the taxpayer's territorial and federal tax obligations.2

B. In §932(c), Congress Continued To Allow Virgin Islands Residents To Satisfy Federal Tax Obligations By Filing In The Virgin Islands.

The tradition of “choreographed interplay” remains alive and well in current §932, which Congress enacted in 1986 together with a requirement that the IRS and VIBIR enter into a Tax Implementation Agreement “for the exchange of information and mutual assistance with respect to taxes in order to prevent the evasion or avoidance of United States or Virgin Islands taxes.” See Huff v. Comm'r (Huff II), 138 T.C. 258, 262 (2012). This information-sharing requirement is a key part of the U.S.-Virgin Islands tax relationship.

1. The separate filing regimes of §932(a) and (c).

Section 932 establishes two distinct filing regimes for Virgin Islands taxpayers. Under §932(a), U.S. taxpayers who are not “bona fide resident[s] of the U.S. Virgin Islands during the entire taxable year” but who have income that is “derived from sources within the Virgin Islands, or effectively connected with the conduct of a trade or business” in the Virgin Islands, must file two income tax returns — one with the IRS, and another with VIBIR. Those two returns together apportion tax liability between the United States and the Virgin Islands, and a §932(a) filer may then offset the taxes owed to the IRS with the taxes paid to VIBIR. §932(a), (b).

By contrast, under §932(c), a “bona fide resident of the U.S. Virgin Islands” is required to file only one return “with the Virgin Islands” — that is, with VIBIR. So long as he or she “reports income from all sources and identifies the source of each item,” and “fully pays [the taxpayer's] tax liability . . . to the Virgin Islands with respect to such income,” that single return filed with VIBIR satisfies both the taxpayer's territorial and his or her federal tax obligations. 26 U.S.C. §932(c); Huff II, 138 T.C. at 267; Huff v. Comm'r (Huff I), 135 T.C. 222, 225–27 (2010); see also S. Rep. No. 99-313, 99th Cong., 2d Sess. 482 (1985)); IRS Field Service Advice 199906031, 1999 WL 65274 (quoting the Senate Finance Committee Report). In other words, once a Virgin Islands resident has filed an accurate return and paid taxes to VIBIR, Congress considers his or her tax liability to the United States satisfied. The taxpayer has nothing left to do.3

2. Coordination under the 1987 IRS–VIBIR Tax Implementation Agreement

This requirement that Virgin Islands residents file exclusively with VIBIR does not leave the IRS in the dark because VIBIR and the IRS are required to, and routinely do, share taxpayer information. In the 1986 Act, Congress required the IRS and VIBIR to enter into a Tax Implementation Agreement “for the exchange of information and mutual assistance with respect to taxes in order to prevent the evasion or avoidance of United States or Virgin Islands taxes.” See Huff II, 138 T.C. at 262; Tax Reform Act of 1986, § 1277, 100 Stat. 2085. Among other things, the Virgin Islands agreed to “routinely supply” the IRS with “information about any taxpayer subject to Virgin Islands tax with non-Virgin Islands source income who files an income tax return with the Virgin Islands claiming for the first time to be a Virgin Islands resident” — that is, taxpayers like the Coffeys. JA364 (art. 4, § 2(b)(iii)). See generally Huff II, 138 T.C. at 262-63 (discussing the Agreement).

Since it executed the Agreement in 1987, the Virgin Islands Government, through VIBIR, has regularly, consistently, and timely provided the IRS with tax return information for U.S. citizens who reside in the Virgin Islands and file their tax returns with VIBIR. See, e.g., JA363-365 (art. 4); JA392, 394 (Nov. 9, 2007 Letter from IRS to Sen. Grassley describing VIBIR-IRS cooperation). VIBIR also routinely provides additional specific taxpayer information when requested by the IRS. See, e.g., JA363-365 (TIA art. 4).

C. The IRS Failed For Decades To Promulgate Regulations Implementing §932, And All Available Guidance Instructed Virgin Islanders To File With VIBIR.

Section 932 created a new, two-tiered structure for taxpayers with Virgin Islands income, with the key distinction between the tiers turning on whether the taxpayer was a “bona fide resident” of the Virgin Islands. But in enacting §932, Congress did not define “bona fide resident” or provide any guidance for taxpayers on how to comply with the new filing structure. Instead, it left that task to the IRS, expressly instructing the agency to “prescribe such regulations as may be necessary to carry out the provisions of . . . §§ 931 and 932,” including by “prescribing the information which the individuals to whom such sections may apply shall furnish to the Secretary.” 26 U.S.C. § 7654(e).

But the IRS failed to prescribe any such regulations until 2008 — 22 years after Congress ordered it to do so, four years after the latest tax year here at issue, and one year after the three-year limitations period for assessments for that tax year expired. See 73 Fed. Reg. 19350-01 (Apr. 9, 2008) (promulgating 26 C.F.R. §1.932-1).

In the absence of specific regulatory guidance, Virgin Islands taxpayers attempting to comply with §932 could only look to the IRS's existing general guidance on where to file. And during the years at issue, all the available IRS guidance instructed Virgin Islands residents to do exactly the same thing: file a single federal income tax return with VIBIR.

In the years at issue, U.S. Treasury regulations instructed “citizen[s] of a possession of the United States,”4 which includes the U.S. Virgin Islands, to file their federal tax returns with “the appropriate officer designated on the return form or in the instructions issued with respect to the form.” Treas. Reg. § 1.6091-3 (2003).5

The applicable “return form” for Virgin Islands taxpayers is “the same Form 1040 that U.S. taxpayers use when they file their Federal tax returns.” Appleton, 140 T.C. at 283.6 For the years at issue, the IRS's Form 1040 instructions expressly instructed a Virgin Islands taxpayer to file his return only with the Virgin Islands: under the heading “Where do you file,” the instructions state that “permanent residents of the Virgin Islands should use: V.I. Bureau of Internal Revenue, 9601 Estate Thomas, Charlotte Amalie, St. Thomas, VI 00802” when filing their Form 1040 individual income tax returns. See JA420, 423; see also Appleton, 140 T.C. at 283 (discussing the instructions on Form 1040 for tax years 2002-2004). Thus, in the years at issue, both the applicable regulation and the applicable return form instruct Virgin Islands residents to file their tax returns only with VIBIR.

In addition, for many years (including the years at issue), the IRS has published Publication 570, titled “Tax Guide for Individuals with Income From U.S. Possessions.” JA434, 450. Like Form 1040, that document expressly instructs Virgin Islands residents to file only a single tax return, with VIBIR:

If you are a bona fide resident of the [Virgin Islands] . . . you must file your tax return on Form 1040 with the Government of the Virgin Islands and pay the entire tax due to the Virgin Islands. You do not have to file with the IRS for any tax year in which you are a bona fide resident of the Virgin Islands. . . .

JA440, 457 (emphasis added).

The Appleton court determined that for a “meticulous taxpayer researching his/her filing requirements,” the guidance in Publication 570 is consistent with the Form 1040 instructions' “explicit” command to Virgin Islands residents to file with VIBIR. 140 T.C. at 287 & n.18.

In short, as of 2003-2004, a taxpayer attempting to satisfy her filing obligations under §932 could find IRS guidance in only three places: Regulation 1.6091-3, which instructed her to look to the instructions on Form 1040; Form 1040, which instructed Virgin Islands residents to file only with VIBIR; and Publication 570, which also instructed Virgin Islands residents to file only with VIBIR. No IRS guidance anywhere suggested that a taxpayer filing as a Virgin Islands resident should file a separate return with the IRS.

D. The Three-Year Statute of Limitations in §6501(A)

As a “general rule,” all taxpayers are protected by a statute of limitations (“SOL”) that requires the IRS to assess any deficiency “within three years” after a taxpayer files his return. 26 U.S.C. §6501(a).

1. A tax submission is a “return” that triggers the SOL if it represents an “honest and genuine” attempt to satisfy the law.

The triggering event for the SOL is the filing of a “return,” which the statute defines to mean “the return required to be filed by the taxpayer.” 26 U.S.C. §6501(a). The Code does not define “the return required to be filed by the taxpayer,” but more than 75 years ago the Supreme Court established that “perfect accuracy and or completeness is not necessary” for a submission to constitute a valid “return” for SOL purposes so long as it “purports to be a return, is sworn to as such . . . and evinces an honest and genuine endeavor to satisfy the law.” Zellerbach, 293 U.S. at 180; see also, e.g., In re Colsen, 446 F.3d 836, 839 (8th Cir. 2006).

The “honest and genuine endeavor” principle established in Zellerbach is now implemented in a four-part test established in the Tax Court in Beard v. Commissioner, 82 T.C. 766, 774-79 (1984), under which a taxpayer's submission qualifies as a “return” that triggers the SOL if it (1) “contains sufficient information to permit a tax to be calculated, (2) “purports to be a return,” (3) “is sworn to as such,” and (4) “evinces an honest and genuine endeavor to satisfy the law.” Colsen, 446 F.3d at 839 (citing Beard, 82 T.C. at 777-78).

2. Filings with VIBIR under §932(c) can constitute “returns” that trigger the SOL.

To qualify as “the return required to be filed by the taxpayer” for SOL purposes, a return need not necessarily be filed with the IRS. Under §932(c), a taxpayer who is a “bona fide resident” of the Virgin Islands is required to “file an income tax return . . . with the Virgin Islands.” The “return required to be filed” by such a taxpayer is an income tax return filed with VIBIR. It is established law that a return filed with VIBIR by a taxpayer who is conceded to be a “bona fide resident” is a “return” that triggers the statute of limitations. See Appleton, 140 T.C. at 287; see also Add.30 n.15 (discussing Appleton)).

E. The IRS's Shifting Positions On The Application Of The Statute Of Limitations To VIBIR-Filed Returns

In 2005-2006, the IRS initiated a huge wave of audits of taxpayers who claimed Virgin Islands residency and filed their returns with VIBIR under §932(c), including many economic development program beneficiaries. In the absence of any regulations implementing §932(c), the IRS issued a series of administrative documents to provide guidance on compliance with the statute.

In June 2006, the IRS published a new Chief Counsel Advice opining that a taxpayer “who claims to be a bona fide resident of the [Virgin Islands] . . . but does not meet one or more of the requirements in §932(c)(4)” — which include bona fide residency — “must file a U.S. federal tax return” with the IRS and that “prior to filing such return, the statute of limitations . . . does not begin to run.” IRS Chief Counsel Advice 200624002, 2006 WL 1661924 (June 16, 2006).

Less than a year later, the IRS substantially modified that position. In Notice 2007-19, the agency stated that for Virgin Islands residents with gross income of less than $75,000, the statute of limitations would begin running from the time they filed their returns with VIBIR. IRS Notice 2007-19, 2007 WL 519726 (Mar. 12, 2007)). But for a Virgin Islands resident with gross income of $75,000 or more, the IRS reiterated that the statute would begin to run only if the taxpayer also filed a second return with the IRS and included a statement describing his or her basis for claiming Virgin Islands residency. Id.

Less than two months after that, in April 2007, the IRS abandoned its double-filing requirement for all taxpayers, regardless of income — but only on a going-forward basis. IRS Notice 2007-31, 2007 WL 946370 (Apr. 16, 2007). The IRS announced that it would again recognize a return filed with VIBIR by a Virgin Islands resident as triggering the §6501(a) statute of limitations but that it would only apply this rule to tax years ending on or after December 31, 2006. Id.

In 2008, the IRS finally promulgated the regulations implementing §932 that Congress had instructed it to create twenty years before. In Treasury Regulation §1.932-1(c)(2)(ii), which remains in force today, the IRS decreed that for all tax years ending on or after December 31, 2006, “an income tax return filed with the Virgin Islands by an individual who takes the position that he or she is a bona fide resident of the Virgin Islands” will be “deemed to be a U.S. income tax return” for purposes of the §6501(a) statute of limitations, so long as “the United States and the Virgin Islands have entered into an agreement for the routine exchange of income tax information satisfying the requirements of the Commissioner.” Id. (emphasis added). Although the regulation does not mention it, by 2007 the U.S. and the Virgin Islands had already been routinely exchanging tax return information for twenty years under the 1987 Tax Implementation Agreement. See JA362-367.

SUMMARY OF ARGUMENT

The eight concurring Tax Court judges correctly concluded that the filing of the Coffeys' IRS Forms 1040 with VIBIR triggered the statute of limitations.

I. In reaching that conclusion, the concurrence applied established principles of federal tax law under which a taxpayer submission that “purports to be a return, is sworn to as such . . . and evinces an honest and genuine endeavor to satisfy the law” constitutes “the return required to be filed by the taxpayer” and so triggers the three-year limitations period under 26 U.S.C. §6501(a). Zellerbach, 293 U.S. at 180. The IRS Forms 1040 that the Coffeys filed with VIBIR undisputedly “purported to be returns,” and were “sworn to as such,” and the concurrence correctly found that they represented “an honest and genuine endeavor to satisfy” the filing requirements of §932(c). In these circumstances, the outcome is straightforward: the Coffeys' filings were “returns” that triggered the limitations period under §6501(a), and the IRS actions against them are time barred.

That outcome is consistent with the “choreographed interplay” between the U.S. and Virgin Islands tax systems, which Congress expressly designed for cooperation and an integrated approach to tax compliance. The IRS's insistence that filings with VIBIR cannot trigger the federal SOL because VIBIR is a “separate taxing jurisdiction” is contrary to the integrated scheme established by §932 and the congressionally mandated Tax Implementation Agreement, which requires the two revenue agencies to share information.

II. Other considerations of federal tax law also favor the concurrence's conclusion. First, the Coffeys' submissions to VIBIR “meticulously complied” with all available IRS filing guidance for the years at issue, as required for a taxpayer to receive the benefit of the statute of limitations. Second, the concurring opinion is supported by the IRS's own interpretation of §932 in Regulation 1.932-1 (in effect for tax years after 2006), under which any Virgin Islands taxpayer who “takes the position” that she is a bona fide resident and files with VIBIR is entitled to the protection of the limitations period.

III. The IRS's arguments for reversal are meritless. The agency's position on appeal is rooted in the false premise that the Tax Court concurrence creates a “good faith exception” to the filing requirements of §932. It does not. The concurrence never mentions any “exception,” and never even uses the words “good faith.” Instead, it simply recognizes the established principle that an “honest and genuine” attempt to satisfy the tax laws will suffice to trigger the statute of limitations and applies that principle to filings with VIBIR under §932. Because the concurrence does not purport to (and does not) create a nonstatutory “good faith exception,” all of the IRS's arguments against such an exception are inapposite.

The same flaw vitiates the IRS's heavy reliance on the Eleventh Circuit's decision in Sanders, which rejected a purported “good faith exception” to §932. 834 F.3d at 1279. Sanders did not even address the key Zellerbach and Beard principles that were the basis for the concurrence's opinion, making Sanders largely irrelevant here. The same is true of the other authorities on which the IRS relies, none of which is binding here in any event. Not one of those cases provides a basis for rejecting the concurrence's reliance on the Zellerbach principle; indeed, a majority do not even address it.

Because the IRS has offered no justification for rejecting the concurring opinion, this Court should affirm the judgment below and adopt the concurrence's reasoning.

ARGUMENT

I. The Concurrence Correctly Applied Established Tax Principles To Determine That The Coffeys' Forms 1040 Filed With VIBIR Triggered The Limitations Period.

In concluding that the filing of the Coffeys' IRS Forms 1040 with VIBIR triggered the statute of limitations, the eight concurring Tax Court judges straightforwardly applied established principles of federal tax law. Under those principles, a taxpayer submission that “purports to be a return, is sworn to as such . . . and evinces an honest and genuine endeavor to satisfy the law” constitutes “the return required to be filed by the taxpayer” and so triggers the three-year limitations period under 26 U.S.C. §6501(a). Zellerbach, 293 U.S. at 180; see also, e.g., Beard, 82 T.C. at 777; In re Colsen, 446 F.3d at 839. There is no dispute that the IRS Forms 1040 the Coffeys filed with VIBIR — a revenue agency identified in the relevant federal statute as a valid recipient of federal tax returns — “purported to be returns” and were “sworn to as such.” Neither is there any reasonable dispute that they represented “an honest and genuine endeavor to satisfy” the filing requirements of §932(c). In these circumstances, the outcome is straightforward: the Coffeys' filings were “returns” that triggered the limitations period under §6501(a), and the IRS actions against them are time barred.

The IRS's arguments to the contrary largely ignore the concurrence's Zellerbach analysis. Although it is undisputed that the key question here is whether the Coffeys' submissions to VIBIR constituted “returns” for purposes of §6501(a) and that whether a submission is a “return” depends on the four-part Beard test, the IRS makes no attempt to argue that the Coffeys' submissions to VIBIR were not “returns” for Beard purposes. Indeed, the IRS did not dispute that issue below.

Instead, the IRS's position seems to be that a filing can never qualify as a “return” unless it is filed with the IRS. But that position is flatly inconsistent with the text and structure of §932, in which Congress expressly contemplates (and indeed requires) the filing of “returns” with VIBIR. Add.77 n.3. And there is no doubt that under the Tax Court's decision in Appleton, filings with VIBIR can trigger the SOL. 140 T.C. at 287. Because it is undisputed that a filing with VIBIR can trigger the SOL (under Appleton), and because the Coffeys' submissions to VIBIR evinced an “honest and genuine” attempt to comply with the filing requirements of §932 (under Zellerbach and Beard), the concurrence was correct to find that they triggered the SOL. Id.; see also Zellerbach, 293 U.S. at 180; Beard, 82 T.C. at 777.

A. The Coffeys' Filings With VIBIR Under §932 Qualified As “Returns” Under The Beard Test.

As this Court has explained, “the appropriate criteria for determining whether a document is a return for present purposes are summarized in Beard . . . which itself drew from the Supreme Court's opinions in Germantown Trust” and Zellerbach. In re Colsen, 446 F.3d at 839. Under Beard, “if a document contains sufficient information to permit a tax to be calculated, and purports to be a return, is sworn to as such, and evinces an honest and genuine endeavor to satisfy the law, it is a return.” Id. (internal quotation marks omitted).

Here, there is no reasonable question that the IRS Forms 1040 the Coffeys filed with VIBIR constituted “returns” under §6501(a) and the Beard test. Indeed, as the concurrence recognized, the IRS “has not disputed that the returns the Coffeys filed with VIBIR qualify as returns under the four-part test laid out in Beard . . . with respect to the Coffeys' Virgin Islands filing requirements.” Add.68 (Thornton, J., concurring in the result) (emphasis added).

Having failed to dispute the Coffeys' satisfaction of the Beard factors below, the IRS cannot dispute it here. Beard, 82 T.C. at 788. Nor could it reasonably do so. The documents filed by the Coffeys were IRS Forms 1040, titled “U.S. Individual Income Tax Return,” and so on their face “purported to be returns.” (Beard factor 1). Id. at 777. The IRS Forms 1040 were “sworn” and affixed with original signatures. (Beard factor 2). Id. They provided extensive information about income, from which the revenue authorities could (and did) calculate income tax. (Beard factor 3). Id.

Most important, the IRS has no basis for asserting that the Coffeys' forms did not “evince an honest and genuine” effort to “satisfy the requirements of the tax law” (Beard factor 4) — in this case, the requirements of §932. Id. This Court has held that “the honesty and genuineness of the filer's attempt to satisfy the tax laws should be determined from the face of the form itself . . . [t]he filer's subjective intent is irrelevant.” Colsen, 466 F.3d at 840. On their face, the Coffeys' submissions were “honest and genuine” attempts to satisfy the tax laws: they consisted of completed, signed Forms 1040 listing a Virgin Islands address and were submitted to VIBIR in precisely the manner required by §932(c) for “bona fide” Virgin Islands residents. Even if the Coffeys' subjective intent were relevant, the result would be the same: there is no dispute that it was the Coffeys' intention to claim Virgin Islands residency and comply with the filing requirements for Virgin Islands residents set forth in §932(c). Whether the Coffeys were ultimately determined to be correct in taking the position that Judith Coffey was a “bona fide resident” is irrelevant for purposes of the Beard test, the entire purpose of which is to allow “honest and genuine” but flawed attempts to comply with the tax laws to trigger the statute of limitations.

In short, the analysis under Beard is straightforward and not subject to material dispute. The Forms 1040 that the Coffeys filed with VIBIR pursuant to §932(c) in 2003 and 2004 qualified as “returns.” See, e.g., Colsen, 446 F.3d at 840-41 (finding that submission was a “return” under Beard where there was “no evidence to suggest that the forms appeared obviously inaccurate or fabricated” and the forms “contained data that allowed the IRS to calculate [the] tax obligation”).

B. Because The Coffeys' Submissions Were §932 “Returns,” Their Filing With VIBIR Triggered The Statute Of Limitations.

As the Tax Court noted, the IRS does not dispute that the Coffeys' submissions to VIBIR were “returns” under Beard for purposes of their “Virgin Islands filing requirements.” Add.68 (Thornton, J., concurring in the result). Instead, the IRS seems to argue that what the Coffeys filed with VIBIR is irrelevant, because a return can never trigger the SOL unless it is filed with the IRS. Thus, the IRS insists that despite the Coffeys' extensive submissions of federal tax forms with the jurisdiction designated to receive them by federal statute, they actually “fail[ed] to file a return at all,” such that Zellerbach, Colsen, Beard, and 75 years of related authority are inapposite. IRS Br. 60. But the IRS's rigid distinction between returns filed with the Virgin Islands and returns filed with the IRS is inconsistent with the governing statute, contrary to the authorities construing that statute, and irreconcilable with the “choreographed interplay” that Congress requires between the two jurisdictions.

1. It is undisputed that a filing with VIBIR pursuant to §932(c) can trigger the federal statute of limitations.

The IRS's insistence that a return filed with VIBIR is not a “return” for SOL purposes because VIBIR and the IRS are “separate taxing jurisdictions” falls apart upon examination of §932(c), which requires that a “bona fide resident of the Virgin Islands . . . file an income tax return for the taxable year with the Virgin Islands.” For such a taxpayer, a return filed with the VIBIR is “the return required to be filed” and so triggers the limitations period under §6501(a). The IRS concedes this, admitting that “[c]ourts have held, and the Commissioner does not dispute, that a bona fide [Virgin Islands] resident generally meets her federal filing obligation by filing a return solely with the VIBIR.” IRS Br. 27.

The same result obtains even if the IRS asserts that a bona fide Virgin Islands resident fails to satisfy one or more of the requirements of §932(c)(4) and therefore has “income tax liability to the United States.” Despite that liability to the IRS, the taxpayer's filing with VIBIR triggers the statute of limitations for purposes of any IRS-asserted deficiency. Appleton, 140 T.C. at 290–91. The Tax Court in Appleton so found despite the IRS's argument, repeated here, that the United States and the Virgin Islands are “separate taxing jurisdictions” and that the taxpayer owed separate obligations to each. Id. at 290.

2. Because a VIBIR-filed return that satisfies §932 triggers the SOL, a VIBIR-filed return “evincing” an “honest attempt” to satisfy §932 does also.

Because of §932 and Appleton, the IRS cannot argue that a return filed with VIBIR can never be a “return” for purposes of §6501(a) and the SOL. The IRS's argument instead must be that a return filed with VIBIR can only be a “return” for SOL purposes if the taxpayer's claim of bona fide residency is correct — and that a return whose claim of residency is later determined to be incorrect is no return at all. But that is precisely the outcome that Zellerbach and Beard preclude.7 Beard does not require that the taxpayer make an “honest and genuine” attempt to satisfy her tax liability to the IRS; it requires that she make such an effort to satisfy “the requirements of the tax law.” As the concurrence explains, the “requirements of the tax law” that the Coffeys attempted to satisfy were those of §932, which expressly permits (and, indeed, requires) some taxpayers to satisfy their federal filing obligations by filing with VIBIR. Add.79 n.3. As the Tax Court explained in Appleton, “a return filed with the VIBIR may be both a Federal return and a territorial return.” Appleton, 140 T.C. at 289.

For a taxpayer claiming Virgin Islands residency, a filing under §932 that satisfies the Beard test for purposes of her “Virgin Islands filing requirements” — and the IRS “has not disputed” that the Coffeys' filings do (Add.68) — necessarily satisfies the Beard test for purposes of her “federal filing requirements,” too. Section 932 is a federal statute; all filings made under §932, whether under paragraph (a) or paragraph (c), necessarily attempt to satisfy “federal filing requirements.” As the concurrence put it, “the authorization for treating a filing with the Virgin Islands as a return . . . flows from the Internal Revenue Code” itself. Add.79 (Thornton, J., concurring).

3. The concurrence correctly found that the Coffeys made an “honest and genuine” attempt to comply with §932.

Finally, the IRS's conclusory assertion that “the Coffeys did not . . . make an honest and genuine attempt to comply with the dual-filing obligation in §932(a)” because they “attempted to convert their U.S. company's taxable income into EDP-eligible [Virgin Islands] income through a reshuffling of labels” is misplaced. IRS Br. 61. As noted, the law of this Circuit is that “the honesty and genuineness of the filer's attempt to satisfy the tax laws should be determined from the face of the form itself” and that “[t]he filer's subjective intent is irrelevant.” In re Colsen, 446 F.3d at 840. Whatever the IRS ultimately determined about the validity of the Coffeys' tax planning during its audit (and it is important to emphasize that the IRS has not alleged that the Coffeys' submissions were fraudulent), nothing on “the face of the form[s]” themselves suggests anything other than an honest attempt to comply with §932(c). And as this Court explained in Colsen, “[t]he Supreme Court has observed that even admittedly fraudulent returns can be returns under the tax laws, if they 'appear[ed] on their faces to constitute endeavors to satisfy the law.'” 466 F.3d at 840 (quoting Badaracco v. Comm'r, 464 U.S. 386, 397 (1984). The Coffeys' returns, which were not alleged to be fraudulent, appeared on their faces to constitute endeavors to satisfy §932(c), which required them to be filed with VIBIR. They were therefore “returns” that triggered the statute of limitations.

The IRS has made no attempt to explain why the Coffeys' tax returns on their face did not constitute “honest and genuine” attempts to comply with the tax laws under Colsen. It cites only one authority for its claim that the Coffeys did not make an honest and genuine attempt to comply with §932(c), and that case is irrelevant here. In re Hatton, 220 F.3d 1057 (9th Cir. 2000) (cited at IRS Br. 62) stands for the unremarkable proposition that a taxpayer who made no attempt to file any tax return, with any revenue agency, did not make “an honest and reasonable attempt to satisfy the requirements of the tax law.” Id. at 1061. It has no application here, where the taxpayers made complete and timely filings with the revenue agency specifically authorized to receive them by §932.

4. Allowing VIBIR-filed returns to trigger the federal SOL is consistent with Congress' design.

Much of the IRS's argument against both the concurring and the lead opinions hinges on its insistence that filings with VIBIR cannot trigger the SOL because the IRS and VIBIR represent “separate taxing jurisdictions.” The IRS even goes so far as to claim that “the returns that the Coffeys filed with VIBIR are . . . indistinguishable from foreign or state returns.” See IRS Br. 52.

But the analogy to foreign or state returns is inappropriate on its face. Forms filed with VIBIR under §932(c) are federal tax forms filed pursuant to federal law with a U.S. revenue agency authorized by federal statute to receive them. As the concurrence explains, that the Virgin Islands is a separate taxing jurisdiction is irrelevant when “we are dealing with section 932, which is part of the Internal Revenue Code and which labels a return filed with Virgin Islands a 'return'.”8 Add.77. Section 932 itself is titled “Coordination of United States and Virgin Islands Income Taxes.” Sections 934 and 7654 further elucidate the relationship between the U.S. and Virgin Islands tax regimes. VIBIR is not some third-world revenue agency unknown to the IRS; it is a U.S. revenue agency specifically authorized by Congress in §932(c) to accept and process tax returns that satisfy the filer's income tax obligations under the Internal Revenue Code. In creating a separate filing regime for “bona fide” Virgin Islands residents in §932(c), Congress was well aware of the potential for tax evasion and avoidance and addressed that potential by requiring that the IRS and VIBIR enter into a formal Tax Implementation Agreement “for the exchange of information and mutual assistance with respect to taxes in order to prevent the evasion or avoidance of United States or Virgin Islands taxes.” See Huff II, 138 T.C. at 262.

In effect since 1987, the Tax Implementation Agreement requires the Virgin Islands to “routinely supply” the IRS with information about any taxpayer “who files an income tax return with the Virgin Islands claiming for the first time to be a Virgin Islands resident” — that is, a taxpayer like Judith Coffey. JA364 (art. 4, § 2(b)(iii)). See generally Huff II, 138 T.C. at 262-63 (discussing the Agreement). The information-sharing provisions of the Agreement are extensive; and to the extent that the IRS finds those provisions inadequate to fulfill the purpose of the Agreement, it retains all its powers of inspection and audit under 26 U.S.C. §7602. See JA263-365 (art. IV, § 4); Huff, 743 F.3d at 801.

In short, although the IRS is correct that the United States and the Virgin Islands are separate tax jurisdictions, they are also part of a congressionally created, integrated tax regime, the coordination and cooperation of which are governed by federal law. From the beginning of that regime, Congress contemplated that some Virgin Islands taxpayers would file their “income tax return[s] . . . with the Virgin Islands” and that the IRS and VIBIR would coordinate to ensure that the single-filing system for Virgin Islands residents did not lead to tax evasion. That is how Congress structured the system to work, and that is in fact how it worked in this case. Any suggestion that allowing a filing with the Virgin Islands to trigger the limitations period is somehow unfair to the IRS flies in the face of the entire statutory scheme as Congress designed it.

II. Other Principles Of Tax Law Also Support The Concurring Opinion.

The concurrence's conclusion that the Coffeys' submissions to VIBIR under §932(c) were “returns” that triggered the statute of limitations is correct under the established principles of Zellerbach and Beard. That is all that is required to support affirmance on that ground. But the concurrence's decision is also the correct outcome under both the IRS place-of-filing regulations in place for the disputed tax years and the IRS's own current regulation implementing §932.

A. The Concurring Opinion Is Consistent With The Requirement That Taxpayers “Meticulously Comply” With Available IRS Filing Guidance.

The Supreme Court has stated that “in order to secure the benefit of the [statute of] limitation,” there must be “meticulous compliance by the taxpayer with all named conditions” for her filing. Lucas v. Polliod Lumber Co., 281 U.S. 245, 249 (1930). Interpreting that principle, the Tax Court has explained that “to 'meticulously comply' with the conditions for commencing the running of the statute of limitations, a taxpayer must file his return where §6091 or the regulations promulgated thereunder require the return to be filed.” Winnett v. Comm'r, 96 T.C. 802, 808 (1991).

Here, the Coffeys did exactly that. In the absence of any specific regulatory guidance for §932 (because the IRS failed to enact any despite Congress' instruction), the Coffeys were required to look to “other sections of the Code, as well as regulations and instructions published by the IRS[ ] for guidance as to . . . where . . . [to] file [their] tax returns.” Appleton, 140 T.C. at 282. As explained (supra at 20-23), in the years at issue there were only two relevant IRS regulations or instructions: Treasury Regulation §1.6091-3(c) and Publication 570. Both those regulations instructed Virgin Islands residents to file their returns not with the IRS, but with VIBIR. Because the Coffeys filed their returns “where section 6091 or the regulations promulgated thereunder require the return to be filed,” they “meticulously complied” with the “named conditions” for filing and are entitled to the protection of the statute of limitations. Winnett, 96 T.C. at 808.

1. Treasury Regulation 1.6091-3(c)

Section 6091 of the Internal Revenue Code (“Place for filing returns and other documents”) simply states that the Secretary of the Treasury “shall by regulations prescribe the place for the filing of any return . . . required by this title.” 26 U.S.C. §6091(a). The relevant regulation for residents of the Virgin Islands was Treasury Regulation § 1.6091-3(c), which told a “citizen” of a U.S. possession to file with “the appropriate officer designated on the return form or in the instructions issued with respect to the form.” Id. (emphasis added).

The “return form” for income taxes, then as now, is federal Form 1040. In 2003 and 2004, that form instructed “permanent residents” of the Virgin Islands to file their returns with “V.I. Bureau of Internal Revenue, 9601 Estate Thomas, Charlotte Amalie, St. Thomas, VI 00802,” while “nonpermanent residents” were instructed to file with the IRS. JA420, 423. The form did not define “permanent resident” and did not provide an option for filing returns with both the IRS and VIBIR if the taxpayer's residency was uncertain. Rather, it effectively required the taxpayer to take a position on his or her own residency. By filing sworn returns with VIBIR listing a Virgin Islands address, the Coffeys took the position that they were residents of the Virgin Islands.

2. IRS Publication 570

The IRS's Publication 570 instructions similarly require that a taxpayer take a position that she is, or is not, a “bona fide resident.” It states that a bona fide resident “must file [her] tax return on Form 1040 with the Government of the Virgin Islands.” JA440, 457 (emphasis added). They also say that “[y]ou do not have to file with the IRS for any tax year in which you are a bona fide resident of the Virgin Islands,” which Judith Coffey — who had taken substantial steps to acquire Virgin Islands residency — intended to be. Id. (emphasis added). Under Publication 570, a Virgin Islands taxpayer seeking to comply with applicable filing requirements was required to choose whether to claim “bona fide residency” or not.

Notably, the only guidance Publication 570 provides on who qualifies as a “bona fide resident” is (1) the statement that “if you are a temporary worker on the last day of the tax year, you may or may not be a bona fide resident of the Virgin Islands” and (2) an example describing two persons who “live and work in the United States” but own a rental condominium “in the Virgin Islands,” of whom it is said that “they were not bona fide residents of the Virgin Islands.” Presented with these examples, a taxpayer like Judith Coffey — who lived in the Virgin Islands, voted in the Virgin Islands, had significant other indicia of Virgin Islands residency, and intended to be a Virgin Islands resident for tax purposes — would have no reason to take the position that she was not a bona fide resident by filing with the IRS.

In short, a reasonable Virgin Islands taxpayer seeking to “satisfy the tax laws” would see that §932(c) requires bona fide residents to file with VIBIR; that Regulation 1.6091(c)-(3) and Form 1040 together direct “permanent residents” to file with VIBIR; and that Publication 570 directs “bona fide residents” to file with VIBIR and suggests by way of example that non-“bona fide residents” are people like “temporary workers” and absentee landowners. In these circumstances, filing with VIBIR was the only reasonable course of action.

In Appleton, the Tax Court confirmed that a taxpayer who was situated identically to the Coffeys at the time he filed his returns “meticulously complied” with the filing regulations for purposes of the statute of limitations. 140 T.C. at 287–89. Appleton, like the Coffeys, filed his returns with VIBIR under §932 claiming bona fide residency. Appleton, like the Coffeys, could not know at the time he filed whether the IRS would later challenge his residency claim. At the time of filing, then, Appleton and the Coffeys were in precisely the same position. The Appleton court reviewed §6091, Regulation 1.6091-3, Form 1040, and Publication 570 and concluded that all of them instructed a reasonable taxpayer to file with VIBIR. Id. The IRS — which scarcely acknowledges Appleton in its brief — has pointed to no basis for concluding that a different outcome should result here. Indeed, none of Regulation 1.6091-3, the Form 1040 instructions, or Publication 570 — the only filing guidance available to a taxpayer attempting to comply with §932 — is mentioned anywhere in the IRS's brief.

B. The Concurring Opinion Is Consistent With The IRS's Own Interpretation Of §932 As Expressed In Current Regulations.

If there were doubt that the concurring opinion was correct to conclude that the Coffeys' filings with VIBIR triggered the statute of limitations, that doubt should be dispelled by the IRS's own current regulations governing §932. Those regulations, embodied since 2008 in Treasury Regulation 1.932-1, provide that “[f]or purposes of the U.S. statute of limitations under section 6501(a), an income tax return filed with the Virgin Islands by an individual who takes the position that he or she is a bona fide resident of the Virgin Islands . . . will be deemed to be a U.S. income tax return.” Treas. Reg. 1.932-1(c)(ii) (emphasis added). That is what Judith Coffey did for years 2003-2004. The regulation, however, does not apply to tax years “ending before December 31, 2006.” Id.

Treasury Regulation 1.932-1 necessarily reflects the IRS's official interpretation of §932, the statute it was enacted to implement. That is, under the IRS's interpretation of §932 as implemented in its own current regulations, the Coffeys' filings with VIBIR would undisputedly suffice to trigger the statute of limitations if they were submitted today. But because the disputed filings occurred prior to tax year 2007, the regulation produces the opposite result.

The IRS has never offered a plausible explanation for its view that §932 has one meaning for all taxpayers filing returns from 2007 forward but exactly the opposite meaning for a handful of targeted taxpayers filing returns for prior tax years. The statute has not changed in any relevant way since 1986. The IRS's only explanation points to the “new working agreement for the automatic exchange of information” reached with VIBIR in 2007 as the justification for its 180-degree turn on the limitations period question, suggesting — but not actually stating — that that the information-sharing provisions necessary to notify it of returns filed with VIBIR were not available until the 2007 working arrangement came into effect. IRS Br. 58 n.12 (citing IRS Notice 2007-31). The governing regulation in §1.932-1(c)(ii) makes the same suggestion, making the new rule contingent on “the United States and the Virgin Islands hav[ing] entered into an agreement for the routine exchange of income tax information satisfying the requirements of the Commissioner” and stating that the 2007 working arrangement “satisfies th[is] condition.”

But the IRS's suggestion that the 2007 working arrangement is critical to its starkly differential treatment of Virgin Islands taxpayers before 2006 and after 2006 is not tenable. The IRS's argument ignores the fact that as of 2007, the IRS and VIBIR had already been parties to “an agreement for the routine exchange of income tax information” for twenty years because Congress required them to enter into one when it enacted the modern version of §932. See discussion supra at 18-19.

In fact, a comparison of the 1987 Tax Implementation Agreement with the 2007 “working arrangement” reveals that the latter document gives the IRS no rights to obtain information beyond those it already had under the original agreement. Compare JA362-367 (1987 agreement), with Notice 2007-31, 2007-16 I.R.B. 971, 2007 WL 946 370, at 3-5 (2007 “working arrangement”). And although the regulation specifies that “the working arrangement announced in Notice 2007-31 satisfies” the condition of “an agreement for the routine exchange of income tax information satisfying the requirements of the Commissioner,” it does not say that the working arrangement is the only agreement that satisfies the requirement, or that the original 1987 agreement is somehow deficient.

Moreover, there is no evidence in the record to support a claim that the information available to the IRS after 2007 was materially different from the information available to it before 2007. To the contrary, the only evidence on that point came from VIBIR's longtime Federal Disclosure Officer, Marcella Somersall, who submitted a declaration confirming that:

  • Since 1987, “the [V.I.] Bureau has regularly and consistently provided the IRS with tax return information for all U.S. citizens residing in the U.S.V.I. and filing their tax returns with the Bureau”;

  • “The [V.I.] Bureau also routinely provides other specific taxpayer information when requested by the IRS”; and

  • “After publication of Notice 2007-31 . . . the [V.I.] Bureau provided [to the IRS] the same type of tax return information . . . as was provided pursuant to the [1987] Agreement.”

JA780-781 (Somersall Declaration).

The IRS objected to the inclusion of the Somersall Declaration in the trial record (an objection the Tax Court never resolved either way), but it has never offered any evidence to rebut Ms. Somersall's indication that the 2007 working arrangement did not materially alter the amount or kind of information available to the IRS under the 1987 Agreement.

For these reasons, the IRS's only basis for denying that its current rule allowing VIBIR-filed returns to trigger the limitations period for tax years after 2006 should apply equally to tax years before 2006 is not tenable. Sections 932 and 6501(a) had the same meaning in tax years 2003 and 2004 as they do today, and the Coffeys' filings with VIBIR should receive the same treatment they would receive under the current regulation. Because the Coffeys took the position that Judith was a “bona fide resident” for the disputed tax years, her filing with VIBIR triggered the statute of limitations.

III. The IRS's Arguments Against The Concurrence Are Without Merit.

The IRS offers no persuasive basis for finding error in the concurring opinion. It devotes much of its brief to attacking the concurrence for purportedly creating a “good faith exception” to §932(c), but the concurrence did not purport to create such an exception; indeed, the concurrence never mentions “good faith” at all. The IRS's arguments against the “good faith exception” are thus irrelevant here. So too is the Eleventh Circuit's decision in Sanders, which rejects a “good faith exception” that appears nowhere in the concurring opinion and fails to address the Zellerbach- and Beard-based rationale on which the concurrence actually relies.

A. The Concurrence Did Not Propose A “Good Faith Exception” To §932(c), Making IRS's Arguments Against Such An “Exception” Irrelevant Here.

The IRS's attack on the concurrence is rooted in a false premise: that the opinion creates a “good-faith exception to the dual-filing requirement” in §932(c). IRS Br. 22, 23, 53, 54, 58. The concurrence does no such thing: it neither creates any “exception” to §932 nor even mentions “good faith.” As explained above, the concurrence's conclusion is based entirely on a straightforward application of the established principle, applicable throughout the Internal Revenue Code, that a return that “evinces an honest and genuine endeavor to satisfy the law” will suffice to trigger the limitations period — even if “the positions the taxpayers took on their returns were [not] substantively correct.” Add.71 (Thornton, J., concurring in the result). The concurrence never mentions an “exception”; indeed, it never once uses the words “good faith.” The IRS's argument on appeal largely attacks a position the concurrence does not take.

In short, the concurrence is an instance not of reading into §932(c) an exception that is not there, but rather of applying to returns filed under §932(c) a universal statute-of-limitations principle that applies equally to returns filed under all parts of the Code. See, e.g., In re Colsen, 446 F.3d at 839 (applying the Zellerbach principle to returns filed under 26 U.S.C. §6012(a)(1)(a)); New Capital Fire v. Comm'r, 2017 WL 4021368, at *5 (applying the Zellerbach principle to corporate returns filed under §6012(a)(2)).

Because the concurrence did not create a “good faith exception” to §932(c) but simply applied a well-established general principle, much of the IRS's argument on appeal withers away. It is no answer, for example, to say that “the concurring opinion's proposed good-faith exception cannot be reconciled with the plain text of § 932.” IRS Br. 54. This is a tautology. Zellerbach's “honest and genuine effort” principle will never be consistent with the specific statutory filing requirements of any Code provision because by definition, the Zellerbach principle only comes into play when the taxpayer has tried but failed to satisfy some specific statutory requirement. Here, the Coffeys made a genuine attempt to comply with the statutory filing requirements of §932(c). That their attempt was unsuccessful is precisely the reason the Zellerbach principle applies, not an argument against its application. As the concurrence puts it, “the return, and not the correctness of the return, is the focus” of the statute of limitations. Add.77 (Thornton, J., concurring).

The IRS is similarly misguided in arguing that the existence of express statutory “good faith” exceptions in §6501(g) precludes the creation of another for “good faith” Virgin Islands filers. See IRS Br. 56-57. The rule adopted by the concurrence is not a “good faith exception” at all and so is not implicitly inconsistent with the exceptions in §6501(g). The “good faith” exceptions listed in §6501(g) have never been held to preclude the application of the Zellerbach principle in any context, and they do not do so here.

B. The Eleventh Circuit's Rejection Of A Strawman “Good Faith Exception” In Sanders Also Does Not Support Reversal.

The IRS's mischaracterization of the concurring judges' rationale also vitiates the agency's extensive reliance on the Eleventh Circuit's decision in Sanders. As the IRS concedes, that decision is based upon the Eleventh Circuit's conclusion that “there is no good-faith exception to the dual-filing requirement of §932(a)(2).” IRS Br. 22. But as explained above, the Tax Court concurrence at issue here does not purport to establish such an exception. Accordingly, the Sanders court's rationale for rejecting the existence of the “good faith exception” — including its conclusions that “the language and structure of the statute are clearly inconsistent with . . . a good faith exception” and that the explicit good-faith exceptions enumerated in §6501(g) “suggest . . . that Congress did not intend to create the exception advocated by” the Virgin Islands, see 834 F.3d at 1276 — are inapposite here.9

More important, the Eleventh Circuit's decision in Sanders never cites or even acknowledges the Zellerbach principle or any of the authorities confirming it. It makes no attempt to perform a Beard analysis. It therefore has little, if any, value in assessing the Tax Court's concurrence here, which is rooted firmly in that principle and those authorities.

In short, the IRS's argument on appeal is less an argument for reversing the decision in this case and more an argument for affirming the Eleventh Circuit's decision in Sanders. Because the opinion in Sanders does not address the reasoning applied by the concurrence here, the IRS's reliance on it is wholly misplaced.

C. The Other Authorities On Which The IRS Relies Are Neither Controlling Nor Persuasive.

In addition to its misplaced reliance on Sanders, the IRS recites (but does not meaningfully discuss) a handful of cases for the sweeping proposition that “[e]very court to address the issue has, like the Eleventh Circuit [in Sanders], concluded that returns filed with the VIBIR . . . do not start the limitations period in §6501(a).” IRS Br. 59. But of the seven cases the IRS lists — none of which is binding authority on this Court in any event — only two actually hold that returns filed with VIBIR cannot start the limitations period, and neither is persuasive here.

The only two authorities that actually support the IRS's position are single-judge Tax Court opinions written by Judge Jacobs, who as a Senior Judge could not participate in the Tax Court proceedings below. The eight concurring judges clearly would have decided them differently, making their persuasive value dubious. See Cooper v. Comm'r, Nos. 11810–10, 11811–10, 2015 WL 1546460, at *8 (Tax Court April 8, 2015); Huff II, 138 T.C. at 267.

Three more of the IRS's cases address taxpayer challenges to the IRS summonses that fell outside the statute of limitations; in all three, the court correctly noted that the statute of limitations applies only to assessments, not summonses. Gangi v. United States, 453 F. App'x 255, 257 n.1 (3d Cir. 2011); Twin Palms Resort, LLC ex rel. Harbour v. United States, 676 F. Supp. 2d 1350, 1356-57 (S.D. Fla. 2009); United States v. McHenry, 552 F. Supp. 2d 571, 574-75 (E.D. Va. 2008). Those decisions' brief discussions of the issue presented here — the relationship of an IRS residency determination to the statute of limitations — are dicta in the truest sense. Moreover, those dicta are particularly unpersuasive here because none of Gangi, McHenry, or Twin Palms Resorts addresses (or even acknowledges) the Zellerbach principle on which the concurring opinion relies.

The IRS's few remaining authorities fare no better. Condor International v. Commissioner, 78 F.3d 1355 (9th Cir. 1996), addresses the relationship between a dual-filing regime and the statute of limitations in the context of a corporate return and thus does not implicate §932 at all. The “inhabitant rule” discussed in Condor — which allowed Virgin Islands corporations to file a single tax return with VIBIR — was repealed in 1986, but the inhabitant rule for individual taxpayers remained in place, in the form of §932(c). In addition, Condor — like all but two of the cases the IRS cites — does not address the Zellerbach principle on which the Tax Court's concurrence is based.

Finally, Helvering v. Campbell, 139 F.2d 865 (4th Cir. 1944), found that a taxpayer's filing with the revenue agency of the Philippines did not trigger the federal statute of limitations. But the tax regime at issue there was quite different. All U.S. taxpayers “not having a place of business in the United States” were required to file returns “with the Collector at Baltimore.” There was no provision of the Code analogous to §932(c) that would have allowed those taxpayers to satisfy their federal filing obligations by filing with the Philippines government. Thus, a taxpayer in the Campbell regime who filed only with the Philippines government could not have claimed to have made an “honest and genuine” attempt to comply with the tax laws. Perhaps for that reason, Campbell, too, fails to address or acknowledge Zellerbach's rule that an “honest and genuine endeavor” to comply with the tax laws is sufficient to trigger the limitations period. Campbell, like most of the authorities on which the IRS relies, is irrelevant here.

D. The IRS's Position Produces Absurd Results.

There is no dispute that if the IRS had not elected to challenge the Coffeys' residency later, their submissions for tax years 2003 and 2004 would have qualified as “returns” that triggered the statute of limitations. See Appleton, 140 T.C. at 286. Thus, according to the IRS, whether or not the Coffeys' submissions triggered the limitations period depended not on what the Coffeys filed or whether it constituted an honest attempt to comply with the tax laws, but entirely on whether the IRS later decided, in its sole discretion, to challenge their residency claim.

That outcome is absurd. To illustrate the absurdity, consider this: under the IRS's position, there is no way to know whether a particular taxpayer submission qualifies as a “return” or not unless and until the IRS makes an affirmative decision to challenge residency. Until that happens, the submission is effectively both a statutory “return” (because IRS has not yet challenged residency) and a non-“return” (because the IRS could always challenge residency in the future). But a tax return is not Schrödinger's cat,10 and a limitations period whose application turns entirely on the IRS's whim fails to provide taxpayers with the repose that Congress established it to protect.

CONCLUSION

For all the reasons given, the Government of the Virgin Islands respectfully requests that the Court AFFIRM the judgment of the Tax Court on the grounds set forth in the concurring opinion below. Alternatively, for the reasons given in the Brief for Appellees filed by the Coffeys, the judgment of the Tax Court should be affirmed on the grounds set forth in the lead opinion below.

August 9, 2019

Respectfully submitted,

GEOFFREY P. EATON
Winston & Strawn LLP
1700 K Street N.W.
Washington, DC 20006

FOOTNOTES

1The total number of votes actually tallies to 17 because one judge joined both the lead and the concurring opinions.

2Congress did repeal the single-filing regime in 1986, but only for corporations. See Tax Reform Act of 1986; see also Condor Int'l, Inc. v. Comm'r, 98 T.C. 203, 213 (1992) (discussing the new dual-filing rule applicable to corporations).

3In addition, § 7654(a) provides that any federal taxes the IRS collects from bona fide Virgin Islands residents “shall be covered into” the Virgin Islands treasury (i.e., VIBIR). 26 U.S.C. § 7654(a). Thus, §932 and other Code sections like 7654(a) reinforce the fact that the taxes paid to VIBIR are paid in satisfaction of the taxpayer's federal tax obligations.

4Treasury Regulation § 1.6091-3(c) uses the term “citizen of a possession,” which is nowhere defined but is presumably intended to mean, at least in this context, “permanent resident.” See Appleton, 140 T.C. at 284 n.17.

5Applicable Treasury Regulations have instructed “citizen[s] of possessions” to file their returns “at such other address as is designated on the return form or in the instructions issued with the return form” since at least 1960. See 25 Fed. Reg. 12137 (1960); see also 33 Fed. Reg. 5357 (1968).

6The instructions also tell U.S. citizens who are nonpermanent residents of the Virgin Islands — and a whole host of other “special case” filers — to file with the IRS's Philadelphia Service Center.

7In any event, the Supreme Court rejected the IRS's “no return” argument half a century ago, in Germantown Trust v. Commissioner, 309 U.S. 304 (1940). There, as here, the agency contended that even where a taxpayer, “in good faith, makes what it deems the appropriate return, which discloses all of the data from which the tax . . . can be computed, such a return is to be deemed no return” because it was incomplete. See 309 U.S. at 309-10. A unanimous Supreme Court dismissed that contention as “inadmissible.” Id. at 309 & n.9. The concurring Tax Court judges correctly made the same decision here.

8As this quotation demonstrates, the IRS is wrong to assert that the concurrence's only rebuttal to the “separate tax jurisdictions” argument was “the Supreme Court's holding in Sanchez Valle that Puerto Rico is not a separate sovereign for double jeopardy purposes.” IRS Br. 61 (citing Puerto Rico v. Sanchez Valle, 136 S. Ct. 1863 (2016)). The concurrence devotes one sentence to Sanchez Valle, but its primary basis for rejecting the IRS's argument is the correct observation that the distinction between the two jurisdictions is irrelevant when the question presented is whether the taxpayer complied with §932, a federal statute that expressly authorizes (and requires) filing with VIBIR. Add.77 (Thornton, J., concurring).

9Those rationales were equally inapplicable in Sanders, where — notwithstanding the Eleventh Circuit's statement to the contrary, see Sanders, 834 F.3d at 1276 — the Virgin Islands never argued for such a “good-faith exception.” To the contrary, the Virgin Islands argued there, as it argues here, that under well-established principles of federal tax law as embodied in Zellerbach and similar authorities, a submission to VIBIR under §932(c) is a valid “return” “even if it does not reflect complete compliance with legal requirements, as long as it represents a good-faith endeavor to satisfy the law.” Br. of Appellee Government of the U.S. Virgin Islands at 32, Comm'r v. Sanders, No. 15-12582 (11th Cir. October 23, 2015). Indeed, in Sanders the Virgin Islands argued that the IRS's position in that case, like its position in this one, would inappropriately create an exception to the generally applicable three-year limitations period for Virgin Islands residents. Id. at 21, 52.

10To oversimplify an exercise in theoretical quantum mechanics, “Schrödinger's cat” is a paradox involving a hypothetical cat locked in a sealed container whose condition cannot be known with certainty until the box is opened, such that it is considered to be simultaneously both alive and dead. For a proper explanation, see Melody Kramer, The Physics Behind Schrödinger's Cat, Nat'l Geographic (Aug. 14, 2013), https//on.natgeo.com/2Cji3tm.

END FOOTNOTES

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