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V.I. Gets Some Breathing Room on Congressional Bill

Oct. 5, 2004 – The House Ways and Means Conference Committee finished its business with the American Jobs Creation Act of 2004 Wednesday afternoon, leaving the amendment that threatens to upend the local Economic Development Commission tax incentive program intact.
However, 11th hour pleas from several quarters succeeded in getting language into the bill that will delay implementation of the amendment for a year.
"The IRS wants to kill the [EDC] program," Delegate Donna M. Christensen said Wednesday afternoon, though she could not say why. But she said she didn't believe that it had anything to do with money. Though the program brings in a significant part, about 25 percent, of the territory's revenues, it's insignificant where the U.S. Treasury is concerned – about $310 million over a period of 10 years would find its way back into the Treasury, Christensen said.
New York Democratic Rep. Charles B. Rangel, Conference Committee member and Ways and Means Committee ranking member, attempted to put through an amendment that would have reverted the onerous amendment – which turns the whole tax law upside down – back to the original Senate legislation, which addressed the residency requirement in a manner agreed to by the V.I. government and the committee, and which had no provision about source income, the part that many see as the biggest threat to the program.
Rangel's amendment failed, as did the initial amendment offered by Sen. John B. Breaux, Democrat from Louisiana, to get a year's delay on implementation. .
Christensen said Treasury told the Senate Finance Committee that a year's delay of implementation would harm their investigations into abuses of the program.
"They've got the Senate Finance Committee totally brainwashed," she said.
One informed source speculated that the reason Treasury and the IRS had come down so hard on the law, refusing to budge on the language, which could affect many of the territory's taxpayers who have nothing to do with the EDC program, was that program and promotion abuses continued even after Treasury issued a warning shot in June in the form of a Tax Notice. The notice warned that anyone caught fraudulently using the program could be subject to penalties and even criminal prosecution. (See "IRS Stance on Tax-Break Program Causes Concerns").
Some suggest it was the lack of enforcement and proper oversight locally that led to Treasury lowering the boom. A recent New York Times article shed unfavorable light on oversight when they discovered an EDC beneficiary company that had 99 partners. When interviewed Frank Schulterbrant, chief executive officer of the Economic Development Authority, the umbrella over the EDC, said his records indicated there were three. (See "V.I. Makes Front Page of The New York Times").
Schulterbrandt said Wednesday it was too early to assess potential fall-out from the bill. He said he intended to commission the government's Washington-based tax attorney, Peter Hiebert, to make an assessment.
One source, who asked not to be named, said that of the 55 designated service businesses holding EDC certificates, he expected 50 to pull out, and with them hundreds of jobs.
Another informed source was not nearly as pessimistic. He said given a year to work out the issues, companies legitimately doing business under the program will be fine.
Heibert confirmed that audit firm PriceWaterhouseCoopers had been commissioned to do a study on the economic impact to the V.I. of the EDC program, prior to this week's turn of events. They are expected to continue the evaluation, but will likely include a component evaluating the impact of the bill on the program.
Hiebert also confirmed that as the bill stands many people in the V.I. could be prohibited from paying taxes in the territory whether or not they receive any benefits for doing so.
The amendment requires that taxpayers reside in the territory 183 days a year, period, and that they not have a "closer connection" to the Mainland or another country than they do to the V.I.
"There are lots of details that have to be filled in here," Hiebert said, adding, that the delayed implementation would, "give us some breathing room to work with Congress, with the Senate to get this right. The bill needs to be fixed and now we have some time to fix it."
He said lots of people were working on the fix, including the Interior Department.
A filibuster expected to be led by Sen. Edward M. Kennedy has an outside chance of delaying passage of the bill until after Friday's recess leading up to the November election. One person said there could be a different outcome if Sen. John F. Kerry were to become the next president of the United States.
But the filibuster, according to another source, is unlikely to stop the passage of the bill before the week's end.
In a release from his office late Wednesday night, acting Gov. Vargrave Richards, who had been appointed after the Tax Notice was issued in June to lead the charge to secure the EDC program, said, "The one-year delay give us a small reprieve to work aggressively to persuade the Congress and the Treasury Department to fix the conference report language, which could have devastating consequences for the territory's EDC program."

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