Bona Fide Residency: The Three Tests That Decide Everything

Every dollar of Act 60 benefit rests on one federal question: are you a bona fide resident of Puerto Rico under IRC §937 and Publication 570? Three tests answer it — presence, tax home, and closer connection — and you must pass all three, every year. The decree from DDEC does not answer this question; your life does, and the IRS grades the paper trail.

Test 1: Presence

Physical presence, most commonly ≥183 days in Puerto Rico during the tax year, with four alternate methods and narrow exceptions. Full mechanics, year-of-move rules, and state-side traps: the 183-day rule.

Test 2: Tax home

Your tax home— your regular or principal place of business or employment (or, if you have none, your regular abode) — must be in Puerto Rico, and generally you can't have a tax home outside PR during any part of the year (year-of-move exception aside). The recurring failure pattern: a decree holder who keeps running a mainland business from a mainland office, flying "home" to PR on weekends. The presence math might work; the tax home doesn't.

Test 3: Closer connection

The IRS asks where the center of your life is, weighing facts including:

• location of your permanent home
• where your family lives
• location of personal belongings (cars, furniture, valuables)
• where your banking happens
• driver's license and voter registration jurisdiction
• the mailing address you use
• social, civic, religious, and professional organizations
• where you conduct business and personal affairs

No single item controls; the pattern does. A PR condo can't outweigh a stateside spouse, stateside license, stateside accounts, and a stateside country club.

The six evidence categories

Because the closer connection test is facts-and-circumstances, the strong compliance posture is a running evidence file organized the way examiners think:

A gap in a category — say, zero banking activity for a quarter — is precisely what a closer-connection challenge exploits. (This taxonomy is how the platform's evidence vault auto-classifies documents and flags gaps.)

Form 8898 and the paper start line

The year residency begins (or ends), Form 8898 is generally required with the federal return when worldwide gross income exceeds $75,000 — a $1,000 penalty attaches to failures. It's the formal notice to the IRS that your residency position exists; the evidence file is what defends it.

Failing a test: what actually happens

Fail any test for a year and the §933 exclusion falls away for that year — covered income becomes federally taxable, with interest and penalty exposure, regardless of your standing with DDEC. This is why the IRS campaign targets residency rather than the decrees themselves: the residency question is where the money is.