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) › § 30582 - Election; revocation termination

(a) Election.—
(1) In general.— Except as provided in subsection (g), an eligible corporation may elect to be a corporation of individuals.
(2) All shareholders must consent to election.— An election under this subsection shall be valid only if all persons who are stockholders in such corporation on the day on which such election is made consent to such election.
(b) Effectiveness.—
(1) In general.— An election under subsection (a) may be made by a corporation of individuals for any taxable year:
(A) At any time during the preceding taxable year, or
(B) not later than the fifteenth (15th) day of the fourth (4th) month of the taxable year for which the election was effective.
(2) Certain elections made during the first three and a half (31/2) months treated as made for the next taxable year.— If:
(A) An election under subsection (a) is made for any taxable year during such year and on or before the fifteenth (15th) day of the fourth (4th) month of such year, but
(B) Either:
(i) On one (1) or more days in such taxable year before the day on which the election was made, the corporation did not meet the requirements of § 30581(c) of this title, or
(ii) one (1) or more of the persons who held stock in the corporation during such taxable year and before the election was made did not consent to the election, then such election shall be treated as made for the following taxable year.
(3) Election made after the first three and a half (31/2) months treated as made for following taxable year.— If:
(A) A corporation of individuals makes an election under subsection (a) for any taxable year, and
(B) such election is made after the fifteenth (15th) day of the fourth (4th) month of the taxable year and on or before the fifteenth (15th) day of the fourth (4th) month of the following taxable year, then such election shall be treated as made for the following taxable year.
(4) Taxable years of three and a half (31/2) months or less.— For purposes of this subsection, an election for a taxable year made not later than three and a half (31/2) months after the first day of the taxable year shall be treated as timely made during such year.
(c) Effectiveness.— An election under subsection (a) shall be effective for the taxable year of the corporation for which it is made and for all succeeding taxable years of the corporation, until such election is terminated under subsection (d).
(d) Termination.—
(1) By revocation.—
(A) In general.— An election under subsection (a) may be terminated by revocation.
(B) Stockholders owning more than fifty percent (50%) of stock must consent to revocation.— An election may be revoked only if stockholders holding more than fifty percent (50%) of stock of the corporation on the day on which the revocation is made the such stockholders consent to the revocation through a sworn statement duly notarized.
(C) Effectiveness.— Except as provided in paragraph (D):
(i) A revocation made during the taxable year and not later than the fifteenth (15th) day of the fourth (4th) month thereof shall be effective on the first day of such taxable year, and
(ii) a revocation made during the taxable year, but after such fifteenth (15th) day shall be effective on the first day of the following taxable year.
(D) Revocation effective on a prospective date.— If the revocation specifies an effective date which is on or after the day on which the revocation is made, the revocation shall be effective on and after the date so specified.
(2) By corporation ceasing to be a corporation of individuals: —
(A) In general.— An election under subsection (a) shall be terminated whenever (at any time on or after the first day of the first taxable year for which the corporation is a corporation of individuals) such corporation ceases to be an eligible corporation.
(B) Effectiveness.— Any termination under this clause shall be effective on and after the date of cessation.
(3) Where gross receipts derived from the active conduct of a trade or business in Puerto Rico for the taxable year of the corporation are less than ninety percent (90%) of the gross receipts total.—
(A) Termination.—
(i) In general.— An election under subsection (a) shall be terminated whenever the corporation has accumulated gross receipts from income not derived from the active conduct of a trade or business in Puerto Rico in excess of ten percent (10%) for the taxable year.
(ii) Effectiveness.— Any termination under this clause shall be effective on and after the first day of the taxable year referred to in subparagraph (i).
(B) Special rules.—
(i) Active conduct of a trade or business.— For purposes of this clause “trade or business” shall not include a lending business unless under the criteria established through regulations promulgated by the Secretary the corporation of individuals renders significant services to the lender as part of such business.
(ii) Gross receipts derived from the active conduct of a trade or business.— For purposes of this clause, the term “gross receipts” related to the active conduct of a trade or business shall include:
(I) Sale of assets used in trade or business.— Gain derived from the sale, exchange or other disposition of property used in the corresponding trade or business.
(II) Gross income during the organization period of the corporation.— Income from the temporary investment of funds of a corporation during the period prior to the beginning of the active conduct of a trade or business that qualifies the corporation for the benefits of this subchapter. Such period may not be more than thirty-six (36) months as of the organization of the corporation.
(e) Treatment of election termination year.—
(1) In general.— In case of termination of a year covered by the election, for purposes of this subchapter:
(A) Short year covered by the election.— The portion of such year ending before the first day for which the termination is effective shall be treated as a short taxable year for which the corporation is a corporation of individuals.
(B) Short year not covered by the election.— The portion of such year beginning on such first day shall be treated as a short taxable year for which the corporation is a regular corporation.
(2) Pro rata allocation.— Except as provided in clauses (3) and (6)(C), the determination of which items are to be taken into account for each of the short taxable years referred to in clause (1) shall be made:
(A) First, by determining the amount of each of the items of income, loss, deduction, or credit described in § 30584(a)(1) of this title for the termination of a year covered by the election;
(B) then, by assigning an equal portion of each amount determined under paragraph (A) to each day of the election termination year.
(3) Election to have items assigned to each short taxable year under normal tax accounting rules:
(A) In general.— A corporation may elect to have clause (2) not apply.
(B) Shareholders must consent to election.— An election under this clause shall be valid only if all persons who are stockholders in the corporation at any time during the short year covered by the election and all persons who are stockholders in the corporation on the first day of the short year not covered by the election consent to such election.
(4) Election termination year.— For purposes of this subsection, the term “election termination year” means any taxable year of a corporation (determined without regard to this subsection) in which a termination of an election made under subsection (a) takes effect (except for terminations that take effect on the first day of such year).
(5) Tax determined on annualized basis for short year not covered by the election.—
(A) In general.— The taxable net income for the short year described in clause (1)(B) shall be placed on an annual basis by multiplying the taxable net income for such short year by the number of days in the election termination year and by dividing the result by the number of days in the short year. The tax shall be the same part of the tax computed on the annual basis as the number of days in such short year is of the number of days in the election termination year.
(B) Application of § 30149 of this title.— Section 30149 of this title shall apply to the short taxable year described in clause (1)(B).
(6) Other special rules.—
(A) Short years treated as one (1) year for carryover purposes.— The short taxable year described in clause (1)(A) shall not be taken into account for purposes of determining the number of taxable years to which any item may be carried back or carried forward by the corporation.
(B) Due date for year covered by election.— The due date for filing the return for the short taxable year described in clause (1)(A) shall be the same as the due date for filing the return for the short taxable year described in clause (1)(B)(including extensions thereof).
(C) Pro rata allocation for election termination year not to apply if fifty percent (50%) change in ownership.— Clause (2) shall not apply to an election termination year if there is a sale or exchange of fifty percent (50%) or more of the stock in such corporation during such year.
(f) Inadvertent terminations.— If:
(1) An election made under subsection (a) or terminated pursuant to clauses (2) or (3) of subsection (d) by any corporation;
(2) the Secretary determines that the termination was inadvertent;
(3) no later than a reasonable period of time after discovery of the circumstances resulting in such termination, steps were taken for the corporation to become once again a corporation of individuals, and
(4) the corporation and each person who was a stockholder in such corporation at any time during the period specified pursuant to this subsection, agrees to make such adjustments (consistent with the treatment of such corporation as a corporation of individuals) as may be required by the Secretary with respect to such period, then, notwithstanding the circumstances resulting in such termination, such corporation shall be treated as continuing to be a corporation of individuals during the period specified by the Secretary.
(g) Election after termination.— If a corporation of individuals has made an election under subsection (a) and if such election has been terminated under subsection (d), such corporation (and any successor corporation) shall not be eligible to make an election under subsection (a) for any taxable year before its fifth (5 th) taxable year which begins after the first (1 st) taxable year for which such termination is effective, unless the Secretary consents to such election. Provided, That this subsection shall not apply to those corporations of individuals that have voluntarily revoked their election for taxable years beginning after December 31, 2010 and chose to avail themselves of the provisions of § 30096(b) of this title.
History —Jan. 31, 2011, No. 1, § 1115.02, retroactive to Jan. 1, 2011; Sept. 30, 2015, No. 159, § 12.