Yet another T. C. Memo. today from that inveterate rounder, Alvin Sheldon Yanofsky, but I’m not wasting time on his latest $20K frivolity chop.

No, I’m remembering the winning sentence from the brief of my former law partner Woody: “It takes more than a New York State of mind” to establish New York primary residency.

And that comment furnishes my headline for today’s blogpost, Barry P. Cooper, Petitioner, and The Government Of The United States Virgin Islands, Intervenor, 2015 T. C. Memo. 72, filed 4/8/15, with Barry’s wife Sandra G. joining in the fun. This is another of the employee-leasing games played in the early years of this millennium. I’ve blogged a number of these and His Honor Big Julie, a/k/a Judge Julian I. Jacobs, hereinafter referred to as HHBJJJIJ, cites them all.

Barry and Sandy are targets of IRS’s claim that their VI residency is a hoax and that they’ve transgressed the strictures of Notice 2004-45, Meritless Position Based on Sections 932(c)(4) and 934(b), by pretending to reside in our Insolvent but Beautiful Islands in the Sun.

The status of the islands aforesaid is adumbrated by HHBJJJIJ as follows: “The Virgin Islands, although a part of the United States, are a separate and distinct taxing jurisdiction. The territory is classified as an unincorporated territory by 48 U.S.C. sec. 1541(a) (2006), is not part of one of the 50 States or the District of Columbia, and generally is not a part of the United States for tax purposes. See sec. 7701(a)(9).” 2105 T. C. Memo. 72, at p. 11.

To harmonize the taxation of said island paradise with the rest of us, Congress enacted statutes and IRS made deals, so we’re stuck with Section 932 et seq. and the regulations promulgated thereunder, and whatever agreements Treasury made with the Islanders.

Barry and Sandy claim they believed in good faith that they were Virgins (Islanders), and therefore filed with VIBIR (Virgin Islands Bureau of Internal Revenue) as good Virgins (Islanders) must do, long before IRS descended upon them, and therefore SOL has run. No one claims fraud, only nonfiling with IRS.

The VI Government, ever mindful of its privileged tax status and eager to grab whatever isn’t grappled to the USA with hoops of steel, avers thus: “Here, no specific facts demonstrate petitioners’ residency status in the Virgin Islands for 2002 and 2003. Rather, petitioners assert that we must accept as a matter of law that they were bona fide residents of the Virgin Islands during 2002 and 2003 because of their purported good faith belief. Intervenor expands on petitioners’ assertion, maintaining that section 932(c) requires every individual with Virgin Islands source income to make an initial determination as to whether he/she is a U.S. or Virgin Islands resident. Intervenor posits that if the individual determines that he/she is a Virgin Islands resident and in good faith files with the VIBIR, the IRS must either accept that determination or challenge it within the three-year period of limitations. Intervenor concludes that in these cases the IRS’ failure to challenge petitioners’ filing with the VIBIR within three years of the filing of the income tax returns time bars the IRS’ issuance of a notice of deficiency.” 2105 T. C. Memo. 72, at pp. 21-22.

“Not unexpectedly, the IRS disagrees.” 2105 T. C. Memo 72, at p. 22.

You can see where this is going, namely, viz., and to wit, to trial. The VI guvmit claims that to require Barry and Sandy to prove they’re bona fide Virgins (Islanders) means they have to win their case on trial, vitiating the SOL argument.

HHBJJJIJ says no, SOL is an affirmative defense that needs to be both pled and proven. If proven, nothing else to try. But if Barry and Sandy can’t satisfy the criteria set forth in la famille Vento, Appleton and the late Sanders, all of whose safaris through Tax Court and the CCA I have recounted, then no SOL.

So Barry and Sandy must defend their Virginities. And a Virgin (Islands) state of mind is insufficient.