Velázquez Demands IRS Action on Tax Avoidance in Puerto Rico
WASHINGTON – Representative Nydia M. Velázquez (D- NY) led five members in urging the House Appropriations Committee to direct the Treasury Department to report on Internal Revenue Service’s (IRS) efforts to identify and address tax avoidance under Puerto Rico’s Acts 22 and 20 (now consolidated into Act 60), and to estimate federal revenue losses attributable to these laws.
Originally enacted to attract wealthy individuals and businesses, Acts 22 and 20 offer sweeping tax breaks. Act 22 grants a 0% tax rate on interest, dividends, and capital gains for individuals who establish residency in Puerto Rico, while Act 20 provides a 4% corporate tax rate and full dividend exemptions for firms exporting services.
“Although these provisions were intended to grow the economy and promote socioeconomic development by retaining foreign capital, the available data on their impact suggests otherwise,” said the lawmakers. “For example, according to the Puerto Rico Tax Expenditure Report for Tax Year 2024, Puerto Rico stands to lose an estimated $4.5 billion in foregone revenue related to Act 22 between 2020 and 2026.”
Most Act 20 businesses are in consulting and professional services, which generate fewer jobs and limited economic impact. The tax breaks under Acts 22 and 20 have also fueled short-term rentals, cash property deals, and real estate speculation, displacing working-class Puerto Ricans.
“In terms of job creation, Act 22 has underperformed,” said the lawmakers. “A study by the firm Estudios Técnicos concluded that between 2015 and 2019, the 2,202 individuals with an Act 22 decree exemption had created 4,400 jobs, which represents less than 3 jobs per exemption. On the other hand, Act 20 has a minimal job hiring requisite. A company with a decree exemption is required to hire at least one full-time employee if it has more than $3 million in revenue.”
Amid concerns over tax avoidance, in 2021 the IRS launched an audit campaign targeting individuals improperly claiming Act 22 benefits without meeting residency rules. By July 2023, around 100 beneficiaries were under investigation. In March 2025, the DOJ charged businessman Suresh Gajwani with evading taxes on $80 million by falsely claiming Act 22 eligibility.
“Given the damaging effects of Acts 22 and 20 on Puerto Rico and the continental United States, it is urgent that the Federal government continues its oversight efforts regarding these laws, while informing the public about such work,” continued the lawmakers.
In the letter, the lawmakers call for an update to the IRS’s 2020 report to Congress on Act 22 that adds details on current audit efforts related to Act 20 and the associated federal revenue losses.
The letter has strong support from local advocacy groups.
“We commend Congresswoman Velázquez’s continued efforts to increase transparency around these tax incentives,” said Iris Figueroa, Senior Policy Strategist at the Center for Popular Democracy. “Despite repeated Congressional inquiries and persistent advocacy from our organization, the public still has virtually no insight into the agency’s Act 22 audit process, launched in 2021. The recent federal charges against an Act 22 beneficiary involving $80 million in unpaid capital gains taxes, highlights the serious risk and potential tax evasion these incentives pose to both U.S. taxpayers and Puerto Rican communities. We hope additional members of Congress, including Resident Commissioner Hernández Rivera, will join us in these crucial efforts.”
“The state government claims that Acts 20 and 22 are beneficial for the people of Puerto Rico but does not provide enough data and insight to actually prove it,” Issel Masses, Executive Director, Sembrando Sentido.“What we have access to is an estimate of the amount of lost revenue, which by itself represents a significant cost that does not quantify other negative effects on social and economic conditions. In the context of deep federal budget cuts and a very vulnerable Puerto Rican economy, there is an even greater need for transparency about the implications of Acts 20 and 22 for both the United States and Puerto Rico. As an organization that advocates for fairness, transparency and accountability in public administration, Sembrando Sentido supports Congresswoman Velazquez's efforts to follow up on the IRS's auditing of decree holders and urges the government of Puerto Rico to provide the information requested by interested parties, including the IRS, in a timely and complete manner.”
The letter was signed by Rep. Alexandria Ocasio-Cortez (D-NY), Rep. Rashida Talib (D-MI), Rep. Delia Ramirez (D-IL), Rep. Dan Goldman (D-NY), and Rep. Jared Huffman (D-CA).
Find the full text of the letter here.
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