IRS scrutiny of Puerto Rico Act 60 decree holders has moved from routine data collection to criminal investigations, grand jury subpoenas of law firms, and multimillion-dollar civil fraud penalties.
For most of the past decade, Puerto Rico's Act 60 tax incentives, the 4% export-services rate and the individual resident investor exemptions on post-move capital gains, dividends, and interest, have been marketed as a settled, low-risk planning tool. That era is over. Over the past several months, three independent threads of federal scrutiny have converged: a scathing December 2025 GAO audit, an active DOJ criminal investigation with grand jury subpoenas reaching into law firms' privileged files, and a coordinated IRS enforcement campaign that has already produced a felony guilty plea and multiple civil fraud assessments. Decree holders who have treated their Act 60 structure as “filed and forgotten” now have a narrowing window to get their documentation in order before the IRS gets there first.
The enforcement actions to date share a common profile, and it is worth measuring your own structure against it:
The consequences when these issues surface on audit are not limited to back taxes and interest. Reported matters include a guilty plea over roughly $30 million in improperly shielded capital gains, and a Tax Court case in which the IRS rejected a taxpayer's bona fide residency claim outright and asserted a 75% civil fraud penalty on a nearly $5 million deficiency.
The options available to a taxpayer with a compliance gap are dramatically better before the IRS makes contact than after. Once an examination or investigation opens, amended returns, delinquent international information return relief, and the Streamlined Filing Compliance Procedures are generally off the table, and the remaining paths, including examination, Appeals, Tax Court, or a refund suit, are slower, costlier, and far less forgiving. Practically, that means now is the time to:
Frost Law's tax controversy team advises both sides of the Act 60 life cycle: taxpayers structuring a new relocation correctly from day one, and existing decree holders who need their compliance posture reviewed, quietly, and before the IRS asks. Our work includes bona fide residency and sourcing analysis, coordination of the full U.S. and Puerto Rico reporting picture, voluntary disclosure and Streamlined Procedures filings, and audit and criminal tax defense when contact has already been made.
If you or a client hold an Act 60 decree, the right time to have that file reviewed is before an examination letter arrives, not after. Contact Frost Law's tax controversy team at (410) 497-5947 or schedule a confidential compliance review.
IRS scrutiny of Puerto Rico Act 60 decree holders has moved from routine data collection to criminal investigations, grand jury subpoenas of law firms, and multimillion-dollar civil fraud penalties.
For most of the past decade, Puerto Rico's Act 60 tax incentives, the 4% export-services rate and the individual resident investor exemptions on post-move capital gains, dividends, and interest, have been marketed as a settled, low-risk planning tool. That era is over. Over the past several months, three independent threads of federal scrutiny have converged: a scathing December 2025 GAO audit, an active DOJ criminal investigation with grand jury subpoenas reaching into law firms' privileged files, and a coordinated IRS enforcement campaign that has already produced a felony guilty plea and multiple civil fraud assessments. Decree holders who have treated their Act 60 structure as “filed and forgotten” now have a narrowing window to get their documentation in order before the IRS gets there first.
The enforcement actions to date share a common profile, and it is worth measuring your own structure against it:
The consequences when these issues surface on audit are not limited to back taxes and interest. Reported matters include a guilty plea over roughly $30 million in improperly shielded capital gains, and a Tax Court case in which the IRS rejected a taxpayer's bona fide residency claim outright and asserted a 75% civil fraud penalty on a nearly $5 million deficiency.
The options available to a taxpayer with a compliance gap are dramatically better before the IRS makes contact than after. Once an examination or investigation opens, amended returns, delinquent international information return relief, and the Streamlined Filing Compliance Procedures are generally off the table, and the remaining paths, including examination, Appeals, Tax Court, or a refund suit, are slower, costlier, and far less forgiving. Practically, that means now is the time to:
Frost Law's tax controversy team advises both sides of the Act 60 life cycle: taxpayers structuring a new relocation correctly from day one, and existing decree holders who need their compliance posture reviewed, quietly, and before the IRS asks. Our work includes bona fide residency and sourcing analysis, coordination of the full U.S. and Puerto Rico reporting picture, voluntary disclosure and Streamlined Procedures filings, and audit and criminal tax defense when contact has already been made.
If you or a client hold an Act 60 decree, the right time to have that file reviewed is before an examination letter arrives, not after. Contact Frost Law's tax controversy team at (410) 497-5947 or schedule a confidential compliance review.
