Adams Challenge (UK) Limited v. Commissioner

154 T.C. 3 (2020)

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Adams Challenge (UK) Limited v. Commissioner

United States Tax Court
154 T.C. 3 (2020)

Facts

Adams Challenge (UK) Limited (Adams) (plaintiff), a United Kingdom (UK) company, owned a vessel (the Challenge Vessel) equipped for various offshore oil and gas operations. Adams received income by chartering the Challenge Vessel to EPIC Diving & Marine Services, LLC (EPIC), a United States company. EPIC paid Adams for using the Challenge Vessel to decommission oil and gas wells and remove ocean debris caused by hurricanes in a portion of the Gulf of Mexico called the Outer Continental Shelf (OCS). The US had the exclusive right to explore and exploit natural resources in the OCS. EPIC used Adams’s crew members to work on the project on the ocean floor in the OCS. Adams did not pay federal income taxes in the US on the income received from the charter. The Internal Revenue Service (IRS) (defendant) issued a deficiency notice. Adams filed a petition for judicial review of the alleged tax deficiency. Adams and the IRS motioned for summary judgment. Adams argued that the income received from the charter was not taxable in the US because Adams was not engaged in a trade or business within the US. Adams also argued that, even if the income was taxable in the US, a bilateral tax treaty between the US and the UK exempted the income from being taxed in the US.

Rule of Law

Issue

Holding and Reasoning (Lauber, J.)

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