Lead Opinion
OPINION OF THE COURT
The Government of the United States Virgin Islands (“Government”) brings this challenge to the United States Tax Court’s denial of the Government’s motion to intervene pui'suant to Rule 1(b) of the Tax Court Rules of Practice and Procedure, and under Rule 24 of the Federal Rules of Civil Procedure. We have jurisdiction to review this matter pursuаnt to 26 U.S.C. § 7482(a)(1).
On April 1, 2010, Appleton filed a timely Tax Court Petition to challenge as void the tax assessments leveled against him by the Internal Revenue Service (“IRS”) because, inter alia, the assessments were imposed after the expiration of the statute of limitations, 26 U.S.C. § 6501(a). Under Section 932 of the Internal Revenue Code, Virgin Islands residents, like Appleton, are required to pay income tax dmectly to the Bureau оf Internal Revenue (“BIR”), not the IRS, pursuant to the “mirror code”, where the term “Virgin Islands” is substituted for the “United States” in the Internal Revenue Code. Yet, the IRS retains audit and assessment powers. Congress also enacted a specific provision directing that if a taxpayer’s income is “derived
Appleton took advantage of the credits available through the EDP when сalculating his income tax payable to the BIR for the tax years 2002-2004. On November 25, 2009, the IRS delivered a notice of deficiency to Appleton in relation to these tax years, despite the existence of § 6501(a), the three-year statute of limitations on assessments. The IRS has taken the position, рursuant to a “Chief Counsel Advice” memorandum, that the “statute of limitations on assessment in section 6501(a) does not begin to run until a return is filed with the IRS,” not the BIR. It is this position by the IRS, and the resulting assessments on Virgin Islands taxpayers, that caused the Government to file a motion, dated June 18, 2010, seeking to intervene for the purposes of the statute of limitations issue, either as of right pursuant to Rule 24(a)(2), or in the alternative, permissively, pursuant to Rule 24(b)(2). The Government argued that a ruling in favor of the IRS on the statute of limitations issue would have a chilling effect on the EDP, as it leaves open to question and subject to audit the tax returns of thosе taking advantage of the program for an extended period of time. On November 1, 2010, the Tax Court denied the Government’s motion by memorandum opinion and order. The Tax Court reasoned that the Government’s interest was insufficient to warrant intervention of right, and, because the statute of limitations issue is a сornerstone of Appleton’s defense, permitting the Government to intervene would be redundant and would risk delay. As alternative relief, the Tax Court did grant the Government the right to file an amicus brief. Despite this, on November 23, 2010, the Government appealed to this Court.
We need not rule on the issue of intervеntion of right because we conclude that, at the very least, the Government should have been permitted to intervene under Rule 24(b)(2).
Under Rule 1(b) of the United States Tax Court Rules of Practice and Procedure, in the absence of express rule, the Tax Court “may proscribe the procedure, giving pаrticular weight to the Federal Rules of Civil Procedure to the extent that they are suitably adaptable to govern the matter at hand.” We can discern no reason why permissive intervention pursuant to Rule 24(b)(2) should not be available to parties in the Tax Court. Sampson v. Commissioner,
On timely motion, the court may permit a fedеral or state governmental officer or agency to intervene if a party’s claim or defense is based on:
(A) a statute or executive order administered by the officer or agency; or
(B) any regulation, order, requirement, or agreement issued or made under the statute or executive оrder.
Additionally, the Tax Court is directed by Rule 24(b)(3) that, when “exercising its discretion, the court must consider whether the intervention will unduly delay or prejudice the adjudication of the original parties’ rights.” Thus, permissive intervention under Rule 24 requires (1) the motion to be timely, (2) the potential intervener be a “federal or state governmental officer or agency”, (3) the issue must be based on a statute, executive order, or regulation which is administered by the entity, and (4) the intervention may not
The first and second requirements are easily satisfied here. The third requirement also appears to be satisfied, as Appleton’s tax assessments are based on an income calculation which takes into account credits created pursuant to 26 U.S.C. § 934, under the Government’s EDP. It is, thus, the last requirement that is at issue, namely the Tax Court’s conclusion that the Government’s request shоuld be denied due to what in its view would amount to a redundancy of the issues and a resulting delay in the resolution of the underlying matter. Specifically, the Tax Court noted in its opinion that the “movant has neither demonstrated that its participation as a party is necessary to advocate for an unaddressed issue nor shown that its intervention will not delay the resolution of this matter.”
While any intervention could potentially cause delay, Rule 24(b) requires the court to consider whether this intеrvention will cause “undue delay,” or “prejudice the adjudication of the original parties rights.” The redundancy noted by the Tax Court due to identity of interest should only be a bar to intervention when it has the adverse effect of “undue delay” or “prejudice.” See Hoots v. Commonwealth of Pa.,
While we do not decide the “right” of the Government to intervene, we cannot ignore its interest. The Govеrnment’s interest is based on its desire to protect the Virgin Islands tax structure, or more accurately, the EDP. This interest was granted by Congress to give the Virgin Islands a mechanism to improve its economy. The Government urges that its interest, and the potential harm from the IRS’s audits, is great, citing statistics that the EDP amounted to 20% of the Virgin Islands budget and 8% of its employment prior to the commencement of the delayed audits
Accordingly, it is clear to us that the Tax Court abused its discretion by not considering whether the Government’s intervention would cause “undue delay” or “prejudice.” Additionally, as Congress thought it important enough to afford the Government this mechanism to improve its economy, and the Rule permits it to protect its interest through intervention, we will direct the Tax Court to allow the Government of the Virgin Islands to intervene in Appleton’s proceedings pursuant to Rule 24(b)(2). Therefore, we will remand this matter to the Tax Court, and require that the Government of the Virgin Islands be permitted to intervene pursuant to Fed. R.Civ.P. 24(b)(2).
Notes
. Venue is аppropriate in this Court under 26 U.S.C. § 7482(b)(1)(A), as Arthur Appleton, the Petitioner in the underlying Tax Court proceedings, is a legal resident of the Virgin Islands.
. The IRS’ fear that this litigation will be delayed lies in stark contrast to its own desire to delay the commencement of proceedings by doing away with the statute of limitations.
Dissenting Opinion
dissenting.
I agreе with my colleagues’ conclusion that the Tax Court has the discretion to allow permissive intervention pursuant to Rule 24(b)(2), but disagree that the Tax Court abused its discretion in denying permissive intervention here.
As the majority points out, permissive intervention under Rule 24 requires (1) a timely motion to intervene by (2) a federal оr state governmental officer or agency (3) raising an issue that is based on a statute, executive order, or regulation that is administered by the entity; in addition, (4) intervention must not cause undue delay or prejudice to the initial parties’ rights. I agree that the first two requirements are easily satisfied here. Contrary to my colleagues’ view, the third requirement was contested by the Internal Revenue Service.
Although it did not use the precise phrases “undue delay” and “prejudice,” the Tax Cоurt concluded that the V.I. Government’s intervention would result in just that. Thus, a careful reading of the Tax Court’s opinion refutes the majority’s conclusion that “[t]here is no support for the notion that any delay here would be ‘undue,’ or that the [V.I.] Government’s arguments ... would prejudice ... the IRS.” As the Tax Court reasoned,
[Applеton] has raised the period of limitations issue, and we presume the mat*140 ter will be fully vetted during the normal course of these proceedings. For [the V.I. Government] to participate in this case as a party solely to make an argument that [Appleton] has already identified as a matter cеntral to his case would introduce a redundancy into the proceedings.... Were we to grant the motion to intervene, [the V.I. Government] would become a party to the proceeding in this Court and have the right to introduce documentary evidence, call its own witnesses, and cross-examine witnessеs of the other parties. Such participation, as a practical matter, could result in trial complications as well as delay the resolution of this issue in which [the V.I. Government] asserts an interest.
A20-21. Because the Court found that the V.I. Government’s interests would be well represented by Appleton, who has counsel and “has made the expiration of the section 6501(a) period of limitations a cornerstone of his case,” it concluded that the redundancy, complications, and delay arising from the V.I. Government’s intervention would be undue, and would prejudice the IRS. Id. at 19. When viewed together with the fаct that the Tax Court permitted the V.I. Government to file an amicus curiae brief, I do not believe this was an abuse of discretion.
My colleagues characterize the V.I. Government’s interest in this case as a desire to protect legitimate, congressionally sanctioned use of its Economic Development Program (“EDP”). I am skeptical. They cite the V.I. Government’s statistics that the EDP accounted for 20% of its budget and 8% of employment in the V.I. prior to the IRS’ delayed audits and assessments. But they fail to mention that the IRS only began audits after it discovered widespread abuse of the EDP. Thus, we cannot attribute a decline in participation to a fear of endless audits, аs opposed to the IRS’ investigation of possible fraudulent use of the program.
My colleagues also fail to mention that in 2006 the IRS promulgated a regulation that “fixes” the statute of limitations problem of which the V.I. Government complains. Under Treas. Reg. § 1.932-1(c)(2)(h), the IRS allowed the filing of territorial incomе tax returns to trigger the start of the limitations period under § 6501.
It is true, as the majority states, that “Rule 24(b)(2) specifically provides for governments to protect their interests in matters in litigation.... ” However, by allowing the V.I. Government to submit an amicus cwiae brief, I bеlieve the Tax Court provided it sufficient opportunity to do so. In sum, because I disagree that the Tax Court failed to consider, or erred by concluding, that the Government’s intervention would cause undue delay, I respectfully dissent.
. The majority states that Appleton’s tax assessments incorporate credits pursuant to 26 U.S.C. § 934, which falls under the Virgin Islands' Economic Development Program, and thus is administered by the V.I. Government. The IRS argues that this is irrelevant and incorrect. It is irrelevant because the statute of limitations question does not implicate § 934, which states that the V.I. Government may only reduce tax liability if it is attributable to income connected with a V.I. trade or business. It is incorrect because § 934 is not in the "mirror code” (the version of the Internal Revenue Code that applies to V.I. residents, in which the term "Virgin Islands” is substituted for "United States”), and subsection 934(b) says that the Secretary of the United States Treasury shall promulgate regulations to define whether income is derived from sources in the V.I. or connected with a V.I. trade or business. As the IRS notes, ”[w]hile I.R.C. § 934 may provide the [V.I.] with guidance as to its tax structure, the Commissioner — not the [V.I. Government]— administers the provisions of that provision." IRS Br. 64.
. This regulation treats territorial returns as federal returns for statute of limitations purposes, provided that the United States Government and the V.I. Government have entered into an agreement allowing for the routine exchange of income tax information, which they have. See I.R.S. Notice 2007-31, 2001-