Like many Virgin Islanders who lived here in the 1950s and 60s before the advent of the tourism and financial services industries, Reuben Vanterpool remembers tough economic times.
“Things were real bad here. Our only salvation used to be that we’d go to St. Thomas and pick up a little dollar,” said Mr. Vanterpool, an artist and historian.
Parents often felt they had to give birth in United States hospitals so that their children would automatically become US citizens and have more opportunities, he added.
Decades later, the VI’s economy has improved markedly, but that historical legacy could inadvertently complicate the tax situation for VIslanders who also have American citizenship or permanent residency status in the US.
Unlike most other countries, the US government calculates its nationals’ tax burden based on their worldwide income. Many taxpayers with overseas accounts haven’t always declared them to the country’s Internal Revenue Service, which was typically unaware of such accounts’ existence.
That could soon change in a way that could incur major costs and compliance headaches for the individuals affected and for the VI’s financial services industry.
Under the Foreign Account Tax Compliance Act, non-US banks, trust companies, mutual funds and other “foreign financial institutions” will have to determine which of their clients with accounts over $50,000 have ties to the US and forward that information to the IRS. Institutions that don’t follow the rules will be deemed “non-compliant” and have a 30 percent penalty levied against them
See the Nov. 1, 2012 edition for full coverage.