Elected officials are pressuring the Internal Revenue Service to take action against wealthy individuals who are believed to be avoiding taxes in Puerto Rico.
A faction of Democratic representatives is urging the Internal Revenue Service to expedite its inquiry into affluent individuals who are purportedly exploiting a lucrative tax benefit in Puerto Rico in an unlawful manner.
Last week, Rep. Nydia Velazquez and twelve other members of the Democratic party from New York wrote a letter to the IRS, urging them to take action against around 100 wealthy individuals who are taking advantage of Act 60. This act provides tax benefits to Americans who move to Puerto Rico and become legal residents. Act 60 was created in 2019 by merging two previous tax havens – Act 22, which benefits individual investors, and Act 20, which is used by export services companies.
The rule grants a full exemption from federal taxes on Puerto Rico-based income, interest, dividends, and capital gains to new residents of Puerto Rico.
The Center for Investigative Journalism of Puerto Rico reported that the DEDC began auditing around 5,000 beneficiaries of the program in 2021. However, no results have been released yet.
The IRS announced in July that they had found 100 people in the U.S. territory who were breaking the rules by claiming tax benefits. These individuals must purchase a home on the island within two years of becoming Puerto Rico residents, spend at least half of their time there, pay federal taxes on income earned in the U.S., and donate $10,000 every year to approved Puerto Rican charities.
The IRS stated in their July press release that these affluent individuals are trying to evade paying taxes on income earned in the U.S., and they anticipate that numerous cases will be subject to criminal investigation.
According to a letter from lawmakers, the IRS originally intended to release documents related to its audit in response to a Freedom of Information Act request made by advocacy groups from Puerto Rico and the United States by summer. However, the groups were later informed by the IRS that the release date had been pushed back to December.
Velazquez stated that it is crucial for the IRS and Treasury Department to prioritize enforcing Act 22 and provide transparency in their monitoring of Americans who are illegally receiving benefits from this legislation.
Democratic lawmakers wrote to the IRS, suggesting that some individuals may be using the law to evict Puerto Ricans from their homes, even if they are technically following the law.
The letter states that Act 22 has established a tax haven in Puerto Rico, resulting in a rise in short term rentals, an increase in cash property sales and speculation in the market, and displacement of the Puerto Rican population.
“The displacement has worsened due to these beneficiaries who do not pay taxes and have cash on hand. They engage in real estate speculation, causing property prices to increase from $100,000 to $300,000 or even half a million dollars. This has greatly intensified the housing crisis in Puerto Rico,” explained Marlyn Goyco, national organizing manager for the Center for Popular Democracy, in an interview with CBS News.
The rapidly increasing costs are making it difficult for a large number of Puerto Ricans to afford owning a home, as the average household income is $21,967. According to data from the U.S. Census Bureau, at least 41% of the population live below the poverty line. Meanwhile, housing prices on the island have risen by 36% in the past five years, according to data from the Federal Housing Finance Agency.
The legislators highlight that Act 22 has led to a decrease in income for the U.S. Treasury. They mention that 647 individuals who have become Puerto Rico residents and taken advantage of the tax benefit have collectively paid more than $500 million in federal income taxes in the five years prior to moving to the island. They believe this small statistic demonstrates the significant amount of revenue that the United States is losing as a result of Act 22’s tax avoidance scheme.
The Internal Revenue Service has not yet provided a response to a comment request.
Goyco expresses that the primary worry is the high cost of living in Puerto Rico due to the unknown timeline of the IRS investigation and when the local government will release information on program beneficiaries.
According to Goyco, our sales tax is the highest and our electric bill is also the highest. She expressed concern that our population may decrease, turning Puerto Rico into a place without Puerto Ricans, as it is becoming more and more difficult for people to afford living here.
According to Goyco, there are limited job opportunities for university students. This law does not address this issue and instead brings people to paradise without contributing financially to the community.
Cristina Corujo
Source: cbsnews.com