here - Fuerst Ittleman David & Joseph, PL

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Case: 11-1612 Document: 003110561288 Page: 12 Date Filed: 06/13/2011 of time; however taxpayers are under no obligation to execute Form 872 and the IRS cannot force taxpayers to execute same. The majority of the taxpayers that were (and still are) under audit did not execute Form 872. 5 As a result of the taxpayers‘ failure to extend the statute of limitations, and undeterred by the clear provisions of the Internal Revenue Code, the IRS unilaterally changed the rules regarding the statue of limitations, 6 which has resulted in the instant case. Indeed, the weapon of choice of the IRS in its battle against taxpayers such as Mr. Gangi has been an unconstitutional construction of the applicable three year statute of limitations under IRC § 6501(a). On March 12, 2007, the IRS with apparent disregard for the United States Constitution issued Notice 2007-19; 2007- 1 C.B. 689; 2007-11 I.R.B. 689 (―Statute of Limitations on Assessment Concerning Certain Individuals Filing Income Tax Returns With the U.S. Virgin Islands‖). Notice 2007-19 stated that: an income tax return filed with the U.S. Virgin Islands by a U.S. citizen or resident alien (USVI Form 1040) will be deemed to be a U.S. income tax return of that individual for purposes of section 6501(a), provided that the individual is a covered person. The term ―covered person‖ means a U.S. citizen or resident alien who takes the position that he or she is a bona fide resident of the U.S. Virgin Islands, files USVI Form 1040 with the U.S. Virgin Islands, and has less than $75,000 of gross income for the taxable year. 5 The undersigned represents numerous taxpayers that are under audit, many of whom did not execute Form 872. 6 See Notice 2007-19 and discussion infra. FUERST ITTLEMAN, PL 1001 BRICKELL BAY DRIVE, 32 ND FLOOR, MIAMI, FL 33131 • T: 305.350.5690 • F: 305.371.8989 • WWW.FUERSTLAW.COM 4 | P a g e
Case: 11-1612 Document: 003110561288 Page: 13 Date Filed: 06/13/2011 Notice 2007-19 at § 2. However, as discussed in more detail below, the term ―covered person‖ never appears in the Internal Revenue Code, nor does the applicability of the statute of limitations section of the Internal Revenue Code turn on income level or place of residence. With this newfound weapon in the IRS‘ arsenal, the IRS issued numerous third-party summonses in respect to those taxpayers that claimed USVI EDP tax credits. When the IRS issued third-party summonses in respect to Mr. Gangi‘s tax liability Mr. Gangi timely petitioned the United States District Court for the District of New Jersey to quash the summonses. The present appeal requires this Court to decide whether an IRS third-party summons that is predicated upon an unconstitutional construction of the Internal Revenue Code is an abuse of the District Court‘s process, and whether there is institutional bad faith on part of the IRS is respect to the third-party summonses issued in furtherance of the IRS‘ USVI audit program. STATEMENT OF THE FACTS To understand the errors made by the District Court a brief description of the interrelationship between unique taxation system of the USVI, the IRS summonses FUERST ITTLEMAN, PL 1001 BRICKELL BAY DRIVE, 32 ND FLOOR, MIAMI, FL 33131 • T: 305.350.5690 • F: 305.371.8989 • WWW.FUERSTLAW.COM 5 | P a g e
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