U.S. Prosecutors, IRS Investigate Alleged Tax Fraud

According to reports, U.S. prosecutors and Internal Revenue Service (IRS) agents are investigating wealthy crypto traders and fund managers suspected of illegally taking advantage of Puerto Rico’s tax breaks.

Bloomberg reported on June 12 that investigators are currently building civil and criminal cases against several hedge fund managers, cryptocurrency traders, and other wealthy Americans who may have lied about their residency and income to take unfair advantage of tax breaks.

U.S. officials are also investigating the attorneys and accountants responsible for promoting the island territory’s tax program; at least two criminal investigations will result in charges shortly.

According to reports, prosecutors are considering conspiracy and wire fraud charges.

Attorney Carlos Ortiz, recalling a conversation with a U.S. federal prosecutor, stated that the prosecutors were collaborating with “IRS agents” and Puerto Rican officials.

“The message is the noose is tightening.”

Since introducing Puerto Rico’s new tax policy in 2012, more than 5,000 Americans have relocated to the country.

One of the advantages of doing so is avoiding federal income tax.

Puerto Rico’s tax policy exempts dividends at a rate of 100 percent, municipal taxes at a rate of 60 percent, and source income earned in the region from federal taxation.

In addition, over 3,600 companies have been exempt from paying taxes on dividends and profits and are only required to pay a 4% tax on exports.

Although the tax benefits are among the most generous in the world, the requirements for receiving them are pretty stringent.

To be eligible for the tax breaks, new residents must be able to demonstrate that they reside on the island territory for at least 183 days per year and that it is their “tax home.”

According to lawyers familiar with the regime, these stringent regulations entice many individuals to falsify their tax returns and commit fraud.

Peter Schiff, a gold investor, and Michael Terpin, a crypto investor, are two notable individuals who relocated to Puerto Rico for tax reasons.

On July 4, Puerto Rican regulators shut down Schiff’s bank for failing to meet the required net minimum capital.

Terpin, speaking at Miami’s annual Bitcoin Conference on May 19, lauded Puerto Rico as the “only place that you can go and not have to pay on your global tax without renouncing your U.S. citizenship.”

Terpin appeared unconcerned by the strict tax policy:

“I’ve been told that every single person is going to get audited, and that’s fine. I keep incredibly precise notes. I get them run past both a tax lawyer and a CPA, and I’ve got two bookkeepers. So bring it on, I’m not afraid of an audit.”

While the island’s wealthy residents praised the tax breaks for attracting top fund managers and entrepreneurs, the tax program has been the target of protests claiming that the new hyper-wealthy residents are “colonizers” who have increased the cost of living.