                                               GEORGE C. HUFF, PETITIONER v. COMMISSIONER                                      OF
                                                      INTERNAL REVENUE, RESPONDENT
                                                        Docket No. 12942–09.                Filed December 22, 2010.

                                                 Claiming       to be a bona fide resident of the U.S. Virgin
                                               Islands (the     Virgin Islands) during 2002, 2003, and 2004, and
                                               claiming he      was qualified for the gross income tax exclusion
                                               provided by      I.R.C. sec. 932(c)(4), P, a U.S. citizen, filed terri-

                                                                                                                                     605




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                                      606                135 UNITED STATES TAX COURT REPORTS                                        (605)


                                               torial income tax returns with, and paid income tax to, the
                                               Virgin Islands. He did not file Federal income tax returns or
                                               pay Federal income tax for those years. R determined that P
                                               was not a bona fide resident of the Virgin Islands and was not
                                               qualified for the gross income tax exclusion as claimed. P
                                               moves to interplead the Virgin Islands in this proceeding,
                                               asserting that the U.S. and the Virgin Islands have ‘‘adverse
                                               and independent claims’’ under Fed. R. Civ. P. 22(a)(1)(A) for
                                               tax on the same income. Held: Because this Court lacks juris-
                                               diction to redetermine P’s Virgin Islands tax liabilities, P will
                                               not be permitted to interplead the Virgin Islands.

                                        William M. Sharp, Lawrence R. Kemm, Joseph A. DiRuzzo,
                                      III, and Marjorie Rawls Roberts, for petitioner.
                                        Daniel N. Price, Ladd Christman Brown, Jr., and Justin L.
                                      Campolieta, for respondent.

                                                                                  OPINION

                                         JACOBS, Judge: This matter is before the Court on peti-
                                      tioner’s motion to interplead the Government of the U.S.
                                      Virgin Islands (Virgin Islands) in this proceeding. For the
                                      reasons set forth infra, we shall deny petitioner’s motion.

                                                                               Background
                                      I. Procedural Background
                                        The basic facts in this case are set forth in Huff v.
                                      Commissioner, 135 T.C. 222 (2010). We thus recite only those
                                      facts required to resolve the motion before us.
                                        Petitioner is a U.S. citizen who claims he was a bona fide
                                      resident of the Virgin Islands during 2002, 2003, and 2004.
                                      Petitioner filed territorial income tax returns with, and paid
                                      income tax to, the Virgin Islands Bureau of Internal Revenue
                                      (BIR) for each of these years. Petitioner claimed he qualified
                                      for the section 932(c)(4) gross income exclusion; consequently,
                                      he did not file Federal income tax returns or pay Federal
                                      income tax. 1 Respondent determined that petitioner did not
                                      meet the requirements of section 932(c)(4) and therefore
                                      should have filed tax returns with, and paid income tax to,
                                      the United States.
                                        1 Unless otherwise indicated, all section references are to the Internal Revenue Code in effect

                                      for the years at issue, and all Rule references are to the Tax Court Rules of Practice and Proce-
                                      dure.




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                                      (605)                           HUFF v. COMMISSIONER                                          607


                                      II. The Virgin Islands
                                         The Virgin Islands are an insular area of the United
                                      States; they are not part of one of the 50 States or the Dis-
                                      trict of Columbia. They are generally treated as a foreign
                                      country, having a ‘‘mirror tax’’ system for U.S. tax purposes;
                                      i.e., the Virgin Islands use as their tax law the tax laws of
                                      the United States. In this regard, 48 U.S.C. sec. 1397 (2006)
                                      provides that the U.S. Internal Revenue Code is to be used
                                      by the Virgin Islands, with ‘‘Virgin Islands’’ substituted for
                                      ‘‘United States’’ and vice versa.
                                         Section 932(c) provides the taxation and filing require-
                                      ments for individuals. For tax years 2002 and 2003, that sec-
                                      tion provided as follows:
                                      SEC. 932. COORDINATION OF UNITED STATES AND VIRGIN
                                                ISLANDS INCOME TAXES.

                                           (c) TREATMENT OF VIRGIN ISLANDS RESIDENTS.—
                                              (1) APPLICATION OF SUBSECTION.—This subsection shall apply to an
                                           individual for the taxable year if—
                                                (A) such individual is a bona fide resident of the Virgin Islands at
                                              the close of the taxable year, or
                                                (B) such individual files a joint return for the taxable year with an
                                              individual described in subparagraph (A).
                                              (2) FILING REQUIREMENT.—Each individual to whom this subsection
                                           applies for the taxable year shall file an income tax return for the tax-
                                           able year with the Virgin Islands.

                                                                 *   *   *    *    *   *   *
                                             (4) RESIDENTS OF THE VIRGIN ISLANDS.—In the case of an individual—
                                               (A) who is a bona fide resident of the Virgin Islands at the close of
                                             the taxable year,
                                               (B) who, on his return of income tax to the Virgin Islands, reports
                                             income from all sources and identifies the source of each item shown
                                             on such return, and
                                               (C) who fully pays his tax liability referred to in section 934(a) to
                                             the Virgin Islands with respect to such income,
                                           for purposes of calculating income tax liability to the United States,
                                           gross income shall not include any amount included in gross income on
                                           such return, and allocable deductions and credits shall not be taken into
                                           account.

                                      In 2004 the statute was amended by striking ‘‘at the close of
                                      the taxable year’’ and inserting ‘‘during the entire taxable
                                      year’’ each place it appears, effective for tax years ending




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                                      608                135 UNITED STATES TAX COURT REPORTS                                        (605)


                                      after October 22, 2004. American Jobs Creation Act of 2004,
                                      Pub. L. 108–357, sec. 908(c)(2), (d), 118 Stat. 1656, 1657.
                                        An individual who is a bona fide resident of the Virgin
                                      Islands and incurs income tax obligations to both the United
                                      States and the Virgin Islands may satisfy his reporting and
                                      payment requirements by filing only with, and paying tax
                                      only to, the Virgin Islands if he satisfies each of the three
                                      requirements of section 932(c)(4). If the individual fails to
                                      meet any of these requirements, he must file a Federal
                                      income tax return with the Internal Revenue Service. See S.
                                      Rept. 100–445, at 315 (1988). Consequently, an individual
                                      failing to satisfy all three requirements of section 932(c)(4)
                                      may be required to file an income tax return and be liable
                                      for taxes to both the United States and the Virgin Islands.
                                        To redetermine a Virgin Islands tax deficiency determined
                                      by the BIR, a Virgin Islands taxpayer may petition the U.S.
                                      District Court, District of the Virgin Islands, in the same
                                      manner as a U.S. taxpayer may petition this Court. Secs.
                                      6212, 6213 (mirror code); V.I. Code Ann. tit. 33 sec. 943
                                      (1994); see WIT Equip. Co. v. Dir., V.I. Bureau of Internal
                                      Revenue, 185 F. Supp. 2d 500, 510 (D.V.I. 2001). The U.S.
                                      District Court, District of the Virgin Islands, has ‘‘exclusive
                                      jurisdiction over * * * the income tax laws applicable to the
                                      Virgin Islands * * * except the ancillary laws relating to the
                                      income tax enacted by the legislature of the Virgin Islands.’’
                                      48 U.S.C. sec. 1612(a) (2006).

                                                                                Discussion
                                        The sole issue before us is whether petitioner may
                                      interplead the Government of the Virgin Islands. In general,
                                      our Rules do not provide for interpleading a third party. In
                                      the absence of an express Rule, Rule 1(b) provides that the
                                      Court ‘‘may prescribe the procedure, giving particular weight
                                      to the Federal Rules of Civil Procedure to the extent that
                                      they are suitably adaptable to govern the matter at hand.’’
                                      See Intermountain Ins. Serv. of Vail, LLC v. Commissioner,
                                      134 T.C. 211, 215 (2010); Estate of Proctor v. Commis-
                                      sioner, T.C. Memo. 1994–208; see also Appleton v. Com-
                                      missioner, 135 T.C. 461 (2010) (denying intervention by a
                                      third party).




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                                      (605)                           HUFF v. COMMISSIONER                                          609


                                        Petitioner relies on rule 22 of the Federal Rules of Civil
                                      Procedure, 2 which governs interpleading a third party in
                                      much of the Federal court system. Rule 22(a)(1) of the Fed-
                                      eral Rules of Civil Procedure provides:
                                      Rule 22. Interpleader
                                        (a) Grounds.
                                        (1) By a Plaintiff. Persons with claims that may expose a plaintiff to
                                      double or multiple liability maybe joined as defendants and required to
                                      interplead. Joinder for interpleader is proper even though:
                                        (A) the claims of the several claimants, or the titles on which their
                                      claims depend, lack a common origin or are adverse and independent
                                      rather than identical; or
                                        (B) the plaintiff denies liability in whole or in part to any or all of the
                                      claimants.

                                      The purpose of interpleading a third party is to allow:
                                      ‘‘a party who fears being exposed to the vexation of defending multiple
                                      claims to a limited fund or property that is under his control a procedure
                                      to settle the controversy and satisfy his obligation in a single proceeding.’’
                                      7 Charles Allen Wright & Arthur R. Miller, Federal Practice & Procedure
                                      §1704 (3d ed. 2001), at 540–41 (‘‘Wright & Miller’’). Accordingly, inter-
                                      pleader allows a stakeholder who ‘‘admits it is liable to one of the claim-
                                      ants, but fears the prospect of multiple liability[,] . . . to file suit, deposit
                                      the property with the court, and withdraw from the proceedings.’’ Metro
                                      Life Ins. Co. v. Price, 501 F.3d 271, 275 (3d Cir. 2007). The result is that
                                      ‘‘[t]he competing claimants are left to litigate between themselves,’’ while
                                      the stakeholder is discharged from any further liability with respect to the
                                      subject of the dispute. Id. [Prudential Ins. Co. of Am. v. Hovis, 553 F.3d
                                      258, 262 (3d Cir. 2009).]

                                      Interpleading a third party ‘‘forces the claimants to contest
                                      what essentially is a controversy between them without
                                      embroiling the stakeholder in the litigation over the merits
                                      of the respective claims.’’ 7 Wright et al., Federal Practice
                                      and Procedure, sec. 1702, at 534 (3d ed. 2001).
                                        Petitioner asserts that
                                      The case at bar is the exact type of case in which this Court should exer-
                                      cise its discretion to interplead the Government of the * * * [Virgin
                                      Islands] under Rule 22(a)(1). That is because Respondent as the taxing
                                      authority for the United States Government has asserted that Petitioner
                                      is liable for unpaid taxes * * * based on the same items of income that
                                      the * * * [Virgin Islands] has already taxed and has already collected
                                        2 Petitioner does not seek to interplead the Government of the Virgin Islands through the stat-

                                      utory interpleader provisions of 28 U.S.C. sec. 1335 (2006), 28 U.S.C. sec. 1397 (2006), and 28
                                      U.S.C. sec. 2361 (2006). Consequently, we need not and do not address those provisions.




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                                      610                135 UNITED STATES TAX COURT REPORTS                                        (605)


                                      from Petitioner. Consequently, Petitioner’s income may be subject to
                                      double taxation, which by definition is a double liability. A double tax
                                      liability is a situation that Rule 22 seeks to address.

                                        Petitioner further asserts that (1) the United States and
                                      the Virgin Islands have ‘‘adverse and independent’’ claims
                                      under rule 22(a)(1)(A) of the Federal Rules of Civil Proce-
                                      dure, and (2) should respondent ultimately prevail in the
                                      case, petitioner would have a claim against the Virgin
                                      Islands for appropriate tax refunds. 3 Thus, petitioner posits
                                      that
                                      Although, during the pendency of the instant litigation the potential claim
                                      against the * * * [Virgin Islands] may be in doubt (if Petitioner is deter-
                                      mined to have been a bona fide * * * [Virgin Islands] resident or if the
                                      statute of limitations prevents Respondent from assessing against Peti-
                                      tioner, he will dismiss any outstanding actions against the * * * [Virgin
                                      Islands]), interpleading the * * * [Virgin Islands] Government is still
                                      appropriate because it will avoid multiple legal actions and relieving [sic]
                                      Petitioner from having to anticipate the strength of the * * * [Virgin
                                      Islands’] claims.

                                         By moving to interplead the Virgin Islands, petitioner in
                                      essence asks this Court to redetermine his Virgin Islands tax
                                      liability. We do not have jurisdiction to make that redeter-
                                      mination.
                                         This Court is a court of limited jurisdiction, and we may
                                      exercise jurisdiction only to the extent expressly authorized
                                      by Congress. Sec. 7442; Naftel v. Commissioner, 85 T.C. 527,
                                      529 (1985). We lack authority to enlarge upon that statutory
                                      jurisdiction, Breman v. Commissioner, 66 T.C. 61, 66 (1976),
                                      and petitioner’s invocation of rule 22(a)(1) of the Federal
                                      Rules of Civil Procedure cannot expand our jurisdiction, see,
                                      e.g., Fed. R. Civ. P. 82 (‘‘These rules do not extend or limit
                                      the jurisdiction of the district courts or the venue of actions
                                      in those courts.’’); 7 Wright et al., supra sec. 1710. As we
                                      noted in Estate of Forgey v. Commissioner, 115 T.C. 142, 146
                                      (2000), we have jurisdiction to redetermine deficiencies in
                                      Federal income, estate, gift, and certain excise taxes. See
                                      secs. 6211–6215; Rule 13. We also have jurisdiction over cer-
                                      tain other Federal tax issues (e.g., section 6512(b) refund
                                      actions regarding overpayments determined by the Court in
                                        3 Petitioner in his motion states he will rely on the doctrines of statutory mitigation and equi-

                                      table recoupment in his proposed refund action against the Government of the Virgin Islands
                                      since the period of limitations has closed for the years at issue.




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                                      (605)                           HUFF v. COMMISSIONER                                          611


                                      certain circumstances; section 7436(a) determination of
                                      employment status actions). In sum, we are limited to the
                                      adjudication of Federal tax matters; i.e., in this case, we may
                                      only redetermine the correct amounts of petitioner’s Federal
                                      income tax liabilities for 2002, 2003, and 2004.
                                         We have found no authority, and petitioner has cited none,
                                      which would permit us to redetermine petitioner’s Virgin
                                      Islands tax liabilities or the disposition of moneys which peti-
                                      tioner has paid to the Virgin Islands. Should respondent ulti-
                                      mately prevail in this case, we would have no jurisdiction to
                                      (1) discharge petitioner from liabilities determined by the
                                      Government of the Virgin Islands; (2) direct the Virgin
                                      Islands to refund to petitioner the amount of taxes petitioner
                                      paid to the BIR; or (3) order the Virgin Islands to pay any
                                      moneys to the United States.
                                         As noted supra p. 608, 48 U.S.C. sec. 1612(a) explicitly pro-
                                      vides that the U.S. District Court, District of the Virgin
                                      Islands, is the sole court that may determine the correct
                                      amount of petitioner’s Virgin Islands tax liabilities for 2002,
                                      2003, and 2004. Petitioner would have to appear before that
                                      court to seek refunds from the Virgin Islands.
                                         Consistent with the foregoing, petitioner’s motion will be
                                      denied.
                                         To reflect the aforesaid,
                                                                                 An appropriate order will be issued.

                                                                               f




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