Sept. 26, 2006 – While the territory last week received clarification on source-of-income regulations for its Economic Development Commission program, the Internal Revenue Service continues to impose rules that Delegate Donna M. Christensen said hinder the program.
Christensen Tuesday told the U.S. House of Representatives Ways and Means Subcommittee on Select Revenues that a provision that gives the IRS the right to audit tax returns of V.I. taxpayers as far back as they like is intrusive. The provision was announced June 16.
"These heavy-handed practices have been damaging to the territory's EDC program, raising the specter of guaranteed and endless audits of virtually anyone who moves to and invests in the Virgin Islands," Christensen said in a news release received Tuesday.
The territorys EDC tax benefits program has been under the gun for the past couple of years after the U.S. Treasury Department tightened its rules regarding residency and source of income, thanks to a mandate from the U.S. Congress.
This followed allegations that some EDC program recipients abused the program.
Christensen said that should the IRS determine that the taxpayer did not meet residency requirements, the taxpayer will then have to pay income taxes and penalties to the federal government. She said that since the taxpayer already paid taxes to the V.I. government, he would be paying twice.
Christensen aide Brian Modeste said Tuesday that the IRS has audited numerous V.I. residents, including people who moved to the territory in the past three years but were not EDC program participants.
"They cast a pretty broad net," he said.
Christensen told the House committee that the IRS auditors presume that the taxpayer has "engaged in tax fraud until her or she can prove otherwise."
She also asked for clarification on when the clock starts for both the federal and local statute of limitations. She said that since the IRS previously limited audits to three years after the tax returns were filed, many people don't have the older records that would enable them to defend themselves.
Christensen said she also testified on permanently repealing the cap on the amount of money returned to the territory on the rum tax. Currently, the local government can only get back $13.25 per proof gallon of the federal tax on rum made in the Virgin Islands but sold in the states. The federal government collects $13.50 per proof gallon.
Modeste said the rum tax provision is about the expire, but he said that even if the current Congress doesn't act on it before the term ends in January, the next one will.
"It will be retroactive," he said.
Modeste added that the rum tax rebate puts more than $70 million a year into the territory's coffers.
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