Court Finds for Taxpayer in IRS Dispute Over Virgin Island Tax Credits

The estate of a taxpayer that had transferred his residency to the U.S. Virgin Islands has won a victory concerning claimed benefits under an economic development tax incentive program.  The case arose when the IRS issued a deficiency notice in 2010 for the returns of the taxpayer from 2002-2004.

In Estate of Sanders v. Commissioner, the Tax Court held that the Service failed to issue notice, settle the matter administratively, or file for an extension within the three year statutory period and was barred from reexamining the old returns. This decision could bring relief to many Virgin Islands residents who took advantage of tax breaks in the early 2000’s and did not have their returns reexamined with the limitation period. However, this respire might be brief as the IRS will likely litigate potentially fraudulent claims to island residence rather than any specific transaction.

See Josh Ungerman, IRS Expected To Issue Hundreds of Deficiency Notices TO USVI Residents, Forbes, Feb. 16, 2015.

Special thanks to Brian Cohan (Attorney at Law, Law Offices of Brian J. Cohan, P.C.) for bringing this case to my attention.