The U.S. Internal Revenue Service (IRS) appears to be entering a new and far more aggressive phase of enforcement focused on taxpayers claiming Puerto Rico residency and Act 60 (formerly Act 22) incentives or benefits. The U.S. Government Accountability Office (GAO) on December 12, 2025, issued a detailed report on the topic. The report is significant, as the GAO is an independent, nonpartisan agency that audits and evaluates federal programs—including tax administration—to provide Congress with objective information and recommendations for improving government efficiency and accountability.

For years, the IRS has lacked current data and has not prioritized examinations, but that period is apparently now over at least as it relates to examinations of U.S. persons who have already claimed tax benefits under Act 60. With complete taxpayer information now available and increasing pressure from Congress, the IRS is preparing to intensify audits involving residency, income sourcing, and eligibility for Puerto Rico’s tax incentives.

This development is especially significant for California taxpayers, as the GAO found that 381 individuals who claimed the Act 60 resident investor incentive in 2021 had relocated from California, making them the largest state cohort and a likely focus of both IRS and California Franchise Tax Board scrutiny.

The GAO Report criticizes the IRS for operating without updated information on Act 60 participants for nearly four (4) years and failing to act on referrals identifying individuals who failed to substantiate the 183-day residency requirement necessary to benefit from Act 60. It also highlights that a taxpayer’s average federal taxable income declined significantly by thirty-nine percent (39%) after relocating to Puerto Rico and the taxpayer’s average federal income tax paid also significantly declined by forty-six percent (46%), thereby contributing to federal revenue losses in the hundreds of millions annually. With renewed coordination between federal and Puerto Rico authorities, the IRS has begun expanding examinations and is preparing to issue letters that will signal the start of deeper inquiries into taxpayer residency and sourcing positions.

Individuals relying on Act 60 benefits should understand that this all represents a new enforcement environment. Any IRS correspondence referencing residency, presence in Puerto Rico, lifestyle factors, travel records, or income sourcing should be treated as the beginning of a potential examination. Any mismatch between Puerto Rico filings and federal filings, including Form 8898, will now be readily identified. Act 60 questionnaires or letters should be viewed as early warnings. Taxpayers with concerns about prior filings, documentation, or residency support should address them promptly with the assistance of outside legal counsel before the IRS initiates contact.