A Senate committee examining potential abuses of a lucrative Puerto Rico tax break by wealthy Americans is asking the Internal Revenue Service to investigate the role played by two prominent lawyers who advised on several of the transactions, according to a letter reviewed by The New York Times.
The request is part of an investigation by the Senate Finance Committee into whether wealthy Americans who moved to Puerto Rico to take advantage of a special tax break, known as Act 60, improperly used it to avoid taxes on income earned within the 50 U.S. states. The I.R.S. has identified about 100 people who may have improperly avoided federal income taxes after their moves to Puerto Rico.
Senator Ron Wyden, an Oregon Democrat, sent a letter on April 29 to Jarod Koopman, the I.R.S.’s chief tax compliance officer, asking the agency to review legal advice given to some of those people by Jeffrey Rubinger and Summer LePree, two former partners at the international law firm Baker McKenzie.
“I am concerned that numerous investors used these legal opinions from Rubinger and LePree to avoid federal income taxes on large capital gains that accrued prior to relocating to Puerto Rico,” Mr. Wyden wrote.
Many wealthy Americans have moved to Puerto Rico to take advantage of the tax break, which treats capital gains income generated there as exempt from federal income tax. Last year, the Senate committee wrote to Dan Morehead, founder of Pantera Capital, one of the biggest cryptocurrency investment firms, as part of its inquiry into whether he abused the tax law.
The Justice Department and the criminal investigation division of the I.R.S. are investigating the two former partners, Bloomberg previously reported, and Baker McKenzie received a grand jury subpoena from the U.S. attorney’s office in Miami asking for records about the lawyers’ work on “Puerto Rico tax planning” structures.
“Clients of Rubinger and LePree have acknowledged their participation in schemes involving the abuse of Puerto Rico Act 60 tax incentives,” Mr. Wyden wrote.
According to the letters from Senator Wyden, shortly after Mr. Morehead relocated to Puerto Rico in 2021, his firm sold a large position, generating capital gains of more than $1 billion. The committee has received information from a whistle-blower who claims Mr. Morehead accrued most of his share while he lived in California, and improperly avoided over $100 million in federal taxes.
In a statement, Mr. Morehead said: “I acted appropriately at all times with respect to my taxes. I consulted with professional tax advisers and relied on their advice. Any claim otherwise is simply incorrect.”
The committee says Mr. Morehead got legal counsel from Mr. Rubinger and Ms. LePree, who advised him that he was permitted to treat the entire gain tax free, according to the letter.
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“Investigators from my staff have already established that Rubinger provided inaccurate legal opinions to other clients involving abuse of Puerto Rico Act 60 incentives,” Mr. Wyden said.
Mr. Rubinger, who now works at Winston & Strawn, stands by his legal advice. “Wyden does not seem to be reading the rule,” Mr. Rubinger said in an interview. He said sales of investment assets that were always owned by partnerships are not subject to the rules cited by Mr. Wyden and are exempt from federal tax for Puerto Rico residents.
Last year, Suresh Gajwani, an investor, pleaded guilty in federal court in Florida to making a false statement to the I.R.S. in using the Puerto Rico tax break to shield $30 million in capital gains. Mr. Wyden’s letter says Mr. Gajwani was relying on advice from Mr. Rubinger, identified in court documents as “attorney 1.”
“I had nothing to do with what the guy in Miami got in trouble for,” Mr. Rubinger said.
He said that he was hired after Mr. Gajwani made the transaction that led to his troubles, and that the legal opinion he wrote on his client’s behalf “is 100 percent accurate.”
The Senate committee’s letter asks the I.R.S. to review legal opinions that Mr. Rubinger and Ms. LePree provided to Mr. Morehead and others, specifically whether the lawyers “inaccurately advised” that capital gains earned before moving to Puerto Rico could qualify for the exemption.
Ms. LePree, who also works at Winston & Strawn now, did nothing wrong, said David Oscar Markus, a lawyer representing her. “She’s ethical and has always done the right thing,” he added.
Senator Wyden also asked the I.R.S. to examine tax returns filed by Mr. Morehead and other partners of Pantera Capital to determine whether any wealthy investors “are erroneously reporting U.S. source income as Puerto Rico source income for the purposes of avoiding or evading tax.”
Jesse Drucker is an investigative reporter for the Business section and has written extensively on the world of high end tax avoidance.
The post Senators Say Lawyers Helped Wealthy Clients Dodge Taxes in Puerto Rico appeared first on New York Times.
