Category: Tax Returns, Examinations &
IRS Procedure; International; Individuals Copyright 1998, The Tax Resource Group. All rights reserved. Telephone 800-578-3498. Internet: www.taxresourcegroup.com Taxpayer is a U.S. citizen and resident. For the tax years 1994 and 1995, she erroneously filed returns and paid taxes as a resident of the U.S. Virgin Islands. No returns were filed with the U.S. tax authorities. Now the error has been discovered and the taxpayer needs to recover taxes paid to the U.S.V.I. and either get a refund or have the taxes credited to her account with the U.S. tax authorities. Rev. Rul. 79-424, 1979-2 CB 405, deals with erroneous payments by a resident of the U.S.V.I. to the U.S. treasury. The ruling provides that the erroneous payments can be recovered by filing a claim for refund with the U.S. treasury. If any such claims are time barred, the taxpayer is entitled to request that the U.S. treasury directly transfer the erroneously paid taxes to the treasury of the U.S.V.I.. The normal time limits on refunds under Section 6511 do not apply. The ruling does not specify how one goes about making application to the U.S. treasury for such a transfer. The situation described in Rev. Rul. 79-424 is exactly opposite of the taxpayer's circumstances in the present matter. I find nothing directly on point dealing with the taxpayer's exact circumstances. The tax laws of the U.S. and the U.S.V.I. are supposed to mirror each other. Under the so-called mirror system, it should be possible to read Rev. Rul. 79-424 as providing a guidance as to erroneous payments to the U.S.V.I. by a U.S. citizen or resident. It appears that we have three options. 1. Simply file a 1040X with the U.S.V.I. authorities and claim a full refund of all taxes paid based on the fact that the taxpayer was not in fact a resident of the U.S.V.I. for the period in question. Presumably, the statute of limitations should still be open for these years. 2. Make application to the U.S.V.I. to transfer the erroneously paid taxes directly to the U.S. treasury. 3. File a 1040X with the U.S.V.I. authorities and claim a full refund of all taxes which refund is to be transferred on the taxpayer's behalf to the U.S. treasury. Although I can see nothing that directly says this, I wonder if it could be possible that if the U.S.V.I. treasury directly credits the tax to the U.S. treasury, the taxpayer may get credit in the U.S. for having paid U.S. taxes at the time such taxes were paid to the U.S.V.I. authorities. Obviously, this would be greatly to the taxpayer's advantage in that interest and penalties could be avoided in the U.S. I spoke this morning with Ms. Luz Maron of the U.S.V.I. tax authority. Of course, I did not disclose the taxpayer's name. She confirmed that there is a procedure for refunding or crediting erroneously paid taxes. She instructed me to write a letter under a power of attorney explaining all the facts. She also told me that it is a relatively simple and quick matter to credit the taxes to the U.S. treasury; however, if the taxpayer needs a refund, she does not know when it can be paid. Since the hurricane, the government has not issued any refund checks. Please call me so we can discuss how to proceed with this. It seems to me we need the following things resolved. 1. When was the taxpayer resident in the U.S.V.I. and when did she move? I think you said she never lived there. If so, why did she file there in the first instance? Perhaps I misunderstood. 2. We need a representation that for 1994 and 1995, there is no U.S.V.I.-source income. 3. We need a power of attorney. Since I have talked to the U.S.V.I. people, I wonder if I should not sign the letter and be on the POA. 4. It appears from the papers you sent that the taxpayer paid an assessment for 1994 to the U.S. What about 1995?  |