Feb. 12, 2004 – U.S. Justice Department officials announced on Thursday that a partner in an unnamed V.I. limited partnership that had been designated an Industrial Development Commission beneficiary has pleaded guilty to two counts of attempted federal tax evasion.
A plea agreement entered Thursday in District Court on St. Croix addresses an option for the defendant, Gary J. Payne, to cooperate with federal authorities "in the investigation or prosecution of another person" or otherwise cooperate with the U.S. attorney for the Virgin Islands.
Nowhere in the agreement, in supporting documents or in a release issued by the U.S. Attorney's Office on Thursday is the limited partnership named.
Federal prosecutors said Payne falsely claimed to be a V.I. resident, entered into the unnamed partnership solely because of its 90 percent tax credit, and filed 2000 and 2001 income tax returns with the V.I. Internal Revenue Bureau claiming the tax exemption.
"Payne's ultimate objective was to evade paying a substantial portion of his income taxes to the Internal Revenue Service," a release from the U.S. Attorney's Office stated.
He "simply passed the income he earned in the mainland United States through the partnership and retrieved it as wages and distributions from a Virgin Islands partnership," Justice prosecutors said.
In the plea agreement, Payne admitted to attempted tax evasion and agreed to make restitution to the federal Internal Revenue Service and to cooperate in any civil examination and determination of 2000 and 2001 income taxes owed.
U.S. Attorney David Nissman agreed to recommend at the time of sentencing that the court impose a fine "taking into account the defendant's ability to pay" and that Payne receive credit "for acceptance of responsibility."
The plea was entered before Chief District Judge Raymond Finch, who will schedule a sentencing date at a later time.
The eight-page plea agreement also provides that a "supplement" to the agreement will be submitted to the court if Payne "agrees to provide substantial assistance in the investigation or prosecution of another person … or otherwise agrees to cooperate with the United States attorney." The supplement, it states, would be submitted to the court "in camera or under seal"; in other words, it would not be public record.
By law, the tax credit is available only to persons who are bona fide residents of the territory and with "Virgin Islands source income or income effectively connected with a Virgin Islands trade or business."
Payne at least since 2000 has been a resident of Massachusetts and has been a free-lance insurance agent for a company based in Georgia, according to court documents.
The offenses to which Payne pleaded guilty carry a maximum possible sentence of five years in prison and/or a fine of $250,000 or twice the defendant's gross gain, whichever is greater, a special assessment of $100 per count of conviction, and three years of supervised release.
According to the agreement, the tax loss to the IRS was between $400,000 and $500,000.
A document submitted to the court by the U.S. Attorney's Office described Payne's operation thus:
– In September of 2000, he contracted for the V.I. partnership to manage his Massachusetts business for a fee; the partnership then purportedly hired him as a senior project manager and assigned him to manage his own business. He continued to operate his business from Massachusetts, and the partnership "never sought to supervise, monitor, review or evaluate" his work.
– Payne's income consisted of the commissions he earned selling insurance for the Georgia company, Primerica. Through the end of 2000, he paid the partnership about $665,000 in what were recorded as "management fees." It returned about $626,368 to him as "wages and distributions," retaining the rest as costs and fees.
– In 2001, Payne similarly paid the partnership about $650,000 in insurance commissions as "fees," and the partnership returned about $603,500 to him as "wages and distributions."
– Payne rented a condominium unit and an apartment in the Virgin Islands but "never stayed at the condominium and stayed at the apartment only on one or two occasions." He also obtained a V.I. driver's license and registered to vote in the territory.
– He filed his income-tax returns for 2000 and 2001 with the V.I. Internal Revenue Bureau, claiming V.I. Industrial Development Program tax credits of $171,364 and $179,488, respectively, and did not file returns with the U.S. Internal Revenue Service.
The release from Nissman's office stated that Payne's reported tax liability before the tax credits totaled $399,512 for the two years and that he paid $48,660 in taxes to the IRB and none to the IRS.
The release also noted that the Economic Development Commission — successor to the former Industrial Development Commission — "has issued numerous certificates to various businesses. Most of them serve the intended purposes of the law," those being to promote economic growth and diversification in the Virgin Islands and thereby point the territory toward "increased autonomy and less reliance on the United States."
The V.I. business with which Payne allied himself provides financial and management consulting services to clients in at least 24 states, the release stated.
Nissman said in the release that the case should not be taken by anyone within the EDC "as an assault on a validly enacted tax program." But he added: "The abuse revealed by this case could conceivably be used to jeopardize the continued existence of the economic development program as Congress retains the power to repeal the authorizing legislation at will. The better view is to punish the abusers so that the developmental need of the Virgin Islands, which was recognized by Congress, can be served by those who follow the rules."
Announcement of the plea agreement on Thursday was made jointly by Nissman and by Joseph A. Galasso and Brian J. Wimpling, respectively special agents in charge of the Criminal Investigation Divisions of the IRS Boston and Miami field offices.
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