Home News Local news Treasury Regulation Could Offer Some Relief to EDC Beneficiaries

Treasury Regulation Could Offer Some Relief to EDC Beneficiaries

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Nov. 14, 2006 — The U.S. Treasury Department, in concert with the Internal Revenue Service, has relaxed the rules governing residency requirements under the tax laws, giving some leeway to an otherwise rigid taxpayer residency requirement that has cost the territory untold revenues.
Chatter about the revised regulation has made its way around the territory for the last day, and Delegate Donna M. Christensen sent a release Tuesday afternoon commenting on the changes.
The relaxed rule allows taxpayers to average the previous 183-day residency requirement over a period of three years instead of requiring they spend 183 days each year in the territory. A taxpayer is, under the new regulation, required to spend at least 60 days in the territory, however.
"While this is not the 122 days over three years that we had continued to press for," Christensen said, "it is a welcomed development as we continue to work for clear, reasonable rules that will allow our EDC (Economic Development Commission) program to grow and prosper."
Two years ago, Treasury blindsided the territory when it added an amendment to the American Jobs Creation Act of 2004 that dramatically changed the residency requirement. The amendment also revised the tax code's source income rules. The changes seriously impacted beneficiaries of the EDC tax benefits program. One of the requirements of the program is that beneficiaries reside in the territory.
Prior to the amendment and subsequent passage which required taxpayers to reside in the territory 183 days a year residency for EDC beneficiaries was based on more nebulous criteria, which included home ownership, voter registration, and other such standards. Though an agreement under which the current tax benefit program was established more than a decade ago suggested that the rules would be more clearly defined at some point, it never happened.
So, when the Treasury bomb was dropped almost literally overnight in the fall of 2004, territorial officials began to scramble to negotiate with Washington officials to soften the blow.
Tax law attorney Marjorie Roberts, who represents several EDC beneficiaries, said Tuesday night that the recent change has been in the works for awhile, along with some other ideas. Unfortunately, some of the other ideas that would have broadened the travel options for taxpayers were not adopted. And, according to Roberts, this latest regulation will not be easy to amend. "The IRS indicated that it believes the next three-year averaging alternative, together with the existing available alternatives, provide individuals with sufficient flexibility in applying the presence test and thus that no further amendments will be made to the bona fide residency rules via the regulatory process," Roberts said. "It appears that any further changes in the possession residency rules, therefore, would require statutory amendments by the U.S. Congress." ( See "Report: IRS Adopts Alternative Means to Determine Residency").
One of the major players who had been here for many years under the EDC program — Driehaus Capital Management — is closing its doors this week. One source said earlier this year, Driehaus was pulling out specifically because of the stiffer residency requirement.
Many of the newer beneficiaries are in the financial services business. And many of them travel extensively.
One person commented about another of the beneficiaries at the time the regulations were changed, "He isn't anywhere for 183 days a year."
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