Nov. 26, 2007 — A bill that would keep V.I. residents making more than $75,000 from being audited by the Internal Revenue Service beyond the usual three-year statute of limitations will soon be up for consideration in the U.S. Senate, and V.I. Gov. John deJongh Jr. is asking for help from the Senate Finance Committee chairman and the committee's ranking Republican.
In a letters to committee chairman Max Baucus, D-Mont., and Charles Grassley, R-Iowa, deJongh says that the bill, H.R. 3996, would "restore basic procedural fairness" to U.S. taxpayers "legitimately" residing in the Virgin Islands. Not passing the bill, and keeping the current IRS regulations, would "threaten the long-term economic development of the Virgin Islands," the governor adds.
Under former IRS regulations governing the Virgin Islands, audits on tax returns were in line with the rest of the United States. In 2006, however, the IRS eliminated the statute of limitations for the territory, saying that local taxpayers making more than $75,000 in annual gross income may be questioned about their legal residency dating back more than three years. This means that residents affected by the ruling may not have kept the necessary documentation (See "Officials Work to Restore IRS Policies for Upper-Income Taxpayers".)
The new ruling, coupled with other Treasury regulations regarding residency and source income implemented in 2004 served to severely damage the territory's Economic Development Authority tax incentive program, driving beneficiaries out and retarding interest in the program.
After the provision the most recent tax law was implemented, deJongh and Delegate Donna M. Christensen — along with Democratic Rep. Charles B. Rangel of New York — championed efforts to change the federal government's position, writing letters to various senators and other federal officials.
In his recent letters to Baucus and Grassley, deJongh says that the initiative, which has targeted beneficiaries of the local Economic Development Commission's tax incentive program, has yielded "very little new revenue" for the federal government, but has perpetuated a "decline in interest" in the Virgin .Islands' EDC program.
"The V.I. Economic Development program was authorized by Congress to spur private-sector development create jobs, and ultimately lessen the dependence of the Virgin Islands on the federal government," the governor explained. "The vast majority of our EDC taxpayers are law abiding citizens who have come to the Virgin Islands at the invitation of the V.I. government and the encouragement of the federal government."
He added that the statute of limitations is "not a right that can be granted to some Americans and not to others," including individuals residing in the territory.
"Republicans and Democratic Senators have joined with us in support of this principle of justice and fairness for all law-abiding Americans regardless of where they happen to live, or how they happen to earn a living," the governor said. "And we all agree that this new legislation will not provide comfort to those engaged in tax evasion or fraud. Tax cheats must never feel welcome in the Virgin Islands.
The bill, which passed the U.S. House of Representatives early last month, sets the statute of limitations on audits to three years for taxpayers making over $75,000 a year and who file their tax returns only in the Virgin Islands. Those making under $75,000 a year are already covered under a previous ruling (See "US House Bill Would Correct IRS Ruling on VI Taxpayers".)
In his letters, deJongh highlighted the negative impact the current regulations have on the territory, describing them as both "insupportable and dangerous."
"I hope that we can work together to ensure that a fair statute of limitations applies to U.S. citizen taxpayers residing in the V.I. while aggressively pursuing those who are evading paying taxes," he writes. "I believe that the House provision, which specifically provides that the statute of limitations does not apply in instances of fraud or tax evasion, achieves the right balance of individual due process and IRS enforcement authority."
The bill still needs passage by the Senate and President Bush's signature before it becomes law. The bill is retroactive to 1986 and gives V.I. residents the same rights as state residents.
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