March 16, 2006
Crapo donations questioned
March 15, 2006
BOISE – U.S. Sen. Mike Crapo, R-Idaho, received more than twice as much money in donations from people in the U.S. Virgin Islands than from his home state last year, according to the Federal Elections Commission.
That prompted the Senate Majority Project, a Democratic interest group, to question Crapo's involvement in the islands, which have a population of 110,000 people.
Crapo had received $39,000 from Virgin Islands residents by the end of the 2005-06 election cycle, compared with just under $20,000 from Idaho residents.
Lobbyists for the islands are trying to reduce the number of days a person must remain on the islands to be considered a resident, an issue that could have tax benefits.
Currently, under a 2004 act of Congress, individuals must spend at least half the year in the Virgin Islands to be considered a resident for tax purposes. Lobbyists would like to see that reduced to an average of 122 days per year over a three-year period.
Crapo, a member of the Senate Finance Committee, is looking into the issue.
"He's very much involved in the philosophy states should be able to determine states' business," Crapo spokeswoman Susan Wheeler told the Idaho State Journal. "And in the same vein, territories should be able to determine the tax benefits that bolster business and the economy."
Wheeler said that encouraging economic development in the islands would help reduce an illegal drug and slave trade.
"It's in the United States' best interest to have the Virgin Islands prosper," she said.
Virgin Islands Donors Invest In Key Senators
BY MEGHAN CLYNE - Staff Reporter of the Sun
March 8, 2006
WASHINGTON - Concern is mounting that Senate support for the U.S. Virgin Islands' efforts to reopen a tax loophole is being won with more than $235,000 in campaign contributions.
Five senators identified by USVI representatives as allies in their campaign - Senator Crapo, a Republican of Idaho; Senator Gordon Smith, a Republican of Oregon; Senator Baucus, a Democrat of Montana; Senator Thomas, a Republican of Wyoming, and Senator Talent, a Republican of Missouri - have each received tens of thousands of dollars in campaign contributions from scores of USVI residents in the last year, according to filings with the Federal Election Commission.
Lobbyists for the USVI said yesterday that the donations resulted from fund-raisers held by the lawmakers during trips to the Virgin Islands.
As The New York Sun reported last week, the USVI is currently campaigning for Congress and the Treasury Department to loosen restrictions imposed in 2004 on the territory's Economic Development Commission - a program designed to spur investment in the territory with tax incentives for individuals and businesses.
As the Sun reported in 2003, the program's tax breaks were taken up by some of America's top money managers - including Richard Driehaus and Jeffrey Epstein, who keep high profiles in Chicago and New York but declare the USVI as their place of residence for tax purposes. The EDC loophole allowed some wealthy Americans to dodge almost 90% of their federal income tax bills.
According to FEC records, Mr. Driehaus last year donated, as a USVI resident, $2,000 each to the campaigns of Messrs. Crapo, Thomas, and Baucus.
In the October 2004 American Jobs Creation Act, Congress moved to curb tax avoidance abuse by stepping up the residency and income eligibility requirements for the tax breaks. In January, the Treasury Department codified the residency requirement by stipulating that individuals must spend at least 183 days a year in the USVI to be considered residents for tax purposes.
The USVI is now engaged in a campaign to get Congress to reduce the physical-presence residency requirement to an average of 122 days a year over three years. USVI representatives stress that the four-month-a-year average is a federal guideline used to determine taxpaying residency for foreigners, and should apply to American citizens living in an American territory.
Although spokesmen for the USVI government said yesterday that the tax-breaks eligibility requires a primary residence in the Islands and that a taxpayer should have no closer connection to any other locale, the new regulations would theoretically allow a taxpayer to spend a full year and a day in the islands, not set foot there for the remaining two years, and still claim USVI residency on tax returns for all three years.
As the Sun reported last week, the governor of the Virgin Islands, Charles Turnbull, identified Messrs. Crapo, Thomas, Smith, and Talent, as likely supporters of the Islands' efforts. The senators sit on the Senate Energy and Finance Committees, which have oversight of America's territories and taxation, respectively.
Campaign-finance filings, however, indicate that the USVI's hoped-for allies were also the beneficiaries of USVI private largesse. Mr. Baucus received $66,500 from 52 USVI contributors. Mr. Crapo last year received $39,000 from 27 USVI donors. Mr. Thomas received $21,000 from 16 USVI donors, and Mr. Talent received $38,600 from 30 USVI donors. Mr. Smith raked in $47,000 from 48 donors. The numbers were first published in the St. Thomas Source.
Contributions to Mr. Smith, in particular, have drawn fire from a Democratic interest group, the Senate Majority Project. The group, which notes that the USVI was Mr. Smith's fourth-largest donor base by geography after Oregon, Washington, and Virginia, alleges that Mr. Smith's support for reducing the EDC residency requirements contradicts past efforts to keep American business from moving to more tax friendly locales like Bermuda.
"Gordon Smith took a trip down to the Virgin Islands, and came back with $47,000 and a new position on offshore tax havens," the Executive Director of the Senate Majority Project, Mike Gehrke, said in a press release from the group.
A spokesman for Mr. Smith, Christopher Matthews, told the Sun yesterday that the group's allegations were "factually inaccurate"; that Mr. Smith believes in reviewing policies that would put an undue and unfair burden on the USVI economy; and that the donations had no effect on the senator's position. Moreover, he said, Mr. Smith has no intention of introducing legislation to implement the lower residency requirement.
The Washington-based USVI lobbyist who organized the fundraising trips, Kevin Callwood, told the Sun yesterday they were paid for by the lawmakers, not the Virgin Islands. Mr. Callwood, a Virgin Islander who said he netted $160,000 last year representing the territory's government, said yesterday the senators had visited the islands at the invitation of Mr. Turnbull - who has invited "a lot" of members of Congress to familiarize themselves with the territories, since the USVI has no voting congressional representative.
The fund-raising and visits, Mr. Callwood said, "are as kosher as it gets," adding: "Fund-raisers take place all around the country every day."
A spokeswoman for Mr. Crapo, too, said the fund-raiser had no connection to the Idaho senator's efforts in behalf of the USVI. The spokeswoman, Susan Wheeler, told the Sun earlier this week that Mr. Crapo wanted to visit the territory as part of his work on the Senate Finance Committee, but that Senate rules prohibit the use of Senate funds for individual senators' foreign travel, and that a visit to America's territories is considered foreign travel. Mr. Crapo's campaign, she said, paid for the trip, and held the fund-raiser in order to make up the cost.
USVI advocates stressed yesterday that the campaign to ease residency restrictions is not meant to help tax evasion, which the Islands' government opposes. Rather, they said, the government is concerned that the new requirements will remove the EDC incentive to invest in the Virgin Islands, adding that the program represents at least a fifth of the Islands' revenue.
March 05, 2006
The Coconut Telegraph
This blog is not exactly what we hoped it would be. Running the travel website(s) on a day to day basis has not really left me enough time to devote to this place, and it also seems that no matter what we try to do here, people for the most part prefer the forum, so going forward that is what we are going to spend most of our time developing. Our thinking is that the Coconut Telegraph will morph into a blog about our sites and our plans and what we do new, etc. along with news about Caribbean travel and deals. Maybe 3 people care, maybe nobody does - we'll see!
Virgin Islands Are at Center of Dispute on Tax Break
So the NY Times is now in the loop:
The United States Virgin Islands and several wealthy financiers who own homes there are working to persuade Congress to drop a 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.
The economic development program allows an effective federal income tax rate of just 3.5 percent for bona fide residents of the Virgin Islands. It has drawn wealthy Americans from the mainland and kindled an economic boom.
But the program, whose benefits have been available for decades, has also allowed some homeowners who spend little time in the islands to avoid federal taxes estimated at $400 million. At least one person, who lived in the islands less than one month a year and nonetheless claimed the program's benefits for income he generated selling insurance in Massachusetts, has pleaded guilty to tax fraud.
The new requirement, adopted by the Internal Revenue Service under legislation enacted by Congress in 2004, is intended to crack down on the practice. The legislation followed articles that exposed how little time some of the beneficiaries spent in the islands and how little of their income was derived there.
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, when the new restriction took effect, there was no explicit residency requirement; the I.R.S. 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.
In response, the Virgin Islands Tax Working Group, which represents people who benefit from the break, paid $200,000 last year for lobbyists, according to records compiled by Political Money Line, a nonpartisan campaign finance tracking service. At least one senator, Gordon H. Smith, Republican of Oregon, has been saluted in the islands at a fund-raiser on his behalf attended by several beneficiaries of the program.
The government of the Virgin Islands is just as eager as the beneficiaries to have the new restriction eased. Donna M. Christensen, the islands' delegate to Congress, acknowledged problems with the program in written testimony submitted at a hearing held Wednesday by the Senate Energy and Natural Resources Committee, which oversees the Interior Department and thus territorial affairs. But she asked committee members to lobby for a lightening of the residency requirement.
Ms. Christensen, describing the rule as onerous, wants Congress to reduce the requirement to 122 days over three years, or an average of a little more than a month annually.
"This is the No. 1 issue for us in terms of our economic prosperity going forward," she said.
The rule's opponents, whose efforts were first reported in The New York Sun, have asked Senator Michael D. Crapo, an Idaho Republican on the Senate Finance Committee, to propose an amendment in tax legislation now being negotiated. In a letter to Senator Pete V. Domenici, the New Mexico Republican who heads the energy committee, Mr. Crapo said the specific tax rules governing beneficiaries of the program had been changed without legislative hearings and without consulting the Virgin Islands government.
"As a result, we now see that the changes may have gone too far," Mr. Crapo wrote. "While the bad actors have been successfully removed from the program, these changes are also disrupting legitimate businesses and causing fiscal hardship."
Chris Matthews, a spokesman for Senator Smith, who sits on both the energy committee and the Finance Committee, confirmed that the senator attended a fund-raiser for him in the Virgin Islands last year. Mr. Matthews said Mr. Smith had subsequently chatted with some of his colleagues about his concerns that the tighter regulations were hurting law-abiding businesses.
You have to think the feds will eventually all but kill this program - unless they can be lobbied effectively by the multi-millionaires who are abusing the system.