Posted on 03/07/2006 1:41:53 PM PST by snowrip
It was a typical US Internal Revenue back door maneuver. Without hearings, without notice, in the dead of night in late 2004, an obscure provision affecting taxes in the US Virgin Islands was slipped into a 650-page bill that amended US Internal Revenue Code.
The USVI provision has caused financial havoc in the islands, a sunny paradise that has been America's little-known offshore tax haven for decades. Many hundreds of wealthy individuals and hundreds of businesses could be driven away and the USVI Treasury could lose upwards of $300 million in annual revenues -- all because some faceless IRS bureaucrats decided a few people were abusing the law.
The USVI as a tax haven has been called into question by the 2004 sneak IRS attack. The IRS claims USVI tax laws allowed some homeowners who spend little time in the islands to avoid US federal taxes estimated at $400 million. At least one person, who lived there less than one month a year and claimed the USVI tax law's benefits for income he generated selling insurance in Massachusetts, has pleaded guilty to tax fraud. The new law followed news stories that alleged little time by some tax beneficiaries was spent in the islands and little of their income was derived there.
The US Virgin Islands, St. Croix, St. Thomas, and St. John, have been US territorial possessions since they were bought from Denmark in 1917. Since 1922, USVI residents and corporations have paid their federal taxes on their worldwide income to the USVI Internal Revenue Bureau (IRB), not the IRS. Legal residents of the islands who move there, those who are born there, or those who become naturalized US citizens in the VI, for purposes of US federal gift and estate taxes, are treated as nonresidents of the US. Since the VI has no estate or gift taxes, this means that upon death their estates owe zero federal or state estate or gift taxes.
But as they say on late night sales TV programs: "But wait; there's more!"
To attract investment, the USVI government grants generous tax relief packages including a 90% exemption on corporate US federal income taxes for VI chartered corporations, partnerships and limited liability companies. Owners of VI entities who are bona fide residents are eligible for a 90% exemption on taxes on income these entities produce. Because the VI has no state or local income tax, bona fide residents pay an effective US federal income tax rate of just 3.5% -- and that has drawn wealthy Americans from the mainland and created a sustained (until now) economic boom.
For decades smart US investors, including the Rockefellers, with business activities ranging from petroleum production, aluminum processing, hotel and other tourism activities, banking, insurance, and other financial services, have enjoyed USVI income with few taxes. This allowed investors to live in their second home anywhere in the US for the spring, summer, and fall, then come home to the VI for the winter, where they play golf and tennis, sail and swim, all under the protection of the US flag.
The program has long required individuals who benefit from the tax break, as well as companies that do so, to commit $100,000 of capital, employ 10 local residents, buy goods and services from local suppliers and promise to make charitable donations. But until Jan. 31, 2006 when the new restriction took effect, there was no explicit residency requirement; the IRS instead used a "facts and circumstances" test to assess eligibility. As a result of the change, individuals claiming the benefit must now prove that they have spent 183 days in the Virgin Islands during the year.
The US Virgin Islands government and wealthy financiers who own homes there are working to persuade Congress to drop the new requirement that at least half the year be spent in the islands in order to get a tax break intended to spur their economic development.
If it ain't broke, don't fix it. Leave America's only offshore tax haven alone.
I'm married so the danger has passed.
Oh, I thought this was an article about me being single. :(
Every once in a while a posting title comes along... :)
I thought this was a story about Bill Clinton.
How CAN I help?
Hmm I'd like to help the Virgin Islands, enjoyed my vacation there very much. But exactly why should a Rockefeller get to pay only a 3.5% tax rate in return for spending Winter in a tropical paradise?
How Many are in danger? 72?
Is this about the "Peoples Front of Judea"
Which one?
"US VIRGINS IN DANGER"
Is R Kelly in town or something?
Thank goodness my hubby came along and now I am safe - but for the rest of you: RUN VIRGINS! RUN FOR YOUR LIVES!! SPRING BREAK HAS BROKEN OUT AMONG US!!!
So long as I live and breath, they are.
I think this is good. I hate taxes, but no one should be able to skirt the law. Either we all get tax breaks or we don't. Maybe some of these people will put some of their money to good use and lobby congress for more tax relief. Ha. That was funny.
George Bush hates rich people.
~Conyay West
Pissant and Laz on the town?
Wonder if this will be the most viewed post.
Might set a record.
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