Argued Feb. 14, 2013.
[Copyrighted Material Omitted]
[Copyrighted Material Omitted]
Desmond Bartholomew, pro se.
Bradley A. Sarnell, Assistant Attorney General, with whom Irvin B. Nathan, Attorney General for the District of Columbia, Todd S. Kim, Solicitor General, and Donna M. Murasky, Deputy Solicitor General, were on brief, for respondent.
Before BECKWITH and McLEESE, Associate Judges, and RUIZ, Senior Judge.
RUIZ, Senior Judge:
Petitioner, Desmond Bartholomew, brings this appeal against the District of Columbia Office of Tax and Revenue (OTR), claiming that the OTR erroneously determined that he was a domiciliary of the District of Columbia for tax purposes and that he was not a bona fide resident of the United States Virgin Islands (USVI) during 2003 and 2004, making him subject to taxation in the District of Columbia in those years. He also claims that the amount of tax assessed is too high because OTR improperly denied his claim to head of household filing status and disallowed deductions for moving expenses and income taxes withheld from his paychecks by the USVI government. Petitioner made several strong arguments in support of his position, but ultimately, however, we must affirm the decision of the Office of Administrative Hearings affirming OTR's determinations. We conclude that substantial evidence supports the administrative decision that Bartholomew was domiciled in the District of Columbia during the relevant tax years. Even though we fault the determination that he was not a bona fide resident of the USVI, we affirm the agency's ultimate conclusion that Bartholomew was subject to D.C. tax, because he failed to comply with the tax provision available to bona fide residents of the USVI that would have exempted him from filing federal and D.C. tax returns. We see no error requiring reversal concerning the amount of the tax assessment.
Desmond Bartholomew is a native of Grenada who lived in Washington, D.C. with his wife and daughter until May 2002, when he accepted a job as chief economist for the U.S. Virgin Islands Bureau of Economic Research. He moved to St. Thomas and lived there until mid-2005, while his
family continued to reside in the District of Columbia.
While living and working in the USVI, Bartholomew filed federal income tax returns for tax years 2003 and 2004 with the Internal Revenue Service. In those forms, he listed his previous Washington, D.C. address on Farragut Street as his " home address." Bartholomew did not file a tax return with the USVI or with the District of Columbia for either year. In late 2004, Bartholomew was diagnosed with a potentially serious medical disorder, and was advised by his doctor to seek treatment in the United States mainland. In early 2005, Bartholomew purchased the apartment in the District of Columbia where his wife and child had been living. In May 2005, Bartholomew resigned from his post with the USVI government and returned to live with his family.
After returning to the District of Columbia, Bartholomew filed an amendment to his 2003 federal tax return, which triggered an inquiry from the OTR. As a result of that inquiry, OTR determined that Bartholomew should have filed an income tax return— form D-40— with the District of Columbia for the years 2003 and 2004 because it determined that he was still a resident of the District. OTR sent Bartholomew a notice in August 2008, informing him that he owed the District a balance of $3,228.71 for the tax years 2003 ($3,122.47) and 2004 ($106.24). In addition, OTR garnished Bartholomew's wages and disallowed Bartholomew's itemized deductions and moving expenses for lack of substantiation for the year 2003. Bartholomew believed he did not owe the District any taxes, as he was residing in the USVI during those years, and in September 2008 he requested an audit. Richard Mack, an auditor with OTR, was the lead investigator assigned to Bartholomew's audit.
Nearly three years later, in February 2011, OTR sent a Notice of Proposed Audit Changes that increased Bartholomew's total tax deficiency to $8,719.00. Bartholomew met with the auditor on March 17, 2011, in an " Informal Conference" as part of the audit process. They discussed Bartholomew's status as a resident of the USVI, and despite Bartholomew's protests, the auditor determined that he was a resident of the District in 2003 and 2004 for tax purposes. To determine that Bartholomew was not a resident of the USVI during those years, the auditor focused on whether Bartholomew intended to abandon his domicile in D.C., or had established that he " was no longer a resident of the District of Columbia." Despite the fact that Bartholomew could prove he worked and lived in the USVI from mid-2002 to mid-2005, the auditor relied on the following factors to determine that Bartholomew was not a bona fide resident of the USVI in 2003 and 2004: Bartholomew did not file a USVI tax return in 2003 or 2004; he listed his D.C. address as his home address on his federal tax returns for those years; his wife and child remained in D.C. at the address Bartholomew lived in both before and after his time in the USVI; and he had not registered to vote in the USVI. The auditor reported that for the years 2003 and 2004, Bartholomew paid only federal tax, but no local taxes (either to D.C. or the USVI).
Following the informal conference, OTR sent a letter dated May 26, 2011, to Bartholomew, notifying him that his tax deficiency and penalty increased again, this time to $10,997.00. The letter explained the reason for the tax assessment, including OTR's determination that Bartholomew was not a bona fide resident of the USVI and that he had retained his domicile in the District, quoting several statutes, including D.C.Code §§ 47-1805.02 (2001), -1801.04 (2001), and 26 U.S.C. § 932(c) (2003). OTR reaffirmed its determination that Bartholomew was not a bona fide resident of the USVI:
No new information was presented at the informal conference, which was held on 3/17/2011, to establish your intent to abandon your residence in the District of Columbia or to establish a new domicile in the U.S. Virgin Islands. For example, while in the Virgin Islands, you were purchasing a home in the District of Columbia. Your letter of resignation from the Bureau of Economic Research, St. Thomas, V.I. was dated 4/13/2005 and you previously purchased your home in the District of Columbia with a settlement date of 1/2005. No information was presented to establish a home in the USVI. No payment of taxes to the USVI was established since you have stated no tax returns were filed for the years, 2003 and 2004, with the USVI [Bureau of Internal Revenue] to date. Your domicile with your wife and daughter is in the District of Columbia prior to your work in the USVI, and you returned to the same address and domicile, which you purchased in January, 2005. Therefore, Form D-40 Individual Income Tax Return was due for the year 2003 and 2004.
Bartholomew filed a Taxpayer's Protest of a Proposed Assessment, appealing the assessment to the Office of Administrative Hearings (OAH) on June 2, 2011. A hearing was held on September 8, 2011, with Administrative Law Judge (ALJ) Claudia Barber presiding. At the hearing, Bartholomew testified on his own behalf, claiming that he was a bona fide resident of the USVI, and not domiciled or a resident of the District of Columbia, during the years 2003 and 2004. He explained— and submitted documentary proof— that he filed a federal income tax return, even though he was not required to do so, and that he had not filed a tax return with the USVI, but that income taxes were withheld from his paychecks by the USVI while he was working there. Bartholomew stated that he still had not filed a tax return with the USVI as of the date of the hearing because he was waiting for the audit with OTR to be resolved. In support of his claim that he was a resident of the USVI during 2003 and 2004, Bartholomew testified about his ties to the local community (he made charitable contributions to organizations in the USVI and attended two local churches); stated that his trips back to Washington, D.C. were work-related; and offered into evidence a blank check with his printed name from a bank in the USVI to show that he had established an account for his financial transactions in the USVI.
The auditor testified at the hearing in support of OTR's conclusion that Bartholomew had not been a resident of the USVI but of the District of Columbia during 2003 and 2004. First, he noted that Bartholomew did not file a tax return with the USVI. Second, the auditor found it important that Bartholomew's wife and child remained in the District during the time
covered by the audit, and that on his USVI employment documents, Bartholomew listed the apartment on Farragut Street in Washington, D.C., as his home address, the same apartment he later purchased in January 2005. Third, Bartholomew never registered to vote in the USVI, and left his automobile and other possessions in the District of Columbia.
After the hearing, OAH allowed both parties to submit post-hearing briefs on the legal arguments, as well as status updates on an issue regarding wage garnishments. After considering the briefs, OAH concluded that Bartholomew " was not a bona fide resident of the U.S. Virgin Islands during the tax period of 2003 and 2004." Thus, according to OAH, he " was required to file U.S. and DC tax returns for the requisite period because [he] never relinquished his residency in the District of Columbia and never changed his domicile." Bartholomew v. District of Columbia Office of Tax and Revenue, Case No. 2011-OTR-00015, 2011 WL 8844133, at *1 (Dec. 15, 2011). The OAH ordered Bartholomew to pay taxes owed to the District in the amount of $7,033, but did not require him to pay interest or penalty because the OTR audit had taken a long time through no fault of his own.
Bartholomew moved for reconsideration and a stay of the OAH order. In his motion, he attempted to add new evidence to the record to support his argument that he was a bona fide resident of the USVI: a checking account statement from a USVI bank for the period of August 10-September 10, 2004; a payroll stub dated April 30, 2005, reflecting direct deposit to a USVI bank; and a letter dated June 7, 2002, from Ford Motor Credit Corp. authorizing him to take his vehicle to the USVI. Bartholomew also argued that he was entitled to a head of household exemption (2004), and to deductions for moving expenses (2003) and taxes withheld by the USVI government (2003 and 2004). OAH denied the motion for a stay of payment because it found that Bartholomew had not stated " any ground or reason warranting a stay" under OAH Rule 2830.4: " whether [Bartholomew was] likely to succeed on the merits, whether denial of the stay will cause irreparable injury, whether and to what degree granting the stay will harm other parties, and whether the public interest favors granting a stay." OAH determined that Bartholomew's proffered evidence of residence in the USVI would " not be made part of the record [or] considered," because Bartholomew had not persuaded it that " [n]ew evidence has been discovered that previously was not reasonably available," as required by OAH Rule 2828.5(e). Nonetheless, OAH concluded that the proffered evidence did " not change the facts and circumstances analysis" in its final order. After considering— and disallowing— Bartholomew's claim for deductions, OAH denied the motion for reconsideration. Bartholomew filed this timely petition for review of the OAH order.
" [I]n this world nothing can be said to be certain, except death and taxes." Letter from Benjamin Franklin to Jean Baptiste Leroy (Nov. 13, 1789), in 10 THE WRITINGS OF BENJAMIN FRANKLIN 69 (Albert Henry Smyth ed.) (1970). Though taxes might be certain, tax laws still require interpretation, and in this case we must discern the government body to which Bartholomew was required to send his tax return and pay taxes. Bartholomew claims that he was a resident of the USVI for the tax years 2003 and 2004, and that, as such, he did not owe taxes to the District of Columbia. Bartholomew bases this claim on the fact that he was not required
to file a federal or D.C. income tax return but was required to file a tax return only with the USVI. OTR defends OAH's affirmance of the determination that Bartholomew had not abandoned his domicile in the District and had not established himself as a bona fide resident of the USVI during tax years 2003 and 2004.
Our review of OAH decisions is governed by D.C.Code § 2-510(a)(3)(A) (2013 Repl.) (providing that a court may set aside administrative action that is " arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." ). We must " affirm an OAH decision when (1) OAH made findings of fact on each materially contested issue of fact, (2) substantial evidence supports each finding, and (3) OAH's conclusions flow rationally from its findings of fact." Morris v. United States Envtl. Prot. Agency, 975 A.2d 176, 180 (D.C.2009) (citation omitted). However, this court generally reviews issues of statutory construction de novo, see Wynn v. United States, 48 A.3d 181, 188 (D.C.2012), giving deference to the reasonable interpretation of the agency charged with implementing the statute, which, in this case, is OTR. See Hotel Tabard Inn v. District of Columbia Dep't of Consumer & Regulatory Affairs, 747 A.2d 1168, 1174 (D.C.2000) (citations omitted). In cases such as this, where questions of law and fact are mixed, we apply " our usual deferential standard of review for factual findings ... and apply de novo review to the ultimate legal conclusions based on those facts." District of Columbia Office of Tax & Revenue v. BAE Sys. Enter. Sys., Inc., 56 A.3d 477, 480 (D.C.2012) (internal quotations and citations omitted).
This case requires us to consider two similar, but distinct concepts within the context of tax liability: domicile and residence. The distinction between domicile and residence is especially important in this case, because of the tax provision made applicable by 26 U.S.C. § 932 to bona fide residents of the USVI.
The federal tax scheme applicable to the USVI
In 1921, shortly after the United States acquired the Virgin Islands from Denmark, Congress created a tax system for the Virgin Islands designed to make it self-supporting. See HMW Indus., Inc. v. Wheatley, 504 F.2d 146, 150 (3d Cir.1974) (citation omitted). The USVI operates under a " mirror code" of the Internal Revenue Code, which substitutes " Virgin Islands" for " United States." See 26 U.S.C. §§ 932(c)(2), 7654(a); 48 U.S.C. § 1397; Coffey v. C.I.R., 663 F.3d 947, 949 (8th Cir.2011). Under this statutory scheme, bona fide residents of the USVI may be exempt from the obligation to file a return and pay taxes to the United States. See Vento v. Director of Virgin Islands Bureau of Internal Revenue, 715 F.3d 455, 465 (3rd Cir.2013). Section 932 of the Internal Revenue Code provides that a person who is a bona fide USVI resident must file an income tax return with the USVI. 26 U.S.C. § 932(c)(2); cf. 26 U.S.C. § 932(a)(2) (requiring ...