Guam Faces Looming $22 Million IRS Repayment

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Government requests offset over unpaid compact impact costs

By Gaynor Dumat-ol Daleno

HAGÅTÑA, Guam (Pacific Daily News, Dec. 13, 2012) – As Guam senators continue their discussion on how to reduce government spending to try to avert a worsening fiscal crisis, a big bill looms, and there's no money to pay for it.

On Jan. 1, the government of Guam is expected to repay $22 million the Internal Revenue Service (IRS) overpaid when it provided the government of Guam tens of millions of dollars for the Make Work Pay Tax Credit payments to Guam taxpayers.

A cash-flow projection submitted by Gov. Eddie Calvo's fiscal team submitted on Nov. 30 in federal court states that GovGuam cash collections in January are expected to reach around $58 million.

With payroll and other costs of running GovGuam, and if the federal court orders the local government to pay tax refunds no later than six months after tax returns are filed, the Calvo administration has projected a potential cash shortfall of $18 million in January alone, court documents show.

Without the cash to repay the IRS by the deadline, which is a few weeks from now, the government of Guam is asking the federal government for an offset.

"Clearly, the government of Guam does not have the cash to make this payment," the governor's office stated when the Pacific Daily News asked how the IRS bill would be paid, first estimated at $20 million and recently recalculated by the governor's fiscal team at $22 million.

"This is one of the first fiscal issues we identified when coming into office in January 2011," the administration stated. "Based on recent reconciliation, the Department of Revenue and Taxation estimates the amount of (Make Work Pay Tax Credit) overpayment at approximately $22 million."

"Because of our fiscal condition, the request is being made to offset the (tax credit) overpayment against what is owed to GovGuam for unreimbursed compact-impact cost totaling approximately $590 million."

It's unclear if the IRS would agree to the offset proposal and whether such mechanism is in place.

It takes congressional action for Guam or other U.S. areas to receive additional appropriation related to hosting migrants from the Federated States of Micronesia, the Republic of the Marshall Islands and the Republic of Palau. The appropriation is called compact impact because the island nations' compact of free association agreements with the United States allow their citizens to freely enter U.S. soil, and thousands of them have made Guam home.

In fiscal 2004, Congress appropriated $30 million -- divided between Guam, Hawaii, and the Northern Marianas -- annually for 20 years to defray the affected jurisdictions' costs for migrant services under compact impact.

A U.S. Government Accountability Office report in November 2011 states, however, that some of the host governments did not account for the economic contributions of the migrants who hold jobs and pay taxes -- while computing their strain on government services such as providing education and health care.

Compact migrants participate in local economies through employment, taxation and consumption, but data on these effects are limited, the GAO report states.

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