July 18, 2007 — A U.S. House of Representatives committee approved a bill to restore the statute of limitations for V.I. taxpayers to three years, the same as for U.S. taxpayers, Delegate Donna M. Christensen said in a news release issued Wednesday.
The bill applies to taxpayers making more than $75,000 a year and who file their tax returns only in the Virgin Islands. Those making under $75,000 a year were already covered under a previous ruling.
Christensen aide Brian Modeste said that without this bill, all V.I. residents making more than $75,000 a year, not just the Economic Development Commission beneficiaries intended as targets by the IRS, would have faced audits. Couples filing jointly would also have been included.
"It may have ensnared ordinary taxpayers," Modeste said.
It is retroactive to 1986.
While the statute of limitations previously stood at three years for all V.I. taxpayers, the IRS ruled last year that the three-year limit applied only to V.I. taxpayers who also filed a U.S. income tax return.
Both Gov. John deJongh and Christensen lobbied Congress and the IRS to change the IRS position. In response, the IRS this past spring agreed that current and future taxpayers came under the three-year statute of limitations, but maintained it had unlimited audit authority for all taxpayers earning above $75,000 for all pre-2006 tax years.
Christensen said in a news release issued Wednesday that the spring action by the IRS did not completely fix the problem.
DeJongh also weighed in.
“It is patently unfair for the IRS to claim that the statute of limitations does not exist for a targeted group of U.S. citizens. It is unfair and unrealistic to expect an individual to respond to intrusive and burdensome IRS demands regarding his or her personal lifestyle outside of the statute of limitations applicable to all other U.S. citizens — particularly when any relevant tax information is, and has always been, available to the IRS pursuant to the tax implementation agreement in effect between the United States and the Virgin Islands since 1987,” deJongh said in a news release issued Tuesday.
The statute of limitations change has had a chilling effect on the territory's EDC program, because many beneficiaries faced audits far outside of the normal three-year statute of limitations.
The bill approved Wednesday by the House Ways and Means Committee must go through the rest of the legislative process.
Part of a miscellaneous tax package, it was introduced by Rep. Charles Rangel of New York, who chairs the committee, at a request by deJongh and Christensen.
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