Lawmakers Target Puerto Rica’s Wealthy With IRS

A group of Democratic House members is urging the Internal Revenue Service (IRS) to expedite its investigation into wealthy Americans allegedly exploiting a generous tax benefit in Puerto Rico. The lawmakers, led by Rep. Nydia Velazquez of New York, requested the IRS to crack down on the non-compliant behavior of approximately 100 individuals taking advantage of Act 60.
Act 60, which consolidated the tax havens of Act 22 and Act 20 in 2019, offers a 100 percent federal tax exemption to Americans who relocate to Puerto Rico and become legal residents. This provision grants new residents a tax exemption on Puerto Rico-sourced income, including interest, dividends, and capital gains.

The incentive program, overseen by Puerto Rico’s Department of Economic Development and Commerce (DEDC), aims to boost the island’s economy by attracting wealthy mainland Americans to establish businesses and create jobs. It was not until 2021 that the DEDC began auditing the program and its approximately 5,000 beneficiaries.

To qualify for the tax benefits, beneficiaries must purchase a home on the island within two years of becoming residents, spend at least half their time there, donate $10,000 annually to Puerto Rican charities that have been approved, and pay federal taxes on income earned in the U.S.

“The IRS and Treasury Department must prioritize Act 22 enforcement and provide transparency regarding their oversight of U.S. individuals claiming benefits prohibited under this law,” said Rep. Velazquez.

The skyrocketing housing prices resulting from Act 22 have made homeownership unattainable for many Puerto Ricans, who have a median household income of $21,967. According to the U.S. Census Bureau, at least 41 percent of the population lives in poverty. Meanwhile, housing prices on the island have surged by at least 36 percent in the past five years, according to data from the Federal Housing Finance Agency.

Furthermore, the lawmakers noted that Act 22 has resulted in a loss of income for the U.S. Treasury. Before relocating to Puerto Rico, 647 people who became residents under the tax benefit collectively paid over $500 million in federal income taxes in the five years preceding their move. This figure offers a glimpse into the substantial revenue the United States is losing due to the tax evasion scheme facilitated by Act 22.

Marlyn Goyco, the national organizing manager for the Center for Popular Democracy, emphasized the need to address these issues, stating, “This law does not provide any support or opportunities for our communities. Instead, it brings people to live here in paradise without contributing to and supporting their communities.”