Tax Evasion Detection Methods in Puerto Rico Under Scrutiny

Washington D.C. - A group of lawmakers has written to the Internal Revenue Service (IRS) expressing concerns over tax evasion by beneficiaries of Puerto Rico’s Act 22, a law that aimed to attract wealthy individuals and businesses to the island by offering generous tax benefits.

Concerns Over Revenue Losses

According to the lawmakers, Puerto Rico stands to lose an estimated $4.5 billion in revenues related to Act 22 between 2020 and 2026, which is particularly problematic for a jurisdiction already struggling with public debt and reduced services.

Unintended Consequences of Act 22

The law has also led to an increase in:

• Short-term rentals: causing displacement for Puerto Rican residents
• Cash property sales: resulting in a 740% growth in cash sales between 2012 and 2021 (according to the Center of Investigative Journalism)
• Market speculation: exacerbating housing market issues (as found by the Center for a New Economy)

Request for IRS Transparency

The lawmakers are urging the IRS to provide information on its audit status and enforcement efforts regarding Act 22 beneficiaries. In response to a Freedom of Information Act request, the IRS initially stated that documents would be released this summer but has now informed advocates that the release will be delayed until at least December 2023.

Concerns Over Tax Evasion and Criminal Charges

The lawmakers argue that it is crucial for the IRS to ensure adequate oversight at the federal level, particularly as the number of Act 22 beneficiaries continues to grow exponentially. They are requesting that the IRS:

• Expedite processing of the FOIA request
• Provide a detailed timeline of when the agency expects to provide an update on its findings

The issue has also raised concerns about tax evasion and potential criminal charges against Act 22 beneficiaries, with the IRS investigating approximately one hundred individuals and potentially pursuing criminal charges.