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 1009 - Partnerships and Partners (§§ 30321 — 30378) › Subchapter D - Computation in Sales or Exchanges (§§ 30361 — 30363) › § 30363 - Special rules where substantial built-in loss and § 30374 of this title election

(a) General rule. — The basis of partnership property shall not be adjusted as the result of a transfer of an interest in a partnership by sale or exchange or on the death of a partner unless the election provided in § 30374 of this title (relating to optional adjustment to basis of partnership property) is in effect with respect to such partnership, or unless the partnership has a substantial built-in loss immediately after such transfer.
(b) Adjustment to basis of partnership property. — In the case of a transfer of an interest in a partnership by sale or exchange or upon the death of a partner, a partnership with respect to which the election provided in § 30374 of this title is in effect or which has a substantial built-in loss immediately after such transfer shall:
(1) Increase the adjusted basis of the partnership property by the excess of the basis to the transferee partner of his/her interest in the partnership over his/her proportionate share of the adjusted basis of the partnership property, or
(2) decrease the adjusted basis of the partnership property by the excess of the transferee partner’s proportionate share of the adjusted basis of the partnership property over the basis of his/her interest in the partnership.
Under regulations to be prescribed by the Secretary, such increase or decrease shall constitute an adjustment to the basis of partnership property with respect to the transferee partner only. A partner’s proportionate share of the adjusted basis of partnership property shall be determined in accordance with his/her interest in partnership capital and, in the case of property contributed to the partnership by a partner, § 30362(c) of this title (relating to contributed property) shall apply in determining such share. In the case of an adjustment under this subsection to the basis of partnership property subject to depletion, any depletion allowable shall be determined separately for the transferee partner with respect to his/her interest in such property.
(c) Allocation of basis. — The allocation of basis among partnership properties where subsection (b) applies shall be made in accordance with the rules provided in § 30375 of this title.
(d) Substantial built-in loss. —
(1) In general. — For purposes of this section, a partnership has a substantial built-in loss with respect to a transfer of an interest in a partnership if the partnership’s adjusted basis in the partnership property exceeds the fair market value of such property by more than two hundred fifty thousand dollars ($250,000).
(2) Regulations. — The Secretary shall prescribe such regulations as may be appropriate to carry out the purposes of clause (1) and § 30354(d) of this title including regulations aggregating related partnerships and disregarding property acquired by the partnership in an attempt to avoid such purposes.
(e) Alternative rules for electing investment partnerships. —
(1) No adjustment of partnership basis. — For purposes of this section, an electing investment partnership shall not be treated as having a substantial built-in loss with respect to any transfer occurring while the election under clause (6)(A) is in effect.
(2) Loss deferral for transferee partner. — In the case of a transfer of an interest in [a partnership that elects the application of one of the alternative rules provided for in this subsection], the transferee partner’s distributive share of losses (without regard to gains) from the sale or exchange of partnership property shall not be allowed except to the extent that it is established that such losses exceed the loss (if any) recognized by the transferor (or any prior transferor to the extent not fully offset by a prior disallowance under this clause) on the transfer of the partnership interest.
(3) No reduction in partnership basis. — Losses disallowed under clause (2) shall not decrease the transferee partner’s basis in the partnership interest.
(4) Effect of termination of partnership. — This subsection shall be applied without regard to any termination of a partnership under § 30338(b)(1)(B) of this title.
(5) Certain basis reductions treated as losses. — In the case of a transferee partner whose basis in property distributed by the partnership is reduced under § 30352(a)(2) of this title, the amount of the loss recognized by the transferor on the transfer of the partnership interest which is taken into account under clause (2) shall be reduced by the amount of such basis reduction.
(6) Electing investment partnership. — For purposes of this subsection, the term “electing investment partnership” means any partnership if:
(A) The partnership makes an election to have this subsection apply,
(B) the partnership would be an investment company under § 3(a)(1)(A) of the Investment Company Act of 1940 but for an exemption under paragraph (1) or (7) of Section 3(c) of such Act,
(C) such partnership has never been engaged in a trade or business,
(D) substantially all of the assets of such partnership are held for investment,
(E) at least ninety-five percent (95%) of the assets contributed to such partnership consist of money,
(F) no assets contributed to such partnership had an adjusted basis in excess of fair market value at the time of contribution,
(G) all interests of such partnership are issued pursuant to a private offering before the date which is twenty-four (24) months after the date of the first capital contribution to such partnership,
(H) the partnership agreement of such partnership has substantive restrictions on each partner’s ability to cause a redemption of the partner’s interest, and
(I) the partnership agreement of such partnership provides for a term that does not exceed fifteen (15) years.
The election described in paragraph (A), once made, shall be irrevocable except with the consent of the Secretary.
(7) Regulations. — The Secretary shall prescribe such regulations as may be appropriate to carry out the purposes of this subsection, including regulations for applying this subsection to tiered partnerships.
(f) Exception for securitization partnerships. —
(1) No adjustment of partnership basis. — For purposes of this section, a securitization partnership shall not be treated as having a substantial built-in loss with respect to any transfer.
(2) Securitization partnership. — For purposes of clause (1), the term “securitization partnership” means any partnership the sole business activity of which is to issue securities which provide for a fixed principal (or similar) amount and which are primarily serviced by the cash flows of a discrete pool (either fixed or revolving) of receivables or other financial assets that by their terms convert into cash in a finite period, but only if the sponsor of the pool reasonably believes that the receivables and other financial assets comprising the pool are not acquired so as to be disposed of.
History —Jan. 31, 2011, No. 1, § 1074.03, retroactive to Jan. 1, 2011.