Media Coverage
Source: Tax Notes
Media Coverage
Press Contacts: Erik Cummins, Matt Hyams, Taina Rosa, Olivia Meyer
11.10.25
As Puerto Rico’s Act 60 draws more mainland investors, tax attorneys warn the program’s tax benefits are being stretched to cover income that may not qualify for U.S. tax exemptions. Created in 2019, Act 60—also called the Puerto Rico Incentives Code—combined Act 22, which offers full exemptions on interest, dividends and capital gains for bona fide residents of Puerto Rico, with Act 20, which provides export service incentives. Ambiguous rules and limited IRS enforcement, particularly around cryptocurrency, have fueled what some professionals describe as a gray area in tax compliance. The lack of IRS guidance has left cryptocurrency taxation under Act 60 unclear, exemplified by a 2022 opinion from one Puerto Rico attorney suggesting that gains from pre-residency crypto holdings could be sourced to Puerto Rico, even if such assets were also held while the resident was living in the U.S.
In a recent interview with Tax Notes, Tax partner Mark Leeds explained that there is definitely a path for concluding that the crypto is not among the types of property that are subject to split holding period property rules.
As tax experts and lawmakers question the legitimacy of legal opinions allowing cryptocurrency and partnership gains to be sourced to Puerto Rico under Act 60, recent IRS memoranda and Senate inquiries challenge aggressive interpretations, signaling potential crackdowns on what officials call “shoddy legal advice” surrounding Puerto Rico’s tax incentives.
Leeds said he was perplexed that a taxpayer would adopt the positions that the IRS described in a 2024 IRS advice memorandum. He explained that an S corporation cannot rely on section 937, which applies only to the residency of individuals, nor can it invoke the “pull-through” rule under section 865, since section 1373 doesn’t extend those sourcing rules to individual shareholders. As a result, Leeds said, the source of income should be determined by the residency of the entity itself.
“Clearly this is the IRS position,” Leeds said. “But look how weakly it’s articulated. It’s not in a revenue ruling; it’s not in a proposed regulation. It’s an advice memorandum from national office to an auditor.”
Leeds, among others, thinks more robust IRS guidance is needed on the issue. But as Leeds has cautioned, taxpayers should proceed with a degree of caution unless and until more definitive guidance is issued.
To read the full article, click here (subscription required).