Eighth Circuit Rehears Coffey, but the Result Is the Same by Robert S. Horwitz
On December 16, 2020, the Eighth Circuit issued its opinion in Coffey v. Commissioner, holding that a tax return filed with the U.S. Virgin Islands Bureau of Internal Revenue (“VIBIR”) was not a filing with the IRS and, thus, the three year statute of limitations on assessment was not triggered. See https://www.taxlitigator.com/a-return-by-any-other-name-by-robert-s-horwitz/. On February 10, 2021, the Eighth Circuit granted a petition for rehearing before the three-judge panel that wrote the December 16 opinion. On February 12, the Eighth Circuit issued its new opinion, which reached the same result as its earlier opinion: filing a return with VIBIR was not the same as filing it with the IRS.
The result was the same and the reasoning of the Eighth Circuit in its new opinion in Coffey was similar. The Coffeys claimed to be residents of the U.S.V.I. They filed a Form 1040 with the VIBIR, which sent the first two pages of the return to the IRS. More than three years after receipt of the two pages, the IRS determined that the Coffeys were not residents of the U.S. Virgin Islands and issued a notice of deficiency. The Coffeys petitioned the Tax Court, which held that since the IRS received the first two pages of the return, it had been “filed” with the IRS, thus starting the statute of limitations on assessment. Since the notice of deficiency was issued more than three years after filing, it was time barred.
After reciting briefly the facts, the new opinion stated that the U.S. Virgin Islands non-resident must “file” their “return” with both VIBIR and the United States under IRC sec. 932(a)(2). For purposes of the appeal, the Court assumed that the Coffeys were not U.S.V.I. residents.
The taxpayers’ first argument was that the document sent by the VIBIR to the IRS was “filed” for purposes of both secs. 932(a)(2) and 6501(a). The Tax Court had agreed with this argument since the first two pages of the Coffeys’ return wound up at the IRS. According to the Eighth Circuit, this was not enough: returns are filed “if delivered, in the appropriate form, to the specific individual or individuals identified in the Code or Regulations.” A taxpayer must show “meticulous compliance” with the Code and Regulations. The Court noted that the Coffeys did not intend to file tax returns with the IRS, but only with the VIBIR. That the IRS had actual knowledge of the taxpayers’ tax liability was not a filing and without a filing, the statute of limitations on assessment did not begin to run. The Coffeys had not complied with the federal tax return filing requirements, the VIBIR did not file the Coffeys’ returns with the IRS and the Coffeys had never authorized the VIBIR to do so.
The taxpayers’ second argument was that filing a return with the VIBIR began the statute of limitations under sec. 6501(a) because they intended to comply with all filing requirements under the belief that they qualified as U.S.V.I. residents. The Court held that the taxpayers’ intent was irrelevant to whether they filed an honest and genuine return. To be an honest and genuine return, it must be filed with the correct individual. The U.S.V.I. is a separate taxing entity from the United States. That the Coffeys may have made an honest attempt to satisfy the tax law is irrelevant, since the filing requirements do not contain an exception for a mistaken belief about residency. The mistake does not create a “filing.” While the VIBIR uses the same tax forms as the IRS, filing a return with the VIBIR is not filing it with the IRS. Thus, the Tax Court was reversed.
Same facts, same legal arguments, slightly different route to get to the same result. Does the Eighth Circuit’s emphasis on “meticulous compliance” indicate that the Beard test for determining what is a return may come under attack? Only time will tell.
Robert S. Horwitz is a Principal at Hochman Salkin Toscher & Perez P.C., former Chair of the Taxation Section, California Lawyers’ Association, a Fellow of the American College of Tax Counsel, a former Assistant United States Attorney and a former Trial Attorney, United States Department of Justice Tax Division. He represents clients throughout the United States and elsewhere involving federal and state administrative civil tax disputes and tax litigation as well as defending criminal tax investigations and prosecutions.