A group of U.S. lawmakers is asking tax authorities to accelerate an investigation into rich Americans seeking lucrative tax breaks in Puerto Rico.
Twelve Democratic members of the House of Representatives asked the Internal Revenue Service on Friday to expedite a congressional request for information about efforts to root out people allegedly abusing Puerto Rico’s tax benefits. In July, the IRS said it was investigating about 100 wealthy individuals (see the story) and might pursue criminal charges after announcing an audit of the benefits in 2021.
“Unfortunately, beyond these announcements, the IRS has not released any information to the public regarding its auditing efforts,” the lawmakers, led by New York Democrat Nydia Velazquez, wrote to IRS Commissioner Daniel Werfel.
Puerto Rico, a U.S. territory of 3.2 million people, began offering sweeping tax breaks in 2012 with the hopes of attracting wealthy Americans who might help boost the economy. Some 5,010 people have moved to the island to enroll in the program, which eliminates all taxes on dividends, interest and capital gains, and allows them to pay just 4% on income tax.
The incentive isn’t accessible to local residents, who face income tax rates as high as 33%. Despite attempts to extend those tax breaks to eligible locals, Puerto Rico lawmakers stripped out those provisions this week, and the federally appointed oversight board blocked further tax cuts.
In its letter Friday, the lawmakers said the tax breaks will cost the local government an estimated $4.5 billion in forgone revenue from 2020-2026 and are helping fuel a housing crisis on the island.
“This is particularly problematic for a jurisdiction where harsh fiscal policies have been adopted to restructure the public debt, including the reduction of public-funded services,” the lawmakers wrote. To this day, Puerto Rico struggles with the aftermath of the largest municipal bankruptcy in U.S. history.
