In light of reports that beneficiaries under Act 22 of 2012, now encompassed in Act 60-2019, along with Act 20-2012, will be subject to scrutiny by the Internal Revenue Service (IRS), The Act 20/22 Society warned that mass audits endanger the island’s economic self-determination.
“I have warned about this possibility [of audits] for years now. If the program was not more selective in attracting recipients that could make a meaningful contribution from a jobs and economic contribution perspective, we ran the risk of additional unwanted scrutiny based solely on the massive growth of the program, which now includes thousands of companies and even more individual recipients,” Robb Rill, head of The Act 20/22 Society, said to THE WEEKLY JOURNAL.
Last week, it was revealed that the IRS will audit the tax obligations of Act 22 beneficiaries to verify if their financial statements are in compliance with federal tax laws. The news came after the federal entity concluded that the hundreds of Americans who had relocated in Puerto Rico had stopped contributing millions of dollars to the U.S. Treasury, per a report published in October 2020 that was based on a study that began in December 2019.
Investors have boosted property values in areas like Dorado and Condado
Rill pointed to the Economic Development Commission program in the U.S. Virgin Islands (USVI) to foster investment through tax benefits, akin to the intention behind Act 60. Due to mass audits by the IRS to prosecute individuals for tax evasion, the program was effectively shut down, he explained, adding that the audits are anathema to Puerto Rico’s financial sovereignty.
“The problem is this seems to be right out of the playbook of how the program in the USVI was destroyed by mass audits, some of which are ongoing 10 years later, because the Treasury did not seem to like the program, [which] was specifically authorized by Congress to give the territories some autonomy in economic development, so they were less reliant on the [federal] government. The Puerto Rico government is simply following their mandate to encourage economic development, so the mass audits are quite a paradox and contrary to the rights and directive to the Commonwealth to use its tools to be more self-reliant,” he opined.
Moreover, he stated that the mass audits could establish a negative precedent that could deter investment. He said that if the local government does not defend its self-determination to offer economic incentives, “the outcome is a foregone conclusion regardless of the status of audits.”
According to Rill, there are over 2,500 companies registered as beneficiaries of this law and roughly 1,500 more on the pipeline, “with perhaps double that amount for individual recipients.” Although he was cautious to make assertions on these businesses or individuals, Rill said he believes most of them comply with U.S. tax laws.
“While I cannot speak for everyone because that would be rampant speculation, targeting people exclusively because they are a recipient, even through initial ‘soft letters,’ is a concern because you are sending a message that anyone who comes to the island and participates in the program is a target at some level, which will only serve to discourage investment on the island from quality recipients and a program which has created over 40,000 jobs and brought billions in collective investment to the island, and many hundreds of millions to the local Treasury,” he affirmed.
Denounces ‘Politicized Narrative’
Rill expressed concern that the IRS may have been weaponized by “certain politicians and political parties” to fuel what he deemed to be a “politicized narrative.” He pointed to the targeting of Tea Party members as an example, in which they were denied tax exemptions over their political affiliations.
“The [Act 60] program was specifically targeted in the U.S. appropriations bill that funds the IRS by [U.S. Rep.] Alexandria Ocasio and her associates who clearly are against the program, despite the fantastic economic development it has brought to the island. It seems it furthers class warfare regardless of the positive results,” the investor opined.
“The same issue occurred in the USVI and those targeted paid a much higher price than anyone else despite being complaint. I would like to think one won’t be targeted just for stating a position, but it’s a real concern, and I would think problematic from a legal and ethical perspective," he added.