Best Practices for Self-Auditing Tax Compliance When Moving from the USA to Puerto Rico
Relocating from a U.S. state to Puerto Rico to take advantage of tax incentives, such as those under Act 60, requires careful planning to ensure compliance with IRS requirements for bona fide residency. To qualify as a bona fide resident of Puerto Rico, you must satisfy three tests: the Presence Test, Tax Home Test, and Closer Connection Test. Conducting a self-audit before an IRS or state residency audit can help you confirm compliance and avoid costly penalties. Below is a checklist of best practices to guide your self-audit process, tailored to these tests. Why Self-Audit? A self-audit helps you: Checklist for Self-Auditing Compliance 1. Presence Test: Verify Physical Presence in Puerto Rico The Presence Test requires you to spend sufficient time in Puerto Rico to establish residency. You can meet this test in several ways, such as spending at least 183 days in Puerto Rico during the tax year or averaging 183 days over three years with a minimum of 60 days per year. Best Practices: 2. Tax Home Test: Establish Puerto Rico as Your Principal Place of Business The Tax Home Test requires that your regular or principal place of business be in Puerto Rico during the tax year, with no tax home outside Puerto Rico. Your tax home is generally where you conduct your income-producing activities. Best Practices: 3. Closer Connection Test: Demonstrate Stronger Ties to Puerto Rico The Closer Connection Test requires that you have a stronger connection to Puerto Rico than to the U.S. or any foreign country during the tax year. This is a facts-and-circumstances test based on your personal, financial, and social ties. Best Practices: 4. General Compliance and Documentation Beyond the three tests, additional steps ensure overall compliance and audit readiness. Best Practices: 5. Common Pitfalls to Avoid Final Recommendations By following this checklist, you can confidently establish and maintain bona fide residency in Puerto Rico, maximize tax benefits, and be well-prepared for any IRS or state audit. 📞 Contact Us For assistance with your compliance or to schedule a consultation, feel free to reach out to us: We’re here to help you navigate this procedure of moving down here and ensure you remain compliant while maximizing your benefits! Disclaimer:The information provided is for informational purposes only and should not be considered legal or tax advice.