A notice of deficiency issued by the IRS to a U.S. citizen who claimed to be a bona fide resident of the U.S. Virgin Islands for the tax years at issue was valid; therefore, the court had jurisdiction. The notice of deficiency had been issued after it was determined that the individual did not qualify for the income exclusion under Code Sec. 932(c)(4) and that he should have filed returns and paid taxes to the IRS.
The individual’s claim that the IRS failed to follow the procedural rules of the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) (P.L. 97-248) by not issuing a notice of final partnership administrative adjustment (FPAA) instead of the notice of deficiency, was rejected because: (1) the company did not file a federal partnership return with the IRS; and (2) the company was not a partnership for federal tax purposes.
The filing of a partnership return with the Virgin Islands Bureau of Internal Revenue (BIR) did not constitute a filing of a partnership return with the IRS, even though the BIR used the same forms as the IRS, because the returns were filed to comply with Virgin Islands filing obligations, rather than any obligation under the tax laws of the United States.
The company was not a federal partnership because it was a foreign entity. The “check-the-box “regulation, which allowed an entity to be classified for both federal and Virgin Islands tax purposes, did not govern because the tax years at issue were prior to the effective date for the regulation.
The Tax Court held that partnership returns filed with the Virgin Islands tax authorities did not satisfy the “substantial compliance” standard because they did not purport to be Federal returns (criterion 2 of Beard) and were not an attempt to satisfy the requirements of Federal tax law (criterion 3 of Beard).
(G.C. Huff, 138 TC –, No. 11Dec. 58,982)