Tax News

CCH (cch.taxgroup.com) reports:

IRS third-party summonses issued to a bank in Puerto Rico were not quashed and were ordered enforced because the IRS satisfied the Powell factors. The summonses sought information regarding two bona fide Virgin Islands partnerships that properly filed their returns with the Virgin Islands Bureau of Internal Revenue (VBIR) but that were also required to file U.S. tax returns for any income earned from sources within the United States or on gross income effectively connected to a trade or business in the United States. Because the entities were foreign partnerships within the meaning of Code Sec. 6031(e)(2), the IRS had the authority to issue the summonses for the legitimate purpose of investigating the entities' reporting requirements and whether they reported the proper amounts and the source of the income for the tax years at issue.
Further, the summons request did not violate "the spirit of" the Tax Implementation Agreement (TIA) between the U.S. government and the Virgin Islands, which applied to the facts of this case. The summonses requested information about Virgin Islands entities; they were addressed to the bank's Puerto Rican branch only because that was where the bank's legal counsel's office was situated. Moreover, the entities did not produce any documents to establish that the IRS did not comply with the TIA by failing to notify the VBIR of the summonses before they were issued. Finally, although the IRS was already in possession of some documents requested pursuant to the summons, it was entitled to request the same documents from the bank in order to independently verify the completeness and accuracy of the documents produced by the entities.
Clearwater Consulting Concepts, LLLP, DC V.I., 2008-2 USTC ¶50,472
Other References:
Code Sec. 7602
CCH Reference - 2008FED ¶42,827.33
CCH Reference - 2008FED ¶42,827.562
Code Sec. 7609
CCH Reference - 2008FED ¶42,897.15
CCH Reference - 2008FED ¶42,897.57
Tax Research Consultant
CCH Reference - TRC IRS: 21,108