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Settlement Reached In Jeffrey Prosser Tax Case; V.I. AG A No Show

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PHILADELPHIA — Fox Rothschild has settled a nearly $400,000 tax beef with the U.S. Virgin Islands for an undisclosed amount, according to an order closing out the case in the Eastern District of Pennsylvania.

U.S. District Senior Judge Berle Schiller of the Eastern District of Pennsylvania ordered the case be dismissed with prejudice after the parties in Fox Rothschild v. The U.S. Virgin Islands informed the court they settled the matter over whether the firm’s work in the islands on a bankruptcy matter required it pay taxes to the territory.

Fox Rothschild filed its declaratory judgment action in August and there was no movement on the case since a Nov. 11 docket entry giving the U.S. Virgin Islands until Dec. 12 to respond to the suit.

But no response ever came and the court dismissed the matter in an order signed April 6 and docketed April 7.

William Stassen of Fox Rothschild represented his firm in the matter. He declined to comment, noting the terms of the settlement with the government entity were confidential. Hugh J. Hutchison of Leonard, Sciolla, Hutchison, Leonard & Tinari in Philadelphia represented the USVI.

Hutchison said that, in his role as purely local counsel, he did not know what the terms of the settlement were and could not comment on the case’s resolution.

Fox Rothschild alleged in its complaint that it didn’t owe the territory nearly $400,000 in taxes on fees the firm earned handling a bankruptcy matter in the islands. The firm also alleged the defendants unlawfully disclosed taxpayer information.

According to the complaint, the law firm argued the territory’s attempts to collect gross receipts tax is a restraint on interstate commerce and a tax assessment with no nexus to the jurisdiction seeking the payments.

Fox Rothschild was approved to represent the Chapter 7 trustee in a bankruptcy case involving telecommunications mogul Jeffrey Prosser.

The law firm’s lawyers were admitted on a pro hac vice (temporary) basis to the U.S. Virgin Islands District Court, which handled the bankruptcy case, and most of the work done on the matter was handled in Fox Rothschild’s Philadelphia and New York offices, the firm said.

And because the islands have no permanent bankruptcy judge and the judge assigned to the case was from the U.S. District Court for the Western District of Pennsylvania, most of the hearings were held in Pennsylvania, according to the complaint.

The firm said it estimated less than seven percent of its work over the four-year representation was done in the Virgin Islands.

Fox Rothschild alleged in the complaint that the USVI’s Bureau of Internal Revenue was informed that entities opposed to Prosser may owe the Virgin Islands taxes and the BIR instituted an investigation as a result, including an investigation of Fox Rothschild.

According to the complaint, Prosser’s attorney, Norman Abood, sent the firm a letter in September 2014 stating that the firm had owed taxes to the U.S. Virgin Islands and that if the firm didn’t bring it to the attention of the court overseeing the bankruptcy, Abood would. That letter was attached as an exhibit to Fox Rothschild’s complaint.

While the firm was aware of an investigation by the BIR, Fox Rothschild said it was not aware of any specific tax assessment against it. The firm reached out to its contact at the BIR asking about the Abood letter and expressing concerns that someone outside the agency would have the firm’s confidential taxpayer information.

A few days later, Fox Rothschild was assessed nearly $400,000 in gross receipts taxes. In a November telephone call, the BIR informed Fox Rothschild that it conducted an investigation into any disclosure of taxpayer information and all BIR employees were cleared of any wrongdoing, according to the complaint.

In December 2014, Fox Rothschild submitted a formal protest of the tax assessment and, as of the filing of the complaint, had not received a response from the BIR, according to the complaint.

Fox Rothschild alleged in its complaint that there was not a sufficient nexus between the firm’s work on the bankruptcy matter and the Virgin Islands for the territory to seek taxes against the firm. It also argued that the taxes assessed were done improperly, using the firm’s quarterly reports to the bankruptcy court in the Prosser matter to assess how much fees the firm earned regardless of where that work was done.

Aside from seeking a declaratory­ ­judgment that the tax assessment was improper, Fox Rothschild sought damages for the disclosure of taxpayer information.

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The Author

John McCarthy

John McCarthy

John McCarthy has been reporting on the U.S. Virgin Islands since 1989. He is originally from Detroit, Michigan.

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