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Puerto Rico Act 60 Tax Exemptions: IRS Examination and Audits, Key Issues for Individual and Business Taxpayers

Treatment of Puerto Rico-Sourced Income, Puerto Rico Act 60 (formerly Act 20 and Act 22) Benefits, Residency Requirements

Recording of a 90-minute premium CLE/CPE video webinar with Q&A

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Conducted on Tuesday, May 17, 2022

Recorded event now available

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This CLE/CPE course will provide persons who have taken advantage of Puerto Rico Act 60 (formerly Act 20 and 22) and their tax advisers with guidance on managing an IRS examination and audit on grantees. The panel will also discuss the favorable treatment for Puerto Rico-source income and areas of likely scrutiny that will inform the IRS audit initiative. The webinar will also detail residency requirements and outline potential caveats to U.S. taxpayers considering relocation to Puerto Rico for tax purposes.

Description

With the enhanced focus on offshore tax avoidance, the IRS initiated an audit campaign for Puerto Rico Act 20 and 22 (now Act 60) grantees. Taxpayers and their advisers must identify potential audit risks and properly advise taxpayers on how to take advantage of both the Internal Revenue Code and Puerto Rican tax laws. Our panel will feature experts on both of the U.S. rules affecting bona fide residents of Puerto Rico and on responding to IRS audit campaigns.

Generally, IRC Section 933 exempts bona fide residents of Puerto Rico from U.S. federal income tax on any Puerto Rico-source income. IRC Section 937 sets the threshold for establishing bona fide residency in Puerto Rico (and some other U.S. possessions) and contains rules for determining Puerto Rico-source income.

Puerto Rico has several tax provisions designed to attract investors and business owners to relocate to the island. The two key provisions were Act 20 (Export Services Act) and Act 22 (Individual Investors Act). Act 20 sets a maximum income tax rate of four percent on the net profits of any business exporting services from Puerto Rico to companies or individuals outside the island. Act 22 exempts from income tax all passive income derived by bona fide residents of Puerto Rico. When taken in combination, these provisions create tax incentives virtually unmatched by any foreign jurisdiction for tax savings without causing individuals to incur the expropriation tax.

Listen as our expert panel provides a practical guide to the tax opportunities and challenges of relocating to Puerto Rico and handling potential IRS audits.

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Outline

  1. IRS audit campaign key areas of focus
  2. Managing an IRS audit
  3. IRC provisions specific to Puerto Rico and certain U.S. territories and possessions
    1. Section 933
    2. Section 937 special residency rules
    3. IRS notice requirements
  4. Establishing residence
  5. Determining the limits of Puerto Rico-source income
  6. Likely areas of audit and disagreement
  7. Caveats

Benefits

The panel will review these and other relevant topics:

  • The impact and focus of the IRS audit campaign for Puerto Rico Act 20 and 22 grantees
  • How Internal Revenue Code provisions and Puerto Rico local tax statutes provide an alternative tax haven to expatriation for certain high net worth taxpayers
  • Specifics of Puerto Rico's Act 20 (Export Services Act) and Act 22 (Individual Investors Act) as vehicles for attracting U.S. mainland-based taxpayers to relocate to Puerto Rico
  • Timing, notice, and qualification requirements to claim tax benefits of Act 22
  • Best practices to avoid or minimize the chances of being subject to IRS examination

Faculty

Leeds, Mark
Mark H. Leeds
Partner
Mayer Brown

Mr. Leeds focuses his practice on the tax consequences of a variety of capital markets products and strategies. He...  |  Read More

Lopez Valek, Juan
Juan F. Lopez Valek
Attorney
Mayer Brown

Mr. Lopez Valek is a member of the Tax Transactions & Consulting practice. His practice is focused on corporate tax...  |  Read More

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