The Knight Watch: Recent Developments Regarding the IRS and Puerto Rican Residency

Tax attorneys Christopher Rizek, James Dawson, Andrea Darling de Cortes, Chad Vanderhoef, Leif Anderson and Joshua Odintz published an article in TAXES – The Tax Magazine recapping a U.S. Tax Court case involving tax benefits under Puerto Rico's Act 60. The case, Gary V. Karakashian, Petitioner, v. Commissioner, arose after the IRS determined the taxpayer was not a bona fide Puerto Rican resident, rendering him ineligible for Act 60 incentives and exposing him to additional taxes and potential penalties. The authors take an in-depth look at the issues presented, most notably how to establish bona fide residence under Internal Revenue Code Section 937(a), and explore what the proceedings indicate about the IRS' approach to enforcement and penalties. The article concludes by summarizing important observations for similarly situated taxpayers, such as how to handle disputes over the 183-day physical presence requirement, as well as provides an update on congressional activity and investigations in this area.

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