The IRS is closely examining tax breaks claimed under Puerto Rico’s Tax Incentives Code (Act 60), which offers benefits such as a 4% corporate tax rate and zero percent tax on capital gains for qualifying businesses and individuals. To be eligible, taxpayers must establish bona fide residency in Puerto Rico, requiring physical presence for at least 183 days and no tax home or closer connection to the US or a foreign country.
Taxpayers should maintain detailed documentation to satisfy residency requirements
The IRS has issued subpoenas to a law firm regarding its clients’ claims of Puerto Rico residency and Act 60 benefits. This scrutiny is similar to previous IRS actions against taxpayers who claimed residency in the US Virgin Islands to take advantage of tax benefits. Act 60, enacted in 2019, consolidated previous tax incentive programs, including Acts 20 and 22, into a single framework.
Taxpayers should maintain detailed documentation to satisfy residency requirements, as the IRS challenges frequently relate to failing to meet these requirements. The IRS seeks taxpayers to be fully committed to tax incentive programs, and documentation is crucial in this regard.