In Coffey v. Commissioner, No. 18-3256, the Eighth Circuit Court of Appeals reversed the decision of the U.S. Tax Court that the IRS’s determinations were barred by the statute of limitations on assessment.
Taxpayers owned a profitable publishing enterprise that ostensibly relocated to the USVI, and Judith Coffey claimed to be a USVI resident thereafter.
The couple filed joint tax returns with the Virgin Islands Bureau of Internal Revenue (VIBIR), but not with the IRS.
In an opinion with a concurring and dissenting set of judges, the Tax Court held that the deficiency notices were time-barred because the pages that the VIBIR sent to the IRS constituted filed “returns” that started the limitations period.
The Eighth Circuit reversed the Tax Court and confirmed the long-standing principle that the statute of limitations begins only when a return is filed.
Because the taxpayers did not comply with the requirements to file returns with the IRS, the statute of limitations never began to run.
Although the Eighth Circuit’s opinion is focused on the statute of limitations issue, the Tax Division and the IRS will use all available legal processes to challenge improper attempts to avoid or evade U.S. income tax by unlawfully misrepresenting a taxpayer’s residence, regardless of where such residence is claimed. See e.g., IRS Notice 2004-45.
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