2023 Laws of Puerto Rico › TITLE THIRTEEN - Taxation and Finance (§§ 1 — 33423) › Subtitle 17 - Internal Revenue Code of 2011 (§§ 30001 — 33423) › PART II - Income Taxes (§§ 30041 — 30622) › Chapter 1006 - Accounting Periods and Methods of Accounting (§§ 30171 — 30182) › § 30176 - Long-term contracts

(a) In general. —
(1) The period during which income from long-term contracts are recognized shall be determined based on any of the methods described in subsection (b), provided that the used method clearly shows the net income earned by the taxpayer with respect to the long-term contract, and
(A) the method used is that required to recognize the income to the taxpayer under the generally accepted accounting methods, and the taxpayer recognizes such income in such manner for purposes of his/her financial statements, or
(B) the method used is that approved by the Secretary after December 31, 2010.
(2) For purposes of this subsection, the Secretary shall prescribe through regulations, after the effective date of this Code, the method allowed under this section.
(3) In promulgating or approving alternate methods for the recognition of income from long-term contracts, the Secretary shall take into account the effect of withholdings or retained earnings that the owner of a construction work usually makes to the periodical payments of the builder until the construction work is completed.
(b) Methods to recognize income from long-term contracts.—
(1) Percentage of completion method.— Under the percentage of completion method, the taxpayer shall declare the gross income earned from long-term contracts as the work is performed, in proportion to the work completed, based on the estimate on the portion of the construction work to be carried out under the contract that has been completed during the taxable year, deducting the expenditure made during such taxable year from the gross income, by virtue of the contract, taking into account the inventory of materials and supplies at the beginning and close of the taxable period, to be used in connection with the construction work subject of such contract, but not yet applied to such use.
(2) Completed contract method.— The taxpayer may declare gross income from a long-term contract in the taxable year in which the contract is complied with and the construction work is accepted, if this method is used by the taxpayer as a consistent practice, in which case the taxpayer shall deduct from the gross income all the expenditures incurred during the term of the contract and that are properly attributable to the contract, taking into account the materials and supplies charged to the construction work, but that remain in inventory as of the date of the completion.
(3) Any other method approved by the Secretary after December 31, 2010.
(c) As used in this section, the term “long-term contract” means any contract for the building, installation, and construction that cover a period in excess of one (1) year from the date the contract was executed to the date in which the contract is completed and the construction work is accepted.
(d) Entities engaged in the development of lands or structures shall not be treated as earning income from long-term contracts; such entities may determine their income based on any of the methods described in subsection (b) of this section, except for clause (2) of said subsection, or any other method authorized by the Secretary through regulations, circular letter or administrative determination.
(e) A taxpayer may not change the method of accounting prescribed in clause (1) or (2) of subsection (b) of this section, as the case may be, without the previous authorization of the Secretary, as provided in § 30172(f) of this title.
(f) The Secretary may prescribe through regulations, circular letter, information bulletin or general administrative determination such guidelines or definitions as necessary or convenient to establish the extent to which a project is considered subject to a long-term contract, as well as such other measures he/she deems convenient or necessary to implement the provisions of this section.
(g) Temporary provisions.—
(1) As of the effective date of this Code, any taxpayer who uses, in determining the taxable net income, a method of accounting for long-term contracts different from the method used in keeping his/her books and reported in his/her financial statements may continue using such method to compute his/her taxable net income under this part solely with respect to projects that are under construction as of June 30, 2013.
(2) The provisions of subsections (a)—(f) of this section shall apply to projects whose construction begins on July 1, 2013, with respect to which the taxpayer shall be bound to use the method of accounting used in keeping his/her books and reported in his/her financial statements, or such other method authorized by the Secretary through regulations, circular letter or administrative determination.
(3) For purposes of this subsection, it shall be understood that a project is under construction as of June 30, 2013 only and solely if as of such date the construction permits and the financing for the construction thereof have being obtained and are in effect.
History —Jan. 31, 2011, No. 1, § 1040.06, retroactive to Jan. 1, 2011; Sept. 30, 2015, No. 159, § 6.