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 1013 - Other Special Taxpayers (§§ 30501 — 30622) › Subchapter E - Corporations of Individuals (§§ 30581 — 30590) › § 30586 - Distributions

(a) General rule. — A distribution of property made by a corporation of individuals with respect to its stock to which (but for this subsection) § 30149 of this title would apply shall be treated in the manner provided in subsection (b) or (c), whichever applies.
(b) Corporation of individuals having no earnings and profits. — In the case of a distribution described in subsection (a) by a corporation of individuals which has no accumulated earnings and profits:
(1) Amount applied against basis. — The distribution shall not be included in gross income to the extent that it does not exceed the adjusted basis of the stock.
(2) Amount in excess of basis. — If the amount of the distribution exceeds the adjusted basis of the stock, such excess shall be treated as gain from the sale or exchange of capital assets.
(c) Corporation of individuals having earnings and profits. — In the case of a distribution described in subsection (a) by a corporation of individuals which has accumulated earnings and profits:
(1) Dividend. — Any distribution in excess of the earnings and profits treated as distributed pursuant to the provisions of § 30583(h) of this title shall be treated as a dividend to the extent it does not exceed the accumulated earnings and profits of the corporation of individuals.
(2) Accumulated adjustments account. — That portion of the distribution which remains after the application of clause (1) to the extent that it does not exceed the accumulated adjustments account shall be treated in the manner provided by subsection (b)(1).
(3) Treatment of remainder. — Any portion of the distribution remaining after the application of clause (2) of this subsection, shall be treated in the manner provided by subsection (b)(2). Except to the extent provided in regulations, if the distributions during the taxable year exceed the amount in the accumulated adjustments account at the close of the taxable year, for purposes of this subsection, the balance of such account shall be allocated among such distributions in proportion to their respective balances.
(d) Certain adjustments taken into account. — Subsections (b) and (c) shall be applied by taking into account (to the extent proper):
(1) The adjustments to the basis of the shareholder’s stock described in § 30585 of this title, and
(2) the adjustments to the accumulated adjustments account which are required by subsection (e)(1).
(e) Definitions and special rules. — For purposes of this section:
(1) Accumulated adjustments account. —
(A) In general. — Except as otherwise provided in paragraph (B), the term “accumulated adjustments account” means an account of the corporation of individuals which is adjusted for the election covered period in a manner similar to the adjustments under § 30585 of this title (except that no adjustment shall be made for income (and related expenses) which is exempt from tax under the provisions of this Subtitle and the phrase “but not below zero” shall be disregarded in § 30585(b)(2)(A) of this title) and no adjustment shall be made for income taxes attributable to any taxable year in which the corporation was a regular corporation.
(B) Amount of adjustment in the case of redemptions. — In the case of any redemption which is treated as an exchange under subsection (c) or (e) of § 30149 of this title, the adjustment in the accumulated adjustments account shall be an amount which bears the same ratio to the balance in such account as the number of shares redeemed in such redemption bears to the number of shares of stock in the corporation immediately before such redemption.
(2) Election covered period. — The term “election covered period” means the most recent continuous period during which the corporation has been a corporation of individuals. Such period shall not include any taxable year beginning before July 1, 1995.
History —Jan. 31, 2011, No. 1, § 1115.06, retroactive to Jan. 1, 2011.