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March 16, 2006

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.

Posted by afinta at March 16, 2006 06:14 AM


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