IRS Probes Cryptocurrency Traders Utilizing Puerto Rico Tax Incentives, Claims Investigation

The Internal Revenue Service (IRS) and U.S. prosecutors are intensifying their scrutiny of affluent cryptocurrency traders and fund managers suspected of illicitly capitalizing on Puerto Rico’s tax benefits. Reports indicate that civil and criminal cases are being prepared against numerous hedge fund managers, crypto traders, and wealthy Americans who allegedly misrepresented their residency status and income details to take unfair advantage of the tax breaks.

The investigations are also extending to lawyers and accountants involved in promoting Puerto Rico’s tax program, with two criminal probes anticipated to result in charges soon. Conspiracy and wire fraud allegations are among the charges being considered by the prosecutors.

Attorney Carlos Ortiz, recounting a conversation with a federal prosecutor, disclosed that the prosecutors are collaborating with IRS agents and officials from Puerto Rico. Ortiz emphasized that the investigation is tightening its grip on the individuals under scrutiny.

Since the implementation of Puerto Rico’s tax policy in 2012, over 5,000 U.S. individuals have relocated to the territory, enticed by the potential savings on federal income tax. The tax policy offers a 100% exemption on dividends, a 60% exemption on municipal taxes, and zero federal taxes on income earned within Puerto Rico. Furthermore, more than 3,600 businesses have been able to forgo taxes on dividends and are only liable for a 4% tax on exports.

While the tax benefits are among the most lenient worldwide, meeting the requirements to qualify for them is considerably stringent. Prospective beneficiaries must demonstrate that they reside on the island for at least 183 days annually and establish Puerto Rico as their “tax home.”

Lawyers familiar with the program assert that these stringent rules tempt individuals to manipulate their financial records and engage in tax evasion. Notable figures who have relocated to Puerto Rico for tax purposes include gold advocate Peter Schiff and crypto investor Michael Terpin. Schiff’s bank was recently shut down by Puerto Rican regulators for failing to meet the net minimum capital requirements.

Speaking at the annual Bitcoin Conference in Miami, Terpin lauded Puerto Rico as the “only place that you can go and not have to pay on your global tax without renouncing U.S. citizenship.” While some express concerns about the rigorous tax policy, Terpin remains unperturbed, citing meticulous record-keeping and professional advice as his safeguards against potential audits.

While the tax breaks have been praised by affluent residents for attracting top fund managers and entrepreneurs to Puerto Rico, protests have arisen, denouncing the new influx of hyper-wealthy residents as low-tax “colonizers” who have inflated the cost of living on the island.

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