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In February this year, the U.S. Senate Finance Committee launched a tax investigation into Dan Morehead, the founder of cryptocurrency venture capital firm Pantera Capital, accusing him of cashing out over $1 billion in assets after relocating to Puerto Rico, potentially violating federal tax laws.
The investigation reveals that Morehead moved to Puerto Rico in 2020 and subsequently sold a large number of shares, including crypto assets, generating massive capital gains, with personal earnings reaching $850 million.
Specifically, the Senate Finance Committee has demanded details of Morehead’s transactions, information on his tax advisors, and a full asset list to verify whether he exploited Puerto Rico’s tax incentives to avoid U.S. mainland tax obligations. Morehead, however, has defended his tax conduct as “appropriate”, stating that he relocated to Puerto Rico in 2021.
The investigation was initiated by Democratic Senator Ron Wyden, but following the Republican takeover of the Senate in January 2025, the new Finance Committee Chairman, Michael Crapo, has yet to indicate whether he will continue pursuing the case.
Coincidentally, the IRS has conducted around 100 tax crime investigations targeting Puerto Rico residents in recent years, and the **Department of Justice has also intensified scrutiny of potential abuses of the “Puerto Rico Incentives Code” (commonly known as Act 60).
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FinTax Commentary
Puerto Rico’s Advantages of Tax
As a U.S. territory, Puerto Rico has leveraged its unique tax incentives to attract high-net-worth individuals, entrepreneurs, and particularly crypto investors. Since the introduction of Act 22 (“Puerto Rico Enacts Radical Tax Incentives to Attract New Capital to the Island”) and Act 20 (“Tax Incentives to Promote Export Services in Puerto Rico”) in 2012, Puerto Rico has become a major tax haven. In 2019, these two laws were replaced by Act 60, which consolidated and formalized Puerto Rico’s tax advantages.
The Key Tax Incentive: Capital Gains Tax Exemption
One of Puerto Rico’s most attractive tax policies is its capital gains tax exemption. Under Act 60, eligible individuals who become bona fide Puerto Rico residents are exempt from both local and federal capital gains taxes on income generated from assets acquired and sold while residing in Puerto Rico.
Tax-Free Personal Income & Low Corporate Tax Rates
Beyond capital gains exemptions, Act 60 also offers personal income tax exemptions. Eligible residents do not pay taxes on passive income such as interest, dividends, and royalties—which is particularly beneficial for crypto investors earning staking rewards, as these are generally classified as passive income.
Puerto Rico also provides low corporate tax rates. Businesses that establish operations in Puerto Rico and provide services to clients outside the territory (e.g., consulting, IT, and financial services) benefit from a fixed 4% corporate tax rate, significantly lower than U.S. mainland corporate taxes. Moreover, corporate owners are not required to pay additional federal taxes on profits distributed from Puerto Rico-based companies.
Why Is Dan Morehead Under Investigation?
Currently, public information about the Senate Finance Committee’s tax investigation into Dan Morehead remains limited. The primary allegations revolve around his post-relocation sale of crypto assets, which generated over $850 million in capital gains. However, the exact timing of these transactions, the source of the assets, and tax filings have not been fully disclosed.Since Act 60 eligibility depends on residency status and income classification, the key issue lies in whether Morehead fully met the requirements to qualify for Puerto Rico’s tax benefits. There are two primary concerns in the investigation:
Under Act 60, individuals must reside in Puerto Rico for at least 183 days per year and prove that Puerto Rico is their primary residence.For Morehead, the key legal question is whether he actually met the residency criteria. If he failed to meet the 183-day threshold, or if he frequently traveled back and forth between Puerto Rico and the U.S. mainland, the Senate Finance Committee may argue that he is not a legitimate Puerto Rico resident and is thus subject to U.S. federal capital gains taxes.
Act 60’s tax exemptions only apply to assets acquired after obtaining Puerto Rico residency.If Morehead purchased his crypto assets before moving to Puerto Rico, then even if he sold them after becoming a resident, the IRS may still classify those gains as U.S.-sourced income, subject to federal capital gains tax.The Senate’s investigation is likely focused on Morehead’s asset acquisition and sale timeline, aiming to determine whether he structured his transactions to artificially benefit from tax incentives.
Lessons from the Dan Morehead Case
The tax investigation into Dan Morehead serves as a broader reflection of the risks associated with tax planning in the cryptocurrency sector. This case highlights the need for increased vigilance regarding tax compliance. Here are three key takeaways:
Firstly, compliance with residency requirements and the legitimacy of income sources are crucial in tax planning involving low-tax jurisdictions. This is especially true for cross-border transactions and capital gains, where the timing and origin of each transaction must be clearly documented to prevent authorities from reclassifying the income as taxable outside the tax-friendly jurisdiction, which could lead to additional tax liabilities.
Secondly, changes in tax policies can impact the effectiveness of tax planning strategies. As global tax enforcement becomes increasingly stringent, governments are intensifying cooperation and introducing new anti-tax avoidance regulations. These developments may have negative implications for existing tax arrangements, requiring investors to stay informed and adapt accordingly.
Lastly, when structuring cryptocurrency-related tax plans, investors should seek guidance from professionals specializing in crypto tax compliance. Given the complexity and evolving nature of crypto taxation, traditional tax strategies may not always be applicable. Professional advisors can tailor custom tax planning solutions, keep investors updated on the latest cryptocurrency tax policies across different jurisdictions, and provide forward-looking advice to ensure continued compliance and efficiency in tax strategies.