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July 17, 2007
Bill to restore statute of limitations for V.I. taxpayers before U.S. House Committee The House Ways and Means committee is scheduled to consider legislation Wednesday restoring the statute of limitations for Virgin Islands taxpayers who file their income taxes exclusively with the Virgin Islands Bureau of Internal Revenue (BIR). The Virgin Islands provision, which is retroactive to 1986, is part of a package of miscellaneous tax measures introduced by Rep. Charles Rangel, the Chairman of the House Ways and Means Committee. Gov. John P. deJongh, Jr., who requested the measure in a meeting with the New York congressman last February, said “I am grateful to Chairman Rangel for his leadership on this vital issue and his commitment to ensure basic procedural fairness and due process for all Virgin Islands taxpayers, including many of our EDC beneficiaries who have been faced with the prospect of unlimited and burdensome audits by the U.S. Internal Revenue Service (IRS).” The Ways and Means committee is expected to approve the measure at the committee’s mark-up session. deJongh said that the need for congressional action became critical when the IRS last year reversed its long-standing position and ruled that the three-year U.S. statute of limitations did not begin to run for a V.I. taxpayer whose residency status was challenged by the IRS unless the individual also filed a U.S. income tax return. Without congressional reversal of the IRS position, deJongh said that the IRS could assert unlimited authority to audit V.I. taxpayers, and assess back taxes and penalties, for tax years that would otherwise be considered closed. That position has had a chilling effect on the territory’s Economic Development Commission (EDC) program, with many beneficiaries facing burdensome audits far outside of the normal three-year limitations period. deJongh and Delegate Donna Christensen have lobbied treasury and the Congress to reverse the IRS position and restore the historical rule that the filing of an income tax return by a taxpayer claiming V.I. status with the BIR triggered the statute of limitations both in the United States as well as in the Virgin Islands. In response, the IRS issued two notices this past spring restoring the procedural protection of the statute for current and prospective tax years, but has maintained its position of unlimited audit authority for all taxpayers earning above $70,000 for all pre-2006 taxable years. deJongh said the IRS position is both legally and morally insupportable. “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. |
