Taxpayer was a bona fide resident of U.S. Virgin Islands.

• Author: Beavers, James A.

The Tax Court held that a taxpayer, who had filed tax returns with the U.S. Virgin Islands Bureau of Internal Revenue (VIBIR) for 2002-2004, was a bona fide resident of the U.S. Virgin Islands for those years, and thus the statute of limitation on assessment had expired on the U.S. returns for those years for which the IRS had issued a notice of deficiency.

Background

Travis Sanders was a U.S. citizen who built his own company in the United States to manufacture and distribute surge suppression devices. In 2002, he signed an employment agreement to work for Madison Associates, a limited partnership organized in the U.S. Virgin Islands, a territory of the United States, as a professional consultant. The employment agreement required Sanders to become a resident of the U.S. Virgin Islands. Sanders also signed an agreement making him a limited partner of Madison. Under that agreement, he was required to provide an opinion letter from a law or accounting firm stating that he would qualify as a resident of the U.S. Virgin Islands and provide any documentation required in the future by Madison to prove his continued residence in the territory.

For the years at issue, 2002-2004, Sanders actually lived in the U.S. Virgin Islands. In 2002, he stayed at a condominium in its capital, St. Thomas, and in 2003 and 2004 lived on a yacht moored in a harbor in St. Thomas. From 2002-2004, Sanders' checks for his bank accounts reflected a U.S. Virgin Islands address. In addition, he was married in June 2003 and fisted St. Thomas as his place of residence on the marriage license.

Taking the position that he was a bona fide resident of the U.S. Virgin Islands, pursuant to Sec. 932(c)(2), Sanders filed Forms 1040, U.S. Individual Income Tax Return, with the VIBIR for tax years 2002,2003, and 2004. Because he was fifing his returns with the VIBIR, he did not file returns with the IRS, in accordance with IRS Publication 570, Tax Guide for Individuals With Income From U.S. Possessions.

More than three years after Sanders filed Forms 1040 with the VIBIR, the IRS mailed him a notice of deficiency determining that he was not a bona fide resident of the U.S. Virgin Islands for tax years 2002-2004 and treating him as a nonfiler for U.S. tax purposes. In the notice of deficiency, the IRS also asserted, among other things, that Sanders (1) was not a bona fide resident of the U.S. Virgin Islands for tax years 2002-2004; (2) was not entitled to the gross income exclusion...