DDEC Audits: Understanding the Review Process Under Act 60

Understanding DDEC Compliance Reviews

DDEC conducts periodic reviews of Act 60 decree holders to verify compliance with decree terms and Incentives Code requirements. Understanding the general process may help decree holders maintain organized records and respond effectively to inquiries.

Common Areas of Review

Chapter 2 (Individual Investor)

• Bona fide residency documentation (physical presence, tax home, closer connection per IRS IRC Section 937)
• Charitable contribution compliance (Section 6020.10(b): $5,000 child poverty, $2,500 other nonprofit under Sec 1101.01 CRIPR, $2,500 Fondo Especial)
• Property ownership requirement
• Investment activity documentation

Chapter 3 (Export Services)

• Export ratio verification (client locations, contract documentation)
• Employment compliance (FTE calculations per Section 2062.01(j))
• Economic substance (physical office, operations conducted from PR)
• Revenue sourcing documentation

Chapter 6 (Manufacturing)

• Production activity verification
• Employment and investment commitments
• Environmental compliance
• Export documentation if applicable

Documentation Expectations

Decree holders are generally expected to maintain:

• Organized financial records and tax returns
• Employment and payroll documentation
• Client contracts and invoices demonstrating export orientation
• Physical presence records (Chapter 2)
• Charitable donation receipts with proper allocation
• DDEC annual reports and correspondence

The Review Process

DDEC reviews may involve:

1. Document requests: Written request for specific records
2. Review period: Examiner evaluates submitted documentation
3. Follow-up inquiries: Additional questions or clarification requests
4. Determination: Finding of compliance or identification of deficiencies

Response deadlines are typically specified in communications from DDEC. Timely and complete responses are generally advisable.

Compliance Certificates

Section 6011.04 of the Incentives Code establishes a compliance certification process. The Profesional de Cumplimiento evaluates compliance every two years to grant or deny the Certificado de Cumplimiento.

Penalties

Section 6020.10(e) authorizes administrative fines of up to $10,000 for failure to file required reports or for filing after the deadline. An incomplete filing may be treated as not filed if deficiencies are not corrected within 15 days of notification.

Preparation Considerations

Maintaining compliance documentation on an ongoing basis, rather than assembling records only when a review is initiated, is generally considered more effective. Quarterly self-audits and annual reviews with qualified professionals may help identify and address potential gaps before they become issues.

Frequently Asked Questions

How often does DDEC conduct reviews? Frequency varies. The compliance certification process operates on a two-year cycle, but DDEC may initiate reviews at other times based on various factors.

Can I represent myself in a DDEC review? While there is no legal prohibition, professional representation (attorney or CPA experienced with Act 60) is commonly engaged for compliance reviews.

What triggers a DDEC review? Reviews may be triggered by the regular compliance certification cycle, late or incomplete annual reports, changes in business operations, or other factors.

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Virtus Advisory provides this content solely for informational purposes. Nothing in this article should be construed as a guarantee of any particular tax outcome, an endorsement of any specific tax strategy, or an offer to provide professional services. For personalized guidance, contact a licensed CPA or tax professional.