IRS Probing  Crypto Traders and Fund Manager Taking Advantage of Puerto Rico Tax Breaks 

In an advanced announcement, the US revenue regulators Internal Revenue Service (IRS) announced plans to deploy undercover agents to probe wealthy traders and fund managers engaging in Puerto Rico’s tax break. The report outlined the roles of the undercover agents in investigating Puerto Rico tax breaks.

The agent will extensively examine the wealthy merchants’ and fund managers’ records, which is essential in filing for civil and criminal cases against the victims. A few years ago, Puerto Rico introduced friendly regulations that involved incentives to attract fund managers, crypto entrepreneurs, and other Americans to the region.

Scope of Puerto Rico Tax Break

A source privy to the matter revealed that the undercover agents would closely examine whether people violated Puerto Rico’s regulations. The agents will determine whether the traders who seized Puerto Rico’s opportunities provided falsified information concerning their average time on the Island and their genuine revenue streams.

Another source familiar with the IRS probe argued that the agent would conduct scrutiny of specific individuals who engaged in advertising the tax program. The IRS team will mainly focus on the tax program’s promoters, attorneys, and accountants. The report explained that the enforcement unit plans to conduct at least two criminal investigations.

In a separate report, an individual familiar with the investigation confirmed that the primary criminal investigation would involve a US lawyer to support the opening of a charges.

In June, a speaker at the New York conference Carlos Ortiz argued that the US enforcement unit is planning on developing conspiracy and wire fraud charges. The speaker admitted having discussed the subject matter with a federal prosecutor based in San Juan.

In a phone call with the prosecutor, Ortiz mentioned that the IRS would partner with Puerto Rico to open a case against the suspects.

Why are American Providing Falsified Documents to the Regulators?

The tax break program was introduced to support the Americans after the hurricane ravaged their businesses. It was reported that the hurricanes exposed approximately 40% of Americans to poverty.

Since 2012 the tax break program has offered incentives to around 5000 Americans. The beneficiaries of the program are exempted from remitting federal income tax. This implies that the tax break excludes deducting tax from income generated from dividends, profits, and interest.

A recent statistic revealed that around 3600 businesses are excluded from paying tax on dividends. These businesses only pay a 4% tax on export services.

Besides the tax exemption, the beneficiaries are required to reside in Puerto Rico to benefit from the program. In their application for a tax break, the applicant must demonstrate close links to Puerto Rico compared to the US. The applicant should also indicate to have stayed on the Island for at least 183 days in a year.

After applying for the tax break program, the regulators would review the document before approval. The reviewing process involves examining whether the applicant met the residency requirements. Recently most of the applicants provided false information to pass the residency requirement.

Significance of IRS Investigations 

According to the IRS, the proposed investigation will be conducted in phases. Firstly investigators will examine Form 8898, which entails a taxpayer report. This report provides critical information concerning the days an individual stayed on the Island and the US. The Form 8898 report captures details concerning the income-generating streams, home location, and a bit of social life of the applicant.

The second phase of the investigation involves evaluating the residential homes of wealthy merchants. Previously the regulators conducted residency investigations since most successful business people have multiple homes. Puerto Rico’s suitability has attracted many investors, including the famous crypto entrepreneur Michael Terpin.

Irrespective of this, news about the IRS probe has sparked mixed thoughts among the community. In May, Terpin announced that his expansion to the Island aims at evading paying taxes to the IRS. Commenting on the ongoing investigation, Terpin stated that everyone will be audited.

In 2021, the IRS Business and International Division conducted a similar exercise to identify traders who engaged in tax cheats. The IRS official identified several traders who provided false income reports to benefit from the Puerto Rico tax break program.

Editorial credit: Mehaniq /

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