Most of us don’t take into consideration what it means to file our tax return.  We might depend on software program or a employed return preparer to transmit our return to the IRS. The returns are both snail-mailed to the relevant Service Heart, or they’re e-filed to that amorphous “cloud.”  We all know it is very important file our returns in an effort to set off the 3-year limitation interval for evaluation in §6501(a).  However as soon as we ship them in, we’re finished.

However most of us don’t declare to reside within the U.S. Virgin Islands (USVI).  Taxpayers who do might have to file twice, as we be taught in David W. Tice v. Commissioner, 160 T.C. No. 8 (Apr. 10, 2023) (Choose Pugh). a reviewed Tax Court docket opinion.  In holding that the taxpayer was obligated to file his returns with each the USVI and the IRS, the opinion reverses the Court docket’s prior strategy, which we discovered about in Lesson From The Tax Court docket: Types Observe Perform In Return Submitting, TaxProf Weblog (Jan. 5, 2018).  Beforehand, the Court docket had targeted on the passive voice of §6501(a) to determine that submitting solely as soon as with USVI triggered the three 12 months limitation interval when the USVI despatched a few pages of the return to the IRS.  At present’s opinion reads the lively voice of §932(a)(2) as imposing a extra strong obligation.  Intervening Treasury Rules may consolation those that consider they solely want file as soon as.  Nevertheless, extra cautious advisors should wish to put together as soon as and file twice.  See what you suppose.  Particulars beneath the fold.

Legislation: Submitting Necessities In Common
The idea of submitting a return is necessary, as a result of the 3-year evaluation limitations interval in §6501(a) is triggered solely when a legitimate return is “filed.”  At present shouldn’t be a lesson about what constitutes a legitimate return as a result of, to start out the limitation interval, that legitimate return should even be correctly filed.  To be correctly filed, the return should be acquired within the correct Service workplace as described in I.R.C. § 6091.  That is the bodily supply rule.  See Bongam v. Commissioner, 146 T.C. 52 (2016).  Usually, returns should be acquired in correct Service Heart for processing that sort of return.  Receipt within the mistaken workplace doesn’t begin the limitation interval.

Importantly, §6501(a) is written within the passive voice.  It says “the quantity of any tax imposed by this title shall be assessed inside 3 years after the return was filed.”  Courts have interpreted that passive voice to imply that even when the taxpayer information a return within the mistaken workplace, the return continues to be “filed” as soon as it will get to the right workplace, no matter who really sends it there.  Subsequently, taxpayers returns mailed to the mistaken workplace or handed to an IRS worker can nonetheless be filed for §6501(a) functions when the return reaches the right workplace for processing.  See e.g. Winnett v. Commissioner, 96 T.C. 802 (1991) (return filed with mistaken Service Heart didn’t set off limitations interval till transmitted to correct Service Heart); In re O’Neill, 134 B.R. 48 (Bankr. M.D. Fla. 1991) (similar).

The Ninth Circuit briefly misplaced its thoughts to seek out that handing the return to any IRS worker constituted “submitting” on the date it was acquired by that worker.  Seaview Buying and selling, LLC v. Commissioner, 34 F.4th 666 (ninth Cir. 2022) (purported copy of return filed when faxed to a Income Agent).  However then the Ninth Circuit discovered sanity a couple of 12 months later, reversing itself to evolve with the normal studying of §6501(a) {that a} return should attain the proper workplace to be thought of “filed”). Seaview Buying and selling LLC v. Commissioner, 62 F.4th 1131 (ninth Cir. 2023) (en banc).

Most taxpayers simply want to fulfill this correct submitting requirement as soon as.  USVI Residents, nonetheless, have a special rule.

Legislation: Submitting Requirement for USVI Residents
Because the Eighth Circuit not too long ago defined in Coffey v. Commissioner, 987 F.3d 808 (eighth Cir. 2021), america and the USVI are separate taxing entities. The USVI administers a mirror code of the Inner Income Code the place ‘Virgin Islands’ is principally substituted for america.  As I perceive it, bona fide USVI residents get some fairly dope tax breaks (as my son would say).  See Huff v. Commissioner, 135 T.C. 222 (2010). So there seems to be some robust monetary incentives for taxpayers to assert to be bona fide USVI residents.  I welcome feedback on that.

Taxpayers who’re bona fide USVI residents want solely file their tax returns as soon as, with the USVI Bureau of Inner Income (VIBIR). §932(c)(2).  In distinction, any different taxpayer with USVI-related revenue “shall file his revenue tax return … with each america and the Virgin Islands.” § 932(a)(2) (emphasis equipped).  Which means submitting twice.

Alert readers will see the issue.  Taxpayers have each incentive to assert to be bona fide USVI residents, even when they don’t seem to be.  And once they so declare, they solely file with the VIBIR, which has little incentive to audit that declare.  However the IRS, which has each incentive to audit that declare, doesn’t get the return from the taxpayer.  Over time, the IRS and the VIBIR have created an information-sharing regime whereby the VIBIR sends info to the IRS.  It’s referred to as the Tax Implementation Settlement (TIA) and if insomnia is an issue for you, you’ll be able to learn it right here: 1989-1 C.B. 347.

In Hulett v. Commissioner, 150 T.C. 60 (2018), the Tax Court docket mentioned that this TIA information-sharing regime meant that the taxpayer there—who filed with solely with the VIBIR—thereby additionally filed with the IRS.  I blogged about that in Lesson From The Tax Court docket: Types Observe Perform In Return Submitting, TaxProf Weblog (Jan. 5, 2018).  There have been three opinions in that totally reviewed case, two pluralities and one dissent.  Neither of the plurality opinions commanded a majority of votes.  However, as I defined then, all three opinions targeted on the paradox created by §6501(a)’s passive voice and resolved that ambiguity by specializing in the perform of the limitation interval to supply closure and the way submitting returns match that perform.

When the case went up on enchantment to the Eighth Circuit (beneath its new identify “Coffey”), nonetheless, that Court docket didn’t care that the IRS had in some way discovered of the taxpayer’s return.  The “IRS’s precise data of the revenue didn’t start the three-year statute of limitations.” Coffey v. Commissioner, 987 F.3d at 813.  Nope.  What was essential to that Court docket was whether or not the taxpayer had met their submitting obligation.  It determined that the taxpayer wanted to have fulfilled that obligation, echoing Choose Marvel’s dissent beneath. And in that case, “[i]t is undisputed that the Coffeys didn’t intend to file tax returns with the IRS, however solely with the VIBIR.”  Id.

The taxpayer in right this moment’s case was not within the Eighth Circuit.  Mr. Tice was in Austin and so would take any enchantment as much as the Fifth Circuit.  Subsequently, the Tax Court docket didn’t consider itself sure by the Eighth Circuit’s opinion, Golsen v. Commissioner, 54 T.C. 742 (1970). For extra on what Golsen means and doesn’t imply, see Bryan Camp, The Tax Court docket As An Glorious Conversationalist, TaxProf Weblog (Oct. 25, 2017).

The truth is, on this case Choose Pugh notes that the federal government erroneously thought Golsen in some way required the Tax Court docket to observe the Eighth Circuit!  Op. at 10, notice 10.  Nope.  That’s the reason the Tax Court docket issued this, second, fully-reviewed opinion addressing the identical problem as in Coffey.

So let’s see what we will be taught.

Lesson:  Plain Language of Statute Requires Taxpayers to File Twice
The tax years at problem are 2002 and 2003.  For these years Mr. Tice filed his returns solely as soon as, with the VIBIR.  Ultimately, the IRS audited the returns and concluded Mr. Tice was not a bona fide USVI resident and so was not entitled to the substantive tax advantages he claimed. It took a very long time to determine that out and the IRS didn’t problem the NOD till 2015.

In Court docket, Mr. Tice urged the Tax Court docket to keep it up’s opinion in Hulett and discover that the NOD was approach too late.  He argued that his submitting having filed, solely as soon as, with VIBIR, was sufficient to set off the beginning of the three years, no matter whether or not he was or was not a bona fide USVI resident.

The federal government urged the Tax Court docket to observe the Eighth Circuit’s Coffey choice.

In its unanimous opinion, the Tax Court docket right here adopted the Eighth Circuit’s end result, however on completely different reasoning.  Whereas the Eighth Circuit had nonetheless targeted on decoding the passive voice in §6501, Choose Pugh as a substitute targeted on the lively voice in §932 which imposes the submitting requirement relating to USVI residents and non-residents.  Heck, Part III of her opinion ( titled “Evaluation”) begins off with Part A, titled “Petitioner’s submitting requirement beneath part 932(a)(2)” and in solely two paragraphs Choose Pugh provides a strong textual evaluation of §932(a)(2)’s language.  To just accept the taxpayer’s argument right here, she causes, would make §932(a)(2) “meaningless.”  Keep in mind that 932(c)(2) requires bona fide USVI residence to only file as soon as, however 932(a)(2) requires all different taxpayers to file twice, as soon as with VIBIR and as soon as with IRS.  So if submitting simply as soon as with VIBIR at all times satisfies the file-twice requirement, then §932(a)(2) ceases to have any that means.

There may be one wrinkle on this seemingly easy lesson: an intervening tax regulation.  Constructing on the information-sharing settlement with the VIBIR, Treasury issued a regulation in 2008 that tax returns filed solely as soon as with the VIBIR can certainly begin the three-year statute of limitations, as long as the taxpayer claims to be a bona fide USVI resident (even when it seems they don’t seem to be) and as long as the IRS has an applicable information-sharing protocol with the Virgin Island authorities. See Treas. Reg. 1.932-1.  The regulation is efficient for tax years on or after December 31, 2006.

Some readers may marvel why the Tax Court docket went to the difficulty of issuing this totally reviewed precedential opinion if it solely applies to USVI returns previous to 2006.  Mr. Tice in truth tried to persuade the Tax Court docket to permit him to come back beneath the regulation.

The Court docket refused to permit Mr. Tice the shelter of the regulation, which by its phrases didn’t apply to the tax years at problem right here.  That’s a part of the lesson.  The statutory language is controlling, interval.  It requires submitting twice.  Whereas Treasury has appreciable energy to create a regulation that deems a submitting with the VIBIR to even be a submitting with the IRS, that doesn’t alter the statutory requirement of submitting twice.  It simply helps taxpayers keep away from unintentional failures to fulfill that requirement by making a deeming rule based mostly on administrative processes.  In so doing, the regulation channels all three of the Tax Court docket opinions within the Hulett case in that it acknowledges and furthers the perform of §6501(a) to deliver closure to a given tax 12 months.

Coda On Energy of Rules: Congress writes the tax statutes.  Everyone knows, nonetheless, that Congress doesn’t at all times write clearly.  That’s very true in statutes regulating tax administration.  The supervisory approval requirement for penalties in §6751(b)(1) is a primo instance.  See Lesson From the Tax Court docket: A Sensible Interpretation of the Penalty Approval Statute §6751, TaxProf Weblog (Jan. 13, 2020).  Tax rules can assist make clear poorly written statutes.  A few weeks in the past, Treasury revealed this proposed regulation that makes an attempt to make sense out of the §6751(b)(1) nonsense.  I personally suppose it’s properly finished and strikes an excellent steadiness between competing issues.  Your opinion might range! 

Bryan Camp is the George H. Mahon Professor of Legislation at Texas Tech College Faculty of Legislation. He invitations readers to return every Monday (or Tuesday if Monday is a federal vacation) to TaxProf Weblog for one more Lesson From The Tax Court docket.

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