On May 16, Representative Nydia M. Velázquez (D- NY) led a group of congressional colleagues in a letter to House leaders urging greater oversight by the U.S. Department of Treasury and the Internal Revenue Service’s (IRS) in 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.
The letter comes as the House Appropriations Committee prepares to introduce legislation to fund the U.S. government, including the Treasury Department. Rep. Velázquez and her colleagues seek enhanced scrutiny by Treasury into the individuals and business that have relocated to Puerto Rico since 2012 to take advantage of Act 60.
Originally enacted to attract wealthy foreigners and mainlanders to Puerto Rico, Acts 22 and 20 offered sweeping tax breaks. After establishing bona fide residency in Puerto Rico, Act 22 grants a 0% tax rate on interest, dividends, and capital gains for individuals, and Act 20 provides “an extremely low corporate tax rate of 4% for eligible export services, while also granting a 100% tax exemption on dividends from earnings and profits,” according to the letter.
The law’s provisions do not benefit existing residents of Puerto Rico; they pertain only to people who live outside of Puerto Rico but may seek to move there to take advantage of the tax breaks.
Positive results of the law appear tenuous, according to the lawmakers. “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,” the letter states. “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.”
Strangers on a Train
The letter further explains that the law has also spawned illegal activity. Among the requirements for eligibility under Act 22 is making donations each year to a Puerto Rican nonprofit. The nonprofit must be certified under Puerto Rico’s Internal Revenue Code and cannot be controlled by the Act 22 participant or their relatives. By forbidding recipients to donate to charities controlled by themselves or their families, the law intended to keep recipients from dodging the charitable giving requirement.
In a novel by Patricia Highsmith, made into a film by Alfred Hitchcock, two men meet on a train and share their frustrations with relatives. They agree to solve each other’s problems in a chilling way: each one will murder the person causing the other trouble. Since they are strangers, there will be no reason to suspect them of the crimes, and each man can establish an alibi for the time of his relative’s murder.
The same principle seems to have allowed Act 22 recipients to make donations to one another’s charities rather than their own, but with similar results. For example, one study claimed that a charity called the Rain & Rose Fund boasted that 100% of its donations would go toward eradicating poverty, but in fact only 6% did so. The rest seems to have gone toward lavish donor entertaining with golf tournaments and parties. While many of the organizations that receive donations are established ones like the Boys and Girls Clubs, others are questionable or even illegal. Quite a few were established by Act 22 recipients.
“Our investigation reveals a troubling track record of suspicious charitable giving by Act 22 beneficiaries who are founding and then donating to each other’s tax-exempt charities,” the researchers wrote.
There have also been stories of questionable nonprofits not reinvesting their funds back into the Puerto Rican economy. One alleged nonprofit that has come under increased scrutiny is the SGNG Foundation Corp, a brainchild of Suresh Gajwani, an Act 22 recipient. The SGNG Foundation was not certified as a nonprofit, and yet it was one of the top twelve recipients of Act 22 donation in 2022, receiving more than $150,000 in donations. Less than half of that money was distributed to local organizations, according to Centro de Periodismo Investigativo.
Cause IQ reports grants totaling about $20,000 from the foundation to educational institutions in India, but CPI’s attempts to confirm this information were not successful.
Scrutiny on Residence
In 2021, the IRS announced an audit campaign related to Act 22 beneficiaries focusing on U.S. taxpayers who may be inaccurately claiming Act 22 benefits without meeting its residency requirements. The letter from lawmakers notes that in July 2023, the IRS publicly stated that it was investigating approximately 100 Act 22 beneficiaries and might pursue criminal charges against them. It notes, however, that “to our knowledge no individuals had been charged by the IRS since that announcement, until recently, when in March 2025, the U.S. Department of Justice (USDOJ) charged businessman Suresh Gajwani for evading taxes on nearly $80 million in profits after falsely claiming that his company was entitled to Act 22 exemptions.”
Gajwani’s eligibility for Act 22 is as questionable as his charity. Bloomberg Law, in reporting on his tax evasion charges, describes him as a “Miami resident.” The IRS has been cracking down on individuals who claim Act 22 benefits without actually moving to Puerto Rico, and his case is one of the first to be prosecuted. He is charged with fraudulently sheltering about $80 million.
Previous Congressional Concerns
The recent letter follows a congressional resolution introduced in October 2024 by Rep. Delia Ramirez (D-IL), expressing the sense that “the House of Representatives must take responsible and timely action to address the Federal tax loophole that allows Act 22 decree holders to legally evade Federal taxes.”
Signatures on the May 16 letter included 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).
Read the letter here.
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