Determination of U.S. Virgin Islands residency overturned.

• Author: Beavers, James A.

The Eleventh Circuit vacated the Tax Court's finding that a taxpayer was a bona fide resident of the U.S. Virgin Islands because the facts the Tax Court relied on were insufficient to demonstrate bona fide residency.

Background

In Estate of Sanders, 144 T.C. 63 (2015), the Tax Court, as part of its larger determination that the IRS's notices of deficiency to Travis Sanders for 2002-2004 were time-barred because the statute of limitation on assessment had expired for his U.S. tax returns for those years, found that Sanders was a bona fide resident of the U.S. Virgin Islands in 2002-2004.

In making its decision regarding Sanders's residency, the Tax Court applied the 11 factors set out in Sochurek, 300 F.2d 34 (7th Cir. 1962): (1) intention of the taxpayer; (2) establishment of a home in the foreign country for an indefinite period; (3) participation in activities; (4) physical presence in the foreign country; (5) nature, extent, and reasons for absences from his temporary foreign home; (6) assumption of economic burdens and payment of taxes to the foreign country; (7) status of the resident contrasted to transient or sojourner; (8) treatment accorded his income tax status by his employer; (9) marital status and residence of his family; (10) nature and duration of employment; and (11) good faith in making the trip abroad. The Third Circuit has further grouped these 11 factors into four broad categories: (1) intent; (2) physical presence; (3) social, family, and professional relationships; and (4) the taxpayer's own representations (Vento v. Director of VI. Bureau of Internal Rev., 715 F.3d 455 (3d Cir. 2013)).

Applying the Sochurek/Vento factors, the Tax Court found that Sanders was a bona fide U.S. Virgin Islands resident, stating:

[Sanders] had the intent to be a bona fide resident because he intended to remain indefinitely or at least for a substantial period ... He had a physical presence in the USVI and was employed by a USVI business and listed as a partner on their Schedules K-l for tax years 2002-04. He conducted banking in the USVI and had checks with a USVI address. [Sanders] was married in the USVI and reported his address as the USVI on his marriage license. [Sanders] identified himself as a resident of the USVI and paid USVI taxes ... Therefore, [Sanders] was a bona fide resident of the USVI for tax years 2002-04 and he properly filed tax returns with the VIBIR for those years. The IRS appealed the Tax Court's decision to the...