Puerto Rico Is Hiring 195 to Crack Down on Tax Evasion

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The Puerto Rico Treasury is taking a variety of steps to crack down on tax evasion, including hiring 195 professionals to crack down on the practice.

The Treasury is attacking evasion through criminal prosecutions and civil fines, a media campaign, the additional fiscal oversight personnel, and new audits, Treasury Secretary Melba Acosta Febo said.

The push to increase tax collections comes with the Commonwealth's general obligation credit ratings on the brink of losing investment-grade status and Puerto Rico officials taking extra steps to reassure bond investors. As part of the new push against evasion, the Treasury recently referred three cases totaling $3.6 million for criminal prosecution.

"These are just the first cases referred to the Justice Department out of 200 notices sent out by the Treasury Department in June and involve the biggest sales and use tax debtors and corporations that have failed to remit employer contributions withheld from salaries to the Treasury Department, as well as a corporation that failed to file certain income tax returns even though it earned taxable income," said Acosta Febo.

Tax evasion crimes can lead to imprisonment for up to five years per count, Acosta Febo said.

The Treasury is doubling the number of tax liens it does on bank accounts each weak. These liens are on the accounts of people and firms who owe the Treasury money.

The Treasury is also sending collection letters and considering filing civil actions against companies that agreed to payment plans with the Treasury during the past tax amnesty and then stopped sending promised monthly payments.

On Thursday the Treasury started a media campaign aimed at reducing sales and use tax evasion among businesses. The campaign highlights various forms of sales and use tax evasion and outlines the civil and criminal consequences. The advertising will take place on radio, television, and print and online media.

From July 1 to January 31 the Treasury plans to hire a total of 195 specialized professionals to strengthen fiscal oversight.

"In Puerto Rico tax evasion has been rampant for many years," said Municipal Market Advisors managing director Robert Donahue. "The hiring of new auditors is clearly a positive step."

In August the Treasury hired 62 tax fraud auditors for the Consumption Tax and Fiscal Audits bureaus. Over the course of this month the Treasury expects to hire an additional 90 internal revenue tax agents for the Consumption Tax Bureau.

In December the Treasury will hire 17 special fiscal agents for the Tax Crimes Auxiliary Division and 19 tax auditors. Finally, in January it will add seven special fiscal agents for the Tax Crimes division in the Ponce and Mayagez districts.

The recruitments mean that the sales and use tax Treasury team will have auditors for the first time, Melba Acosta said.

Until recently firms primarily involved in wholesale could use Treasury issued reseller certificates to largely avoid paying sales taxes. As part of the recently passed tax changes, Puerto Rico eliminated this certificate. "We found that this certificate was the subject of a lot of abuse," Melba Acosta said in October. "We had 21,000 reseller certificates but when we checked to find the sales tax returns filed by these merchants we found less than 5,000 filed on a recurring basis."

Now all firms have to pay the sales tax with certain exemptions and the reselling firms get a credit when they send in their sales tax return, Acosta Febo said.

Recently the Treasury has bought over $250,000 in new equipment to improve tax collections. With the new equipment, if a firm reports a certain amount on their income tax forms one can compare the figure with their sales taxes forms, Acosta Febo said. "If there is no sales tax filed, we can start doing cross-matching and cross-referencing, from one tax to the other. That is something now that we didn't have before."

The Treasury is collaborating with federal authorities to squash tax evasion, she said.

Starting this year, the Treasury is comparing people's W-2, mortgage interest and other tax form figures to the numbers coming from the sources, Melba Acosta said.

Finally, Melba Acosta said the Treasury is doing new audits focused on the recent tax law changes.

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