Virgin Islands Law Blog

Virgin Islands Law Blog

U.S. Virgin Islands law & politics

5 Tax Relief Tips for Victims of Hurricanes Irma and Maria

Posted in Hurricane, Tax

The recent hurricanes in the U.S. Virgin Islands left homeowners and businesses alike with massive damage unlike anything they had seen in the past. These property losses continue to have major implications on families and businesses now that tax season is upon us.

Fortunately, new laws enacted several months ago provide special tax breaks for those who suffered damage due to Hurricanes Harvey, Irma and Maria. Below are a few tips to get some extra tax relief this spring:

Use personal casualty loss write-offs to their fullest extent

You legally suffer a casualty loss whenever the fair market value of your property is reduced by an event such as a storm, flood or earthquake, to the extent those losses are not covered by insurance. These deductions are usually less than what one might expect due to the limitations of standard tax laws, but the laws implemented this fall loosen those restrictions. As a result, hurricane victims can take advantage of more deductions.

A knowledgeable tax planning attorney can provide you with more detailed information about the amount you could save through this deduction.

Use business casualty write-offs if you own business property

You can double dip on casualty write-offs if you suffered major damage to both your personal and business properties. For business property, you would deduct the full amount of uninsured loss as a business expense or, if you operate as a sole proprietor, on Form 1040.

As with personal casualty losses, business casualty write-offs can only be used for federally declared disasters. The hurricanes from this past fall do qualify.

Consider special rules for a primary residence

Special rules apply to any involuntary conversion gains on a primary residence. A primary residence is considered the place that is your main home for the last two years. For owned primary residences, you may use the federal gain exclusion tax to reduce these conversion gains. If, after taking advantage of the gain exclusion tax break, you still have a gain, you have four years (instead of the standard two) to make appropriate payments to repair or replace property and avoid involuntary conversion gains.

If you rent your home, there is no taxable gain from any insurance proceeds that cover losses to personal property. Thus, you do not need to repair or replace damaged items to avoid the conversion gain. Instead, you can do whatever you want with your insurance money.

Leverage your retirement account

The IRS has announced that 401(k) plans and other employer-sponsored retirement accounts can make loans or hardship distributions to hurricane victims and their families. Typically, there would be a 10 percent early withdrawal penalty, but hurricane victims can avoid paying that penalty for a limited amount of time while they fix their homes.

Extend your deadlines

Hurricane victims can benefit from extended deadlines. In the U.S. Virgin Islands, for example, tax filing and payment deadlines that had been set for early September were pushed to January 31, without any application for such an extension being necessary. Taxpayers may apply for other extensions to give themselves more time to get their affairs in order while they concentrate on making repairs.

For more information on tax relief opportunities available to hurricane victims, meet with a skilled tax planning attorney in the U.S. Virgin Islands.

Adam N. Marinelli is an associate in the Corporate, Tax and Estate Planning Practice Group at BoltNagi PC and concentrates his practice in tax matters. BoltNagi is a full service business law firm serving the U.S. Virgin Islands.

The Impact of Federal Tax Cuts on the US Virgin Islands

Posted in Tax & Estate Planning

In December, both houses of Congress passed and President Trump signed into law the “Tax Cuts and Jobs Act”, commonly known as the “tax reform bill.” The $1.5 trillion tax package reduced individual tax rates for the next eight years while cutting the top corporate tax rate to 21 percent indefinitely.

The tax bill will have a significant impact on businesses throughout the U.S. Virgin Islands and most other American territories. One potential problem area is a new 12.5 percent tax on all profits that come from intellectual property that foreign companies hold. While the intention of the tax is to bring these companies back to the United States, it does not consider the U.S. Virgin Islands part of the country, at least when it comes to tax purposes.

In other words, businesses here get treated similarly to those in non-U.S. Caribbean tax havens, even though USVI residents pay into Social Security and Medicare.

At the time, Sen. Marco Rubio of Florida called this a “glitch” in the bill and said that Congress would work to address it. However, as of mid-February, no changes have been made to reduce or eliminate the intellectual property tax for U.S. Virgin Islands-based businesses.

Reduction of excise taxes to have an impact

Another major factor in the tax bill has been the reduction of excise taxes on beer, wine and liquor. This will affect the U.S. Virgin Islands’ ability to service much of its debt through matching fund bonds, commonly known as “rum cover over” funds. These are essentially annual taxes the U.S. Department of the Interior collects from rum sales. Last year, these taxes totaled about $224 million.

However, the Government of the Virgin Islands realizes only a fraction of these funds in its actual coffers. Most of the money gets transferred to government bondholders. Last year, for example, the Territory only saw about $48 million out of the $224 million taxed. Many critics of the policy say the U.S. Virgin Islands Government relies far too heavily on matching fund bonds.

The provisions in the tax cut bill could significantly reduce the amount of revenue generated from beer, wine and liquor taxes. The U.S. Virgin Islands would not be able to rely as much on the matching fund bonds, which could lead to a further downgrade of its credit rating and potentially the Territory’s ability to service the bonds.

While it has been two months since the tax reform bill passed, analysts are still determining just how it will impact businesses of all sizes throughout the United States, including in American-held territories like the U.S. Virgin Islands. If you have questions about the steps you should take to properly plan for the future of your business, consult a dedicated tax planning attorney.

Adam N. Marinelli, is an associate attorney in the Corporate, Tax and Estate Planning Practice Group at BoltNagi, PC and concentrates his practice in tax matters. BoltNagi is a full service business law firm serving the U.S. Virgin Islands.

How to Protect Your Business Against a Client Going Bankrupt

Posted in Business, Corporate & Financial Services

It’s an unfortunate reality that more small businesses fail than make it past their first five years. Even larger companies are not immune to bankruptcy. In fact, the number of businesses filing for bankruptcy protection has steadily grown over the last several years.

This means that if you run a B2B company that has other businesses as clients, it is essential to have a plan to protect your company from any fallout associated with a client going out of business.

The following are some tips to help you achieve this:

  • Never depend on a single source: If you find your company relies too heavily on a single client as a stream of income, consider making efforts to add more clients that could help shoulder the load in the event the large client goes out of business. In a perfect world, you would have at least several large clients, with plenty of smaller clients to serve as safeguards.
  • Ask for upfront payment: The best way to avoid taking a big hit if a client goes bankrupt is to ask for payment up front, before you complete the work. This is especially important if your business does not have a significant amount of operational cash flow.
  • Keep thorough documentation: Document everything about your client, including orders placed, communications and deliveries, in case you ever need to appear in bankruptcy court and appeal for payment. Consider how much work you are willing to put into securing this money if it comes down to litigation.
  • Negotiate if your client is going through financial troubles: If your client goes bankrupt, there’s a strong chance its debt to you will be discharged. This means you should begin negotiating with your client as soon as possible and before a petition for bankruptcy is filed. You might ask for a smaller portion of the payment now and be willing to extend or even forgive the rest of the debt. It may be a better option than receiving nothing at all.
  • Ramp up your marketing: This is especially important if you have a large client going out of business. You’ll need to replace their revenue, and so you should focus your efforts on finding one or more new clients to replace what the now-defunct account was providing to you.
  • Communicate: Keep in communication with your client consistently so you have a rapport and are better able to work out an agreement during times of financial pressure.
  • Be proactive: When a client is going through financial hardship and faces bankruptcy, its leadership is probably not thinking about every single debt owed to various entities. You will need to be your own advocate in this situation to make sure you are not left in an unstable financial situation.

For more tips and guidance on how to safeguard your business against a client going bankrupt, consult a dedicated corporate planning attorney in the U.S. Virgin Islands.

J Nash Davis is an associate in the Real Estate and Financial Services and the Corporate, Tax & Estate Planning Practice Groups of BoltNagi PC, a full service business law firm on St. Thomas, U.S. Virgin Islands.

How This Fall’s Hurricanes Will Play a Role in Tax Season

Posted in Business, Hurricane

This year’s tax season looks a little different than in the past for people who live in areas that were affected by the major hurricanes in 2017. The IRS is still focused on accommodating the various tax needs, including relief efforts, of individuals impacted by the disasters.

On September 29, Congress passed the Disaster Tax Relief and Airport and Airway Extension Act of 2017, and President Trump signed it into law shortly thereafter.  The legislation modifies a few key tax provisions relative to individuals and businesses located in areas affected by Hurricanes Harvey, Irma and Maria.  This includes the U.S. Virgin Islands.

Some of the tax changes the IRS began working on as a result of this bill include the following:

  • Easier withdrawals and loans from retirement plans such as IRAs and 401(k)s to help disaster-stricken taxpayers get their hands on the liquid cash they need;
  • Various employment-related tax credits to help hurricane-affected taxpayers during tax season;
  • Additional deductions for charitable contributions, especially those made toward organizations assisting with disaster relief efforts;
  • Additional deductions for personal casualty losses, providing some relief for those who lost significant assets during the storms;
  • Adjustments to income requirements for the Child Tax Credit and Earned Income Tax Credit.

Steps affected individuals and businesses can take

While the above describes the steps the federal government has taken to make tax season easier on individuals, there are specific strategies affected individuals and businesses can use to realize some savings this tax season as well.

For example, if you suffered property damage from the hurricane(s), you may qualify for a tax break that helps you offset losses not covered by insurance. Under federal law, losses resulting from disasters such as hurricanes and floods are deductible if not reimbursed by insurance. However, if your property is insured and you did not file a homeowner’s insurance claim, you cannot take this deduction.

Only individuals who itemize their taxes can take the write-off for damage to personal property, such as a home or vehicle—and there are some offsets that apply to these losses. When taking the deduction, you must reduce the value of the loss by $100, and then deduct the balance only to the level at which it exceeds 10 percent of your adjusted gross income. For example, if you suffered $20,000 in damage during Hurricane Maria and your adjusted gross income is $100,000, you would subtract the $100, then $10,000 (representing the 10 percent of AGI) from the remaining $19,900. The $9,900 that remains is the amount of money you can deduct on your tax return.

One thing is clear: these deductions and tax policies can be confusing to navigate. For more information and guidance on the various tax considerations in the wake of Hurricanes, meet with a knowledgeable tax planning attorney in the U.S. Virgin Islands.

J. Nash Davis is an associate in the Real Estate and Financial Services and the Corporate, Tax & Estate Planning Practice Groups of BoltNagi PC, a full service business law firm on St. Thomas, U.S. Virgin Islands.

The Role of a Public Adjuster Versus a Private Adjuster

Posted in Insurance

Those who have suffered considerable damage to their property (residential or commercial) and wish to file an insurance claim must first identify the correct way to move ahead. The first step of the claims process is to find an adjuster to assist with your claim. The big question is: do you go with an independent private adjuster or a public adjuster?

People who are unfamiliar with the insurance claims process may be understandably confused by this decision, but it is important to understand the different roles these two types of adjusters play, as they are quite different from one another.

Let’s take a closer look at the roles and responsibilities of each.

Private adjuster

Also referred to as an “independent” adjuster, a private adjuster is one who works for an insurance company rather than a public entity. This is important to remember, as the adjuster is primarily concerned with the rights of their employer. This person does not work on behalf of the individual policyholder.

Insurance companies have adjusters on their payroll to adjust claims on their behalf. These adjusters have a license that only permits them to work for insurers—not the people who hold the insurance policies. These adjusters are either on staff with the insurance provider or contracted to the insurance provider via a third party.

Public adjuster

A public adjuster has a much different purpose than a private adjuster. Public adjusters represent policyholders, as they are paid directly by policyholders to act on their behalf. A person with an insurance policy obtains the services of a public adjuster in a way similar to how one retains the services of an attorney.

Public adjusters engage in negotiations with the private adjuster assigned by the insurance company to a specific claim. Public adjusters either work on their own or as part of a firm, and are usually paid based on an established commission rate (for example, 5% of the final settlement figure on residential claims).

The nature of a public adjuster’s job requires these professionals to market and sell their services in a way private adjusters never have to. All public adjusters must pass strict background checks, post a bond and complete apprenticeships.

To learn more about your options when filing an insurance claim for property damage in the U.S. Virgin Islands, speak with a knowledgeable attorney.

Tom Bolt is Managing Attorney of BoltNagi, a full service business law firm located on St. Thomas, VI.

Legal Safeguards in Hiring Contractors for Hurricane Repairs, Reconstruction

Posted in Hurricane

In the weeks and months after a natural disaster, contractors tend to flood the affected area with tantalizing offers of rock-bottom rates for repairs and reconstruction services. This is prime season for scammers, who tend to cut corners, use low-grade materials or skip out on the job entirely after receiving payment.

Thus, when you hire a contractor to rebuild your home or property, it’s important to do some due diligence in selecting the contractor, both to ensure you are choosing a high-quality professional and to protect yourself in the event you end up filing a lawsuit against the contractor for a failure to complete the job as outlined in the contract.

The following are some steps you should take to protect yourself when hiring a contractor for hurricane repairs and reconstruction:

  • Take your time: While some issues cannot wait (such as water damage, mold or anything else that could be especially dangerous), you can take the time you need to carefully research contractors before making a hire. This is an important decision you do not want to rush.
  • Get as many references as possible: There are plenty of resources you can use to find high-quality contractors, including friends and family, previous customers and online reviews. In addition, you can check with the Virgin Islands Department of Licensing and Consumer Affairs to determine if any complaints had been filed regarding their services.
  • Review qualifications: Make sure the contractor is licensed, bonded and insured in accordance with all the ordinances in your city or jurisdiction. You can ask the contractor for copies of its liability insurance declarations page and its bond. Ask about warranties offered by the contractor, and get any offered warranties in writing.
  • Get bids in writing: You are likely going to investigate several different contractors, so when you ask for bids on the job, get those bids in writing. You should also get a repair timeline in writing.
  • Get the proper permits: Make sure your contractor obtains a building permit, if required for the work being done. Ask for a copy of that permit if the city requires one for the project in question.

What happens if the contractor takes advantage of me?

If it is too late for you to use these tips because the contractor has already taken advantage of you, there are still some things you can do to protect yourself. These include the following steps:

  • Immediately retain an attorney: If you do not know any attorneys, contact the Virgin Islands Bar Association or another referral service. If you are unable to afford an attorney, contact the closest legal aid office.
  • File a report: Submit a report about the contractor’s wrongdoing with your local law enforcement agency. If that agency cannot help you, contact the district attorney’s office in your area.
  • Reviews: Leave honest, negative reviews with a thorough list of the contractor’s misdeeds on as many review sites as possible.
  • Don’t pay: Do not give any more money to the contractor, and do not wait to take the above actions.

For more information regarding the steps you should take to protect yourself legally while seeking contractor assistance for hurricane reconstruction, consult a skilled civil litigation attorney in the U.S. Virgin Islands.

Tom Bolt is Managing Attorney of BoltNagi, a full service business law firm located on St. Thomas, VI.

Businesses Should Have Disaster Preparedness, Contingency Plans

Posted in Hurricane

One of the many lessons businesses across the U.S. Virgin Islands and the rest of the Caribbean have learned in the wake of Hurricane Maria is that it is absolutely imperative to have disaster preparedness and contingency plans. The unfortunate reality is that all it takes is one large storm to come through and wipe out businesses and power grids. Organizations of all sizes must have established plans to ensure an unexpected natural disaster does not put them out of business for good.

The following is a simple process you can use to develop disaster preparedness and contingency plans for your business.

Identify the risks you face

Figure out which areas of your business would be the most at risk in a disaster situation. The best way to do this is to analyze all areas of your operations and identify everything that could go wrong.

For example, what if a massive power outage causes you to lose access to your data, including important customer information? What if flooding causes considerable damage to your property and storage space?

It can be helpful to have an outside party come in and conduct a disaster audit to pinpoint these potentially vulnerable areas.

Prioritize those risks

Which risks are the ones most likely to be catastrophic—or at least, majorly interrupting—for your business? A good strategy to use in risk prioritization is to create two lists: a probability ranking and an impact ranking. On a scale of one to 10, rank the probability and expected impact of each potential risk and determine which areas you need to address first.

Develop your contingency plan

Have a contingency plan for each of the scenarios most likely to have an impact on your operations. Some elements to include in your contingency plan include the following:

  • Timelines: Identify what you need to do within the first few hours or days after a data loss to mitigate the potential damage that could be done to your business and get back online more quickly.
  • Communication: Determine who in your company is in charge of communication for each scenario. If you run a small business, it is probably best for you to take on this responsibility.
  • Risk reduction: Take whatever steps you need to ahead of time to reduce the risk you face. Have insurance coverage for floods and building damage. Sign up for alerts for security or weather risks. Get educated about the steps you need to take after a disaster to restore your business.

Keep the plan updated

Even if you do not encounter any disaster situations, it is important to revisit your plan periodically to make sure it is up to date and that you are familiar with the steps you need to take in a worst-case scenario. Keep everyone in your company on the same page with regard to disaster response, as well, to ensure your contingency plan goes as smoothly as possible if you ever need to implement it.

For more information and guidance on establishing sound contingency plans, work with a dedicated U.S. Virgin Islands corporate law attorney.

Tom Bolt is Managing Attorney of BoltNagi, a respected and well-established business law firm serving clients throughout the U.S. Virgin Islands.

Common Examples of Wage and Hour Issues That Go to Court

Posted in Labor & Employment

The U.S. Department of Labor (DOL) collects about $250 million per year in back wages for American workers. These judgments come in a variety of different categories.

If you own or operate a business, it’s important to be aware of these issues and how they can affect employers. Below are some of the most common examples of wage and hour issues that go to court:

Incorrect payment of overtime wages

About 76 percent of employees who work more than 40 hours in a week either are not paid overtime or are paid overtime at an incorrect rate. In addition, according to information from the DOL, while overtime violations are only slightly more often reported than minimum wage violations, the former are much costlier. In 2014, nearly 80 percent of the back wages the DOL collected were for overtime wage violations.

Under the Fair Labor Standards Act, most employees must earn “time-and-a-half” pay if they work more than 40 hours in a week. This overtime pay may also take into consideration bonuses and commissions.

Minimum wage violations

Right there with overtime wage violations among the most common wage and hour issues are minimum wage violations.

Approximately 26 percent of workers polled in a study indicated they were being paid less than minimum wage. This is rather shocking, as this is the most basic worker’s right offered in America. Federal law requires most workers to be paid at least $7.25 an hour.

Slightly more common is the issue of tipped employees being paid lower than the minimum wage. About 30 percent of tipped workers were not paid the tipped minimum wage, according to a study by the National Employment Law Project. The tipped minimum wage is different than the standard minimum wage (often $2.13 per hour), and many states have implemented their own maximum “tip credits.” This represents the most an employer can deduct from the worker’s wages.

Failure to pay for work outside of hours

About 70 percent of employees do not get paid for the work they perform off the clock. If an employer allows an employee to work off the clock, these hours must be counted toward wages and overtime.

Illegal paycheck deductions

Roughly 41 percent of workers in the NELP study had illegal deductions withdrawn from their paychecks. Some employers, for example, deducted uniforms, tools or other work supplies. This is illegal if the deductions lead to the wages being lower than the minimum wage.

Stealing tips

About 12 percent of workers surveyed had tips stolen by their employers. Workers have a right to keep their full tip money except in tip pooling scenarios, in which tips are divided equally among employees. Even in these scenarios, employers may not take money from the pool.

To make sure your business is in complete compliance with all federal and local wage and overtime regulations, consult a trusted employment law attorney in the U.S. Virgin Islands.

Ravinder S. Nagi is Assistant Managing Attorney and Chair of the Labor & Employment Practice Group at BoltNagi, an employment and labor law firm serving businesses and organizations throughout the U.S. Virgin Islands.

Proposed Law Would Address Digital Assets

Posted in Government Relations

(Attorney Tom Bolt (Photo from the BoltNagi PC website.)

A bill under consideration by the Senate Rules and Judiciary Committee would make such things as emails, passwords to bank accounts and online trading accounts covered by V.I. laws about how to handle property when someone dies or is incapacitated.

The changes are necessary because “the law has not kept up with technological advances in the internet age,” attorney Tom Bolt of the V.I. Uniform Law Commission told the committee Thursday before it voted to send the bill on to the full Senate.

V.I. law, like most jurisdictions, has long had provisions for how to handle traditional forms of property – cars, homes or checkbooks, for instance. But with more and more people doing more and more of their financial activity online, questions of how to deal with passwords or digital assets like Bitcoin, a digital currency, are becoming legal matters.

Bolt gave several examples to illustrate the problem, such as if there was a person who receive their bills and bank statements by email who passed away recently, and a relative or representative of the estate had to review a list of email correspondents just to even locate assets and figure out what, if anything, they owe on loans or credit cards.

And if someone dies, how can their next of kin stop automatically recurring payments? Or if someone is incapacitated and cannot use their password, how can it be changed?

Or if someone owned website domain names, a for-profit blog or Bitcoins, “the personal representative needs authority over digital property to ensure that its value is not lost to the … heirs,” Bolt said.

Bolt said the bill mirrored uniform legislation being approved in many jurisdictions. It authorizes access to digital assets by four common types of fiduciaries: personal representatives, court appointed conservators, agents under power of attorney, and trustees.

Corinne Plaskett, state president of AARP, also testified in support of the measure, for similar reasons.

She said it “gives internet users the power to plan for the management and disposition of their digital assets in the same way they can make plans for their tangible property.”

She also aid it balances the user’s privacy interest and the fiduciary’s need for access by making distinctions between the content of electronic communications, the catalogue of electronic communications, and other types of digital assets.

Novelle Francis (D-STX) sponsored the bill. Voting to send the measure on to the Senate floor for a final vote were: Francis, Jean Forde (D-STT), Myron Jackson (D-STT), Positive Nelson (ICM-STX) and Janelle Sarauw (I-STT). Sens. Janette Millin Young (D-STT) and Sammuel Sanes (D-STX) were absent.

U.S. Virgin Islands Still in Need of Federal Relief after Hurricane Maria

Posted in Hurricane

It has been weeks since Hurricane Maria swept through the U.S. Virgin Islands, causing catastrophic damage to the Territory’s buildings and infrastructure. However, the Territory still finds itself in great need of federal assistance.

In mid-October, a group of Democratic lawmakers sought tax relief for both Puerto Rico and the U.S. Virgin Islands, which were hit extremely hard by the hurricanes of September. The crux behind the lawmakers’ plea was that people and businesses in the two territories do not enjoy the same benefits as those on the mainland. Thus, assistance for them is harder to get than their fellow citizens in Florida and Houston.

The House of Representatives did pass a $36.5 billion disaster aid package for Puerto Rico and the U.S. Virgin Islands, but experts and lawmakers characterized that amount as “paltry” for the people of the territories. Residents still do not have access to many of the tax benefits typically provided by the federal government in disaster scenarios.

The requests for aid have been somewhat overshadowed by Congress’s push to pass a $6 trillion tax overhaul plan that has long been championed by President Donald Trump and other conservative leaders. But the requests for aid continue to come in.

Democrats also asked a federal panel—the Ways and Means Committee—to permanently reinstate the tax system for rum, in which excise taxes collected on rum made in the U.S. Virgin Islands and Puerto Rico get paid to the federal government, but are then transferred back into the territories. In addition, lawmakers asked the panel to provide more financing for the New Markets Tax Credit to help businesses lost in Hurricane Maria recover.

Governor presses Trump for help

In addition to the relief requests members of Congress have made, U.S. Virgin Islands Governor Kenneth E. Mapp also met directly with President Trump in October and detailed the dire situation. Mapp told the President that the U.S. Virgin Islands needs up to $750 million to rebuild after the devastation the hurricanes caused. He has subsequently increased his ask to $7.5 billion.

While Mapp expressed gratitude for the funding the Territory has already received, he also specifically pointed out that funding is needed to rebuild schools and hospitals. Four schools were condemned on St. Thomas and St. Croix, and both the Territory’s hospitals need to be rebuilt completely.

The Governor also spoke with the President about redesigning the Territory’s power distribution system so that it would be underground. This would make for more expedient recoveries when future storms hit the region.

The rebuilding process will certainly be long and arduous, but there are lawmakers who continue to seek relief on behalf of the U.S. Virgin Islands. If you have questions about your options as you work to rebuild your business and your life in the Territory, consult a corporate planning attorney.

  1. Nash Davis is an associate in the Corporate, Tax and Estate Planning Practice Group at BoltNagi PC, a full service business law firm on St. Thomas, U.S. Virgin Islands.