Virgin Islands landlords receving $600 or more annually in rent from real estate will be required to file Form VI-1099 with the Virgin Islands Bureau of Internal Revenue (BIR) and with their tenants. They will also have to send Form VI-1099′s to the BIR for all service providers such as plumbers, electricians, handymen, accountants, etc. for rental property services provided to the landlord for payments of $600 or more. To ensure compliance, the BIR may levy penalties of $50 for each failed to file Form VI-1099 or with the tenant or service provider. These penalties are capped at $100,000 or $250,000 depending on the delinquency.
Designed to close the tax gap, this new legislation was passed to ensure that income paid to contractors gets reported accurately and deductions for work and improvements or rental properties can be verified by the VI-1099 form. While this new reporting requirement will not impact rental properties held out as a trade or business (owning multiple properties and a full-time business) since they are already covered, it will affect smaller, “mom and pop” landlords, who typically are not armed with accountants to track contractors, verify deductions and report taxes. This will also create a new burden for small real estate operations.
What you need to do
If you own real estate, start planning ahead to track purchases made for goods or payments made for services of more than $600 and record all rental payments made by tenants of $600 or more for the year. This will mean getting a tax identification number from tenants and service providers, procuring the Form VI-1099 – MISC from the BIR, filling out the form(s), sending a copy to each payee, keeping a copy of the Form VI-1099 for your records, and then taking your rental deduction or reporting the rental income on your individual income tax return.
Reporting exceptions apply for individuals temporarily renting their principal residences, for taxpayers whose rental income does not exceed an IRS-determined minimal amount and for those whom the reporting requirement would create a hardship. The United States Internal Revenue Service nor the BIR have issued guidance on what is the "minimal amount" or what constitutes a "hardship," and these exceptions may be narrowly interpreted if history is a guide.
Both the new Form VI-1099 reporting, along with the expansion of the BIR information reporting regime, have caused controversy and opposition which have generated legislative proposals to repeal or modify them. However, there are concerns about raising other taxes to repeal the provisions and this would be a substantial hurdle for a total repeal by the United States Congress.