Private wealth clients, hedge fund managers and cryptocurrency traders fleeing to Puerto Rico for its huge tax breaks—and to escape President Joe Biden’s proposed capital gains tax increases—are now the focus of a sweeping Internal Revenue Service review.
The country’s tax collector quietly launched a coordinated campaign in late January to examine individuals who took advantage, starting in 2012, of tax incentives designed to lure high net-worth individuals and corporations to Puerto Rico. More than 4,000 mainland U.S. residents and firms have moved to the territory between 2012 and 2019, revealing potentially hundreds of millions of dollars in lost tax revenue to the U.S. government, according to an IRS report delivered to Congress.
Individuals have already started receiving requests for information, according to tax attorneys that advise clients on federal income tax issues under Puerto Rican tax incentive laws. More audits are anticipated now that the U.S. tax filing deadline has passed.
“The IRS doesn’t start a campaign and not follow through,” said J. Clark Armitage, an international tax lawyer with Caplin & Drysdale. “There are going to be a lot of audits.”
At issue are taxpayers who may have excluded income subject to U.S. tax, or failed to file and report income altogether when they moved to Puerto Rico, according to the IRS notice. The agency is also targeting those who claim to be bona fide residents of Puerto Rico but may be “erroneously reporting” U.S. income to evade taxes.
The IRS’s push is taking place as Biden’s proposed tax increases have triggered moves by America’s wealthiest from high-tax states like New York and California, while hedge funds like Izzy Englander’s Millennium Management and ExodusPoint Capital Management have moved to establish subsidiaries on the island. An ExodusPoint spokesman declined to comment, while a representative for Millennium did not respond. Keep Reading>>
