The reviews are more rigorous than before 2004, when reports about abuses caused the Internal Revenue Service to clamp down on designated service businesses -- typically high-income hedge funds, consultancies and investment services -- that were dominating the program.
Some wealthy U.S. taxpayers, for example, were piggy-backing onto existing EDC corporations and claiming residency simply to enjoy the island’s tax benefits. A Senate Finance Committee investigation concluded some taxpayers were able to falsely claim USVI residency based only on a driver’s license or voter registration card, not time lived there.
Crackdown in 2004
The crackdown came in 2004, after the IRS began investigating businesses on the island.
“Certain promoters are advising taxpayers to take highly questionable, and in most cases, meritless positions in order to avoid U.S. taxation and claim a tax benefit under the laws of the Virgin Islands,” the IRS said in its 2004 notice that resulted in far more stringent rules.
Such changes didn’t put Epstein off the jurisdiction. As well as Southern Trust Co., he has at least a dozen other entities there, holding assets such as his planes and properties.
“It’s great for international businessmen with overseas assets,” said Richards, the lawyer. “You employ people, you have your servers there and your tax rates go down dramatically.”
--With assistance from Jonathan Levin.
This article was provided by Bloomberg News.