Third Circuit Court of Appeals overturns U.S. Tax Court regarding Virgin Islands Economic Development Program case

Jun 14, 2011   

On June 10, 2011, the Third Circuit Court of Appeals in Appleton v. Commissioner, overturned the U.S. Tax Court which had denied the Government of the U.S. Virgin Islands motion to Intervene. The Tax Court ruled that the USVI did not meet the requirements of Rule 24 of the Federal Rules of Civil Procedure which addresses intervention as of right and permissive intervention. The Tax Court ruled that the USVIs participation would cause a delay in the case, that there would be redundancy in the issued, that the USVI did not have a recognizable stake in the litigation, and that an amicus brief would be sufficient. The USVI appealed to the Third Circuit which had jurisdiction over the case because the taxpayer, Mr. Appleton, resides in the USVI.

Judge Rendell in writing for the majority opinion held that the USVI met the permissive intervention standard and did not have to address intervention as of right. The Third Circuit stated:

There is no support for the notion that any delay here would be “undue,” or that the [USVIs] arguments would prejudice either Appleton or the IRS. While the issue that concerns both the [USVI] and Appleton is the same, namely, the statute of limitations, the [USVIs] interest in the proceedings is certainly different from Appletons interest in dealing with this one-time tax adjustment. The fact that the [USVIs] interest is somewhat different detracts from the argument that the proceedings will be “redundant.”

Judge Rendell held as follows:

Accordingly, it is clear to us that the Tax Court abused its discretion by not considering whether the [USVIs] intervention would cause “undue delay” or “prejudice.” Additionally, as Congress thought it important enough to afford the [USVI] this mechanism to improve its economy, and the Rule permits it to protect its interest through intervention, we will direct the Tax Court to allow the [USVI] to intervene in Appletons proceedings pursuant to Rule 24(b)(2). Therefore, we will remand this matter to the Tax Court, and require that the [USVI] be permitted to intervene pursuant to Fed. R. Civ. P. 24(b)(2).

In his dissent, Judge Ambro noted that because the USVI and Appletons interest were aligned and that the USVI could file an amicus brief the Tax Court did not abuse its discretion. A copy of the decision is available here.

The take away from this decision is that the USVI most likely will be able to intervene in all the pending Tax Court cases involving USVI residency and the EDP tax credit. Joseph A. DiRuzzo, III, a attorney at Fuerst Ittleman, PL is currently litigating four cases where the USVI has moved to intervene. Those cases are currently pending before the 11th and 4th Circuit Courts of Appeal.

The attorneys at Fuerst Ittleman have extensive experience litigating against the IRS and the Tax Division of the U.S. Dept. of Justice, including issues involving the Virgin Islands Economic Development Program. For more information, contact us at