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Effects of tax returns filed with Virgin Islands’ tax bureau

Effects of tax returns filed with Virgin Islands

The U.S. Tax Court today released a “reviewed opinion” in which the court—noting that a nonresident of the U.S. Virgin Islands having both U.S. and Virgin Island income must file a return with the Virgin Islands Bureau of Internal Revenue (VIBIR) and also with the IRS to satisfy the requirement to file a return under the Internal Revenue Code—concluded that the VIBIR’s sharing of information with the IRS amounts to the filing of a return.

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The case is: Hulett v. Commissioner, 150 T.C. No. 4 (January 29, 2018). Read the Tax Court’s 76-page opinion [PDF 977 KB] that includes concurring and dissenting opinions

Summary

The Tax Court summarized the case, as follows:

  • The IRS found that the taxpayers were not bona fide residents of the U.S. Virgin Islands and that they were nonfilers for federal tax purposes. 
  • The taxpayers filed a petition for redetermination of income tax deficiencies for 2003 and 2004.
  • The taxpayers filed a motion for summary judgment and claimed that they were bona fide Virgin Islands residents and that filing returns in the Virgin Islands satisfied their federal filing obligations. 
  • The taxpayers further asserted that their subjective good faith belief of residency was sufficient to start the statute of limitations. Alternatively, they claimed that receipt by the IRS of part of their Forms 1040 directly from the Virgin Islands constituted their returns having being filed with the IRS.

The Tax Court majority found:

  • The first two pages of the taxpayers’ Forms 1040 and attached Forms W-2 as filed with the VIBIR and received by the IRS contained sufficient information to calculate tax liability. 
  • The IRS’s receipt of a return determines its filing, and the Forms 1040 were filed with the correct IRS service center. 
  • The taxpayers’ Forms 1040 purported to be the taxpayers’ tax returns, and showed on the returns’ face an honest and reasonable attempt of the taxpayers to satisfy their tax obligations.

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