138 T.C. 258">*259 JACOBS, Judge: This matter is before the Court on petitioner's motion to dismiss for lack of jurisdiction (petitioner's motion), the resolution of which turns on whether respondent should have issued a notice of final partnership administrative adjustment (FPAA) to the tax matters partner (TMP) of NASCO Corporate Finance Consultants, LLC (NASCO), pursuant 2012 U.S. Tax Ct. LEXIS 12">*14 to the procedural rules of the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), Pub. L. No. 97-248, sec. 402(a), 96 Stat. at 648, rather than issue, as respondent did, a notice of deficiency to petitioner.

Petitioner is a U.S. citizen who claims he was a bona fide resident of the U.S.Virgin Islands (Virgin Islands) during 138 T.C. 258">*260 2002, 2003, and 2004 (years involved). Respondent disputes petitioner's claim.

Petitioner filed territorial income tax returns with, and paid income tax to, the Virgin Islands Bureau of Internal Revenue (BIR) for each of years involved. Petitioner asserts that during the years involved he was a member of NASCO, which was established under the laws of the Virgin Islands as a limited liability company (LLC).^{22012 U.S. Tax Ct. LEXIS 12">*15}

Petitioner maintains he qualified for the section 932(c)(4)³ gross income exclusion for each of the years involved; consequently, he did not file Federal income tax returns or pay Federal income tax for those years. Because he did not file returns with the Internal Revenue Service (IRS), respondent conducted a nonfiler examination for the years involved and determined that petitioner did not qualify for the income exclusion under section 932(c)(4).

On February 27, 2009, respondent mailed petitioner a notice of deficiency. Respondent's primary position in the notice of deficiency was that NASCO was not a legitimate business entity and that petitioner was not a partner in NASCO. Rather, respondent alleges petitioner used NASCO in connection with "a tax avoidance scheme which involved * * * [petitioner's] improperly claiming to be a resident of the USVI and superficially recasting US-source income as USVI-source income in order to inappropriately and invalidly claim a tax credit of 90% under the USVI Economic 2012 U.S. Tax Ct. LEXIS 12">*16 Development Program."⁴

In contrast, petitioner asserts that (1) NASCO was a valid LLC organized under the laws of the Virgin Islands, was recognized as such by the BIR, and should be respected for Federal tax purposes, and (2) this case involves a partnership item and hence respondent should have issued an FPAA to the TMP of NASCO pursuant to the procedural rules of TEFRA, as opposed to issuing petitioner a notice of deficiency.

As noted supra p. 4, NASCO was organized as a Virgin Islands LLC. In this regard, the Virgin Islands government issued a certificate of existence to NASCO on June 20, 2001. Article 8 of NASCO's articles of organization provides: "No member of the Company shall be liable for the debts and obligations of the Company under Section 1303, Subsection (c) of the Uniform Limited Liability Act."

During each of the years involved NASCO had more than 10 members and at least 1 of its members was neither an individual, a C corporation, nor an estate 2012 U.S. Tax Ct. LEXIS 12">*17 of a deceased person. For each of the years involved NASCO filed a Virgin Islands partnership tax return with the BIR.

The Virgin Islands is an insular area of the United States; it is not part of one of the 50 States or the District of Columbia. The Virgin Islands is generally treated as a foreign country, seesec. 7701(a)(9); Huff v. Commissioner, 135 T.C. 222">135 T.C. 222, 135 T.C. 222">224 (2010), and has a "mirror tax" system; i.e., the Virgin Islands uses as its tax law the tax laws of the United States. In this regard, 48 U.S.C. sec. 1397 (2006) provides that the Code is to be used by the Virgin Islands, with the words "Virgin Islands" being substituted for the words "United States" and vice versa. The revised version of the Code is known as the "mirror code".

Virgin Islands residents are required to file territorial returns with, and pay territorial taxes to, the BIR. Mirror code secs. 1, 6212(a)(1)(A). Virgin Islands partnerships are required to file territorial partnership returns with the BIR pursuant to mirror code section 6031(a).

The BIR does not have its own territorial tax forms; rather, it uses IRS tax forms for reporting purposes. Thus, resident Virgin Islands individuals 2012 U.S. Tax Ct. LEXIS 12">*18 file Form 1040, U.S. Individual Income Tax Return, with the BIR; Virgin Islands partnerships file Form 1065, U.S. Return of Partnership Income, with the BIR; and Virgin Islands corporations file Form 1120, U.S. Corporation Income Tax Return, with the BIR.

Section 932(c) coordinates U.S. and Virgin Islands income tax liability and filing requirements for individuals who are 138 T.C. 258">*262 subject to U.S. taxation (e.g., U.S. citizens and residents).^{52012 U.S. Tax Ct. LEXIS 12">*19} An individual subject to U.S. taxation who is a bona fide resident of the Virgin Islands may satisfy his Federal income tax reporting and payment requirements by filing solely with, and paying tax to, the BIR, provided the individual satisfies all of the requirements of section 932(c)(4). If the individual fails to satisfy all of the section 932(c)(4) requirements, he/she may be required to file tax returns with, and pay tax to, both the IRS and the BIR. See S. Rept. No. 100-445, at 315 (1988), 1988 U.S.C.C.A.N. 4515, 4826.

In order to ensure the "fair implementation" of section 932, the United States and the Virgin Islands entered into an agreement "for the exchange of information and mutual assistance with respect to taxes in order to prevent the evasion or avoidance of United States or Virgin Islands taxes". Tax Implementation Agreement Between the United States of America and the Virgin Islands (TIA), Feb. 24, 1987, 1989-1 C.B. 347, 347-348. The TIA applies to (1) all taxes imposed by the Code, (2) all taxes imposed by the mirror code, and (3) all local income taxes imposed by the Virgin Islands as authorized by the Tax Reform Act of 1986. See id. art. 2, 1989-1 C.B. at 348. TIA article 4 governs the exchange of information between the two governments. Clause 1 thereof provides that the competent authorities of the United States and the Virgin Islands shall exchange information to administer and enforce 2012 U.S. Tax Ct. LEXIS 12">*20 their respective tax laws. See id. art. 4(1), 1989-1 C.B. at 348.

TIA article 4(2)(b) provides that the Virgin Islands shall routinely supply to the United States information with respect to audit changes that disclose information of interest to the U.S. Government, including, among other matters, (1) information about the ownership interests of all corporations subject to Virgin Islands tax having non-Virgin Islands-source income and which receive a rebate, subsidy, or deduction of Virgin Islands taxes, as well as (2) information about any individual subject to Virgin Islands tax who has non-Virgin Islands-source income and who claims for the first 138 T.C. 258">*263 time to be a Virgin Islands resident. In addition, TIA article 4(2)(b) provides that the Virgin Islands shall supply to the United States "copies of reports of individual, partnership, corporate, and employment audit changes that disclose information relevant to the United States." Id. art. 4(2)(b), 1989-1 C.B. at 348-349. To this end, the TIA provides that the BIR will permit the IRS to examine Virgin Islands tax returns. Id. app. A, sec. 3.1, 1989-1 C.B. at 352.

This Court is a court of limited jurisdiction; we may exercise our 2012 U.S. Tax Ct. LEXIS 12">*21 jurisdiction only to the extent provided by Congress. Seesec. 7442; see also GAF Corp. & Subs. v. Commissioner, 114 T.C. 519">114 T.C. 519, 114 T.C. 519">521 (2000). We have jurisdiction to redetermine a deficiency only if a valid notice of deficiency is issued by the Commissioner and a petition contesting the Commissioner's deficiency determination is timely filed by the taxpayer. GAF Corp. & Subs. v. Commissioner, 114 T.C. 519">114 T.C. 519. Petitioner's motion is premised on petitioner's assertion that respondent's notice of deficiency is invalid.

Partnerships, in general, do not pay Federal income taxes. Rather, they file annual information returns reporting the partners' distributive shares of the partnership's income, deductions, and other tax items. Secs. 701, 6031. Each partner reports his/her respective distributive share of partnership income, deductions and credits on his/her income tax return. Secs. 701-704; sec. 1.702-1(a), Income Tax Regs. Before the enactment of TEFRA, adjustments of partnership items were determined at the individual partner level, resulting in duplication of administrative and judicial resources and inconsistent results between partners. To resolve this problem 2012 U.S. Tax Ct. LEXIS 12">*22 Congress enacted TEFRA, which created a single unified procedure for determining the tax treatment of all partnership items. Pursuant to the procedures of TEFRA, assessments for nonpartnership item adjustments are subject to deficiency proceedings, secs. 6212(a), 6230(a)(2), whereas the tax treatment of a partnership item is determined at the partnership level, sec. 6221.

138 T.C. 258">*264 Section 761(a) provides that a "'partnership' includes a syndicate, group, pool, joint venture or other unincorporated organization through or by means of which any business, financial operation, or venture is carried on" and is not a corporation, or a trust or estate. Section 6231(a)(1)(A) provides that except as provided in section 6231(a)(1)(B) (regarding "small partnerships") "the term 'partnership' means any partnership required to file a return under section 6031(a)."⁶ Thus, an entity falls under the provisions of TEFRA if the entity is required to file a partnership return. See Wolf v. Commissioner, T.C. Memo. 1991-212, aff'd, 4 F.3d 709">4 F.3d 709 (9th Cir. 1993).

Business 2012 U.S. Tax Ct. LEXIS 12">*23 entities that are classified as foreign partnerships for Federal tax purposes are generally exempt from filing partnership returns and are not subject to the provisions of TEFRA. Sec. 6031(e)(1). However, foreign partnerships that earn gross income derived from sources within the United States or earn gross income that is effectively connected with the conduct of a trade or business within the United States are required to file partnership returns and therefore are within the purview of TEFRA. Sec. 6031(e)(2).

Petitioner asserts that this case should be dismissed for lack of jurisdiction because respondent failed to follow the procedural rules of TEFRA. Petitioner maintains that because NASCO filed territorial partnership returns with the BIR, it in essence filed Federal partnership returns with the IRS for the years at issue pursuant to section 6233(a). Consequently, petitioner reasons the procedural rules of TEFRA apply. Alternatively, petitioner posits that NASCO should be classified as a foreign partnership and was required to file a Federal partnership return for each year at issue because for such years it had U.S.-source income or income effectively 2012 U.S. Tax Ct. LEXIS 12">*24 connected with a U.S. trade or business. Continuing, petitioner maintains that the issues raised in respondent's notice of deficiency are, in reality, partnership items and hence, pursuant to the procedural rules of TEFRA, are determined at the partnership level. Thus, petitioner concludes respondent 138 T.C. 258">*265 properly should have issued an FPAA to the TMP of NASCO, rather than, as respondent did, a notice of deficiency to petitioner. Seesec. 6223(a); sec. 301.6223(a)-1, Proced. & Admin. Regs.

Solely for purposes of disposing of petitioner's motion, respondent accepts petitioner's assertion that NASCO is a legitimate foreign business entity. Respondent disputes the remainder of petitioner's assertions, maintaining: (1) NASCO never filed Federal partnership returns; and (2) if NASCO is to be treated as a business entity, it should be classified as a foreign corporation. Consequently, respondent posits TEFRA procedures do not apply and the notice of deficiency issued to petitioner is valid.

NASCO timely filed 2002, 2003, and 2004 partnership returns with the BIR using Form 1065; it did 2012 U.S. Tax Ct. LEXIS 12">*25 not file partnership returns with the IRS. On May 4, 2006, the IRS obtained copies of the returns filed by NASCO with the BIR pursuant to the information sharing provisions of the TIA between the United States and the Virgin Islands.

Petitioner claims that NASCO's filing of Form 1065 with the BIR constitutes its filing of a Federal partnership return with the IRS. In this regard, petitioner asserts that the Virgin Islands is not an independent sovereign, like a State or a foreign country, but rather is an unincorporated territory of the United States and as such is "an extension of the federal government."

Petitioner's claim that for tax return filing purposes the Virgin Islands "is an extension of the federal government" is incorrect. Since 1958 courts have noted that the United States and the Virgin Islands are distinct taxing jurisdictions, although the Virgin Islands income tax laws arise from an identical statute applicable to each. Dudley v. Commissioner, 258 F.2d 182">258 F.2d 182, 258 F.2d 182">185, 3 V.I. 685">3 V.I. 685 (3d Cir. 1958), aff'g28 T.C. 992">28 T.C. 992, 3 V.I. 471">3 V.I. 471 (1957); see Chase Manhattan Bank v. Gov't of the V.I., 300 F.3d 320">300 F.3d 320, 44 V.I. 457">44 V.I. 457 (3d Cir. 2002); Abramson Enters., Inc. v. Gov't of the V.I., 994 F.2d 140">994 F.2d 140, 994 F.2d 140">142, 28 V.I. 386">28 V.I. 386 (3d Cir. 1993); Danbury, Inc. v. Olive, 820 F.2d 618">820 F.2d 618 (3d Cir. 1987); 2012 U.S. Tax Ct. LEXIS 12">*26 Miller v. Quinn, 792 F.2d 392">792 F.2d 392 (3d Cir. 1986); Chi. Bridge & Iron Co. v. Wheatley, 430 F.2d 973">430 F.2d 973, 430 F.2d 973">976, 138 T.C. 258">*266 7 V.I. 555">7 V.I. 555 (3d Cir. 1970). Consistent with this principle, courts have held that a notice of deficiency issued by the BIR cannot be petitioned to the Tax Court, Dudley v. Commissioner, 258 F.2d 182">258 F.2d 182, 3 V.I. 685">3 V.I. 685, and a notice of deficiency issued by the Commissioner of Internal Revenue cannot be petitioned to the U.S. District Court, District of the Virgin Islands, McHenry v. Commissioner, No. 1:10-cv-00021, 2011 U.S. Dist. LEXIS 36950">2011 U.S. Dist. LEXIS 36950 (D. V.I. July 18, 2011) (order granting motion to dismiss for lack of jurisdiction).

Petitioner next asserts that even if the filing of a return with the BIR does not constitute a filing of a return with the IRS, pursuant to the TIA the BIR should be treated as an agent of the IRS. And continuing, petitioner posits that because the BIR should be deemed an agent of the IRS, and because the BIR forwarded copies of NASCO's partnership returns to the IRS, the filing of NASCO's Virgin Islands partnership return with the BIR constitutes the filing of a Federal partnership return with the IRS. We do not agree with petitioner's assertion.

An agency relationship is defined as: "the fiduciary relationship that arises 2012 U.S. Tax Ct. LEXIS 12">*27 when one person (a "principal") manifests assent to another person (an "agent") that the agent shall act on the principal's behalf and subject to the principal's control, and the agent manifests assent or otherwise consents so to act." 1 Restatement, Agency 3d, sec. 1.01 (2006). An agency relationship is created when by mutual consent, either implied or expressed, one party (i.e., the agent) agrees to act on behalf of the other (i.e., the principal) and be subject to the principal's control. This consent is generally manifested by (1) statements or actions by the principal that the agent will act on behalf of the principal, (2) the agent's acceptance of such undertaking, and (3) an understanding by both parties that the principal is to be in control of such undertaking. See 2A C.J.S., Agency, sec. 32 (2003).

The TIA does not establish an agency relationship, or support the existence of such a relationship, between the United States and the Virgin Islands or their respective tax departments (i.e., the IRS and the BIR). To the contrary, the TIA is an agreement between equal parties "for the exchange of information and mutual assistance with respect to taxes in order to prevent the evasion 2012 U.S. Tax Ct. LEXIS 12">*28 or avoidance of the United States or Virgin Islands taxes". TIA supra, 1989-1 C.B. at 347-348. The BIR is not under the control of the IRS or vice versa.

138 T.C. 258">*267 Finally, relying on Beard v. Commissioner, 82 T.C. 766">82 T.C. 766, 82 T.C. 766">777 (1984), aff'd, 793 F.2d 139">793 F.2d 139 (6th Cir. 1986), petitioner asserts that the copies of the partnership returns NASCO filed with the BIR for the years at issue should be treated as NASCO's partnership returns for Federal tax purposes. We do not agree with petitioner's assertion.

In Beard, we held that within the context of determining the commencement of the period of limitations with respect to the filing of one's Federal income tax return, the document submitted to the IRS will be considered a valid tax return if:

1. the document contains sufficient data to calculate one's tax liability;

2. the document purports to be a tax return;

3. there is an honest and reasonable attempt by the filer of the document to satisfy the requirements of the tax law; and

4. the filer executes the return under penalties of perjury.⁷