Thursday, September 28, 2006

by Susan Mann
Caribbean Net News St Thomas-St John Correspondent
Email: susan@caribbeannetnews.com

ST JOHN, USVI: Speaking before the US House of Representatives Ways and Means Committee on Select Revenues Tuesday, US Virgin Islands Delegate to Congress Donna Christensen called the Internal Revenue Service's (IRS) practices in the territory since the passage of the American Jobs Creation Act "intrusive" and a barrier to investment in the Virgin islands. 
 

US Virgin Islands Delegate to Congress Donna Christensen speaking before the US House of Representatives Ways and Means Committee on Select Revenues

"These heavy handed practices have been damaging the territory's EDC program, raising the specter  of guaranteed and endless audits of virtually any one who moves to and invests in the Virgin Islands," Christensen said.
 
The American Jobs Creation Act, approved by Congress in October of 2004, and described as one of the most far reaching tax cuts in many years, has led to increased IRS scrutiny in the Virgin Islands.  The Act is intended to benefit US manufacturers, multinational operations,  agribusiness, energy companies, small businesses, farmers, partnerships, and reale estate investors.
 
Problems began developing for new USVI  investors within the first year after the law was enacted, as well as for those businesses already participating in the Virgin Islands Economic Development Authority.
 
A  number of start up companies were affected, resulting in some ventures leaving the territory.
 
Local EDA affiliated companies are seeking relief from the fact finding requirements associated with the American Jobs Creation Act. For a significant number of  the new companies, an "after the fact" interpretation of qualifying residency requirements following their location to the territory presented such a hardship that they closed their businesses.
 
Earlier this month, the territory asked for clarification on source-of-income regulations for EDC recipients.
 
The regulatory crack down began when the IRS made a determination that some EDC program recipients were abusing the program. Christensen stated during the hearing that, if the IRS determines a taxpayer has not met residency requirements, that individual will be required to pay income taxes, plus penalties to the federal government.
 
Since that taxpayer would have already paid taxes to the VI territory, that would mean that individual would be forced to pay taxes twice. Christensen told the House committee that "the IRS auditors  auditors presume that the taxpayer has engaged in tax fraud until he or she proves otherwise." 
 
She also asked for clarification regarding how far back IRS auditors could investigate. Federal requirements stipulate that records be kept for three years in case of  a potential audit. This means that people may not have the necessary records to defend themselves.
 
Finally, Christensen called on the Committee to permanently repeal the cap on the amount of money returned to the territory on the rum tax. The local, VI government now gets a return of 13.25 per proof gallon, of the federal tax on rum made in the Virgin Islands for sale on the mainland. The federal government gets 13.50 per proof gallon. The Virgin Islands currently collects about 70 million each year from the rum tax.

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