Falstone, Inc. - Page 3




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          the years in issue, petitioner was an "inhabitant" of the USVI              
          within the meaning of section 28(a) of the Revised Organic Act.             
               Through the Naval Appropriations Act, ch. 44, 42 Stat. 122             
          (1921), Congress made the United States income tax laws                     
          applicable to the USVI.  See Danbury, Inc. v. Olive, 820 F.2d               
          618, 620 (3d Cir. 1987); Condor Intl., Inc. v. Commissioner, 98             
          T.C. 203, 211 (1992), affd. in part and revd. in part on other              
          grounds 78 F.3d 1355 (9th Cir. 1996).  The Naval Appropriations             
          Act created a separate territorial income tax which the USVI                
          Government would collect by applying the United States income tax           
          laws with necessary changes where appropriate.  See Bizcap, Inc.            
          v. Olive, 892 F.2d 1163, 1165 (3d Cir. 1989); Condor Intl., Inc.            
          v. Commissioner, supra.  A "mirror" system of taxation was                  
          created by substituting "Virgin Islands" for "United States", in            
          the Internal Revenue Code.  See Bizcap, Inc. v. Olive, supra;               
          Condor Intl., Inc. v. Commissioner, supra.  To satisfy a USVI tax           
          obligation, a corporation inhabiting the USVI was required to pay           
          the same amount of taxes to the USVI Bureau of Internal Revenue             
          (BIR) as a domestic U.S. corporation would be required to pay to            
          the Internal Revenue Service (IRS) under the same circumstances.            
          See Bizcap, Inc. v. Olive, supra; Condor Intl., Inc. v.                     
          Commissioner, supra.                                                        
               The Naval Appropriations Act required some corporations to             
          file two returns.  For example, a domestic U.S. corporation doing           






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