WASHINGTON – Representatives of the U.S. Virgin Islands will ask Congress to reopen a tax loophole that allowed some of America’s wealthiest financiers to dodge almost 90% of their personal federal income taxes, in testimony to be delivered here today before the Senate Energy Committee.

The hearing will become part of an intensifying campaign by USVI officials and inhabitants to ease residency and income restrictions implemented in 2004 after press accounts – including front-page stories in The New York Sun in 2003 – documented abuses of tax incentives meant to spur economic development in the territory.

The campaign has intensified over the last year, including the registration of and payment of more than $100,000 to six lobbyists by the “Virgin Islands Tax Working Group,” a cohort of private citizens attempting to persuade lawmakers to reopen the loophole provisions.

Observers familiar with the efforts said the primary target is Senator Crapo, a Republican of Idaho, whom Virgin Islanders hope will introduce an amendment to upcoming tax legislation allowing individuals to be considered USVI residents if they spend just three months out of every year there.

At the center of the debate is the 34-year-old U.S. Virgin Islands Economic Development Commission, a program designed to entice investment in the impoverished territory. Companies and individuals who relocate all or part of their businesses to the islands become eligible under the program for substantial tax benefits, as the Islands maintain control over their own taxation.

The program has been promoted heavily by the Department of the Interior, which has jurisdiction of the USVI and America’s other territories, as providing “profit opportunities unknown to most businesses.” As technology has removed the physical bonds keeping hedge funds and other financial-services firms – and the people who run them – in major financial centers like Chicago and New York, the program has grown in popularity over the last 10 years.

It has also led to residency claims from some top money managers, including Richard Driehaus and Jeffrey Epstein, who keep high profiles in Chicago and New York but declare the USVI as their place of residence for tax purposes.

The abuses, documented by the Sun and other press outlets, prompted action by Congress and the Treasury Department. In a last-minute provision inserted in the October 2004 American Jobs Creation Act, Congress closed one of the loopholes by stipulating that Virgin Islands residency requires at least six months spent in the islands, a policy finalized in January by the Treasury Department, whose Internal Revenue Service had been probing the EDC before the congressional action.

According to the Treasury policy, a Virgin Islands resident must now spend at least 183 days on the island to qualify for the tax breaks.

At today’s full committee hearing, however, Virgin Islands officials are expected to testify that the new restrictions have gone “too far,” and urge members of the Senate Energy Committee, which, along with the Senate Finance Committee, has jurisdiction over the issue, to scale back the 2004 Jobs Act requirements, according to a draft of testimony obtained by the Sun.

“We believe Congress went much further than needed in its attempt to deal with abuses in the program, and, as a consequence, has put our entire program, which accounts for 20% of government revenues, at serious risk,” the non-voting USVI delegate to the House, Democratic Rep. Donna Christensen, is expected to say.

“We have looked to you, Mr. Chairman and the members of this committee, to be our champions in the Senate, as has been your role historically on issues of critical import to us, like this one,” she will add. The chairman of the Energy Committee is Senator Domenici, Republican of New Mexico.

Arguing in greater depth for an easing of the restrictions will be the governor of the USVI, Charles Turnbull, who could not be reached for comment yesterday owing to travel. He and Ms. Christensen are expected to testify that Virgin Islands officials have been working with members of the Senate Finance committee to reduce the residency requirement from 183 days in one year to 122 days over three years.

A spokeswoman for Mr. Crapo, Susan Wheeler, said, of the senator’s position on the legislation: “It’s something he’s thinking about, and he is amenable to it.” Mr. Crapo traveled to the Virgin Islands last year to meet with government officials to discuss the EDC issue, the spokeswoman said, but she could not immediately provide information about the date of the trip or who sponsored it.

The Treasury Department, too, is a target of USVI lobbying, according to a party close to the efforts.

According to records on file with the Secretary of the Senate, the Washington-based Capitol Tax Partners, LLP, has been retained by the “Virgin Islands Tax Working Group” – a group of private citizens living in the Virgin Islands who last year paid the firm $100,000 for six lobbyists’ work on the issue.

An individual familiar with the lobbying work said that despite the documents on file with the Senate, most of the lobbying of Congress had been done by Virgin Islands officials.