Legal Case Summary

to a streamline here. If I understand correctly, you at least on behalf of Mr. McGrogan, and that this position has been joined, I believe, by the other parties, contend and acknowledge that the Bergman decision appears to foreclose your exclusive jurisdiction argument. And if that's correct, what is left in these appeals? I know something is left, but I just want to determine what. Well, Your Honor, we concede for purposes of today that the Bergman decision forecloses our 1612 argument, however you want to preserve that issue for possible. I understand. But putting that aside, it does not properly dispose of the case, because one against the Virgin Islands of the Irvin-Tronal Revenue, we have a refund to which the Discoordity has jurisdiction over, but insofar as the IRS is concerned, we've asserted that the statutory notice of the deficiency purportedly issued by the IRS, sounding deficiencies and code sections 932 and 934, are in fact what the Discoord can construe as a Virgin Islands Noose of Deficiency, because what the IRS is. What is the federal form, isn't it? Not exactly, Your Honor. There is note, this case law is clear that a statutory notice of deficiency doesn't have to be on any particular form. It doesn't have to say anything in particular. It just has to assert the taxpayer, the tax year, and give the taxpayer something. I understand you want it to be a VIP IR deficiency notice, because that would arguably or probably get you jurisdiction in the VIP district court. But what is it about the notice itself, the notice in say that somehow infuses in it the stuff of a Virgin Islands Bureau notice as opposed to the federal notice that at least facially it purports to be? Well, Your Honor, it's because the federal government is asserting deficiencies and code sections 932 and 934. And let me be clear, the paradigm that we have here today is because the IRS views the taxes paid to the Virgin Islands, not as some type of federal tax, but as a territorial tax. And that in general, that's what the cases stand for. But those cases didn't really drill down to this, this, this, this issue. And I would submit to this court that 932 and the taxes that a taxpayer pays to the Virgin Islands under 932 and the tax credits under 934 that the Virgin Islands administers under 934. Those are federal taxes, but they are administratively payable to the Virgin Islands

. Like the, sorry, go ahead. So basically there's just one tax and the issue is is it paid the IRS or is it paid to the VIP IR? Exactly. It's a federal tax. It is a federal tax and if I can turn the courts attention to 932, the notice sought payment of federal tax liability. Did it not? Yes, it does. But under 932, since there is one tax, the Virgin Islands gets, it's share of the tax and are 932 B. On Virgin Islands, source to income and income effectively connected with a Virgin Islands trader business. Under 932 C, it gets the tax irrespective of source on bona fide version of his residence. And under 932 B, these federal tax is allocated between the Virgin Islands and the IRS. The IRS has issued a form form 8689 and that form allocates the federal tax between the Virgin Islands and the IRS. See what has happened here, Your Honor. Let me ask you a question of bona fide Virgin Islands resident who has no business development activities simply a resident of the Virgin Islands earns income during the year and pays tax on it. Now, would the tax they pay to the VIP IR be the same amount that they would pay in tax if they were resident of the continental United States? Yes, with the notable exception is if the Virgin Islands government has authorized and given the taxpayer the ability to claim tax credit under 934 the code. For the business development? Exactly. But for the 934 tax, the tax is exactly the same, which goes back to this court's equality principle. The tax in the Virgin Islands is exactly the same as what it would be in Florida and in Pennsylvania. There is no difference on the eternal revenue code

. It's been a while since I read your brief but my recollection of reading it is that you made much of some deposition testimony of some VIP IR officials concerning the agreement or agreements between the IRS and the VIP IR and its working relationship is my memory correct. Your memory correct your answer. I didn't understand at the time and still am not clear on just what the probative value of that working relationship and your discussion of it was because I think you made much of it if I recall in your brief at least in terms of length. Yes, I did your point. I was trying to make perhaps not clearly enough is that what the Virgin Islands has done with the IRS has sat on its rights, let the IRS with the help of the Virgin Islands audit these taxpayers and that the Virgin Islands knew that the IRS took the position to the Statutal Nuitations to not begin to run but only for those individuals that made more than $75,000 and notwithstanding that this is a clear equal protection violation. And these taxpayers if I recall, received the notice of deficiency from the service after the Statutal Nuitations has run on the VI law under 65, 11 exactly your honor. And the point being is that these taxpayers faced a factual impossibility, a facelying possibility. The good faith basis for filing a amended income tax return did not arise until the time that the Statutory Nuitation Efficiency was issued by the IRS to set it that these taxpayers weren't bona fide residents and should not acclaim in 934 tax credit. And because it's a factual impossibility, this makes this case so very different from the other cases that are cited and discussed in the brief. On one hand, you have a host of cases that say it's one thing for the government to mistakenly, improperly, erroneously collect a tax. When that happens, that's not a basis to open up the Statutal Nuitations. However, on the other hand, you have a few Supreme Court cases that stand for the proposition that the government cannot act in a fraudulent manner in respect to its citizens. And for that, I would turn the courts attention to a Hecler versus Community Health Services. And that's founded 467 US 51. That's a 1984 case and Justin Stevens authored the opinion. And the fact that that case involved a Medicare provider and that Medicare provider improperly received extra funds from the federal government through the Medicare services, relying upon an agent of the federal government. The federal government tried to recoup the funds

. An equitable, a stop-all argument was made. And the holding of that case was that government was not a stop from recovering improperly paid funds. But here's some key language that this court needs to be cognizant of. And I'm quoting here, it is for this reason that it is well settled that the government may not be a stop on the same terms as any other litigant. Pitchment, practitioner, urges us to expand this principle into a flat rule that a stop-all may not in any circumstance run against the government. We have left open that edition of the past and do so again today. Although the arguments that government advances for this for all are substantial, hesitate, when it's unnecessary to decide this case, to say that there are no cases in which the public interest in ensuring that the government can enforce the law free from a stop-all might be outweighed by the counter-vailing interest of citizens. In some, minimum standard of decency, honor, and reliability in their dealings with the government. So are you saying that 1984 case supports your equitable stop-all argument? It supports my equitable tolling of the statute of the government. Equitable tolling. Well, but Brock Camp was decided in 1998. Yes, why? Do you get around Brock Camp? Because the Brock doesn't clearly say equitable tolling doesn't apply. It does, but the fact of that case involves senility and alcoholism on the part of the taxpayer. There is no fault on the public. I think the court say that equitable tolling doesn't apply under the specific circumstances of that case, or did it say equitable tolling doesn't apply in this category of case? I believe, well, I would submit that the discussion in Brock Camp addressed the rather specific statutory scheme under 65-11 and that it said it did not leave open the possibility for equitable tolling. And in fact, we have specific, enunciated mitigation provisions that do explain when there's an escape hatch for the taxpayer, correct? That is true. But unfortunately, and the discussion I had with the district court below really involved one issue is whether double inclusion of income between the Virgin Islands BIR and the IRS falls within the scope of 1312 subsection one

. The district court held that it did not stating that the taxpayers are trying to fashion remedy at an entirely new cloth. We would submit that. We are not seeking that at Runby, Anteilly, New Cloth. The Congress has given the courts in certain circumstances the cloth to fashion and tailor it to the circumstances of the cases. The case may need in this case when you have two governments working together and then you have a factual impossibility. The case should allow the statute of limitations to be mitigated. I see that I'm out of time. Let me ask you a question if I may. There's a mention that there is an attempt between the government of the Virgin Islands and the territorial revenue service to take these cases where there's a conflict and work from that. Is there such a structure available? Is it working? There is a structure available that's under tax implementation agreement. I would say that is not working as evidence by the government of the Virgin Islands intervening in the applicant case which then went up on appeal and Judge Rendell issued the opinion in that non-presidential case. But the government of Virgin Islands has intervened in particular in all these taxpayers that I represent today before the tax court and in Mr. McKendry's case before a circuit affirmed the tax court and held the government of Virgin Islands cannot intervene and does not have a saying in the matter. So unfortunately it doesn't seem to be tax implementation in order that the cooperation between the two respective governments is in fact working. So is there any remedy to avoid the double payment of taxation? Unfortunately you're not that I can tell. The only way that I can foresee any remedy for these agreed taxpayers is to get the money back from the Virgin Islands so that in the event that the IRS is ultimately successful in its contentions we can take that money and pay it to the IRS. Other than that I unfortunately I think these taxpayers are going to be subject to double taxation and double inclusion of income

. Thank you. We'll have you back on rebuttal. Thank you. Ms. Archie. Good morning. May the police take the court. My name is Simika Archie on behalf of the Virgin Islands Bureau of Internal Revenue. A peasant makes three arguments in support of enlargement of the 65-11 statute of limitations. First appellant argues that mitigation is appropriate under the mirror code that the statute can be reopened through the doctrine of equitable recruitment and or equitable tolling. I will address each of these positions in turn. Mitigation under 13-11 through 13-14 of the mirror code cannot be addressed without first noting. What excuse me? Can you talk a little slower? You said mitigation under sections 13-11 through 13-14 of the code cannot be addressed without first noting that the purpose of mitigation is not to provide a means to correct all mistakes or inconsistencies that arise after the statute of limitations expires. And indeed when the mitigation provisions do apply they are applied parsed immoranously and in a defined narrow set of circumstances that are enumerated in the code. The issue here is straightforward. If appellant meets the three threshold requirements for invoking mitigation tax years 2002 through 2004 may be reopened. But if he does not, tax years 2002 through 2004 may not be reopened and his refund claim against the Virgin Islands Bureau is untimely

. This circuit in a state of capital has identified the three conditions of the mitigation provisions that must be met. The first problem is that there must be a determination issued by Vibber, the Virgin Islands Bureau for internal revenue. This condition has been met because Vibber issued a notice of this allowance of the refund claim for tax years 2002 through 2004. The second is that there must be present one of the seven circumstances of adjustment referenced in the code. Here the appellant state that the circumstance of adjustment that is applicable is a double inclusion of an item in income. Okay let me you you are saying in these cases that the Vibber has said that the taxpayer is not eligible for the business development refund. Is this development deduction is that correct? What we've said is the taxpayer filed amended claim for return refunds after the expiration of the 65-11. The taxpayer filed a what? Amended claims for refund after the expiration of the 65. But I'm talking in the original tax. Is the Vibber saying that there is a deficiency in what the taxpayer paid to the Virgin Islands originally? No we did not. What we did is we disallow the tax. You have accepted them as Virgin as the legitimate Virgin Islands residents. That is correct. And now the internal revenue service is saying they're not legitimate Virgin Islands residents. Correct. And the tax pairing in this case is.

.. How can we coordinate a determination on Virgin Islands residency between the IRS and Virgin Islands that is binding on both? I mean there is a conflict of interest right? Because the Virgin Islands wants the money and the IRS wants the money. You know there is not a conflict of interest on the Virgin Islands side because the taxpayer. Between the two of you because you want the money and they want the money. So in determining I'm not saying you are violating any any any situation but between you and the IRS you both want to claim you want to claim the taxpayers is Virgin Islands residents the IRS wants to say they aren't Virgin Islands residents. So the two of you there is a conflict between the two of you in resolving this issue. How can this issue be resolved so that it is not going to impact the electoriously on the taxpayers? Do you have any suggestions? Well first the honor I must note that the taxpayer has filed a petition for re-determination in the US tax court and the tax court will determine whether will determine the IRS notice of deficiency and whether the taxpayer was a US resident for the time. All right, good question. But to judge Ross points suppose the that court says that they weren't qualified they weren't bona fide Virgin Islands residents and the money is owed to the IRS. What assurances can you give us? How can we know that the taxpayers aren't going to have to pay double tax? Your Honor what the US government and the Virgin Islands government has done is they have entered a tax implementation agreement that has the force of a treaty and they have agreed to coordinate taxes and they have adopted a form of mitigation in in those provisions in article six. Okay, so how how will that help these taxpayers? You're you're suggesting by implication that the taxpayer might be some kind of third party beneficiary of your agreement but to be that there must be something in the way of a remedy available to them. You can't simply ask the taxpayer to rely upon the good faith of either the bureau or the service to somehow reach an agreement between them that affects this third party taxpayer. So how how will that work? Well, Your Honor that's exactly what happens on a regular basis the in these circumstances the US competent authority and the VA competent authority meet to address issues which occur when the respective agencies are taking income consistent positions with a tax with respect to taxpayers residents. As far as I am aware this particular taxpayer has not availed himself of these procedures. So what assurance can you offer and I will expect of course that Ms. Rubin on behalf of the commissioner will answer this as well. What assurance can you offer to the taxpayers that they will not be double taxed so to speak here? Your Honor as you are aware our laws or our tax laws are focused on preventing double taxation and through the tax implementation and the revenue procedure that's that's the aim of it

. Additionally under 932 the cold. You say the taxpayer here has not applied for really? Not that I'm aware of. Yes Your Honor. All right and if they apply then will there be a resolution of this issue between the IRS and the Virgin Islands? When the taxpayer applies under the tax implementation agreement in article six it provides that the competent authority shall meet to address the issues that hand and if I can make one point under 932 if there's a determination that the taxpayer was not a Virgin Islands resident and was a US resident under 932A and however had income that was sourcing the Virgin Islands. That specific section permits the allocation of that income to the Virgin Islands and to the US respectively and for permits a credit against the US tax liability. This is something that happens on quite an ordinary and normal basis. Now there is there is mention however I believe in the reply where you have one of these taxpayers that they have made such application and nothing's happened. Without getting into taxpayer information at the honor I know that the appellant mentioned other taxpayers that I'm not addressing here because this issue that I'm addressing really is the McGrogan through which there was a final determination as to Vibber in the district court. But I can say that Vibber and the IRS meet consistently and actively and on a daily basis enter close in agreements under the competent authority procedure. So this is happening. I know the appellant makes statements. These statements are not supported by any evidence. There are the appellants, opinions, I submit your honor. So if the appellant applied today for a resolution would you claim that they're applying too late or would there be a meeting of the two bodies to provide a resolution of this issue in these cases before us? Hypothetically, honor because what we have there is no conflict in this case currently. There's no double taxation because the US tax court where this case is now pending the petition for degree determination has not made a final determination saying anything, saying whether the taxpayers are US resident or not. But when the tax court makes that ruling if the tax court decides that the taxpayer is a US resident, there are procedures in place the tax implementation agreement, the competent authority process and other procedures and work in arrangements and what have you between the IRS and Vibber that allows accrediting of any taxes that were paid to Vibber to permit those taxes to be credited against the taxpayer's tax liability. The purpose of all of these things is to prevent double taxation to the taxpayer

. Are you saying that this step of applying has to come after the tax court makes its determination in these cases? Well, you honor, I submit that there has to be an issue and presently there is no issue because there is no, there is no double taxation. Although the IRS has issued a notice of deficiency. I somehow suspect that for the taxpayers hearing that there is no issue despite the fact that they have received notices of deficiency is small comfort. Well, wouldn't it be for you? Well, I submit that because the taxpayer took another step and what he did is he filed a petition for re-determination of the tax court which so which stays the assessment, it stays the assessment until the U.S. tax court makes a final determination with respect to that assessment. Do I recall that the taxpayer actually moved to dismiss his own proceeding in the tax court? I don't recall. I know. How about your colleague on the other side can enlighten me on that? Thank you, honor. I know I think I have a few minutes. All right, thank you. Thank you very much, counsel. We're here from Ms. Rubin. Ms. Rubin, please forgive me, but I want to start with a question before you make your argument. Assume for a minute that the taxpayers here are merely concerned with double taxation

. That is to say because there's a good amount of that in their brief, right? They're getting whipsawed here and it's not fair that they have to pay a lot of money to both taxing entities. Let's assume they're willing to give up on the notion that their Virgin Islands residents, they just want to avoid getting hit twice for the same tax. Is there something that you can do in coordination with your colleague from the Virgin Islands to make that happen? Absolutely, and the record makes that clear. If you look at the Cooper joint appendix, pages 270 and 312, these are the notices of deficiency that were sent to the Cooper's. It offers to go to competent authority if there was an agreement as to the amount due, which presumably there might be if there was an agreement on residency. Because what you're talking about is the question as to if it was clear what amount was due and they just wanted to avoid double taxation and what could happen. That tells you you go to competent authority at that point. Now Judge Smith mentioned the fact that there was a claim that there was a competent authority request made by one of the tax payers, actually two of the tax payers, and that nothing happened. That specific was again the Cooper's. That's going to be a CJA 435. That's the Cooper joint appendix. In that one, they say, well, we assume that there's no debate over how much taxes are due. We just think there's a debate here as to who should be paid. Ultimately, there is a debate as to how much is due because if they're not Virgin Islands residents, they're not eligible for the EDP benefits, the economic development program benefits. So the bottom line then is if they want to keep fighting for what they perceive to be lower taxation associated with Virgin Islands residency, then they have to suffer the consequences of the fight, which means they're out of time in the Virgin Islands. And if they want to get relief in the US, then they have to do what everyone else does, namely pay the tax and then try to get it back. In the tax court. In the tax court. But with one exception, I mean, I think if you look at what the Cooper's did again, they're in perfect example. They filed protective refund claims before they received any notice of deficiency from the internal revenue service. They filed protective refund claims with the BIR that's the Cooper joint appendix at 364 to 77 and 429 to 39. Now, ultimately, those were as I understand it timely. And that was certainly an option that was available to each and every one of these taxpayers. As of 2004, the IRS had announced that we were going to be investigating whether there were ADP participants who were not Virgin Islands residents or otherwise improperly claimed ADP benefits. And this puts the world a notice that if you're seeing there and you're concerned about the possibility of double taxation and you want to maintain your refund rights, there's a way of doing it to protect a refund claim. Now, getting back to the issues dealing with sovereign immunity, if I might, regardless of what the theory is behind the tax payers suit against the commissioner who is at the United States official, they are obligated to identify a federal statute that expressly and unequivocally waived sovereign immunity for that suit. And the taxpayers have not done so. They've offered a lot of theories as to why they think this suits you to be able to go forward. But the only federal statute that they identified that they thought might permit them to go forward was 48 U.S.C. Section 1612A. And as was discussed during the opening argument, the burden in two case forecloses that argument as the taxpayers of knowledge in this argument and in their briefs. So what that means is regardless of what their theory is, whether their theory is that these are federal taxes or territorial taxes, they can't see the commissioner because they cannot identify a waver sovereign immunity that covers

. In the tax court. But with one exception, I mean, I think if you look at what the Cooper's did again, they're in perfect example. They filed protective refund claims before they received any notice of deficiency from the internal revenue service. They filed protective refund claims with the BIR that's the Cooper joint appendix at 364 to 77 and 429 to 39. Now, ultimately, those were as I understand it timely. And that was certainly an option that was available to each and every one of these taxpayers. As of 2004, the IRS had announced that we were going to be investigating whether there were ADP participants who were not Virgin Islands residents or otherwise improperly claimed ADP benefits. And this puts the world a notice that if you're seeing there and you're concerned about the possibility of double taxation and you want to maintain your refund rights, there's a way of doing it to protect a refund claim. Now, getting back to the issues dealing with sovereign immunity, if I might, regardless of what the theory is behind the tax payers suit against the commissioner who is at the United States official, they are obligated to identify a federal statute that expressly and unequivocally waived sovereign immunity for that suit. And the taxpayers have not done so. They've offered a lot of theories as to why they think this suits you to be able to go forward. But the only federal statute that they identified that they thought might permit them to go forward was 48 U.S.C. Section 1612A. And as was discussed during the opening argument, the burden in two case forecloses that argument as the taxpayers of knowledge in this argument and in their briefs. So what that means is regardless of what their theory is, whether their theory is that these are federal taxes or territorial taxes, they can't see the commissioner because they cannot identify a waver sovereign immunity that covers. Turning to the question then, as to whether these are federal or territorial taxes at issue here. Well, there is a federal tax, it's not a territorial tax, it's one tax, right? Actually, I think that's not correct. I'm going to point you to a few different sources that I think support our argument here. Internal revenue code Section 932, which was enacted by the Tax Reform Act of 1986. And then a few items that explain what was happening with Section 932. That's this court's damperry decision. That Senate report 99-313, pages 475-85. Senate report 100-445 at page 315. And then Treasury regulations Section 1.932. And what these explain is that there was a decision made in 1986 based upon a corporation's attempt to report pretty much all taxes using geographical definitions and the inhabitant rule that used to apply in the Verde Islands. Now, damperry explains that you had two different codes producing two different types of taxes. You had the literal code, the United States Internal Revenue Code that's administered by the IRS, producing federal tax liability. You had the mere code producing territorial liability that's collected by the VIBR. And under the inhabitant rule you paid everything to the VIBR. However, when these corporations started attempting these actions, specifically the damperry corporation, Congress acted to try and make sure this wouldn't happen again. They vitiated the inhabitant rule

. Turning to the question then, as to whether these are federal or territorial taxes at issue here. Well, there is a federal tax, it's not a territorial tax, it's one tax, right? Actually, I think that's not correct. I'm going to point you to a few different sources that I think support our argument here. Internal revenue code Section 932, which was enacted by the Tax Reform Act of 1986. And then a few items that explain what was happening with Section 932. That's this court's damperry decision. That Senate report 99-313, pages 475-85. Senate report 100-445 at page 315. And then Treasury regulations Section 1.932. And what these explain is that there was a decision made in 1986 based upon a corporation's attempt to report pretty much all taxes using geographical definitions and the inhabitant rule that used to apply in the Verde Islands. Now, damperry explains that you had two different codes producing two different types of taxes. You had the literal code, the United States Internal Revenue Code that's administered by the IRS, producing federal tax liability. You had the mere code producing territorial liability that's collected by the VIBR. And under the inhabitant rule you paid everything to the VIBR. However, when these corporations started attempting these actions, specifically the damperry corporation, Congress acted to try and make sure this wouldn't happen again. They vitiated the inhabitant rule. And specifically stated at page 483 of Senate report 99-313 that what this meant was that even if you were a VI inhabitant, which is the same thing as a bona fide resident or permanent resident of the VI, you were fully subject to US tax. And we know that they met US tax compared to territorial tax because the page before they explained how 932-2. But the only tax they were subject to in the first place was the US federal income tax. That is not correct as was a gunner, if I may, as was explained in damperry. There was a territorial tax under the mere code and that covered VI income. Then there was a federal tax subject to the internal revenue code or as this court referred to it, the literal code. Now, what Congress didn't explain this very clearly on page 482 of Senate report 99-313 is they created two different structures. If you're not a bona fide Virgin Island resident, you pay the United States federal tax liability on all of your income, including your Virgin Islands income. You pay the fraction of it that reflects your Virgin Islands income to the VIBR to satisfy your mere code obligations. You don't calculate a mere code obligation. You just do it based on that percentage. The rest goes to the IRS as federal taxes. And the Congress referred to this as US tax liability. On the flip side, if under 932-2C, if you are a bona fide resident, then what you do is you calculate your mere code liability, your territorial tax liability. And if you are a bona fide resident and you fully report and pay your income taxes, then you are released from your federal tax obligations. That's Section 932-C4. But a Senate report 100-45 that 315 makes very clear

. And specifically stated at page 483 of Senate report 99-313 that what this meant was that even if you were a VI inhabitant, which is the same thing as a bona fide resident or permanent resident of the VI, you were fully subject to US tax. And we know that they met US tax compared to territorial tax because the page before they explained how 932-2. But the only tax they were subject to in the first place was the US federal income tax. That is not correct as was a gunner, if I may, as was explained in damperry. There was a territorial tax under the mere code and that covered VI income. Then there was a federal tax subject to the internal revenue code or as this court referred to it, the literal code. Now, what Congress didn't explain this very clearly on page 482 of Senate report 99-313 is they created two different structures. If you're not a bona fide Virgin Island resident, you pay the United States federal tax liability on all of your income, including your Virgin Islands income. You pay the fraction of it that reflects your Virgin Islands income to the VIBR to satisfy your mere code obligations. You don't calculate a mere code obligation. You just do it based on that percentage. The rest goes to the IRS as federal taxes. And the Congress referred to this as US tax liability. On the flip side, if under 932-2C, if you are a bona fide resident, then what you do is you calculate your mere code liability, your territorial tax liability. And if you are a bona fide resident and you fully report and pay your income taxes, then you are released from your federal tax obligations. That's Section 932-C4. But a Senate report 100-45 that 315 makes very clear. If you don't satisfy all three of those requirements, then you still are subject to your US tax obligations. I see my time is up. I'm not sure you had any chance to ask any questions on that. I think we're satisfied at this point. Thank you very much, Ms. Ruein. Mr. Dura, I'm sorry. We've changed our minds. That's right. There are claims that there are going to be double taxation here. Are you claiming this is not double taxation? At this point, I don't believe there's any signs that there would be double taxation. We've indicated that the IRS has indicated its willingness to participate in competent authority once it is determined how much taxes are owed. Obviously, if a particular taxpayer wins on their challenge, if they prove that they're bona fide residents and they prove that the income and question was virgin islands income, there won't be any double taxation because there won't be any residual US tax liability. But if instead, there is determined that yes, there is US tax liability here because these were not virgin island residents or their income was not virgin islands income and therefore not subject to the ADP benefits, then we've indicated as shown in the record sites at GAD for the Cooper notices the deficiency that we're willing to go in a competent authority at that point to determine which tax authority should be getting in the money. And how does the taxpayer know that participating in competent authority is a guarantee that the taxpayer doesn't get hit with double taxation? What's the remedy if something is wrong? It just sounds a little bureaucrat speak to me, frankly. I don't understand the details of what it means to participate in competent authority

. If you don't satisfy all three of those requirements, then you still are subject to your US tax obligations. I see my time is up. I'm not sure you had any chance to ask any questions on that. I think we're satisfied at this point. Thank you very much, Ms. Ruein. Mr. Dura, I'm sorry. We've changed our minds. That's right. There are claims that there are going to be double taxation here. Are you claiming this is not double taxation? At this point, I don't believe there's any signs that there would be double taxation. We've indicated that the IRS has indicated its willingness to participate in competent authority once it is determined how much taxes are owed. Obviously, if a particular taxpayer wins on their challenge, if they prove that they're bona fide residents and they prove that the income and question was virgin islands income, there won't be any double taxation because there won't be any residual US tax liability. But if instead, there is determined that yes, there is US tax liability here because these were not virgin island residents or their income was not virgin islands income and therefore not subject to the ADP benefits, then we've indicated as shown in the record sites at GAD for the Cooper notices the deficiency that we're willing to go in a competent authority at that point to determine which tax authority should be getting in the money. And how does the taxpayer know that participating in competent authority is a guarantee that the taxpayer doesn't get hit with double taxation? What's the remedy if something is wrong? It just sounds a little bureaucrat speak to me, frankly. I don't understand the details of what it means to participate in competent authority. I assume what that means is the two agencies get together in a room, they work it out and they figure out what is owed to whom and they do it. That's essentially the question I asked Ms. Archie, what is the remedy here? There's an agreement between two taxing authorities but that's small comfort to the taxpayer. If the taxpayer can't be essentially a third party beneficiary here who has some recourse against the two parties to the agreement. I'm not entirely certain what the remedy would be in a situation where someone unlike the Cooper's, bailed to do a protective refund claim, bailed to take that step to protect their right to go and get money back from the Virgin Islands BIR. If in fact it is determined that they should have instead paid all of their taxes to- So we may have two types of results here, those who protected themselves and those who didn't. That's what you're suggesting. It's possible. I honestly don't know, I don't think there's been any cases that have come out of competent authority where someone felt like they had been subject to double taxation and were looking for a remedy and couldn't find what I have not seen any and doing all of my searches and all of these cases that I'm working on. But ultimately I think what the Cooper's demonstrate is that there were ways to protect yourself. If you wanted to make sure that you were safe in the event that the IRS did issue a notice of deficiency- Because if the competent authority process doesn't work out to their satisfaction, they're still in a judicial remedy. That's what it appears to me at least. Okay. All right. Thank you. Mr. Duritz, so rebuttal and this time we mean it

. I assume what that means is the two agencies get together in a room, they work it out and they figure out what is owed to whom and they do it. That's essentially the question I asked Ms. Archie, what is the remedy here? There's an agreement between two taxing authorities but that's small comfort to the taxpayer. If the taxpayer can't be essentially a third party beneficiary here who has some recourse against the two parties to the agreement. I'm not entirely certain what the remedy would be in a situation where someone unlike the Cooper's, bailed to do a protective refund claim, bailed to take that step to protect their right to go and get money back from the Virgin Islands BIR. If in fact it is determined that they should have instead paid all of their taxes to- So we may have two types of results here, those who protected themselves and those who didn't. That's what you're suggesting. It's possible. I honestly don't know, I don't think there's been any cases that have come out of competent authority where someone felt like they had been subject to double taxation and were looking for a remedy and couldn't find what I have not seen any and doing all of my searches and all of these cases that I'm working on. But ultimately I think what the Cooper's demonstrate is that there were ways to protect yourself. If you wanted to make sure that you were safe in the event that the IRS did issue a notice of deficiency- Because if the competent authority process doesn't work out to their satisfaction, they're still in a judicial remedy. That's what it appears to me at least. Okay. All right. Thank you. Mr. Duritz, so rebuttal and this time we mean it. Thank you, honor. Let me address the Virgin Islands. First, the Virgin Islands talks about this court's case and the Capitol decision. Judge Gibbons was express in that opinion that the purpose of the statutory mitigation is to prevent active exploitation of the statute's limitations. Your honor is I submit the vessel we have here. We have the Virgin Islands and the IRS working together and then when the IRS gets around issuing a statutory notice of deficiency to these tax lawyers in late 2009 and 2010 for tax years to go back as far as 2001. At that point, the Virgin Islands says you can't get back your money and ultimately the jokes on you. You moved down here to take advantage of the 934 cash credit. You moved down here and were induced to participate in the Virgin Islands economic development program and then when things go awry with the IRS, you can't get back your money. But how can you say this is so unanticipated when the Cooper's protected themselves? Your honor. Breathproc 2006-23 sets up that protective mechanism and that was issued on May 15th, 2006. At that point, the ability to file an amended or protective income tax return for count years 2001 and 2002 had already closed. So for taxpayers like Mr. McKenry, his ability to seek that relief was already foreclosed. For Mr. Grogan, his 2000 attacks here was already closed. Moreover, the point I make at page 17 of my reply brief is that for the Cooper's effort Mr

. Thank you, honor. Let me address the Virgin Islands. First, the Virgin Islands talks about this court's case and the Capitol decision. Judge Gibbons was express in that opinion that the purpose of the statutory mitigation is to prevent active exploitation of the statute's limitations. Your honor is I submit the vessel we have here. We have the Virgin Islands and the IRS working together and then when the IRS gets around issuing a statutory notice of deficiency to these tax lawyers in late 2009 and 2010 for tax years to go back as far as 2001. At that point, the Virgin Islands says you can't get back your money and ultimately the jokes on you. You moved down here to take advantage of the 934 cash credit. You moved down here and were induced to participate in the Virgin Islands economic development program and then when things go awry with the IRS, you can't get back your money. But how can you say this is so unanticipated when the Cooper's protected themselves? Your honor. Breathproc 2006-23 sets up that protective mechanism and that was issued on May 15th, 2006. At that point, the ability to file an amended or protective income tax return for count years 2001 and 2002 had already closed. So for taxpayers like Mr. McKenry, his ability to seek that relief was already foreclosed. For Mr. Grogan, his 2000 attacks here was already closed. Moreover, the point I make at page 17 of my reply brief is that for the Cooper's effort Mr. McKenry, these top and authority requests have been sitting around since 2006 and 2007. They've gone into a black hole. What are you really concerned about here? Are you willing to relent on the argument that your clients were bona fide Virgin Islands residents? Because you make what appears to be a pretty sympathetic argument, at least on the equities, when you argue about whipsaw and the threat of double taxation. But what I'm hearing from the ladies on the other side is that there's no real fear of double taxation. There seems to be a way for you to prevent double taxation here. What am I missing? Here's what you're missing, Your Honor. For example, in the Cooper case, it joined appendix 270. The cover letter to the statutory notice of deficiency says that if you want to take advantage of the tax implementation agreement and ref prock 2006, tax 23, let us know within 30 days. In other words, you must fully capitulate. I just made a representation in open court here, which is recorded, that you're going to copy an authority. Once you resolve how much is owed, you're going to copy an authority? Well, Your Honor, I would submit that. That wasn't exactly what I heard, but even if that is the case, and that's what the government's representations that combined the IRS going forward, the problem that we have for all these taxpayers is the IRS makes the offer. We'll let you have money and give you credit for money paid to the Virgin Islands. But don't contest residency. Don't contest statute of limitations. Don't contest anything under 932 or 934. Fully concede your case, and then then we'll allow you to go to competent authority and maybe get back some of the money that you put in

. McKenry, these top and authority requests have been sitting around since 2006 and 2007. They've gone into a black hole. What are you really concerned about here? Are you willing to relent on the argument that your clients were bona fide Virgin Islands residents? Because you make what appears to be a pretty sympathetic argument, at least on the equities, when you argue about whipsaw and the threat of double taxation. But what I'm hearing from the ladies on the other side is that there's no real fear of double taxation. There seems to be a way for you to prevent double taxation here. What am I missing? Here's what you're missing, Your Honor. For example, in the Cooper case, it joined appendix 270. The cover letter to the statutory notice of deficiency says that if you want to take advantage of the tax implementation agreement and ref prock 2006, tax 23, let us know within 30 days. In other words, you must fully capitulate. I just made a representation in open court here, which is recorded, that you're going to copy an authority. Once you resolve how much is owed, you're going to copy an authority? Well, Your Honor, I would submit that. That wasn't exactly what I heard, but even if that is the case, and that's what the government's representations that combined the IRS going forward, the problem that we have for all these taxpayers is the IRS makes the offer. We'll let you have money and give you credit for money paid to the Virgin Islands. But don't contest residency. Don't contest statute of limitations. Don't contest anything under 932 or 934. Fully concede your case, and then then we'll allow you to go to competent authority and maybe get back some of the money that you put in. Or if you want to continue to fight your case, then then you're going to have to pay the taxes to the United States and sue in the tax court. I will concede that's harsh for our taxpayers, but those are the rules of the game. You've got to pay the money and then sue to get it back in the tax court. That's the way the process works. Well, technically, you pay the money. You can assume the district court of the Claims. You can concede before paying the tax. I'm sorry. I had it backwards. You're clients can pay, you know, I guess you're going to tell me they don't have the money. But there are a lot of taxpayers who don't have the money. If they don't have the money, then they can't pay it under the system and try to get it back. Isn't that the statutory scheme Congress has set up? Your IAR would submit that. The statutory scheme was not intended to allow the IRS in 2010 to issue statutory notices as far back as 2001 and allowed the interest, penalties and interest to crew for close to a decade. Congress did not intend for that kind of whips on. And then at the same time, that may be that may be poorer administration of government, but what case or what statute says that it's illegal. Your Honor, I would have to point to just the statutory scheme 1932 that there should be no double taxation of income that that Virgin Islands source income gets paid to Virgin Islands

. Or if you want to continue to fight your case, then then you're going to have to pay the taxes to the United States and sue in the tax court. I will concede that's harsh for our taxpayers, but those are the rules of the game. You've got to pay the money and then sue to get it back in the tax court. That's the way the process works. Well, technically, you pay the money. You can assume the district court of the Claims. You can concede before paying the tax. I'm sorry. I had it backwards. You're clients can pay, you know, I guess you're going to tell me they don't have the money. But there are a lot of taxpayers who don't have the money. If they don't have the money, then they can't pay it under the system and try to get it back. Isn't that the statutory scheme Congress has set up? Your IAR would submit that. The statutory scheme was not intended to allow the IRS in 2010 to issue statutory notices as far back as 2001 and allowed the interest, penalties and interest to crew for close to a decade. Congress did not intend for that kind of whips on. And then at the same time, that may be that may be poorer administration of government, but what case or what statute says that it's illegal. Your Honor, I would have to point to just the statutory scheme 1932 that there should be no double taxation of income that that Virgin Islands source income gets paid to Virgin Islands. Now, I've ordered the Virgin Islands source income to pay the United States for non-bonafide residents. I see my time is up. All right. Thank you very much, Council. Thank you to all of Council. We're going to direct that a transcript to be prepared, Trish, of these arguments. I think the, as has been demonstrated, you've all heard some level of discomfort on the part of the panel with respect to the options here that are available to the taxpayers. We'll be taking this case under advisement. It is possible that you'll hear from us with respect to providing us with a supplemental memo after argument if we have any continuing questions. Thank you very much, Council.

to a streamline here. If I understand correctly, you at least on behalf of Mr. McGrogan, and that this position has been joined, I believe, by the other parties, contend and acknowledge that the Bergman decision appears to foreclose your exclusive jurisdiction argument. And if that's correct, what is left in these appeals? I know something is left, but I just want to determine what. Well, Your Honor, we concede for purposes of today that the Bergman decision forecloses our 1612 argument, however you want to preserve that issue for possible. I understand. But putting that aside, it does not properly dispose of the case, because one against the Virgin Islands of the Irvin-Tronal Revenue, we have a refund to which the Discoordity has jurisdiction over, but insofar as the IRS is concerned, we've asserted that the statutory notice of the deficiency purportedly issued by the IRS, sounding deficiencies and code sections 932 and 934, are in fact what the Discoord can construe as a Virgin Islands Noose of Deficiency, because what the IRS is. What is the federal form, isn't it? Not exactly, Your Honor. There is note, this case law is clear that a statutory notice of deficiency doesn't have to be on any particular form. It doesn't have to say anything in particular. It just has to assert the taxpayer, the tax year, and give the taxpayer something. I understand you want it to be a VIP IR deficiency notice, because that would arguably or probably get you jurisdiction in the VIP district court. But what is it about the notice itself, the notice in say that somehow infuses in it the stuff of a Virgin Islands Bureau notice as opposed to the federal notice that at least facially it purports to be? Well, Your Honor, it's because the federal government is asserting deficiencies and code sections 932 and 934. And let me be clear, the paradigm that we have here today is because the IRS views the taxes paid to the Virgin Islands, not as some type of federal tax, but as a territorial tax. And that in general, that's what the cases stand for. But those cases didn't really drill down to this, this, this, this issue. And I would submit to this court that 932 and the taxes that a taxpayer pays to the Virgin Islands under 932 and the tax credits under 934 that the Virgin Islands administers under 934. Those are federal taxes, but they are administratively payable to the Virgin Islands. Like the, sorry, go ahead. So basically there's just one tax and the issue is is it paid the IRS or is it paid to the VIP IR? Exactly. It's a federal tax. It is a federal tax and if I can turn the courts attention to 932, the notice sought payment of federal tax liability. Did it not? Yes, it does. But under 932, since there is one tax, the Virgin Islands gets, it's share of the tax and are 932 B. On Virgin Islands, source to income and income effectively connected with a Virgin Islands trader business. Under 932 C, it gets the tax irrespective of source on bona fide version of his residence. And under 932 B, these federal tax is allocated between the Virgin Islands and the IRS. The IRS has issued a form form 8689 and that form allocates the federal tax between the Virgin Islands and the IRS. See what has happened here, Your Honor. Let me ask you a question of bona fide Virgin Islands resident who has no business development activities simply a resident of the Virgin Islands earns income during the year and pays tax on it. Now, would the tax they pay to the VIP IR be the same amount that they would pay in tax if they were resident of the continental United States? Yes, with the notable exception is if the Virgin Islands government has authorized and given the taxpayer the ability to claim tax credit under 934 the code. For the business development? Exactly. But for the 934 tax, the tax is exactly the same, which goes back to this court's equality principle. The tax in the Virgin Islands is exactly the same as what it would be in Florida and in Pennsylvania. There is no difference on the eternal revenue code. It's been a while since I read your brief but my recollection of reading it is that you made much of some deposition testimony of some VIP IR officials concerning the agreement or agreements between the IRS and the VIP IR and its working relationship is my memory correct. Your memory correct your answer. I didn't understand at the time and still am not clear on just what the probative value of that working relationship and your discussion of it was because I think you made much of it if I recall in your brief at least in terms of length. Yes, I did your point. I was trying to make perhaps not clearly enough is that what the Virgin Islands has done with the IRS has sat on its rights, let the IRS with the help of the Virgin Islands audit these taxpayers and that the Virgin Islands knew that the IRS took the position to the Statutal Nuitations to not begin to run but only for those individuals that made more than $75,000 and notwithstanding that this is a clear equal protection violation. And these taxpayers if I recall, received the notice of deficiency from the service after the Statutal Nuitations has run on the VI law under 65, 11 exactly your honor. And the point being is that these taxpayers faced a factual impossibility, a facelying possibility. The good faith basis for filing a amended income tax return did not arise until the time that the Statutory Nuitation Efficiency was issued by the IRS to set it that these taxpayers weren't bona fide residents and should not acclaim in 934 tax credit. And because it's a factual impossibility, this makes this case so very different from the other cases that are cited and discussed in the brief. On one hand, you have a host of cases that say it's one thing for the government to mistakenly, improperly, erroneously collect a tax. When that happens, that's not a basis to open up the Statutal Nuitations. However, on the other hand, you have a few Supreme Court cases that stand for the proposition that the government cannot act in a fraudulent manner in respect to its citizens. And for that, I would turn the courts attention to a Hecler versus Community Health Services. And that's founded 467 US 51. That's a 1984 case and Justin Stevens authored the opinion. And the fact that that case involved a Medicare provider and that Medicare provider improperly received extra funds from the federal government through the Medicare services, relying upon an agent of the federal government. The federal government tried to recoup the funds. An equitable, a stop-all argument was made. And the holding of that case was that government was not a stop from recovering improperly paid funds. But here's some key language that this court needs to be cognizant of. And I'm quoting here, it is for this reason that it is well settled that the government may not be a stop on the same terms as any other litigant. Pitchment, practitioner, urges us to expand this principle into a flat rule that a stop-all may not in any circumstance run against the government. We have left open that edition of the past and do so again today. Although the arguments that government advances for this for all are substantial, hesitate, when it's unnecessary to decide this case, to say that there are no cases in which the public interest in ensuring that the government can enforce the law free from a stop-all might be outweighed by the counter-vailing interest of citizens. In some, minimum standard of decency, honor, and reliability in their dealings with the government. So are you saying that 1984 case supports your equitable stop-all argument? It supports my equitable tolling of the statute of the government. Equitable tolling. Well, but Brock Camp was decided in 1998. Yes, why? Do you get around Brock Camp? Because the Brock doesn't clearly say equitable tolling doesn't apply. It does, but the fact of that case involves senility and alcoholism on the part of the taxpayer. There is no fault on the public. I think the court say that equitable tolling doesn't apply under the specific circumstances of that case, or did it say equitable tolling doesn't apply in this category of case? I believe, well, I would submit that the discussion in Brock Camp addressed the rather specific statutory scheme under 65-11 and that it said it did not leave open the possibility for equitable tolling. And in fact, we have specific, enunciated mitigation provisions that do explain when there's an escape hatch for the taxpayer, correct? That is true. But unfortunately, and the discussion I had with the district court below really involved one issue is whether double inclusion of income between the Virgin Islands BIR and the IRS falls within the scope of 1312 subsection one. The district court held that it did not stating that the taxpayers are trying to fashion remedy at an entirely new cloth. We would submit that. We are not seeking that at Runby, Anteilly, New Cloth. The Congress has given the courts in certain circumstances the cloth to fashion and tailor it to the circumstances of the cases. The case may need in this case when you have two governments working together and then you have a factual impossibility. The case should allow the statute of limitations to be mitigated. I see that I'm out of time. Let me ask you a question if I may. There's a mention that there is an attempt between the government of the Virgin Islands and the territorial revenue service to take these cases where there's a conflict and work from that. Is there such a structure available? Is it working? There is a structure available that's under tax implementation agreement. I would say that is not working as evidence by the government of the Virgin Islands intervening in the applicant case which then went up on appeal and Judge Rendell issued the opinion in that non-presidential case. But the government of Virgin Islands has intervened in particular in all these taxpayers that I represent today before the tax court and in Mr. McKendry's case before a circuit affirmed the tax court and held the government of Virgin Islands cannot intervene and does not have a saying in the matter. So unfortunately it doesn't seem to be tax implementation in order that the cooperation between the two respective governments is in fact working. So is there any remedy to avoid the double payment of taxation? Unfortunately you're not that I can tell. The only way that I can foresee any remedy for these agreed taxpayers is to get the money back from the Virgin Islands so that in the event that the IRS is ultimately successful in its contentions we can take that money and pay it to the IRS. Other than that I unfortunately I think these taxpayers are going to be subject to double taxation and double inclusion of income. Thank you. We'll have you back on rebuttal. Thank you. Ms. Archie. Good morning. May the police take the court. My name is Simika Archie on behalf of the Virgin Islands Bureau of Internal Revenue. A peasant makes three arguments in support of enlargement of the 65-11 statute of limitations. First appellant argues that mitigation is appropriate under the mirror code that the statute can be reopened through the doctrine of equitable recruitment and or equitable tolling. I will address each of these positions in turn. Mitigation under 13-11 through 13-14 of the mirror code cannot be addressed without first noting. What excuse me? Can you talk a little slower? You said mitigation under sections 13-11 through 13-14 of the code cannot be addressed without first noting that the purpose of mitigation is not to provide a means to correct all mistakes or inconsistencies that arise after the statute of limitations expires. And indeed when the mitigation provisions do apply they are applied parsed immoranously and in a defined narrow set of circumstances that are enumerated in the code. The issue here is straightforward. If appellant meets the three threshold requirements for invoking mitigation tax years 2002 through 2004 may be reopened. But if he does not, tax years 2002 through 2004 may not be reopened and his refund claim against the Virgin Islands Bureau is untimely. This circuit in a state of capital has identified the three conditions of the mitigation provisions that must be met. The first problem is that there must be a determination issued by Vibber, the Virgin Islands Bureau for internal revenue. This condition has been met because Vibber issued a notice of this allowance of the refund claim for tax years 2002 through 2004. The second is that there must be present one of the seven circumstances of adjustment referenced in the code. Here the appellant state that the circumstance of adjustment that is applicable is a double inclusion of an item in income. Okay let me you you are saying in these cases that the Vibber has said that the taxpayer is not eligible for the business development refund. Is this development deduction is that correct? What we've said is the taxpayer filed amended claim for return refunds after the expiration of the 65-11. The taxpayer filed a what? Amended claims for refund after the expiration of the 65. But I'm talking in the original tax. Is the Vibber saying that there is a deficiency in what the taxpayer paid to the Virgin Islands originally? No we did not. What we did is we disallow the tax. You have accepted them as Virgin as the legitimate Virgin Islands residents. That is correct. And now the internal revenue service is saying they're not legitimate Virgin Islands residents. Correct. And the tax pairing in this case is... How can we coordinate a determination on Virgin Islands residency between the IRS and Virgin Islands that is binding on both? I mean there is a conflict of interest right? Because the Virgin Islands wants the money and the IRS wants the money. You know there is not a conflict of interest on the Virgin Islands side because the taxpayer. Between the two of you because you want the money and they want the money. So in determining I'm not saying you are violating any any any situation but between you and the IRS you both want to claim you want to claim the taxpayers is Virgin Islands residents the IRS wants to say they aren't Virgin Islands residents. So the two of you there is a conflict between the two of you in resolving this issue. How can this issue be resolved so that it is not going to impact the electoriously on the taxpayers? Do you have any suggestions? Well first the honor I must note that the taxpayer has filed a petition for re-determination in the US tax court and the tax court will determine whether will determine the IRS notice of deficiency and whether the taxpayer was a US resident for the time. All right, good question. But to judge Ross points suppose the that court says that they weren't qualified they weren't bona fide Virgin Islands residents and the money is owed to the IRS. What assurances can you give us? How can we know that the taxpayers aren't going to have to pay double tax? Your Honor what the US government and the Virgin Islands government has done is they have entered a tax implementation agreement that has the force of a treaty and they have agreed to coordinate taxes and they have adopted a form of mitigation in in those provisions in article six. Okay, so how how will that help these taxpayers? You're you're suggesting by implication that the taxpayer might be some kind of third party beneficiary of your agreement but to be that there must be something in the way of a remedy available to them. You can't simply ask the taxpayer to rely upon the good faith of either the bureau or the service to somehow reach an agreement between them that affects this third party taxpayer. So how how will that work? Well, Your Honor that's exactly what happens on a regular basis the in these circumstances the US competent authority and the VA competent authority meet to address issues which occur when the respective agencies are taking income consistent positions with a tax with respect to taxpayers residents. As far as I am aware this particular taxpayer has not availed himself of these procedures. So what assurance can you offer and I will expect of course that Ms. Rubin on behalf of the commissioner will answer this as well. What assurance can you offer to the taxpayers that they will not be double taxed so to speak here? Your Honor as you are aware our laws or our tax laws are focused on preventing double taxation and through the tax implementation and the revenue procedure that's that's the aim of it. Additionally under 932 the cold. You say the taxpayer here has not applied for really? Not that I'm aware of. Yes Your Honor. All right and if they apply then will there be a resolution of this issue between the IRS and the Virgin Islands? When the taxpayer applies under the tax implementation agreement in article six it provides that the competent authority shall meet to address the issues that hand and if I can make one point under 932 if there's a determination that the taxpayer was not a Virgin Islands resident and was a US resident under 932A and however had income that was sourcing the Virgin Islands. That specific section permits the allocation of that income to the Virgin Islands and to the US respectively and for permits a credit against the US tax liability. This is something that happens on quite an ordinary and normal basis. Now there is there is mention however I believe in the reply where you have one of these taxpayers that they have made such application and nothing's happened. Without getting into taxpayer information at the honor I know that the appellant mentioned other taxpayers that I'm not addressing here because this issue that I'm addressing really is the McGrogan through which there was a final determination as to Vibber in the district court. But I can say that Vibber and the IRS meet consistently and actively and on a daily basis enter close in agreements under the competent authority procedure. So this is happening. I know the appellant makes statements. These statements are not supported by any evidence. There are the appellants, opinions, I submit your honor. So if the appellant applied today for a resolution would you claim that they're applying too late or would there be a meeting of the two bodies to provide a resolution of this issue in these cases before us? Hypothetically, honor because what we have there is no conflict in this case currently. There's no double taxation because the US tax court where this case is now pending the petition for degree determination has not made a final determination saying anything, saying whether the taxpayers are US resident or not. But when the tax court makes that ruling if the tax court decides that the taxpayer is a US resident, there are procedures in place the tax implementation agreement, the competent authority process and other procedures and work in arrangements and what have you between the IRS and Vibber that allows accrediting of any taxes that were paid to Vibber to permit those taxes to be credited against the taxpayer's tax liability. The purpose of all of these things is to prevent double taxation to the taxpayer. Are you saying that this step of applying has to come after the tax court makes its determination in these cases? Well, you honor, I submit that there has to be an issue and presently there is no issue because there is no, there is no double taxation. Although the IRS has issued a notice of deficiency. I somehow suspect that for the taxpayers hearing that there is no issue despite the fact that they have received notices of deficiency is small comfort. Well, wouldn't it be for you? Well, I submit that because the taxpayer took another step and what he did is he filed a petition for re-determination of the tax court which so which stays the assessment, it stays the assessment until the U.S. tax court makes a final determination with respect to that assessment. Do I recall that the taxpayer actually moved to dismiss his own proceeding in the tax court? I don't recall. I know. How about your colleague on the other side can enlighten me on that? Thank you, honor. I know I think I have a few minutes. All right, thank you. Thank you very much, counsel. We're here from Ms. Rubin. Ms. Rubin, please forgive me, but I want to start with a question before you make your argument. Assume for a minute that the taxpayers here are merely concerned with double taxation. That is to say because there's a good amount of that in their brief, right? They're getting whipsawed here and it's not fair that they have to pay a lot of money to both taxing entities. Let's assume they're willing to give up on the notion that their Virgin Islands residents, they just want to avoid getting hit twice for the same tax. Is there something that you can do in coordination with your colleague from the Virgin Islands to make that happen? Absolutely, and the record makes that clear. If you look at the Cooper joint appendix, pages 270 and 312, these are the notices of deficiency that were sent to the Cooper's. It offers to go to competent authority if there was an agreement as to the amount due, which presumably there might be if there was an agreement on residency. Because what you're talking about is the question as to if it was clear what amount was due and they just wanted to avoid double taxation and what could happen. That tells you you go to competent authority at that point. Now Judge Smith mentioned the fact that there was a claim that there was a competent authority request made by one of the tax payers, actually two of the tax payers, and that nothing happened. That specific was again the Cooper's. That's going to be a CJA 435. That's the Cooper joint appendix. In that one, they say, well, we assume that there's no debate over how much taxes are due. We just think there's a debate here as to who should be paid. Ultimately, there is a debate as to how much is due because if they're not Virgin Islands residents, they're not eligible for the EDP benefits, the economic development program benefits. So the bottom line then is if they want to keep fighting for what they perceive to be lower taxation associated with Virgin Islands residency, then they have to suffer the consequences of the fight, which means they're out of time in the Virgin Islands. And if they want to get relief in the US, then they have to do what everyone else does, namely pay the tax and then try to get it back. In the tax court. In the tax court. But with one exception, I mean, I think if you look at what the Cooper's did again, they're in perfect example. They filed protective refund claims before they received any notice of deficiency from the internal revenue service. They filed protective refund claims with the BIR that's the Cooper joint appendix at 364 to 77 and 429 to 39. Now, ultimately, those were as I understand it timely. And that was certainly an option that was available to each and every one of these taxpayers. As of 2004, the IRS had announced that we were going to be investigating whether there were ADP participants who were not Virgin Islands residents or otherwise improperly claimed ADP benefits. And this puts the world a notice that if you're seeing there and you're concerned about the possibility of double taxation and you want to maintain your refund rights, there's a way of doing it to protect a refund claim. Now, getting back to the issues dealing with sovereign immunity, if I might, regardless of what the theory is behind the tax payers suit against the commissioner who is at the United States official, they are obligated to identify a federal statute that expressly and unequivocally waived sovereign immunity for that suit. And the taxpayers have not done so. They've offered a lot of theories as to why they think this suits you to be able to go forward. But the only federal statute that they identified that they thought might permit them to go forward was 48 U.S.C. Section 1612A. And as was discussed during the opening argument, the burden in two case forecloses that argument as the taxpayers of knowledge in this argument and in their briefs. So what that means is regardless of what their theory is, whether their theory is that these are federal taxes or territorial taxes, they can't see the commissioner because they cannot identify a waver sovereign immunity that covers. Turning to the question then, as to whether these are federal or territorial taxes at issue here. Well, there is a federal tax, it's not a territorial tax, it's one tax, right? Actually, I think that's not correct. I'm going to point you to a few different sources that I think support our argument here. Internal revenue code Section 932, which was enacted by the Tax Reform Act of 1986. And then a few items that explain what was happening with Section 932. That's this court's damperry decision. That Senate report 99-313, pages 475-85. Senate report 100-445 at page 315. And then Treasury regulations Section 1.932. And what these explain is that there was a decision made in 1986 based upon a corporation's attempt to report pretty much all taxes using geographical definitions and the inhabitant rule that used to apply in the Verde Islands. Now, damperry explains that you had two different codes producing two different types of taxes. You had the literal code, the United States Internal Revenue Code that's administered by the IRS, producing federal tax liability. You had the mere code producing territorial liability that's collected by the VIBR. And under the inhabitant rule you paid everything to the VIBR. However, when these corporations started attempting these actions, specifically the damperry corporation, Congress acted to try and make sure this wouldn't happen again. They vitiated the inhabitant rule. And specifically stated at page 483 of Senate report 99-313 that what this meant was that even if you were a VI inhabitant, which is the same thing as a bona fide resident or permanent resident of the VI, you were fully subject to US tax. And we know that they met US tax compared to territorial tax because the page before they explained how 932-2. But the only tax they were subject to in the first place was the US federal income tax. That is not correct as was a gunner, if I may, as was explained in damperry. There was a territorial tax under the mere code and that covered VI income. Then there was a federal tax subject to the internal revenue code or as this court referred to it, the literal code. Now, what Congress didn't explain this very clearly on page 482 of Senate report 99-313 is they created two different structures. If you're not a bona fide Virgin Island resident, you pay the United States federal tax liability on all of your income, including your Virgin Islands income. You pay the fraction of it that reflects your Virgin Islands income to the VIBR to satisfy your mere code obligations. You don't calculate a mere code obligation. You just do it based on that percentage. The rest goes to the IRS as federal taxes. And the Congress referred to this as US tax liability. On the flip side, if under 932-2C, if you are a bona fide resident, then what you do is you calculate your mere code liability, your territorial tax liability. And if you are a bona fide resident and you fully report and pay your income taxes, then you are released from your federal tax obligations. That's Section 932-C4. But a Senate report 100-45 that 315 makes very clear. If you don't satisfy all three of those requirements, then you still are subject to your US tax obligations. I see my time is up. I'm not sure you had any chance to ask any questions on that. I think we're satisfied at this point. Thank you very much, Ms. Ruein. Mr. Dura, I'm sorry. We've changed our minds. That's right. There are claims that there are going to be double taxation here. Are you claiming this is not double taxation? At this point, I don't believe there's any signs that there would be double taxation. We've indicated that the IRS has indicated its willingness to participate in competent authority once it is determined how much taxes are owed. Obviously, if a particular taxpayer wins on their challenge, if they prove that they're bona fide residents and they prove that the income and question was virgin islands income, there won't be any double taxation because there won't be any residual US tax liability. But if instead, there is determined that yes, there is US tax liability here because these were not virgin island residents or their income was not virgin islands income and therefore not subject to the ADP benefits, then we've indicated as shown in the record sites at GAD for the Cooper notices the deficiency that we're willing to go in a competent authority at that point to determine which tax authority should be getting in the money. And how does the taxpayer know that participating in competent authority is a guarantee that the taxpayer doesn't get hit with double taxation? What's the remedy if something is wrong? It just sounds a little bureaucrat speak to me, frankly. I don't understand the details of what it means to participate in competent authority. I assume what that means is the two agencies get together in a room, they work it out and they figure out what is owed to whom and they do it. That's essentially the question I asked Ms. Archie, what is the remedy here? There's an agreement between two taxing authorities but that's small comfort to the taxpayer. If the taxpayer can't be essentially a third party beneficiary here who has some recourse against the two parties to the agreement. I'm not entirely certain what the remedy would be in a situation where someone unlike the Cooper's, bailed to do a protective refund claim, bailed to take that step to protect their right to go and get money back from the Virgin Islands BIR. If in fact it is determined that they should have instead paid all of their taxes to- So we may have two types of results here, those who protected themselves and those who didn't. That's what you're suggesting. It's possible. I honestly don't know, I don't think there's been any cases that have come out of competent authority where someone felt like they had been subject to double taxation and were looking for a remedy and couldn't find what I have not seen any and doing all of my searches and all of these cases that I'm working on. But ultimately I think what the Cooper's demonstrate is that there were ways to protect yourself. If you wanted to make sure that you were safe in the event that the IRS did issue a notice of deficiency- Because if the competent authority process doesn't work out to their satisfaction, they're still in a judicial remedy. That's what it appears to me at least. Okay. All right. Thank you. Mr. Duritz, so rebuttal and this time we mean it. Thank you, honor. Let me address the Virgin Islands. First, the Virgin Islands talks about this court's case and the Capitol decision. Judge Gibbons was express in that opinion that the purpose of the statutory mitigation is to prevent active exploitation of the statute's limitations. Your honor is I submit the vessel we have here. We have the Virgin Islands and the IRS working together and then when the IRS gets around issuing a statutory notice of deficiency to these tax lawyers in late 2009 and 2010 for tax years to go back as far as 2001. At that point, the Virgin Islands says you can't get back your money and ultimately the jokes on you. You moved down here to take advantage of the 934 cash credit. You moved down here and were induced to participate in the Virgin Islands economic development program and then when things go awry with the IRS, you can't get back your money. But how can you say this is so unanticipated when the Cooper's protected themselves? Your honor. Breathproc 2006-23 sets up that protective mechanism and that was issued on May 15th, 2006. At that point, the ability to file an amended or protective income tax return for count years 2001 and 2002 had already closed. So for taxpayers like Mr. McKenry, his ability to seek that relief was already foreclosed. For Mr. Grogan, his 2000 attacks here was already closed. Moreover, the point I make at page 17 of my reply brief is that for the Cooper's effort Mr. McKenry, these top and authority requests have been sitting around since 2006 and 2007. They've gone into a black hole. What are you really concerned about here? Are you willing to relent on the argument that your clients were bona fide Virgin Islands residents? Because you make what appears to be a pretty sympathetic argument, at least on the equities, when you argue about whipsaw and the threat of double taxation. But what I'm hearing from the ladies on the other side is that there's no real fear of double taxation. There seems to be a way for you to prevent double taxation here. What am I missing? Here's what you're missing, Your Honor. For example, in the Cooper case, it joined appendix 270. The cover letter to the statutory notice of deficiency says that if you want to take advantage of the tax implementation agreement and ref prock 2006, tax 23, let us know within 30 days. In other words, you must fully capitulate. I just made a representation in open court here, which is recorded, that you're going to copy an authority. Once you resolve how much is owed, you're going to copy an authority? Well, Your Honor, I would submit that. That wasn't exactly what I heard, but even if that is the case, and that's what the government's representations that combined the IRS going forward, the problem that we have for all these taxpayers is the IRS makes the offer. We'll let you have money and give you credit for money paid to the Virgin Islands. But don't contest residency. Don't contest statute of limitations. Don't contest anything under 932 or 934. Fully concede your case, and then then we'll allow you to go to competent authority and maybe get back some of the money that you put in. Or if you want to continue to fight your case, then then you're going to have to pay the taxes to the United States and sue in the tax court. I will concede that's harsh for our taxpayers, but those are the rules of the game. You've got to pay the money and then sue to get it back in the tax court. That's the way the process works. Well, technically, you pay the money. You can assume the district court of the Claims. You can concede before paying the tax. I'm sorry. I had it backwards. You're clients can pay, you know, I guess you're going to tell me they don't have the money. But there are a lot of taxpayers who don't have the money. If they don't have the money, then they can't pay it under the system and try to get it back. Isn't that the statutory scheme Congress has set up? Your IAR would submit that. The statutory scheme was not intended to allow the IRS in 2010 to issue statutory notices as far back as 2001 and allowed the interest, penalties and interest to crew for close to a decade. Congress did not intend for that kind of whips on. And then at the same time, that may be that may be poorer administration of government, but what case or what statute says that it's illegal. Your Honor, I would have to point to just the statutory scheme 1932 that there should be no double taxation of income that that Virgin Islands source income gets paid to Virgin Islands. Now, I've ordered the Virgin Islands source income to pay the United States for non-bonafide residents. I see my time is up. All right. Thank you very much, Council. Thank you to all of Council. We're going to direct that a transcript to be prepared, Trish, of these arguments. I think the, as has been demonstrated, you've all heard some level of discomfort on the part of the panel with respect to the options here that are available to the taxpayers. We'll be taking this case under advisement. It is possible that you'll hear from us with respect to providing us with a supplemental memo after argument if we have any continuing questions. Thank you very much, Council