Velázquez Leads 12 Members Requesting Information on Act 22 Tax Evaders in Puerto Rico

Washington D.C.— Today, Rep. Nydia M. Velázquez (D-NY) led 12 members in sending a letter to the Internal Revenue Service (IRS) raising concerns about a Puerto Rico law that is enabling tax evasion by the American wealthy, and asking the IRS to expedite a Freedom of Information Act (FOIA) request submitted by a coalition of Puerto Rican and U.S advocacy groups regarding the agency’s efforts to identify and address noncompliance with this law.

Puerto Rico’s Act 22 (now part of Act 60 of 2019) seeks to attract wealthy foreigners and mainlanders to Puerto Rico by offering generous tax-related benefits. For instance, beneficiaries do not have to pay federal income taxes on PR-source income and can avoid paying any taxes on interests, dividends, and capital gains.

In 2021, the IRS initiated a campaign against Act 22 beneficiaries focused on U.S. taxpayers who may have inaccurately claimed benefits without meeting the law residency requirements. However, the IRS has not released detailed information to the public regarding these efforts.

Since the law’s enactment in 2012, over 5,000 wealthy individuals have relocated to Puerto Rico, mainly from the United States. Research has found that cash property sales have grown exponentially, and short-term rentals have rapidly expanded, raising the prices of median rent and median housing units, and creating a housing shortage for locals.

“The tax haven that Act 22 has created in Puerto Rico has proliferated the use of short-term rentals (“STRs”), increased cash property sales and market speculation, and caused displacement for the Puerto Rican people themselves,” wrote the lawmakers. “Therefore, we consider it essential to understand to what extent the IRS and Puerto Rico’s Department of Treasury are monitoring U.S. individuals and businesses claiming tax benefits under Act 60, particularly as the number of Act 22/Act 60 beneficiaries continues to grow exponentially.”

Further, Act 22 provisions have caused substantial revenue losses for both Puerto Rico’s government and the Federal government. Analysis from the government of Puerto Rico estimates the island stands to lose an estimated $4.5 billion in revenues related to Act 22 between 2020 and 2026. The IRS has also revealed that from 2012 to 2019, 647 Americans who were granted Act 22 benefits paid, altogether, $557,978,112 in federal income taxes in the five years prior to relocating to Puerto Rico. While data on the extent of the impact of Act 22 on the U.S. tax base is severely limited, this figure offers a glimpse into the critical funds that the United States is losing due to the tax evasion scheme created by the law. 

In addition to Velázquez this letter was signed by Representatives Alexandria Ocasio-Cortez (D-NY), Rashida Tlaib (D-MI), Barbara Lee (D-CA), Ritchie Torres (D-NY), James McGovern (D-MA), Dan Goldman (D-NY), Raúl Grijalva (D-AZ), Adriano Espaillat (D-NY), Lloyd Doggett (D-TX), Andre Carson (D-IN), Alma Adams (D-NC), and Cori Bush (D-MO).

For a full copy of the letter, click here.

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