From the Tax Law Offices of David W. Klasing - The IRS is Targeting Taxpayers (and Their Advisors) that Purported to Have Moved to Puerto Rico to Avoid Cryptocurrency Capital Gains

Taxpayers may face tax civil penalties and potential criminal tax prosecution due to the sketchy tax advice they received.
On January 17, 2012, Puerto Rico passed Act 22 of 2012, also referred to as the Individual Investors Act (IIA), in order to enhance the economic situation of Puerto Rico.
To be eligible to claim tax exemptions from the IIA on your tax return, you must be a "bona-fide resident" of Puerto Rico.
However, as a U.S. person, a taxpayer who lives in Puerto Rico is still subject to federal income tax on income earned from avenues OUTSIDE of Puerto Rico.

IRVINE, Calif., March 2, 2021 /PRNewswire/ -- Possibly thousands of taxpayers have falsely been led to believe by unscrupulous tax advisors that repatriating to Puerto Rico would be a valid way to avoid the capital gains tax on their cryptocurrency earnings. Taxpayers may face tax civil penalties and potential criminal tax prosecution due to the sketchy tax advice they received.

On January 17, 2012, Puerto Rico passed Act 22 of 2012, also referred to as the Individual Investors Act (IIA), in order to enhance the economic situation of Puerto Rico.

To be eligible to claim tax exemptions from the IIA on your tax return, you must be a "bona-fide resident" of Puerto Rico. The following three factors must be true for a taxpayer to be deemed as a bona-fide resident:

The taxpayer resides in Puerto Rico for a minimum of 183 days of a taxable year
The taxpayer cannot possess a tax home in another country during the taxable year
The taxpayer cannot have closer ties to the United States or another country besides Puerto Rico

Benefits available to bona-fide residents of Puerto Rico that are eligible under the IIA include:

Tax exemptions on all dividends from income taxes
Tax exemptions from income taxes on interest
Tax exemptions provided on income taxes short- and long-term capital gains earned AFTER the taxpayer has attained bona-fide resident status in Puerto Rico

Despite being a U.S. territory, being a bona-fide resident of Puerto Rico means that a taxpayer would not have to report income that is gained from sources WITHIN the country. However, as a U.S. person, a taxpayer who lives in Puerto Rico is still subject to federal income tax on income earned from avenues OUTSIDE of Puerto Rico. This means that cryptocurrency income that is derived from a U.S. source will be subject to federal income taxes.

The reason why many taxpayers are being targeted by the IRS for repatriating to Puerto Rico for the IIA is that every taxpayer that filed under the Act may not be legally considered a bona-fide resident.

See the full version of this article here.

Public Contact:
Dave Klasing Esq.
M.S.-Tax CPA
[email protected]

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SOURCE Tax Law Offices of David W. Klasing, PC