Investor Pleads Guilty to Filing False Form with IRS to Shield $30 Million in Capital Gains under Puerto Rico Tax Incentive Program

MIAMI - On June 13, Suresh Gajwani, 78, pleaded guilty to making a false and fraudulent statement to the Internal Revenue Service (IRS). 

According to the facts admitted at the change of plea hearing, in 2018, Gajwani was a resident of Miami-Dade County. In October 2019, Gajwani owned a company that held stocks and options that had substantially appreciated in value by tens of millions of dollars.  In anticipation of the tax on those gains, Gajwani sought to take advantage of a tax incentive program offered pursuant to Puerto Rico Act 60. Under the program, bona fide residents of Puerto Rico could apply for an exemption from federal taxes on certain capital gains realized after the individual became a Puerto Rican resident. Gajwani did not become a bona fide resident of Puerto Rico until January 1, 2020, which was after the stock portfolio had accrued built-in gains.  

Gajwani was advised by an accountant and attorney to convert his company to a small business corporation (known as an S Corporation) under the Internal Revenue Code to take advantage of the Puerto Rico capital gains tax exemption. Gajwani was also advised by an attorney that built-in gains for U.S. residents accrued prior to becoming a resident of Puerto Rico could be exempt from federal taxes.

In order to convert the company retroactively, in January 2020, Gajwani submitted a false document to the IRS that claimed that the company had intended to convert as of January 1, 2019. Gajwani knew that he did not intend to treat the company as an S Corporation as of January 1, 2019, and that the real reason for the submission of the paperwork to the IRS was to avoid paying capital gains taxes. Based upon Gajwani’s false statement, the IRS granted Gajwani’s request.

In 2019, Gajwani’s company had a portfolio with approximately $30 million in built-in gains. Had the IRS not allowed Gajwani’s company to convert to an S Corporation retroactively, the company would have owed approximately $7 million in capital gains taxes for 2019.

Gajwani is scheduled to be sentenced on August 30, by Chief U.S. District Judge Cecilia M. Altonaga after considering the U.S. Sentencing Guidelines and other statutory factors. Gajwani faces a maximum penalty of three years in prison, and he has agreed to repay approximately $15.3 million in restitution (taxes, interest, and penalties) to the IRS.   

U.S. Attorney Hayden P. O’Byrne for the Southern District of Florida, acting Deputy Assistant Attorney General Karen E. Kelly of the Justice Department’s Tax Division, and Emmanuel Gomez, Special Agent in Charge, IRS Criminal Investigation, made the announcement. 

IRS Criminal Investigation is investigating the case.

Senior Litigation Counsel Michael N. Berger and Trial Attorney Curtis Weidler of the Tax Division are prosecuting the case. 

Related court documents and information may be found on the website of the District Court for the Southern District of Florida at www.flsd.uscourts.gov or at http://pacer.flsd.uscourts.gov, under case number 25-cr-20117.

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