Everyone Has an Opinion (Letter) on Puerto Rico's Act 60

Tax attorney James Dawson was interviewed for a Tax Notes article highlighting confusion around Puerto Rico's Act 60 and its application to emerging areas such as cryptocurrency. Created in 2019 and formally known as the Puerto Rico Incentives Code, Act 60 aims to promote economic development on the island by offering exemptions to Puerto Rican income taxes for interest and dividends and capital gains that meet certain criteria. The IRS has been cracking down on abuse of these incentives, including in the gray area of cryptocurrency investments. A 2022 legal opinion letter from Giovanni Méndez Feliciano of Global Economic Optimization states that an individual who established residency in Puerto Rico and who held crypto investments before then could sell the investments and source the gains to Puerto Rico, thus being able to take advantage of Act 60's provisions. Mr. Dawson said although the letter represents a substantial authority opinion, he thinks the IRS would disagree with its position and find another way to tax the gains. With limited IRS guidance on sourcing cryptocurrency income for tax purposes, however, holders continue to play the waiting game.

"I expect that, if allowed, the IRS will look at some of these opinion letters and start issuing guidance as to why they agree or disagree with them," he commented. "There is no doubt in my mind that the IRS will be pursuing those individuals that have invested in crypto that are currently claiming Puerto Rico Act 60."

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