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 D - Special Partnerships and Partners (§§ 30551 — 30578) › § 30574 - Treatment of certain distributions

(a) Taxation of partners on earnings and profits accrued during taxable years in which the partnership was not a special partnership or from liquidations or reorganizations involving corporations or partnerships and a special partnership. — Any distribution made by a special partnership of earnings and profits accrued during the years in which the partnership was not a special partnership, including earnings and profits received in liquidations or reorganizations with other corporations or partnerships that are not special partnerships, whether such transactions are made by reason of the creation of the special partnership or after the partnership has been enjoying the benefits of §§ 30551—30578 of this title, shall be subject to the following rules:
(1) Origin of distributions. — In the cases where the special partnership has accrued earnings and profits at the close of the taxable year before the first year in which the option described in § 30581 of this title takes effect, said earnings and profits shall be treated as distributed during the first two (2) taxable years of the partnership in which the election under § 30581 of this title is in effect. The amount of the earnings or profits that according to this last sentence shall be deemed distributed or treated as distributed in the first year of the period indicated, shall not be less than fifty percent (50%) of such total earnings and profits. The amount of said earnings and profits that has been neither distributed nor treated as distributed in said first year, shall be deemed distributed in the second year. Earnings and profits distributed or treated as distributed under this paragraph shall be recognized as gross income for each partner, and as such, shall be subject to all other provisions of this part as if said distribution had been made by a partnership that is not a special partnership.
(2) Earnings and profits received in liquidations or reorganizations. — Earnings and profits from liquidations or reorganizations described in this subsection shall be deemed distributed in the first two (2) years of existence of the special partnership or upon the close of the first two (2) taxable years after the liquidation or reorganization occurs in special partnerships already in existence, as the case may be. Earnings and profits distributed or treated as distributed under this last sentence, shall not be less than fifty percent (50%) of such total earnings and profits so transferred, for the first taxable year of the special partnership in which the liquidation or reorganization occurs. The amount of said earnings and profits that has been neither distributed nor treated as distributed in said first year, shall be deemed as distributed in the second year of said period. Earnings and profits distributed or treated as distributed under this clause shall be recognized as gross income for each partner, and as such, shall be subject to all other provisions of this part as if said distribution had been made by a partnership that is not a special partnership.
(3) Earnings and profits that exist at the close of the last taxable year begun before July 1, 1995. — If a special partnership has in effect an option under Section 340 of the Income Tax Act of 1954, as amended, at the close of the last taxable year begun before July 1, 1995 and on that date, it had earnings and profits attributable to periods during which it was not a special partnership, or received in liquidations and reorganizations, the distributions of profits that are carried out after said date shall be deemed to have been made out of the undistributed balance of said earnings and profits until the same are depleted, and shall be subject to taxation under the provisions of this part, without considering this subchapter.
(b) Effect of distributions on basis of partner’s interest. — The basis of a partner’s interest in a special partnership shall not be increased or decreased as a result of amounts recognized as gross income under subsection (a) or for a distribution of earnings and profits subject to the provisions of subsection (a).
History —Jan. 31, 2011, No. 1, § 1114.24, retroactive to Jan. 1, 2011.