Audits & Investigations Arising
From Puerto Rico’s Act 20 & Act 22
The IRS is aggressively investigating Americans who have taken advantage of Puerto Rico’s Act 20 and Act 22 (now technically known collectively as Act 60) tax incentives. The professionals at Kostelanetz LLP are uniquely qualified to defend taxpayers who find themselves the subject of an IRS audit or criminal investigation in this period of heightened Acts 20/22 enforcement.
Kostelanetz LLP represents American clients who have taken advantage of the tax benefits provided by Puerto Rico’s Act 20 and Act 22 (now technically known collectively as Act 60). Puerto Rico’s Act 20, also known as the Export Services Act of 2012, offers tax incentives for Puerto Rican companies to export services to other jurisdictions. The tax benefits include a tax rate of 4 percent for eligible export services, a 100 percent tax exemption on dividends from earnings and profits, and a 60 percent tax exemption on local municipal taxes, all with a 20-year decree guaranteeing these rates. These tax incentives apply only to income that Puerto Rican companies earn from performing services in Puerto Rico for customers outside Puerto Rico. Act 22, the Individual Investors Act of 2012, offers tax incentives to individuals who relocate to Puerto Rico, including a 100 percent tax exemption on income from dividends, interest, and capital gains. Under United States law, a bona fide resident of Puerto Rico is not subject to federal income taxes on income derived from sources within Puerto Rico; he or she is only subject to federal income taxes on income derived from sources outside of Puerto Rico.
Kostelanetz attorneys are closely monitoring the uptick in U.S. Government enforcement in the Act 20 and Act 22 space, and the impact of those efforts on Americans who have benefited from Puerto Rico’s tax incentive program. In an October 21, 2020 press release, the Internal Revenue Service (IRS) promised to “vigorously pursue any individuals and professionals that fraudulently enrich themselves by abusing government tax incentive programs.” On January 29, 2021, the IRS added Puerto Rico Act 22 to its list of compliance campaigns in response to concerns of abusive tax avoidance, noncompliance, and fraud committed by decree holders. On July 1, 2021, the IRS concluded its 2021 “Dirty Dozen” scams list series with a warning about promoted abusive arrangements, including offshore captive insurance companies domiciled in Puerto Rico.
Our deep technical experience in civil and criminal tax controversies enables us to provide unparalleled service to help clients navigate this landscape of heightened Acts 20/22 enforcement. In addition to providing planning and compliance advice, we also represent clients on matters involving Acts 20/22 enforcement in civil and criminal matters before the Department of Justice (DOJ) and the IRS. This includes providing advice regarding the filing of current and amended tax returns, initiating voluntary disclosures, and representing clients before the government in civil examinations and criminal investigations.
Kostelanetz LLP is uniquely qualified to defend taxpayers who find themselves the subject of an IRS audit or criminal investigation. Nearly half of our specialized tax team has significant government experience, including a former Acting Assistant Attorney General of the Department of Justice (DOJ) Tax Division, a former Chief of the IRS Criminal Investigations Division, four other attorneys with criminal and civil DOJ Tax Division experience, a former Special Trial Attorney for the IRS Office of Chief Counsel in New York, and three former Assistant United States Attorneys in the Southern District of New York. As a result, Kostelanetz attorneys have a unique familiarity with the practices of the IRS, the DOJ, and other taxing authorities.
The firm has been recognized by major legal ratings agencies for its tax and white-collar defense work. We have been honored and recognized by major national and international legal rankings agencies, including Chambers USA, The Legal 500, Best Lawyers, and Super Lawyers. In 2018, the firm was honored as Tax Team of the Year by Chambers USA, which has noted that the firm is “an expert tax boutique.” Best Lawyers has recognized the firm as “Law Firm of the Year” for Tax Litigation.