In Uncategorized on 01/30/2018 at 08:54


She’s starred in my blogposts “Somebody Does Read This Blog,” 12/4/11, “A Word to a Reader,” 7/3/13, and “Somebody Does Read This Blog – Part Deux,” 6/14/14. And she finally slides in under the IRS tag, as Judge Mark V. Holmes extends his arms, palms down.

Here’s Melissa Coffey Hulett a.k.a. Melissa Coffey, et al., 150 T. C. 4, filed 1/29/18, but this full-dress T. C. concerns Judith Coffey, who wins summary J based upon SOL. And of course the Government of the U. S. Virgin Islands, devastated but game, are in on the play.

Judith filed 1040s for years at issue with Virgin Islands Bureau of Internal Revenue. She sent them to the right service bureau. The 1040s had the requisite information and were timely. The point, of course, is whether Judith was a bona fide Virgin Islander. If so, she got the unguided largesse that Congress bestowed upon Our Insolvent Islands in the Sun, but that IRS denounced as a gimmick.

IRS claims Judith never filed with them. “…some VI residents have to file only with the VIBIR, some VI residents and some VI nonresidents have to file with both the VIBIR and the IRS, and some VI nonresidents have to file only with the IRS.” 150 T. C. 4, at p. 7.

Judith filed only with VIBIR, claiming to be a bona fide resident and partner in a partnership doing the same stuff (but in the VI) that she did Stateside. And VIBIR forwarded Judith’s tax doings to IRS per “…the Tax Implementation Agreement (TIA), U.S.-V.I. (Feb. 24, 1987), 1989-1 C.B. 347. Pursuant to the TIA, the United States and the VI will share information to administer and enforce their respective tax laws. Id. art. 4(1), 1989-1 C.B. at 348. Also, the VI will supply the United States with ‘copies of reports of individual * * * audit changes that disclose information relevant to the United States.’ Id. art. 4(2)(b), 1989-1 C.B. at 348-49. The TIA provides that the VIBIR will allow the IRS to examine VI tax returns. Id. app. A, sec. 3.1, 1989-1 C.B. at 352.” 150 T. C. 4, at pp. 9-10.

Now the VI is supposed to get what IRS collects from bona fide VI residents, via the “covering over” process, whereby VIBIR electronically forwards the taxpayer info it got from said residents to IRS, to make sure VIBIR gets the loot.

The IRS got copies of at least part of Judith’s 1040s for the years at issue. Sometimes VIBIR sent only the first two pages of Form 1040, and sometimes the full boat. In Judith’s case, they got at least the two pages (Judge Holmes reprints them for one year), and created statements of account based thereon (also reprinted).

Judith (and the USVI) claimed good faith belief that one was a VI resident was good enough for SOL, if one properly so filed. Tax Court said this was a question of fact, but Judith (and USVI) riposted that even if they were supposed to file both with IRS and VIBIR, when VIBIR “covered over” the returns to IRS, that was in all respects filing of a return. When IRS audited and issued SNODs five years later, they were too late.

As for the good faith belief argument, 11 Cir blew that off, and Judge Holmes won’t go further.

But was there a “return,” and was it “filed”?

Well, they filed a return, because it was on the right form, and provided at least enough information for IRS to audit it. It was signed under penalty of perjury, and evinced a good faith effort to comply with law.

And ultimately it got to the right place via the “covering over” procedure.

But was it processable? A return may omit schedules, but permit mathematical verification of the information reported thereon. A return may not be perfect, and may not even be complete, but can IRS compute a liability from what was furnished? Even if the computation is wrong; a fraudulent return is still a return.

“What do the undisputed facts here show? They show first of all that the IRS had enough to create a transcript of account–albeit one with zeros on almost all the lines. This is telling because, one should recall, the IRS’s answer to the question at oral argument of what the Coffeys should have filed if they weren’t sure they were residents was that they should have filed a return with all zeros. At the time the Coffeys actually filed their returns with the VIBIR this wasn’t the official word of the IRS–rather at oral argument, IRS counsel stated that the protective zero return was ‘[his] little baby.’ But not too long afterward, the IRS did issue Notice 2007-19, 2007-1 C.B. 689, which also said taxpayers in the Coffeys’ position should file zero returns.

“And what the IRS actually got had more information than any zero return.” 150 T. C.4, at p. 42.

“The IRS wants returns on the forms it prescribes, and it got that form–at least a good part of it–here. There is no question that the IRS was clueless about how to handle what it got–but the undisputed facts show that the IRS was able to stamp it received, summarize its contents in its Individual Master File, and open an audit in due course; it just didn’t issue the notices of deficiency before the statute of limitations ran out.” 150 T. C. 4, at p. 45.

And if it looks honest, even if it isn’t, it’s a return. The processing crew at IRS deals with millions of returns and non-returns. They can’t delve into the minds of millions of taxpayers to determine good faith belief.

IRS argues Judith should have filed an “all zeros” return with them. But how an “all zeros” return is a return, when all the protester cases say it isn’t, is nowhere explained.

Now it’s true what IRS got was not a return with a “wet ink” manual signature. And Judge Holmes is careful to state that, although the IRC doesn’t require same, we should not overlook that principle. A signature means “this is my return and I really mean it.” But here IRS got a document authenticated by VIBIR.

“To sum it up, the IRS failed to promulgate mandatory regulations under section 932, failed to tell taxpayers that they should file protective zero returns, and failed to send the Coffeys a notice of deficiency within three years of receiving the cover-over documents. And, only a few short years later, the IRS finally did promulgate regulations that adopt precisely the position that the Coffeys took about how to start the statute of limitations.” 150 T.C. 4, at p. 58.

Now Judge Holmes and the Tax Court bench aren’t ruling on whether Judith and mishpocha (if I may be permitted an arcane technical term) are bona fide Virgin Islanders. But IRS could’ve challenged that, because they had processable info, but waited too long.

IRS is out.





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