Third Circuit to consider Constitutionality of IRS Summons Issued in U.S. Virgin Islands Economic Development Credit Case

Jun 17, 2011   
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On June 13, 2011, Joseph A. DiRuzzo, III, a Senior Tax Associate at Fuerst Ittleman, PL filed his Initial Brief in the Third Circuit Court of Appeals in Gangi v. United States of America, 3d. Cir. case # 11-1612. The appeal stems from a decision of the United States District Court for the District of New Jersey in which the District Court granted in part and denied in part Mr. Gangis petition to quash two separate IRS summons, one issued to CitiBank and the other to Sovereign Bank.

Mr. Gangi petitioned the District Court contending that the IRS summons used to audit USVI taxpayer that claimed EDC credits violated United States v. Powell, was unconstitutional, and that there was institutional bad faith on part of the IRS. The District Court ruled, in part, against Mr. Gangi finding that the IRS summonses in question were properly issued.

The 3rd Circuit opening brief argued that the District Court erred in concluding that the enforcement of the IRS summonses would not result in an abuse of its process; that the “Virgin Islands project” (the IRS audit project regarding USVI residency) was predicated on an unconstitutional construction of the Internal Revenue Code and violated the Equal Protection Clause; and that the IRS Taxpayer Advocates 2009 report to Congress demonstrated institutional bad faith on the part of the IRS.

A full copy of the opening brief is available here.

The Answer Brief of the United States is expected in mid July. The pace of the Virgin Islands tax litigation is quickening as this case will require the Third Circuit to again examine the USVI residency/EDC cases, and in July the Tax Court will be hearing oral argument regarding the applicability of TERFA to USVI partnerships.

The attorneys at Fuerst Ittleman have extensive experience in litigating against the IRS and the Tax Division of the U.S. Department of Justice before the Tax Court, District Courts, and Courts of Appeal in civil and criminal matters. Additionally, the attorneys at Fuerst Ittleman have extensive experience in Virgin Islands tax cases, and Mr. DiRuzzo is admitted to practice law in the USVI. For more information, contact us at: