Saturday, January 12, 2008

IRS Attacks Offshore Virgins {Yes, I'm Aware Of The Double Entendre}


U.S. Virgin Islands: IRS Colonialism
After World War II "colonialism," especially the British imperial variety, fell out of political favor. Afterwards, slowly, and sometimes violently, new independent nations took their sovereign place on the world map."Colonialism" accurately can be defined as one nation controlling or exerting government influence over another dependent country, territory or people. Colonialism has also been described as a stronger country exploiting a weaker one. That's exactly what the U.S. Internal Revenue Service is currently doing to the U.S. Virgin Islands. Many Americans know very little about our national history, much less our own colonial past. So let me give you some background. Our colonial past began with the U.S. military victory in the Spanish-American War (1898). As a direct result, America gained control over Puerto Rico, the Philippines, Guam and the Caroline Islands.The United States Virgin Islands - St. Croix, St. Thomas, St. John, and Water Island (pop. 109,000) - have been U.S. territorial possessions since the U.S. peacefully purchased them from Denmark in 1917. The U.S. Department of the Interior oversees USVI and the Virgin Islands have a non-voting delegate in the U.S. House of Representatives.Just 1100 miles southeast of Miami, Florida, USVI is one of the most impoverished jurisdictions under the American flag. But most Americans only know the islands as a vacation venue with beautiful resort hotels, white sandy beaches and blue lagoons. The territory's per capita income is a pitiful US$18,652. That's less than half the average income in the continental United States and US$10,000 less than in Mississippi, the poorest state.Under a unique special federal income tax arrangement applying only to the USVI, it is possible for U.S. nationals and others who make the islands their main residence to enjoy substantially reduced income and corporate taxes compared to mainland United States. To attract investment and help the poor island economy, the USVI government grants generous tax relief packages. These include a 90% exemption on corporate U.S. 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 U.S. federal income tax rate of just 3.5%. That has drawn wealthy Americans from the mainland and created a sustained economic boom. These lower taxes make the islands an offshore tax haven option for very wealthy U.S. citizens, entrepreneurs and foreign nationals seeking U.S. citizenship. The USVI Economic Development Commission (EDC) has strongly promoted these generous tax breaks to attract capital to the islands and provide much needed jobs.All went well until six years ago, when the IRS noticed a rapid increase in the number of high net worth individuals moving to the USVI. Now the IRS is engaged in hundreds of audits of USVI residents.And the IRS is making the extraordinary claim that there is no statute of limitations on such audits. They're even saying that the IRS can go back as many years as they wish in every case. Click here to read my blog to get the full story on this extraordinary IRS invasion, and what the USVI policymakers have to say about it.

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