Prosecutors from the United States and agents from the Internal Revenue Service (IRS) have launched an investigation into wealthy crypto traders and fund managers suspected of illegally benefiting from Puerto Rico’s tax breaks. According to a report from Bloomberg, investigators are building civil and criminal cases against hedge fund managers, crypto traders, and other wealthy Americans who may have dishonestly claimed residency in Puerto Rico and misrepresented their income to take unfair advantage of the tax breaks.
The investigation also extends to attorneys and accountants responsible for marketing Puerto Rico’s tax program, with charges expected in the near future. Prosecutors are reportedly exploring conspiracy and wire fraud charges. This crackdown comes as the US federal government begins to analyze the impact of Puerto Rico’s Act 22, which was initially intended to drive investment and benefit the locals. Congresswoman Nydia Velazquez raised concerns about the act’s ability to help Puerto Ricans, arguing that it has instead worsened inequality and turned Puerto Rico into a tax haven.
To uncover potential fraud, the U.S. federal prosecutors are collaborating with IRS agents and Puerto Rico officials. Attorney Carlos Ortiz, who spoke with a federal prosecutor, revealed that investigators are tightening their grip on those involved. Since Puerto Rico introduced its new tax policy in 2012, over 5,000 American individuals have relocated to the country, attracted by the opportunity to save on federal income tax.
Under Puerto Rico’s tax policy, individuals enjoy a 100% exemption on dividends, a 60% exemption on municipal taxes, and are not subject to federal taxes on income earned within the region. Additionally, over 3,600 businesses have been able to avoid paying taxes on earnings and profits dividends, only needing to pay a 4% tax on exports.
While the tax benefits are appealing, the requirements to qualify for them are stringent. New residents must prove that they reside on the island for at least 183 days each year and consider it their “tax home.” These stringent rules have tempted some individuals to manipulate their numbers and cheat on their returns, according to lawyers familiar with the regime.
Notable figures who have relocated to Puerto Rico for tax purposes include gold bug Peter Schiff and crypto investor Michael Terpin. Schiff’s bank in Puerto Rico was closed by regulators on July 4 for failing to meet the net minimum capital requirements. Terpin, speaking at Miami’s annual Bitcoin Conference, praised Puerto Rico as the only place where one can avoid global tax without renouncing U.S. citizenship. Despite rumors of audits, Terpin remains confident in his meticulous record-keeping and welcomes any investigation.
While many applaud the tax breaks for attracting top fund managers and entrepreneurs to the island, the program has faced opposition. Critics argue that the new wealthy residents, seen as low-tax “colonizers,” have driven up the cost of living and contributed to inequality.
As the investigation progresses, it sends a strong message that fraudulent practices and abuse of tax breaks will not go unnoticed. Prosecutors and the IRS are committed to ensuring fairness and preventing exploitation.