The U.S. Internal Revenue Service (IRS) prosecutes tax evaders who have abused Puerto Rico’s tax structures. Bloomberg reported July 12.
Puerto Rico has offered significant tax incentives to cryptocurrency traders, hedge fund managers, and other U.S. investors since 2012. This policy has allowed some investors to legally avoid paying federal income tax and no taxes at all on dividends, interest and capital gains.
To qualify for Puerto Rico’s tax policy, investors must reside in Puerto Rico a minimum of 183 days per year and maintain close local ties. Bloomberg further reported that more than 5,000 U.S. citizens and 3,600 businesses are eligible for tax breaks since 2012.
But despite the otherwise legal nature of Puerto Rico’s tax breaks, researchers are now examining whether investors have been honest about the length of their stay on the island and the sources of their income.
At least two criminal investigations, including one involving a US attorney, could be charged soon, he said from Bloomberg sources. Possible charges include conspiracy and wire fraud. The investigations are aimed at taxpayers as well as at initiators, lawyers and accountants who brought the tax program to market.
Bloomberg noted that in October 2020, BDO Puerto Rico accountant Gabriel F. Hernandez faced allegations of fraud related to IRS reporting. It said any charges stemming from the latest investigations would be the first since that case, which is still pending.
Taxes appeal to Americans, but not locals
Bloomberg noted that while U.S. investors have benefited from the tax policy, local citizens have expressed opposition to the program. Puerto Ricans claim the policy raises real estate prices and gives Americans preferential treatment.
Similar messages surfaced in 2022 as local residents protested the policy. Bloomberg alluded to those demonstrations in its latest report.
However, local residents criticize the influx of wealthy Americans for driving up real estate prices and contributing much less to taxes than native Puerto Ricans. Opposition is growing, with proposed legislation to reform incentives and sporadic protests against the arrival of these low-tax “settlers.”
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