Judge Patrick J (“Scholar Pat”) Urda may unleash somber reasoning and copious citation of precedent on Harvey Birdman & Diane Birdman, et al., Docket No. 28897-10. filed 6/16/23, but he prefers “oodles of cases” (See infra, as my already on their three Grey Goose Gibson lunch colleagues would say ).

The Birdmans are trying to duck the $75K cap on pre-2006 VIBIR filings enunciated in Notice 2007-19. They’re playing the APA gambit. Contrary to my usual practice, I’ll include the years at issue because they are material.

“The Birdmans move to strike the $75,000 cap in Notice 2007-19 as arbitrary and capricious under the APA. They believe that this requirement can and should be severed from the remainder of the Notice, which would effectively mean that, for tax years ending prior to December 31, 2006, the three-year statute of limitations would start whenever a USVI Form 1040 was filed with VIBIR by any person who takes the position that he or she is a bona fide resident irrespective of their gross income. This result ostensibly would render untimely the notices of deficiency issued to the Birdmans for their 2003–05 tax years.” Order, at p. 2. (Footnote omitted, but it says that 2006 is not in play because they filed both with VIBIR and IRS for that year.).

No go, says Judge Scholar Pat.

Even if Notice 2007-19 violates APA, Tax Court can only sever part of it if IRS would have treated the unchallenged portion the same. No sign IRS was granting SOL cover to anyone merely claiming Virginity. “Oodles of cases and more than a decade of litigation in this Court belie any such conclusion.” Order, at p. 3.

“Moreover, we do not believe that the rule functions sensibly without the stricken provision. Eliminating the financial limitation transforms a benefit tailored for taxpayers who lacked the incentive or ability to exploit that benefit in a financially significant manner into a safe harbor perfectly suited for those taxpayers who sought to game the U.S. – USVI mirror tax system to shield substantial amounts of taxable income. Such a change would hobble the IRS’s long-standing enforcement efforts and significantly erode the scheme designed by Congress, which established different filing requirements depending on whether one was a bona fide USVI resident.” Order, at pp. 3-4.

Wherefore, assuming Tax Court has jurisdiction to sever (and see Order at p. 4, footnote 4, questioning whether review is possible per 5 USC §701(a)(2)), the Birdmans are no better off if all of Notice 2007-19 goes away.

I give the Birdmans’ trusty attorney (whom I’ll call JDIII) a Taishoff “Good Try, Second Class.”