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.

 Have an IRS Tax Problem?

     Contact the Tax Lawyers at

Marini & Associates, P.A. 

for a FREE Tax HELP Contact us at:
www.TaxAid.com or www.OVDPLaw.com
or Toll Free at 888 8TAXAID (888-882-9243)

Sources:

1.       https://news.bloomberglaw.com/daily-labor-report/baker-mckenzie-pulled-into-us-probe-of-puerto-rico-tax-abuses    

2.      https://news.bloombergtax.com/financial-accounting/oecd-working-to-resolve-global-minimum-tax-issues-by-year-end  

3.      https://news.bloombergtax.com/daily-tax-report-state/austria-mof-clarifies-tax-liability-of-managing-director-for-unpaid-company-tax-debts 

4.      https://www.nytimes.com/2024/05/28/business/irs-puerto-rico-tax.html 

5.       https://christiesrealestatepr.com/blog/act-60-2025-reforms-puerto-rico

6.      https://tiempocapital.com/insights/articles/puerto-ricos-act-60-update-2025/

7.       https://www.reuters.com/legal/government/law-firm-baker-mckenzie-drops-lawsuit-against-irs-over-partnership-tax-crackdown-2024-05-20/

8.      https://news.bloombergtax.com/daily-tax-report-state/canada-gazettes-consolidated-text-of-income-tax-act-72

9.      https://christiankleinerluxuryrealestate.com/blog/how-puerto-ricos-2025-act-60-update-impacts-luxury-home-buyers

10.   https://gordonlaw.com/learn/puerto-rico-crypto-tax-haven/

11.    https://www.bakerlaw.com/insights/irs-enforcement-efforts-in-puerto-rico-gaining-steam-wave-of-cases-expected/

12.   https://www.nbcnews.com/news/latino/democrats-press-irs-probe-puerto-rico-tax-breaks-rcna126182

13.   https://www.pillsburylaw.com/a/web/fq5mCan7swd5uos4Fbmg61/05-2025-puerto-rico-tax-audits-strafford.pdf

14.   https://www.icij.org/news/2024/08/under-industry-pressure-irs-division-blocked-agents-from-using-new-law-to-stop-wealthy-tax-dodgers/

15.    https://tax.thomsonreuters.com/news/renewed-calls-to-close-puerto-rico-tax-loophole/

16.   https://www.bakermckenzie.com/en/people/l/lipton-richard-m

17.    https://www.bakerlaw.com/insights/irs-heeds-call-to-investigate-misuse-of-puerto-rican-residency-tax-benefits/

18.   https://www.propublica.org/article/the-irs-decided-to-get-tough-against-microsoft-microsoft-got-tougher

19.   https://news.bloomberglaw.com/daily-labor-report/baker-mckenzie-pulled-into-us-probe-of-puerto-rico-tax-abuses

20.  https://news.bloombergtax.com/financial-accounting/oecd-working-to-resolve-global-minimum-tax-issues-by-year-end

21.   https://www.bakermckenzie.com/en/people/l/lipton-richard-m

22.   https://www.bakerlaw.com/insights/irs-heeds-call-to-investigate-misuse-of-puerto-rican-residency-tax-benefits/

23.   https://www.propublica.org/article/the-irs-decided-to-get-tough-against-microsoft-microsoft-got-tougher

24.  https://news.bloombergtax.com/daily-tax-report-state/canada-gazettes-consolidated-text-of-income-tax-act-72

The 11th Circuit’s Opinion in Battat v. Comm'r Offers Important Lessons For Tax Practitioners Facing IRS Penalties.

The Eleventh Circuit’s recent opinion in Battat v. Commissioner offers important lessons for tax practitioners facing IRS penalties and constitutional challenges to the Tax Court structure. This case stands at the intersection of two hotly litigated issues: supervisory approval of penalties under IRC § 6751(b), and the ongoing attack on the constitutionality of Tax Court judges’ job protections.

Background

Stanley and Zmira Battat petitioned the Tax Court to contest a determination that they owed approximately $2 million in back taxes and penalties for tax year 2008. The IRS had assessed over $1.7 million in unpaid taxes, $82,000 in late-filing penalties, and more than $344,000 in accuracy-related penalties.

The Battats challenged both the process and the authority under which these penalties were imposed. They argued that the IRS examiner’s supervisor had not approved the initial penalty determination in accordance with IRC § 6751(b), and pressed a constitutional claim that the statutory protections against at-will removal for Tax Court judges violate the separation of powers.

Supervisory Approval of Penalties: The § 6751(b) Dispute

A central issue was whether the IRS satisfied the requirement that a supervisor approve the “initial determination” of penalty assessment. The examiner’s supervisor did not sign the first formal letter issued to the Battats. However, before issuing the notice of deficiency, a different IRS manager signed both a civil penalty approval form and a related letter.

The Tax Court initially sided with the taxpayers, finding that § 6751(b) required the supervisor’s signature on the original penalty communication. But, the Eleventh Circuit relied on its earlier opinion in Kroner and concluded that the statute only requires written supervisory approval any time before the penalty is assessed, not specifically before the first notice is sent to the taxpayer. Since the IRS obtained that approval before assessment, the court affirmed the penalty.

Constitutional Challenge to Tax Court Judges' Protections

The Battats also launched a broad attack on the constitutionality of Tax Court judges’ removal protections, arguing these violate the President’s Article II executive authority and separation of powers principles. Here, too, they met a dead end. The Eleventh Circuit declined to upend longstanding precedent, holding that the statutory protections are constitutional and the Battats had not demonstrated any harm arising from the judge protections in their case.

Practical Implications

Battat reinforces the Eleventh Circuit’s taxpayer-adverse approach on two key fronts:

·         Supervisory approval of IRS penalties is valid so long as it occurs before assessment, even if not in the initial penalty determination letter.

·         Attacks on Tax Court judicial independence under separation of powers and Article II face a formidable barrier in current Eleventh Circuit precedent.

Tax professionals should take note that the procedural timing of managerial signatures is not enough to invalidate IRS penalties—substantive compliance before assessment remains the rule. Likewise, constitutional challenges to the Tax Court judiciary are unlikely to succeed without a different approach or new precedent.

 Have an IRS Tax Problem?

     Contact the Tax Lawyers at

Marini & Associates, P.A. 

for a FREE Tax HELP Contact us at:
www.TaxAid.com or www.OVDPLaw.com
or Toll Free at 888 8TAXAID (888-882-9243)

Sources: 

Sources:

1.       https://www.law360.com/articles/2389129/11th-circ-finds-couple-on-hook-for-penalty-on-back-taxes    

2.      https://news.bloomberglaw.com/daily-labor-report/taxpayers-challenge-to-irs-procedure-tax-court-judges-fails  

3.      https://www.taxcontroversy360.com/2022/09/courts-split-on-supervisory-approval-requirement-for-tax-penalties/  

4.      https://www.law360.com/tax-authority/articles/2295919/tax-court-judge-protections-challenged-in-11th-circ  

5.       https://www.taxcontroversy360.com/2017/02/battat-v-commissioner-a-primer-on-the-history-of-the-us-tax-court/ 

6.      https://digitalcommons.law.mercer.edu/cgi/viewcontent.cgi?article=2682&context=jour_mlr  

7.       https://www.abi.org/feed-item/11th-circuit-issues-important-opinion-on-what-constitutes-a-“return”-for-purposes-of

8.      https://brieflytaxing.com/battat-v-commissioner-t-c-memo-2021-57/

9.      https://law.justia.com/cases/federal/appellate-courts/ca11/2025/

10.   https://www.taxcontroversy360.com/tag/battat-v-commissioner/

11.    https://ustaxcourt.gov/files/documents/appellate_report_october_2024.pdf

12.   https://www.taxcontroversy.com/battat-v-commissioner-tax-penalties-called-into-question/

13.   https://www.ca11.uscourts.gov/opinions

14.   https://www.casemine.com/judgement/us/654b0ecbc2e6e0006eb45906/amp

15.    https://www.law360.com/tax-authority/articles/2276360/biz-owners-ask-11th-circ-to-revive-tax-penalty-challenge

16.   https://www.federalregister.gov/documents/2024/12/23/2024-29074/rules-for-supervisory-approval-of-penalties

17.    https://www.law360.com/tax-authority/cases/6717edaa4184dfa8a50859ce

18.   https://media.ca11.uscourts.gov/opinions/unpub/files/202413401.pdf

19.   https://www.ca11.uscourts.gov/unpublished-opinions-log

20.  https://en.wikipedia.org/wiki/United_States_Court_of_Appeals_for_the_Eleventh_Circuit

21.   https://media.ca11.uscourts.gov/opinions/unpub/files/202413401.pdf

22.   https://www.law360.com/tax-authority/articles/2295919/tax-court-judge-protections-challenged-in-11th-circ

23.   https://www.taxcontroversy360.com/2017/02/battat-v-commissioner-a-primer-on-the-history-of-the-us-tax-court/

24.  https://rsmus.com/insights/tax-alerts/2022/eleventh-circuit-reverses-tax-courts-penalty-approval-analysis.html

25.   https://www.troutman.com/insights/eleventh-circuit-re-opens-tcpa-lead-generator-loophole-and-signals-further-erosion-of-judicial-deference-to-administrative-rules/

26.  https://www.law360.com/articles/2286099/11th-circ-urged-to-reject-biz-owners-tax-penalty-challenge

27.   https://law.justia.com/cases/federal/appellate-courts/ca11/2025/

https://www.ca11.uscourts.gov/unpublished-opinions-log

All That You Wanted to Know About Form 706NA - Part II

We previously posted All That You Wanted to Know About Form 706NA - Part I, where we discussed that in the area of estate tax compliance, many of us have prepared Form 706’s, the estate tax return for US citizens and domiciliaries.  To be sure, this form is quite voluminous and can take a while to fill out but there are very few mysteries beyond schedule E; what percentage of an asset might be includable in an estate, the value of an annuity, what debts and expenses are deductible, the calculation of the marital deduction, and the generation-skipping tax computation. The Form 706NA, however, preparation of the tax return for the estate of the nonresident alien owning property in the United States, can present a more daunting task.  

Based on our estate counsel Robert Blumenfeld's 32 years of experience as a senior attorney at the International office of the IRS, some of the strange and exotic problems that he discovered upon while auditing roughly 1,500 estate tax returns and preparing about 300 of the same in the last few years.
 

As he pointed out, one of the critical areas for each estate is to focus on is the decedent’s citizenship and domicile. To assist the IRS in reaching a conclusion, it is best to include the death certificate (required) as well as the birth certificate, passport, and any documents revealing the fact that the decedent expatriated from one country. This information may well be beneficial in avoiding an IRS examination. The problem is that once the IRS examines a tax return for one issue (i.e. citizenship or domicile), it opens the door for the IRS to examine a number of other issues that they might not have otherwise addressed. Kind of like opening Pandora's box. 

After we get through the information about the decedent himself, we reach an area of the return, Part III, General Information. Most of it is pretty obvious but… The first area of major concern may be whether the decedent died intestate. Many people who have assets in several countries have country specific wills, for instance one for the United States and one for say Canada, England etc. If the decedent did die testate, one should always include the US will. If there are other wills, go through them carefully before you submit them to the IRS because they make contain data which would create questions or problems with the IRS. In the alternative, many folks have a Universal Will which covers the disposition of assets in all countries. Because of the difference of rules from country to country, such a universal will may create problems with assets passing to a surviving spouse or a charity. 

Question two addresses debt obligations  or other property located in the United States. One of the major problems that I saw as an auditor was that people will value the house or condominium in the United States allocating no value to the contents. In most cases this is not a big deal but in the case of an expensive property, I, as the auditor always requested (summoned if the estate did not cooperate) a copy of the insurance policy plus the floater. Generally I found nothing specific but from time to time, I found an art collection worth several million dollars, an automobile collection worth over million dollars, and an extensive collection of rare China worse close to $1 million. If the client is wealthy or as expensive real estate in the United States, obtain a copy of the insurance floater before you prepare the 706NA to avoid great embarrassment. 

Question five relates to whether the decedent owned jointly held property in the United States. If the taxpayer plans to include 100% of the value of the asset, then this question should pose no problems. Two potential problems come to light: if the decedent came from a community property jurisdiction, is one half of the value of the asset excluded by operation of law in the foreign country? If one wishes to exclude a portion of an asset from a decedent in a non-community property jurisdiction, Section 2040 of the IRC places the onus again, of proving contribution on the surviving co-tenant. This can sometimes be a very difficult task, especially if the property is been held for a substantial number of years and many records/canceled checks etc. have been destroyed over the years. 

Question six asks whether the decedent had ever been a US citizen. If the answer to the initial question is yes but at the time of death, the decedent is no longer a US citizen, it is necessary to include in the paperwork sent to the IRS some evidence that the decedent properly expatriated from the United States. Based on the timing, if this happened shortly before death, it could raise the issue of expatriation to avoid tax. Again, getting this information before preparing the return is a good way to avoiding embarrassment at  the examination.

Have a US Estate Tax Problem?

 

Estate Tax Problems Require

an Experienced Estate Tax Attorney

 

 

Contact the Tax Lawyers at

Marini & Associates, P.A.

 

 

 for a FREE Tax Consultation Contact US at

www.TaxAid.com or www.OVDPLaw.com

or Toll Free at 888-8TaxAid (888 882-9243).

 

Ronald Marini Has Once Again Been Recognized As A Super Lawyer

Ronald Marini has once again been recognized as a Super Lawyer, highlighting his ongoing professional excellence in the field of tax law. This prestigious honor is a testament to his more than 40 years of dedication to international and domestic tax law, exceptional representation of clients before the IRS, and consistent delivery of outstanding client service.

The Super Lawyers distinction is awarded to fewer than 5% of attorneys in each state, reflecting superior peer recognition, professional achievement, and exemplary legal work in their area of practice. This honor involves a rigorous multiphase selection process, including peer nominations and independent research, ensuring only the most outstanding legal professionals are chosen.

Ronald Marini’s selection solidifies his reputation as a top-tier tax attorney, both in Florida and nationwide, and underscores his ongoing commitment to legal excellence and client advocacy. His recognition also demonstrates continued leadership and prominence within the legal community, built on a career that spans notable client victories, landmark tax cases, and authoritative contributions to tax scholarship.

For clients and colleagues alike, Ronald Marini’s standing as a Super Lawyer serves as a reliable indicator of elite expertise and proven results in complex tax and estate planning matters.

Have an IRS Tax Problem? 

    

Need International and/or Estate Planning? 

Contact the Tax Lawyers at 
Marini & Associates, P.A. 

 

 

for a FREE Tax HELP contact us at:

www.TaxAid.com or www.OVDPLaw.com 
or Toll Free at 888-8TaxAid (888) 882-9243