A regular Source feature, Undercurrents explores issues, ideas and events as they develop beneath the surface in the Virgin Islands community.
It’s pretty hard to count something that isn’t there, but a few years ago federal auditors estimated that the Virgin Islands treasury was shorted some $250 million over the course of 10 years because thousands of residents lied about their tax obligations and the government failed to catch them at it.
In response to the 2008 audit, the V.I. government created a Tax Collection Task Force, and charged it with the seemingly impossible responsibility of reversing a systemic problem.
Tax cheats come in two main varieties: non-filers and under-reporters.
A transient community – such as the territory’s – makes it easier to be a non-filer. An economy that is largely cash-based – such as the territory’s – makes it easier to under-report income.
In 2012, the V.I. Bureau of Economic Research reported there were 44,659 people employed in the private sector, 10,530 working for the local government and another 946 employed by the federal government – for a total V.I. workforce of 56,135.
But only 42,000 of them filed income tax reports that year, according to figures from the V.I. Internal Revenue Bureau.
The story is similar for each year since the audit. In 2008 there were 62,598 employed but just 54,000 filers. In 2009, it was 61,873 with 50,000 filing. In 2010, it was 60,350 with 50,000 filing; and in 2011, 58,598 with 46,000 filing.
In a recent interview, IRB Director Claudette Watson Anderson offered a caveat about the comparisons, noting that taxpayers have up to three years in which to file, so the two sets of numbers will never match exactly. The bureau numbers are also rounded off, rather than precise counts. But with the difference between the two sets of figures each year averaging more than 11,000, it’s obvious there is a major problem of noncompliance.
Attorney General Vincent Frazer, who co-chairs the Tax Collection Task Force with Anderson, acknowledged the problem in a recent press release, saying, “There are many individuals who continue to cheat the Virgin Islands government by failing to file and/or pay taxes.”
The statement came in the April announcement of the arrest of a St. Croix business owner for failure to file and pay corporate and individual income taxes for several years.
The statement also promised more arrests to come and quoted Frazer saying, “The task force is putting together the pieces of the puzzle needed to bring these individuals to justice.”
Anderson said there currently are between 75 and 100 cases under investigation, though not all are considered criminal cases. Each involves income tax and some may also lead to investigations involving other types of taxes, such as gross receipts.
“We match different pieces of information,” she said, to determine whether a person should be filing an income tax form. Of course those include the W-2 VI on which an employer shows wages paid as well as the Form 1099 on which payments for intermittent labor are recorded. Both of those show up at IRB.
But there are less obvious sources of information available to the government, such as the reports that banks are required to make, showing interest earned on an account, and reports showing the sale and purchase of property.
If there’s something that suggests a person should file income tax and he hasn’t filed, “that makes us ask the question,” she said.
The bureau has only one investigator on staff. A second investigator retired a year or so ago and was not replaced because of budget cuts. Anderson said IRB “absolutely” could use more, but it does have other resources. She said for the past three years she has been working with staff from the bureau’s federal counterpart, the IRS, on investigations.
Besides cross-referencing information to find delinquent tax-payers, IRB relies on information offered by other residents.
“We get at least one tip a week,” she said. Some are intentional and some are a case of a person supplying information he/she doesn’t realize will lead IRB to a non-filer.
Anderson encouraged residents who suspect tax fraud to let the IRB know. Information is confidential. Call (340) 772-9277 or go to the website www.vibir.gov and click on the Main Link for Federal Income Tax Forms and download Form 3949A.
(Next week: Seeking out the under-reporters; a look at the territory’s Underground Economy)