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Understanding the Context of Act 60 Decrees and Tax Audits
Puerto Rico’s Act 60, formerly known as Acts 20 and 22, offers attractive tax incentives to individuals and businesses relocating or investing on the island. These incentives are designed to promote economic growth and attract new residents. However, with these benefits come responsibilities, and the Puerto Rico Department of Treasury (Hacienda) maintains the authority to review and verify compliance through tax audits.
Tax audits are routine but can feel complex, especially when dealing with the specific requirements of Act 60. Knowing the steps involved and how to prepare your defenses can make the process smoother and help protect your interests.
The Typical Steps in a Puerto Rico Act 60 Tax Audit
- Notification of Audit: Hacienda contacts you or your representative to inform you that your tax filings are under review. This notice will specify the scope and the documents required.
- Preparation of Documentation: You will need to gather relevant records, such as financial statements, bank statements, contracts, and proof of compliance with Act 60 requirements. Organized records facilitate a smoother review process.
- Initial Review and Meeting: Hacienda may conduct an initial meeting to clarify the audit scope and ask preliminary questions. This is an opportunity to understand what specific areas are being scrutinized.
- On-site or Document Review: The department may visit your business premises or request digital copies of documents. They will verify income, expenses, and compliance with Act 60 criteria.
- Findings and Preliminary Report: After reviewing your records, Hacienda issues a preliminary report indicating any discrepancies or issues identified. This stage may involve discussions or clarifications.
- Final Determination and Possible Adjustments: Based on the review, Hacienda issues a final assessment. If discrepancies are found, they may propose adjustments, penalties, or interest charges.
- Appeal or Resolution: You have the right to appeal the findings or negotiate a settlement. This step involves presenting your defenses and supporting evidence.
How to Effectively Defend Your Position During a Tax Audit
Preparation is key. Here are some strategies to ensure your defense is solid and clear:
- Maintain Detailed Records: Keep comprehensive documentation of all transactions, correspondence, and compliance measures related to your Act 60 benefits. Organized records make it easier to respond accurately.
- Understand the Requirements: Be familiar with the specific criteria for Act 60 eligibility and compliance. This knowledge helps you identify potential issues before an audit occurs.
- Engage Focused Professionals: Work with accountants or legal advisors experienced in Puerto Rico’s tax laws and Act 60. Their insights can help you prepare a strong defense and interpret audit findings.
- Respond Promptly and Clearly: When contacted by Hacienda, respond within the specified timeframe. Provide clear, concise explanations supported by documentation.
- Challenge Unfounded Findings: If Hacienda’s findings are incorrect or based on incomplete information, present your case with evidence. This may include bank statements, contracts, or other relevant records.
- Negotiate When Appropriate: If discrepancies are valid but minor, consider negotiating penalties or payment plans. Focus on a resolution that minimizes impact on your business.
Conclusion
While tax audits for Act 60 decrees can seem daunting, understanding the process and preparing thoroughly can make a significant difference. Staying organized, knowledgeable, and proactive in your defenses ensures that your benefits are protected and that you remain compliant with Puerto Rico’s tax laws.