Cryptocurrencies have often been a centre of discussion due to the aspect of tax benefits as well as its evasion. Now, Puerto Rico residents are under close watch of the authorities to confirm about their practices to avail tax benefits associated with cryptocurrencies.
According to a report from a renowned media house, the United States Internal Revenue Service (IRS) is keeping a close eye on Puerto Rico residents. The authorities are in watch out for possible tax dodgers who abused Puerto Rico’s tax structures.
Puerto Rico, an island in the Caribbean Sea, has been a territory of the United States since 1898, after the U.S. defeated Spain in the Spanish-American war. It’s classified as an “unincorporated territory,” meaning the island is controlled by the U.S. government but is separate from the mainland. While 3.2 million Puerto Ricans are U.S. citizens and are subject to U.S. federal laws, they can’t vote in presidential elections and lack voting representation in Congress.
Notably, being a crypto favouring nation, Puerto Rico has offered significant tax incentives to cryptocurrency traders, hedge fund managers, and other American investors since 2012. This policy has paved way for some investors to legally avoid paying federal income tax and no taxes at all on dividends, interest, and capital gains income.
However, there are some conditions that one must fulfil to avail these tax benefits. In order to qualify for Puerto Rico’s tax policy, investors must reside in the nation for at least 183 days each year and maintain close local ties.
According to media reports, over 5,000 U.S. citizens and 3,600 businesses have qualified for tax incentives in the past 11 years. However, despite the otherwise legal nature of Puerto Rico’s tax breaks, authorities are now investigating into whether investors have been honest about the duration of their residence in the nation and the sources of their income.
Sources reveal that at least in two criminal investigations regarding the taxes, including one involving a lawyer, charges could be filed. Among the potential charges, there could be allegations of conspiracy and wire fraud. Reportedly, the investigations target taxpayers as well as promoters, attorneys, and accountants who marketed the tax program.
Interestingly, sources have suggested that while American investors have benefited from the tax policy and have raised interest, local citizens haven’t been happy about the program. The local citizens allege that the policy raises real estate prices and gives Americans preferential treatment. Additionally, reports emerged last year when local residents engaged in protests around the policy.
However, it is important to note that the local citizens are abduct the influx of wealthy Americans for inflating real estate prices and contributing far less in taxes than native Puerto Ricans. The opposition is growing, with proposed legislation to reform the incentives and sporadic protests against the arrival of these low-tax “settlers.”
With the growing adoption and fame of cryptocurrencies, several nations have looked up to incentivising the investors by announcing tax benefits. Notably, before Puerto Rico, Argentina, announced tax benefits for citizens upon the disclosure of crypto holdings.
Nonetheless, there are fair chances of loopholes in matters of tax benefits or just taxes. While the authorities are significantly concerned about the cases of tax evasions, presenting false information for availing taxes is nothing new.
As reported by Todayq News, only a 0.53% of crypto investors reported taxes in the past year highlighting the high number of those running away from taxes. However, IRS as renowned to be one of the strictest tax authorities has always been vigilant and more so when it comes to the crypto sector.