Bloomberg reports that U.S. prosecutors and investigators from the U.S. Internal Revenue Service (IRS) have launched an investigation into affluent crypto investors and fund managers suspected of illegitimately benefiting from tax advantages in the tax haven of Puerto Rico.
IRS Chases Crypto Investors in Puerto Rico
According to Bloomberg’s report from July 12, IRS inspectors have opened legal and criminal investigations against several fund managers, crypto investors, and other wealthy Americans suspected of lying about the nature of their residences and significant components of their income in order to unjustly benefit from tax reductions.
Since 2012, Puerto Rico has been offering substantial tax cuts to American investors, hedge fund managers, and crypto investors. Some investors, thanks to these regulations, have legally avoided paying federal income taxes and also do not pay any tax on their dividend, interest, and capital gain incomes.
To be eligible under the island’s tax policy, investors must maintain close local relations and live in Puerto Rico for at least 183 days a year. According to Bloomberg, since 2012, over 5,000 Americans and 3,600 companies have become eligible to benefit from the tax cut.
IRS inspectors are now checking whether the investors have been honest about their time on the island and their sources of income. Inspectors and officials suspect the presence of numerous individuals abusing the tax structure.
U.S. officials also opened an investigation into lawyers and accountants responsible for promoting the tax program for the island region.
Puerto Ricans Are Opposed to the Practice
Under Puerto Rico’s tax laws, individuals receive a 100% exemption on dividends, a 60% exemption on municipal taxes, and are not subject to any federal tax on their source incomes earned in the island region. Even though the tax advantages are among the most lenient in the world, there are some very serious restrictions for qualifying.
Prominent gold advocate Peter Schiff and crypto investor Michael Terpin are two key figures who moved to Puerto Rico due to its recognized tax advantages. Schiff’s bank was closed by the Puerto Rican financial regulator on July 4 because it could not meet the minimum net capital requirements.
According to Bloomberg, while Puerto Ricans are opposing the tax advantage, American investors are pleased with profiting from the tax policy. Locals argue that this strategy favours Americans and inflates property prices. Similar claims arose when locals protested this policy in 2022.
