Court Opinion

ID: 868140
Source: CourtListenerOpinion
Date Created: 2013-05-17 16:35:16.349096+00
Date Added: 2024-06-11T09:57:32.773953
License: Public Domain

PRECEDENTIAL

     UNITED STATES COURT OF APPEALS
          FOR THE THIRD CIRCUIT

     Nos. 11-3490, 11-3491, 11-3561 & 11-3562

      BARRY COOPER; SANDRA COOPER,
                         Appellants in 11-3490

                        v.

   COMMISSIONER OF INTERNAL REVENUE;
      BUREAU OF INTERNAL REVENUE

           PATRICK A. MCGROGAN,
                          Appellant in 11-3491

                        v.

    COMMISSIONER OF INTERNAL REVENUE;
VIRGIN ISLANDS BUREAU OF INTERNAL REVENUE

              EMMIT J. MCHENRY,
                           Appellant in 11-3561

                        v.

   COMMISSIONER OF INTERNAL REVENUE;
 VIRGIN ISLANDS BUREAU OF INTERNAL REVENUE

                   GEORGE C. HUFF,
                               Appellant in 11-3562

                               v.

      COMMISSIONER OF INTERNAL REVENUE;
         BUREAU OF INTERNAL REVENUE

   On Appeal from the District Court of the Virgin Islands
           (Division of St. Thomas and St. Croix)
 (D. C. Nos. 1-10-cv-00040; 3-09-cv-00167; 1-10-cv-00021;
                      1-10-cv-00026)
     District Judges: Honorable Raymond L. Finch and
                 Honorable Curtis V. Gomez

               Argued on December 4, 2012

 Before: SMITH, HARDIMAN, and ROTH, Circuit Judges

               (Opinion filed: May 17, 2013)

Joseph A. DiRuzzo, III, Esquire (Argued)
Fuerst Ittleman
1001 Brickell Bay Drive
32nd Floor
Miami, FL 33131

      Counsel for Appellants

                               2
Kathryn Keneally, Esquire
Assistant Attorney General
Kenneth L. Greene, Esquire
Jennifer M. Rubin, Esquire (Argued)
Robert W. Metzler, Esquire
Tax Division
United States Department of Justice
950 Pennsylvania Avenue, N.W.
P. O. Box 502
Washington, DC 20044

Christopher D. Belen, Esquire
Tax Division
United States Department of Justice
P. O. Box 227
Ben Franklin Station
Washington, DC 20044

      Counsel for Appellee Commissioner of Internal
      Revenue

Vincent Frazer, Esquire
Attorney General
Bernard M. VanSluytman, Esquire
Solicitor General
Paul J. Paquin, Esquire
Deputy Solicitor General
Tamika M. Archer, Esquire (Argued)
Tiffany V. Monrose, Esquire
Pamela R. Tepper, Esquire
Anquannette Chinnery-Montell, Esquire
Office of Attorney General of Virgin Islands

                              3
Department of Justice
34-38 Kronprindsens Gade
GERS Bldg., 2nd Floor
St. Thomas, Virgin Islands 00802

      Counsel for Appellee Virgin Islands Bureau of Internal
      Revenue

                         OPINION

ROTH, Circuit Judge:

 I.   Introduction

        In this consolidated appeal, appellants, Barry Cooper,
Sandra Cooper, Emmit McHenry, George Huff, and Patrick
McGrogan (collectively Taxpayers), filed suits in the District
Court of the Virgin Islands seeking redeterminations of their
tax liability from the Internal Revenue Service (IRS) and tax
refunds from the Virgin Islands Bureau of Internal Revenue
(VIBIR). In separate proceedings, the courts below dismissed
Taxpayers‘ claims against the IRS for lack of subject matter
jurisdiction. McGrogan also filed a claim against the VIBIR
that was dismissed due to the expiration of the statute of
limitations. For the reasons that follow, we will affirm the
decisions below.

                              4
    II.   Background

          A. Framework

        This case is about Taxpayers‘ attempt to lawfully
reduce their income tax liability by claiming certain tax
benefits afforded exclusively to bona fide residents of the
United States Virgin Islands. The Virgin Islands1 is a
territory of the United States. As a territory, the Virgin
Islands does not share the same sovereign independence as
the states of the union; rather, the power to pass rules and
regulations governing territories like the Virgin Islands rests
with Congress. U.S. Const. Art. IV § 3, cl. 2; Bluebeard’s
Castle v. Gov’t of the Virgin Islands, 321 F.3d 394, 400 (3d
Cir. 2003).

        In the Naval Service Appropriation Act of 1922,
Congress passed legislation applying the Internal Revenue
Code of the United States to the Virgin Islands. See Pub. L.
94-932 (codified at 48 U.S.C. § 1397); Chase Manhattan
Bank, N.A. v. Gov’t of the Virgin Islands, 300 F.3d 320, 322
(3d Cir. 2002). This legislation provides that ―[t]he income-
tax laws in force in the United States of America and those
which may hereafter be enacted shall be held to be likewise in
force in the Virgin Islands of the United States, except that
the proceeds of such taxes shall be paid into the treasuries of
said islands.‖ 48 U.S.C. § 1397. This statutory scheme has
come to be known as the ―mirror code‖ because Congress
designed Virgin Islands tax law to mirror the tax laws in
effect on the mainland. Chase Manhattan Bank, 300 F.3d at

1
  Unless otherwise designated in this opinion, the term
―Virgin Islands‖ refers to the United States Virgin Islands.

                              5
322. As a result of this legislation, the words ―Virgin
Islands‖ are substituted for the words ―United States‖
throughout the Internal Revenue Code. Bizcap, Inc. v. Olive,
892 F.2d 1163, 1165 (3d Cir. 1989).

        Congress has crafted special rules governing the
taxation of Virgin Islands residents. One of these rules states
that any ―bona fide resident of the Virgin Islands‖ will be
granted a full exemption from paying her federal income
taxes—and therefore will not be required to pay taxes to the
federal government, so long as she files a territorial tax return
that fully reports her income and then fully pays her territorial
taxes to the VIBIR.2 See I.R.C. § 932(c); Abramson Enters.,
Inc. v. Gov’t of the Virgin Islands, 994 F.2d 140, 142 (3d Cir.
1993). This exemption is significant because Congress
authorized the Virgin Islands government to create an
Economic Development Program granting substantial tax
incentives to certain Virgin Islands taxpayers. See I.R.C.
§ 934(b) (Congressional authorization); 29 V.I.C. § 708(b)
(bona fide residency requirement); 29 V.I.C. § 713b (income
tax reduction). As applied to this case, Taxpayers might have
realized considerable tax savings under the Economic
Development Program, but only if they qualified as bona fide
residents of the Virgin Islands.

2
  Before 2004, I.R.C. § 932(c) required only that the taxpayer
claim bona fide residency in the Virgin Islands ―at the close
of the taxable year.‖ I.R.C. § 932(c) (West 2003). The
statute was amended in 2004 and changed the requirement to
―during the entire taxable year.‖ I.R.C. § 932(c) (West 2004).
These amendments, however, are not relevant in this appeal.

                               6
      B. Procedural Posture

       Between 2001 and 2004 Taxpayers claimed bona fide
residency in the Virgin Islands and eligibility for the tax
benefits granted by the Economic Development Program.3
Consequently, Taxpayers filed tax returns with the VIBIR and
paid their taxes only to the Virgin Islands government.
Taxpayers did not file federal income tax returns.

          1. Claims Against the IRS

       In late 2009 and early 2010, Taxpayers were issued tax
prepayment deficiency notices by the IRS challenging their
claims of bona fide residency in the Virgin Islands. In
separate proceedings, Taxpayers challenged the deficiency
notices in the District Court of the Virgin Islands. The
District Court granted the IRS‘s motion to dismiss on the
grounds that the Tax Court was the only proper forum for
their suits against the IRS and therefore the District Court of
the Virgin Islands lacked subject matter jurisdiction to
adjudicate the dispute.4

3
  McHenry claimed bona fide residency in 2001 and 2002.
The Coopers claimed bona fide residency in 2002 and 2003.
McGrogan and Huff claimed bona fide residency in 2002,
2003, and 2004.
4
  The courts below issued certifications of final judgments
under Federal Rule of Civil Procedure 54(b) as to the
dismissals of the claims against the IRS brought by the
Coopers, McHenry, and Huff.

                              7
       Each Taxpayer has also filed redetermination petitions
in the Tax Court. Those proceedings are currently pending.

           2. Claims against the VIBIR

        After receiving deficiency notices from the IRS in late
2009, McGrogan, in an effort to avoid double taxation, filed a
petition in the District Court of the Virgin Islands in February
2010 seeking a refund of taxes paid to the VIBIR. The
District Court granted the VIBIR‘s motion to dismiss
McGrogan‘s refund petition because McGrogan filed his
claim outside the statute of limitations. See I.R.C. § 6511(a)
(statute of limitations for a refund petition expires either three
years after the time of filing an income tax return or two years
after the time of payment of the tax owed, whichever expires
last).

       The Coopers, McHenry, and Huff also filed refund
claims against the VIBIR. These claims are still pending
before the District Court and are not at issue in this appeal.

                                8
III.   Discussion5

       A. Taxpayers’ Claims Against the IRS

        The District Courts correctly held that the Tax Court is
the only venue for Taxpayers‘ claims against the IRS because
Congress has designated the Tax Court as the only court with
jurisdiction to adjudicate a tax prepayment deficiency dispute.
Under the doctrine of sovereign immunity, the United States
―is immune from suit save as it consents to be sued . . . and
the terms of its consent to be sued in any court define that
court‘s jurisdiction to entertain the suit.‖ United States v.
Testan, 424 U.S. 392, 399 (1976) (citation and internal
quotation marks omitted).         ―A waiver of the Federal
Government‘s sovereign immunity must be unequivocally
expressed in statutory text, and will not be implied.‖ Lane v.
Pena, 518 U.S. 187, 192 (1996) (citation omitted). The
sovereign immunity doctrine applies to the IRS because it is
an agency of the United States. See Beneficial Consumer
Disc. Co. v. Poltonowicz, 47 F.3d 91, 94 (3d Cir. 1995).

      Section 6213 of the Internal Revenue Code provides
the sole waiver to sovereign immunity that authorizes a
taxpayer to challenge a federal income tax prepayment

5
  We have appellate jurisdiction over McGrogan‘s appeal
under 28 U.S.C. § 1291. In light of the Rule 54(b)
certifications of final judgments as to the claims brought by
the Coopers, McHenry, and Huff against the IRS, we have
appellate jurisdiction over those claims under 28 U.S.C. §
1291. We exercise plenary review over a district court‘s
grant of a motion to dismiss. Grier v. Klem, 591 F.3d 672,
676 (3d Cir. 2010).

                               9
deficiency notice. Under this section, a taxpayer who
receives a tax prepayment deficiency notice has but one
venue to seek a redetermination: the Tax Court. See I.R.C. §
1613(a). Federal law does not permit a taxpayer to file a
challenge to a deficiency notice in a federal district court
unless the taxpayer pays the contested amount in full before
filing suit. See United States v. Clintwood Elkhorn Mining
Co., 553 U.S. 1, 7-8 (2008). Here, Taxpayers did not pay the
contested amount in full before filing suit in the District
Court. Therefore, as the courts held, the Tax Court has
exclusive jurisdiction over Taxpayers‘ redetermination
petitions.

        Taxpayers assert that the sovereign immunity bar does
not apply and that their claims were properly brought in the
District Court of the Virgin Islands for three reasons: (1) by
enacting 48 U.S.C. § 1612(a), Congress purportedly waived
sovereign immunity by vesting exclusive subject matter
jurisdiction over all federal tax claims applicable to the Virgin
Islands with the District Court of the Virgin Islands; (2) the
deficiency notices issued by the IRS were actually deficiency
notices issued by the VIBIR, and therefore the District Court
of the Virgin Islands has jurisdiction over this dispute under
48 U.S.C. § 1612(a); and (3) public policy necessitates a
finding of subject matter jurisdiction in the District Court of
the Virgin Islands. Each argument is without merit.

          1. Waiver of Sovereign Immunity in 48 U.S.C. §

              1612(a)

      Taxpayers assert that 48 U.S.C. § 1612(a) serves as a
waiver of sovereign immunity. This argument is unavailing.

                               10
Section 1612(a) states that ―[t]he District Court of the Virgin
Islands shall have exclusive jurisdiction over all criminal and
civil proceedings in the Virgin Islands with respect to the
income tax laws applicable to the Virgin Islands, regardless
of the degree of the offense or the amount involved . . ..‖ 48
U.S.C. § 1612(a). Taxpayers thus argue that the statute vests
exclusive jurisdiction over their redetermination petitions in
the District Court of the Virgin Islands because their claims
are civil proceedings with respect to the income tax laws
applicable to the Virgin Islands. However, as Taxpayers
acknowledge, we rejected this very argument in Birdman v.
Office of the Governor, 677 F.3d 167 (3d Cir. 2012).

        In Birdman, we held that the grant of exclusive
jurisdiction contained in Section 1612(a) is merely a
―geographic limitation.‖ Id. at 176. Thus, the District Court
of the Virgin Islands‘ jurisdiction is ―‗exclusive‘ only against
other courts ‗in the Virgin Islands.‘‖ Id. Consequently, if
there were a question as to whether the District Court of the
Virgin Islands or another court in the Virgin Islands had
jurisdiction over a tax dispute, Section 1612(a) would vest
jurisdiction over that dispute in the District Court of the
Virgin Islands. Id. The statute does not grant the District
Court of the Virgin Islands exclusive jurisdiction over all
matters that implicate the tax laws applicable in the Virgin
Islands. Id. A redetermination petition must be brought in
the Tax Court even if it involves issues relating to the Virgin
Islands. See WIT Equip. Co. v. Director, Virgin Islands
Bureau of Internal Revenue, 185 F. Supp. 2d 500, 503 (D.V.I.
2001).

       We remain bound by Birdman unless the decision is
reversed by the Supreme Court or by this Court sitting en

                              11
banc. In re Lemington Home for Aged, 659 F.3d 282, 294 n.6
(3d Cir. 2011). Consequently, we agree that the courts below
correctly interpreted I.R.C. § 6213(a) and 48 U.S.C. § 1612(a)
and will affirm their holdings that the District Court of the
Virgin Islands lacks jurisdiction over Taxpayers‘ challenges
to the deficiency notices they received from the IRS.

          2. Coordination Between the IRS and VIBIR

       Notwithstanding the sovereign immunity bar and our
decision in Birdman, Taxpayers argue in the alternative that
the District Court of the Virgin Islands has an independent
source of subject matter jurisdiction over their
redetermination petition under 48 U.S.C. § 1612(a) because
the notices of deficiency sent by the IRS to Taxpayers were
actually issued on behalf of the VIBIR. The basis for this
contention is that two alternative positions in the deficiency
notices sent to Taxpayers by the IRS state ―you failed to fully
pay your income tax liability to the USVI.‖

        Taxpayers assert that the language of the deficiency
notices is evidence that the IRS stepped into the shoes of the
VIBIR and was acting on behalf of the VIBIR in an attempt
to collect taxes for the Virgin Islands government.
Consequently, Taxpayers state that under this theory the
District Court of the Virgin Islands has jurisdiction to hear
their claim because redetermination petitions filed against the
VIBIR are properly brought in the District Court of the Virgin
Islands. See 48 U.S.C. § 1612(a) (stating that the District
Court of the Virgin Islands has exclusive jurisdiction with
respect to the income tax laws applicable to the Virgin
Islands); 33 V.I.C. § 943 (stating that redetermination

                              12
petitions filed against the VIBIR must be brought in the
District Court of the Virgin Islands).

        The IRS has a different explanation as to the meaning
and purpose of the deficiency notices: the IRS sought to
collect taxes owed to the federal government, a fact that was
indicated in the notices the IRS sent to Taxpayers. The
primary position of the IRS was that Taxpayers were not bona
fide residents of the Virgin Islands under I.R.C. § 932(c)(4).
If this primary position failed, Taxpayers‘ tax liability to the
Virgin Islands Government would become relevant because
the IRS would argue in the alternative that Taxpayers were
liable to pay taxes to both the United States Government and
Virgin Islands Government. As a result, the IRS needed to
include the statement that Taxpayers failed to fully pay their
taxes to the VIBIR as an alternate position to preserve the
issue if it arose during litigation.

       Ultimately, there is no basis in law or fact suggesting
that the IRS could act or was acting on behalf of the VIBIR.
Although the IRS and the VIBIR coordinate tax policy, the
IRS is responsible for enforcing federal tax laws and the
VIBIR is responsible for enforcing territorial tax laws. The
IRS and VIBIR are therefore separate, distinct, and
independent taxing authorities. See McHenry v. C.I.R., 677
F.3d 214, 220-21 (4th Cir. 2012). Furthermore, even if the
IRS could step into the shoes of the VIBIR, Taxpayers‘
theory is unsupported by the factual record. The deficiency
notices were issued by the IRS, not the VIBIR. The notices
asserted a federal tax deficiency, not a Virgin Islands tax
deficiency. In fact, the tax redetermination petitions filed by
Taxpayers acknowledge that the deficiency notices were
issued by the IRS. Moreover, Taxpayers‘ redetermination

                              13
petitions stated that they were challenging the position of the
IRS, not the VIBIR.

        The IRS‘s explanation of the deficiency notices and
the documentary record makes plain that the IRS was not
acting on behalf of the VIBIR and that the notices were not
seeking a determination of Virgin Islands tax liability. As a
result, the District Courts correctly rejected the argument that
the redetermination petitions had been filed by the IRS acting
on behalf of the VIBIR.

          3. Taxpayers’ Policy Arguments

        Taxpayers point to the possibility of inconsistent
results and double taxation if the cases against the IRS filed in
the Tax Court reach different outcomes than the cases filed
against the VIBIR in the District Court of the Virgin Islands.
Taxpayers further state that allowing the District Court of the
Virgin Islands to resolve the entire dispute would improve
judicial economy by allowing one court to resolve the related
issues in the redetermination petitions brought against the IRS
and the VIBIR. Consequently, Taxpayers argue that these
considerations support a finding that the entire litigation
should be before one court: the District Court of the Virgin
Islands.

       Although we are mindful of the possibility of
inconsistent results and double taxation, Taxpayers‘ claims
must proceed under the jurisdictional framework established
by Congress. The Tax Court has jurisdiction over federal tax
deficiency proceedings under I.R.C. §§ 6213 and 6214,
federal district courts have jurisdiction over tax refund
proceedings under I.R.C. § 7422, and the District Court of the

                               14
Virgin Islands has jurisdiction over proceedings implicating
territorial tax law under 48 U.S.C. § 1612(a). In light of the
unambiguous statutory scheme established by Congress
governing the adjudication of tax disputes and the firm
sovereign immunity bar, Taxpayers‘ policy arguments are
unpersuasive. See United States v. Craig, 694 F.3d 509, 512
(3d Cir. 2012) (―[N]either fairness considerations nor rules
applicable to private disputes can alone provide grounds for
abrogating sovereign immunity.‖ (citation and internal
quotation marks omitted)).

       Additionally, Taxpayers‘ fear of being subject to
double taxation without a remedy appears to be misplaced
because the United States and the Virgin Islands have
established an administrative procedure that could grant them
relief in the event of double taxation.              See Tax
Implementation Agreement between the United States of
America and the Virgin Islands, 1989-1 C.B. 347, Art. 6
(1989). Nonetheless, even if Taxpayers might be unfairly
subjected to double taxation, this equitable consideration does
not override the sovereign immunity bar that may only be
waived by Congress.

       B. McGrogan’s Claims Against the VIBIR

      As noted above, the only claims against the VIBIR that
we are being asked to consider are McGrogan‘s requests for
refunds for tax years 2002, 2003, and 2004. The District
Court correctly granted the VIBIR‘s motion to dismiss
because the statute of limitations barred his claims against the
VIBIR.
      Federal courts lack jurisdiction to entertain refund
claims brought outside of the statute of limitations. See

                              15
Becton Dickinson & Co. v. Wolckenhauer, 215 F.3d 350, 353-
54 (3d Cir. 2000). The applicable statute of limitations
provides that a taxpayer seeking a refund must file a claim for
a refund within either three years from the time he filed his
income tax return or two years from the time he paid the tax
owed, whichever period expires last. See I.R.C. § 6511(a).
McGrogan concedes that he filed his refund petition outside
of this period, so the District Court did not have jurisdiction
to adjudicate McGrogan‘s claims against the VIBIR due to
the expiration of the statute of limitations.

       McGrogan advances three arguments in an attempt to
overcome this jurisdictional bar: (1) the mitigation provisions
contained in I.R.C. §§ 1311-14 permit his untimely claim; (2)
the statute of limitations was equitably tolled; and (3) the
doctrine of equitable recoupment permits his untimely claim.
Each of these arguments is without merit.

          1. Mitigation Provisions

       The mitigation provisions in the Internal Revenue
Code allow qualifying taxpayers to bring refund claims that
would otherwise be barred by the statute of limitations. See
I.R.C. § 1311(a); TLI, Inc. v. United States, 100 F.3d 424,
427-28 (5th Cir. 2012). Mitigation applies only if: (1) there
has been a final determination under § 1313; (2) there has
been a ―circumstance of adjustment‖ under § 1312; and (3)
one of the ―conditions necessary for adjustment‖ in § 1311(b)
has been met. See Kappel’s Estate v. C.I.R, 615 F.2d 91, 94
(3d Cir. 1980). ―The relief provided by the mitigation
statutes is limited to defined circumstances, and does not
purport to permit the correction of all errors and inequities.‖
Fruit of the Loom, Inc. v. C.I.R., 72 F.3d 1338, 1341 (7th Cir.

                              16
1996) (citations and internal quotation marks omitted). The
mitigation provisions should be given a liberal interpretation.
See Koss v. United States, 69 F.3d 705, 709 (3d Cir. 2005).
The taxpayer bears the burden of proving that each of the
three mitigation provisions applies. Id.

        The mitigation provisions do not afford relief to
McGrogan because he cannot show that a ―circumstance of
adjustment‖ has occurred. McGrogan claims a circumstance
of adjustment for the double inclusion of income. However,
the Internal Revenue Code permits mitigation for the double
inclusion of income only if the taxpayer‘s claim involves ―an
item which was erroneously included in the gross income of
the taxpayer for another taxable year or in the gross income of
a related taxpayer.‖ I.R.C. § 1312(1). Such a double
inclusion has not occurred in this case. McGrogan does not
allege having erroneously paid taxes in an incorrect tax year
nor has he claimed to have erroneously paid taxes for a
related taxpayer. Rather, McGrogan‘s overpayment of taxes
is a situation not contemplated by the mitigation statute:
payment to the wrong taxing entity. Although we should
liberally interpret the mitigation statute, we may not rewrite
its terms. As a result, the mitigation statute does not apply
because the circumstance of adjustment claimed by
McGrogan is outside the ambit of I.R.C. § 1312(1).

       Even though McGrogan‘s claim falls outside the scope
of the mitigation statute, he seeks an exception to it because
of the special relationship between the United States and the
Virgin Islands and the purportedly collusive coordination of
tax policy between the IRS and the VIBIR. McGrogan also
points to a possibility of double taxation. Again, while we are
cognizant of the equitable concerns presented in this case,

                              17
these policy arguments still do not change the fact that
McGrogan‘s claims fall outside of the mitigation scheme
established by Congress. We are powerless to create a
judicial exception to the mitigation statute to accommodate
him. See, e.g., United States v. Dalm, 494 U.S. 596, 602
(1990) (absent a statutory exception, when statute of
limitations is expired, ―a suit for refund, regardless of whether
the tax is alleged to have been ‗erroneously,‘ ‗illegally,‘ or
‗wrongfully collected,‘ may not be maintained in any court.‖).
For these reasons, McGrogan may not use the mitigation
statute to avoid the statute of limitations bar.

           2. Equitable Tolling

        McGrogan argues that the doctrine of equitable tolling
should allow him to proceed with his untimely claim. This
argument overlooks the settled rule that I.R.C. § 6511
prohibits equitable tolling in refund cases. See United States
v. Brockamp, 519 U.S. 347, 352 (1997) (―Section 6511‘s
detail, its technical language, the iteration of the limitations in
both procedural and substantive forms, and the explicit listing
of exceptions, taken together, indicate to us that Congress did
not intend courts to read other unmentioned, open-ended
‗equitable‘ exceptions into the statute that it wrote.‖).
Although Congress has amended Section 6511 since
Brockamp, none of the exceptions listed in the statute of
limitations apply to McGrogan‘s situation. We see no reason
to depart from the Supreme Court‘s instructions in Brockamp
and therefore reject McGrogan‘s argument that equitable
tolling affords him an exception to the statute of limitations.

                                18
          3. Equitable Recoupment

        McGrogan‘s assertion of the doctrine of equitable
recoupment is also unpersuasive. When applicable, equitable
recoupment may allow a taxpayer to receive a credit for a tax
overpayment in a subsequent tax year. See In re Pransky, 318
F.3d 536, 544-45 (3d Cir. 2003). However, equitable
recoupment is not an independent source of subject matter
jurisdiction. See Dalm, 494 U.S. at 608. As noted above,
unless an exception like mitigation applies, the federal courts
lack jurisdiction to adjudicate refund petitions brought after
the expiration of the statute of limitations.              See
Wolckenhauer, 215 F.3d at 353-54. As a result, because the
District Court had no independent source of jurisdiction, the
doctrine of equitable recoupment does not affect the outcome
of this case.6

6
  We continue to be concerned about the possibility of double
payment of taxation to the IRS and to the VIBIR in cases
such as the ones at issue here. The IRS assured us at oral
argument it was willing to participate in the administrative
procedure set up by the Tax Implementation Agreement:

             Ms. RUBIN: At this point I don‘t believe there‘s any
     sign that there would be double taxation. We‘ve indicated –
     the IRS has indicated its willingness to participate in competent
     authority once it is determined how much taxes are owed.

             Obviously, if a particular taxpayer wins on their
     challenge, if they prove that they‘re bon[a] fide Virgin Islands
     residents and they prove that the income in question was
     Virgin Islands income, there won‘t be any double taxation
     because there won‘t be any residual U.S. tax liability. But if,

                              19
     instead, there is determined that, yes, there is U.S. tax liability
     here because these were not Virgin Islands residents, or their
     income was not Virgin Islands income and, therefore, not
     subject to the EDP benefits, then we‘ve indicated, as shown in
     the record cites I gave you for the Cooper notices of
     deficiency, that we‘re willing to go in a competent authority at
     that point to determine which tax authorities should be getting
     the money.

              The IRS then qualified the above statement:

              Ms. RUBIN: I‘m not entirely certain what the
     remedy would be in a situation where someone, unlike
     the Coopers, failed to do a protective refund claim,
     failed to take that step to protect their right to go and get
     money back from the Virgin Islands BIR if, in fact, it is
     determined that they should have instead paid all of
     their taxes to [the IRS].

       Counsel for the Taxpayers replied to the IRS‘s
argument by pointing out that the protective mechanism of a
refund claim was set up in 2006, after the time to file a
protective income tax return for calendar years 2001 and 2002
had already closed. Therefore, McHenry and McGrogan
could not have taken the protective actions advocated by the
IRS.

       In view of the statement by the IRS that negotiation
would be initiated to prevent double taxation – in the situation
we could envisage if, for instance, McGrogan lost his pending
case in the Tax Court – we trust that the IRS will live up to its
commitment to prevent double taxation.

                               20
IV.   Conclusion

       For the foregoing reasons, we will affirm the judgment
of the District Courts.

                             21