In Uncategorized on 11/12/2015 at 22:00


Our beautiful but insolvent Islands in the Sun once again seize the spotlight, as that Obliging Jurist, Judge David Gustafson, grapples with the anfractuosities of Section 932(c)(4), but has to reprise the theme song from the 1962 shockumentary Mondo Cane: More.

Christopher Isa Muhammad, Docket No. 995-15, filed 11/12/15, has VI-sourced SE, but doesn’t bother responding to IRS’ motion for summary J. IRS wants SE tax plus interest plus nonfiling and nonpaying chops. IRS gave Chris an SFR. Chris reported his VI-sourced income to VIBIR, and everyone concedes that Chris is a Virgin Islander for the whole tax year. But he never paid SE tax.

When IRS first hits Chris up for the SE plus-plus-plus, he answers with some frivolities, which Judge Gustafson blows off. And the SNOD, which followed the SFR, never mentions interest or the chops, just the SE. But Chris’ petition does raise a question: is SE tax an income tax, and if so, is Chris exempt per Section 932 (c)(4) from telling IRS, if he told VIBIR?

Now Virgin Islanders and their mainland abettors well remember Artie Appleton, Jnr. What, you do not? Then scope out my blogpost “Farewell to the Virgin,” 5/22/13, and the blogposts therein cited.

If you’re a human-being Virgin (Islander), you file with VIBIR.

IRS says no.

Judge Gustafson: “The language of Appleton… tends against respondent’s position, but that case did not distinctly concern self-employment tax, so we now must address that specific issue.” Order, at p. 7.

And Judge Gustafson doesn’t warm to IRS’ view as he examines its underpinnings.

“Respondent’s motion stresses that the intended effect of section 932 is to govern income tax liability, not self-employment tax. However, since we observe that the self-employment tax is in fact a component of the income tax, this argument so far has little persuasive effect.

“Respondent describes the IRS’s forms, instructions, and manual, all of which, respondent says, show that a USVI resident like Mr. Muhammad owes U.S. self-employment tax even if he is exempt from Chapter 1 U.S. income tax. But respondent does not explain what level of deference should be given to these administrative materials, and by what authority. (Respondent also cites VIBIR practice but does not cite authority for deferring to that practice.)” Order, at pp. 7-8.

We report SE income on the same form as the rest of our income, and Section 932(c)(4) excludes bona fide VI residents’ gross income from US tax.

But, true to form, Judge Gustafson claims no omniscience. See my blogpost “Judge Gustafson’s Conundrums – Part Deux,” 11/10/15.

“The foregoing analysis is tentative only. We will benefit from further argument by the parties, including citations to regulations or case law addressing the application of self-employment tax to USVI residents.” Order, at p. 8.

Moreover, in a stunning example of judicial humility unparalleled in my experience, Judge Gustafson invites IRS and Chris to “address, criticize, and correct the foregoing tentative ‘Discussion’. Order, at p. 8.

Ya think Chris and IRS will take Judge Gustafson at his word, and pile on the criticism? If they do, the next order or opinion may be better than a Presidential debate.


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