Senate Finance Committee Probes Billionaire Crypto Investor’s Puerto Rico Tax Residency

On September 18 we posted IRS Ramps Up Puerto Rico Tax Shelter Crackdown With Subpoena of Baker McKenzie, where we discussed that 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. 

Now the U.S. Senate Finance Committee has turned its attention to billionaire cryptocurrency investors who may be using Puerto Rico’s tax incentives to dodge massive federal tax bills. Leading the charge is Sen. Ron Wyden (D-Ore.), who this week announced an investigation into Daniel Morehead, founder of Pantera Capital, over allegations that he improperly claimed Puerto Rico residency to avoid more than $100 million in U.S. taxes.

At the center of the issue is Puerto Rico’s Act 60 program, which exempts bona fide residents from paying federal taxes on Puerto Rico-sourced income, including passive gains such as capital gains. The program, originally passed in 2012, has been widely embraced by high-net-worth individuals seeking to shield crypto and investment profits from the IRS.

Wyden’s letter to Morehead focuses on a billion-dollar Pantera Capital sale that reportedly generated hundreds of millions of dollars in taxable gain. The senator questioned whether the entire transaction was wrongfully classified as Puerto Rico-source income exempt from U.S. tax, even though Morehead may have continued living in San Francisco.

“These are serious allegations of potential abuse of Puerto Rico tax incentives to avoid the payment of U.S. taxes that you must immediately address,” Wyden wrote.

Complicating matters further, Morehead allegedly sought advice from Miami-based tax lawyer Jeffrey Rubinger, whose name surfaced earlier this year in the case of Suresh Gajwani. Gajwani attempted to sidestep $30 million in U.S. capital gains tax through a last-minute Puerto Rico residency claim, only to plead guilty to filing a false return in June.

Wyden is demanding that Morehead disclose details on:

·         All assets sold while claiming Puerto Rico residency

·         The amount of income he reported as Puerto Rico-sourced and exempt

·         The advisers who assisted with his Puerto Rico tax exemption application

·         Whether Rubinger provided a legal opinion regarding the billion-dollar Pantera transaction

So far, Morehead has not cooperated fully with the committee’s requests, heightening suspicions that Puerto Rico’s lucrative tax breaks are being used as a vehicle for large-scale U.S. tax avoidance.

This latest probe highlights both the political and enforcement risks tied to Puerto Rico’s Act 60 program. While enticing for investors, high-profile cases like these suggest heightened IRS and congressional scrutiny and raise new questions about whether the program will survive in its current form.

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