United States Tax Court Denied Motion to Interplead the Government of the Virgin Islands Regarding Tax Credits Under the Virgin Islands Economic Development Program

Feb 28, 2011   

In a recent opinion, Judge Jacobs of the United States Tax Court refused to allow a taxpayer to interplead the Government of the Virgin Islands as a party to Tax Court litigation under U.S. Tax Court Rule 1(b), found here, and Federal Rule of Civil Procedure 22, found here. The case is captioned Huff v. Commissioner, 135 T.C. 30 (2010) and the text of the opinion can be found here.

The Huff case stems from the IRS audit of a taxpayer that took Virgin Islands Economic Development credits under Internal Revenue Code section 934, found here. The Virgin Islands Economic Development Program is administered by the Economic Development Commission (see, https://www.usvieda.org/) and is promoted by the United States Department of the Interior, see e.g. http://www.doi.gov/oia/press/2009/11192009.html.

Judge Jacobs ruled that because the Tax Court lacks jurisdiction to redetermine the taxpayer’s Virgin Islands tax liabilities, the taxpayer will not be permitted to interplead the Virgin Islands. The Court further held that 48 U.S.C. sec. 1612(a) explicitly provides that the District Court of the Virgin Islands is the sole court that may determine the correct amount of petitioners Virgin Islands tax liabilities for 2002, 2003, and 2004. The petitioner would consequently have to appear before that court to seek refunds from the Virgin Islands.

The result of the Tax Court’s decision is that there is now a distinct possibility that those taxpayers that were not bona fide Virgin Islands residents, or that did not have Virgin Islands sourced income or income effectively connected with at Virgin Islands trade or business will have to sue the Virgin Islands government in the District Court of the Virgin Islands to recoup taxes improperly paid to the Virgin Islands Bureau of Internal Revenue, found http://www.viirb.com/.

The attorneys at Fuerst Ittleman, PL have extensive experience handling tax litigation against the IRS, the United States government, and the Virgin Islands government.