Puerto Rico CPA Indicted for His Role in Puerto Rico Tax Scheme

According to a Department of Justice press release a Puerto Rico CPA has found himself in hot water after being indicted and arrested on wire fraud charges relating to an Act 20 and Act 22 tax scheme. Although Act 20 and 22 planning in Puerto Rico is generally only applicable to a very specific fact pattern, the key takeaway from this story is that the U.S. government takes attempts at tax evasion and unlawful reductions of tax extremely seriously. If you have failed to file a tax return for one or more years, have taken a position on a tax return that could not be supported upon audit or criminal tax investigation, or have undisclosed personal or business foreign financial accounts, entities or trusts along with unreported taxable foreign income, it is in your best interest to contact an experienced tax defense attorney today.

The DOJ Alleges the Defendant Fraudulently Filed U.S. Tax Documents

According to court Documents, Gabriel F. Hernández, a partner at a large multinational accounting firm, was recently indicted for wire fraud. The charges relate to his receiving large sums of money in exchange for filing false tax returns and other documents with the IRS relating to special tax rules pertaining to Puerto Rico.

Act 20, the Export Services Act, and Act 22, the Individual Investors Act, work both as complimentary tax laws that benefit Puerto Rico companies who provide export services (to those outside of Puerto Rico) and to the owners of such businesses. In many cases, Americans will relocate to Puerto Rico to start or expand their business, taking advantage of the tax benefits under both Act 20 and Act 22. Additionally, under the Internal Revenue Code, income earned in Puerto Rico (and other U.S. territories) may not be subject to U.S. tax.

If Hernández is convicted, he faces up to 20 years in federal prison, criminal fines of up to $250,000, and additional monetary sanctions such as the payment of restitution. An indictment is not an indication of guilt and Hernández still can attempt to defend himself in court when the government presents its case.

The Complexities of International Taxation and the Importance of Experienced International Tax Counsel

Act 20 and Act 22 are but a small piece of the complex international tax puzzle. Taxpayers residing in the U.S., Puerto Rico, or any other U.S. territory that have personal or business dealings outside of the 50 United States have an added layer of complexity in tax planning and compliance. As discussed above, certain items of income from U.S. territories may not be taxable in the U.S. Likewise, certain items of income earned on the U.S. mainland may not be taxable in those territories. When a taxpayer has a set of facts involving more than one taxing jurisdiction, enlisting the assistance of an experienced international Tax Attorney is crucial.

If you have a potentially-complex planning issue, have taken a position on a tax return that could not be supported upon IRS examination, or have failed to file a tax return for one or more years, it is in your best interest to contact an experienced international tax attorney to discuss minimizing your exposures. A seasoned tax lawyer will work with you to establish the facts of your case, minimize potential pressure-points, and will represent you in any interactions with the IRS or other taxing authority.

Note: As long as a taxpayer that has willfully committed tax crimes self-reports the tax fraud (including a pattern of non-filed returns) through a domestic or offshore voluntary disclosurebefore the IRS has started an audit or criminal tax investigation / prosecution, the taxpayer can ordinarily be successfully brought back into tax compliance and receive a nearly guaranteed pass on criminal tax prosecution and simultaneously often receive a break on the civil penalties that would otherwise apply. 

It is imperative that you hire an experienced and reputable criminal tax defense attorney to take you through the voluntary disclosure process. Only an Attorney has the Attorney Client Privilege and Work Product Privileges that will prevent the very professional that you hire from being potentially being forced to become a witness against you, especially where they prepared the returns that need to be amended, in a subsequent criminal tax audit, investigation or prosecution.

Moreover, only an Attorney can enter you into a voluntary disclosure without engaging in the unauthorized practice of law (a crime in itself). Only an Attorney trained in Criminal Tax Defense fully understands the risks and rewards involved in voluntary disclosures and how to protect you if you do not qualify for a voluntary disclosure.

As uniquely qualified and extensively experienced Criminal Tax Defense Tax Attorneys, KovelCPAs and EAs, our firm provides a one stop shop to efficiently achieve the optimal and predictable results that simultaneously protect your liberty and your net worth. See our Testimonials to see what our clients have to say about us!

We Are Here for You

Regardless of your business or estate needs, the professionals at the Tax Law Offices of David W. Klasing are here for you. We are open for business and our team will help ensure that your business is too. Contact the Law Offices of David W. Klasing today to discuss your business with one of our professionals.

In addition to our main office in Irvine, the Tax Law Offices of David W. Klasing has unstaffed (conference room only) satellite offices in Los Angeles, San Bernardino, Santa Barbara, Panorama City, Oxnard, San Diego, Bakersfield, San Jose, San Francisco, Oakland, Carlsbad and Sacramento. During the COVID-19 pandemic, our staff are working from home, but have full virtual meeting capability.

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Questions and Answers about Offshore Voluntary Disclosure Initiative (OVDI)

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