Clark Armitage and Heather Schafroth Discuss Puerto Rico Residency Tax Incentives on Strafford Webinar 

Description

With the enhanced congressional focus on offshore tax avoidance, the IRS is likely to step up its 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 Rico tax laws. Our panel will feature experts on both of the U.S. rules affecting bona fide residents of Puerto Rico and on preparing for the IRS audit campaign.

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 under Act 60 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 export services from Puerto Rico to companies or individuals outside the island. Act 22 exempts from income tax all passive income derived by Act 60 grantees. When taken in combination, these provisions create tax incentives virtually unmatched by any foreign jurisdiction for tax savings without causing U.S. 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.

Outline

1. Overview of Puerto Rico Act 60
2. 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
3. Establishing residence
4. Determining the limits of Puerto Rico-source income
5. Likely areas of audit and disagreement
6. Caveats

Benefits

The panel will review these and other relevant topics:

• The impact and focus of the IRS audit campaign for Puerto Rico Act 60 grantees
• How Internal Revenue Code provisions and Puerto Rico local tax statutes provide a tax-favored environment 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
• Best practices to avoid or minimize the chances of being subject to IRS examination