I saw this question on another forum. A friend of the guy posting the original question has an IRA from monies earned while residing in Puerto Rico. He has moved to the US permanently and is now trying to transfer his IRA to an account in Florida. His broker is telling him that the Puerto Rico IRA must be liquidated and subject to the 10% early withdrawal penalty and then reinvested in a US IRA account. Is this correct? Can he make a trustee-to-trustee transfer of his IRA funds?
Another responder said he couldn't find anything in Pub 590 or the instructions for Form 5329 that suggested special rules for Puerto Rico. Looking in more places (CCH Tax Research Network), I couldn't fing anything, either, but I was reminded that there are a lot of special rules for Puerto Rico. One is that most income of a resident of Puerto Rico earned from sources within Puerto Rico is excluded from U.S. income tax. (See Reg §1.933-1)
Combine that with the general rule that valid contributions to an IRA require earned income subject to U.S. taxation and you have a plausible argument for the broker's claim.
I won't ask you to prove a negative so, does anyone have a cite that supports the broker's claim?