The Tax Times: IRS Ramps Up Puerto Rico Tax Shelter Crackdown With Subpoena of Baker McKenzie

Baker McKenzie, the global law firm, has been drawn into a sweeping federal probe focusing on the use and potential abuse of Puerto Rico’s tax incentives by U.S. taxpayers. Federal investigators recently issued a subpoena to the firm, seeking records related to its work on Puerto Rican tax planning structures. The investigation is targeting arrangements where wealthy individuals claim residency in Puerto Rico under Act 60, benefiting from significant or even total exemptions on income, dividends, and capital gains.

In response, Baker McKenzie has notified affected clients and advised them to seek independent legal counsel. The U.S. Attorney’s Office in Miami is leading the effort, part of a larger campaign to address what authorities see as billions of dollars sheltered from U.S. taxation through aggressive or potentially improper interpretation of Puerto Rico’s residency rules.

The spotlight is on advice rendered by former Baker McKenzie partners who have a history of publishing and presenting on the tax advantages for Americans relocating to Puerto Rico. These incentives, created under Act 22 and now expanded into Act 60, have drawn thousands of wealthy applicants since enactment, prompting growing calls from lawmakers for more stringent oversight.

The law firm has sent waves of letters since last fall to Baker clients acknowledging the grand jury subpoena and its duty to turn over certain client documents to the government.

The letter said the government subpoena sought all records “pertaining to” work by two Baker partners, Jeffrey Rubinger and Summer LePree, as well as a firm paralegal. The term “records” is defined as “books, papers, documents, data, or other objects relating to Puerto Rican Tax Planning Structures.”

Rubinger and Lepree have since left Baker for the Miami office of Winston & Strawn LLP. Jed Dwyer, a defense lawyer representing Rubinger, said his client had done “nothing wrong.”

While authorities have not announced allegations against Baker McKenzie itself, the firm’s cooperation highlights mounting scrutiny on legal and financial professionals advising on these structures. At the heart of the issue is the complex and subjective determination of bona fide residency in Puerto Rico, a matter complicated by evolving IRS enforcement and ongoing debate in Congress about the future of these tax incentive programs.

This new federal attention sends a strong signal to advisers and taxpayers alike that government agencies are watching closely and that tax planning around Puerto Rico’s unique incentives comes with heightened risk in today’s enforcement environment.

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