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Tax Court Had Jurisdiction over U.S.-U.S. Virgin Island Income Tax Matter

March 20, 2012

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.

G.C. Huff, 138 TC –, No. 11Dec. 58,982

Read more at: Tax Times blog

Chief Counsel to Follow ‘Bluebook' Citation in Tax Court

March 20, 2012


The IRS Office of Chief Counsel March 13 issued a notice (CC-2012-007) stating that The Bluebook: A Uniform System of Citation is the source for citation to be used in legal work, including U.S. Tax Court documents.


Note that case citations should be to the official reporter that is listed in T1 of the Bluebook, such as the United States Reporter or to the United States Tax Court Reports, rather than the document reprinted in a commercial service, such as Commerce Clearing House or Prentice Hall. If a case is not reported in an
official reporter, the citation should be to the slip opinion. In addition to citing to the slip opinion, a
parallel citation may be included to Westlaw or Lexis.
The Bluebook provides that short form citations to the Code, statutes, and Treasury regulations should cite to the section preceded by a section symbol. In Counsel documents, subsequent citations after the first full citation to the Internal Revenue Code and to the applicable regulations should instead be made to section numbers. For example, “section 61” may be used in citing to I.R.C. § 61 and “section 1.61–1” may be used in citing to Treas. Reg. §1.61-1.

Read more at: Tax Times blog

Bearer Notes – Non Deductible, Ordinary Income Rates and Not Qualify as Portfolio Debt.

March 9, 2012

Notice 2012-20 provides guidance relating to the portfolio interest exception, the short term debt exception under section 1.6049-5(b)(10), and the excise tax under section 4701 in connection with the repeal of section 163(f)(2)(B)(the bearer debt repeal).

Notice 2012-20 will be published in the Internal Revenue Bulletin 2012-13, dated March 26, 2012.

Issuers of debt obligations that are required to be in registered form but are not issued in registered form are subject to the disallowance of interest deductions under section 163(f) and the imposition of an excise tax under section 4701. Any gain on the sale or other disposition of such an obligation is generally treated under section 1287 as ordinary income rather than capital gain, and, under section 165(j), no deduction is permitted for any loss sustained. In addition, the exception from tax for U.S. source, portfolio interest received by a nonresident alien or foreign corporation under section 871(h) and section 881(c) (portfolio interest exception) is generally not available with respect to interest paid on debt that is not issued in registered form (bearer debt).


The foregoing rules generally do not apply with respect to bearer debt that complies with the foreign-targeting rules of section 163(f)(2)(B) and the regulations thereunder. However, section 502 of the HIRE Act generally eliminated the various exceptions for foreign-targeted bearer debt, effective for obligations issued after March 18, 2012. As a result of this change in law, with respect to obligations issued after March 18, 2012, the portfolio interest exception will be available only for obligations issued in registered form.

Read more at: Tax Times blog

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