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) › § 30581 - General rule

(a) Application of provisions.—
(1) In general.— The provisions of this subchapter shall only apply to those corporations that file with the Secretary an election to be treated as a corporation of individuals.
(2) Partnerships.— For purposes of this subchapter, the term “corporation” includes the term “partnership” provided that such partnership does not have an election under § 30581 of this title for the taxable year of the partnership. The terms “stockholder” and “stock” include the terms “partners” and “shares”, respectively.
(b) Definitions.—
(1) Corporation of individuals.— For purposes of this subchapter, the term “corporation of individuals” means, with respect to any taxable year, an eligible corporation of individuals for which an election under Section 1515.02 of this Subchapter [sic] is in effect.
(2) Regular corporation.— For purposes of this subchapter, the term “regular corporation” means, with respect to any taxable year, a corporation which is not a corporation of individuals for such year.
(c) Eligible corporations of individuals.—
(1) In general.— For purposes of this subchapter, the term “eligible corporation of individuals” means a domestic corporation which is not an ineligible corporation and which does not:
(A) Have more than seventy-five (75) stockholders;
(B) have as a stockholder person (other than an estate or trust described in subsection (d)(2)), or who is not an individual;
(C) have more than one (1) class of stock.
(2) Corporations organized in the states of the United States.— For purposes of clause (1), the term “domestic corporation” includes a corporation organized under the laws of any of the states of the United States or the District of Columbia which is engaged in the active conduct of a trade or business solely in Puerto Rico.
(3) Eligible corporations.— For purposes of clause (1), the term “eligible corporation” means any domestic corporation other than:
(A) An insurance company subject to taxation under the provisions of §§ 30501-30512 of this title,
(B) a regulated investment company subject to taxation under the provisions of § 30521 of this title,
(C) a special corporation subject to taxation under the provisions of §§ 30531-30550 of this title,
(D) a tax-exempt corporation under the provisions of §§ 10012 et seq., §§ 10024 et seq., §§ 10038 et seq., all of this title, or any other similar laws, except for an exempt corporation under the provisions of §§ 6001 et seq. of Title 23,
(E) an exempt corporation under § 30471 of this title,
(F) a financial institution as defined in § 30137(f)(4) of this title, or
(G) an entity that holds a license issued by the Commissioner of Financial Institutions pursuant to §§ 1241 et seq. of Title 7, known as the “Puerto Rico Investment Capital Fund Act of 1996”.
(d) Special rules for applying subsection (c).—
(1) Married individuals treated as one (1) stockholder.— For purposes of subsection (c) a husband and wife (or their estates) shall be treated as one (1) stockholder.
(2) Certain trusts permitted as shareholders.—
(A) In general.— For purposes of subsection (c)(1)(B), the following trusts may be stockholders:
(i) A trust all of which is treated as owned by an individual who is a resident of the Puerto Rico or a nonresident United States citizen.
(ii) A trust created primarily to exercise the voting power of stock transferred to it, and which beneficiary is an individual.
(B) Treatment as stockholder.— For purposes of subsection (c)(1):
(i) In the case of a trust described in paragraph (A)(i), the deemed owner shall be treated as the stockholder.
(ii) In the case of a trust described in paragraph (A)(ii), each beneficiary of the trust shall be treated as a stockholder.
(3) Estate of individual debtor in bankruptcy may be stockholder.— For purposes of subsection (c)(1)(B), the term “estate” includes the estate of an individual debtor in bankruptcy in a case under Title 11 of the United States Code.
(4) Differences in common stock voting rights.— For purposes of subsection (c)(1)(C), a corporation shall not be treated as having more than one (1) class of stock solely because there are differences in voting rights among the shares of common stock.
(5) Straight debt safe harbor.—
(A) In general.— For purposes of subsection (c)(1)(C), straight debt shall not be treated as a second class of stock.
(B) Straight debt defined.— For purposes of this clause, the term “straight debt” means any written unconditional promise to pay on demand or on a specified date a sum certain in money if:
(i) The interest rate (and interest payment dates) are not contingent on profits, the borrower’s discretion, or similar factors;
(ii) there is no convertibility (directly or indirectly) into stock, and
(iii) the creditor is an individual, an estate, or a trust described in clause (2).
(C) Regulations.— The Secretary shall prescribe such regulations as may be necessary or appropriate to provide for the proper treatment of straight debt.
(e) Special rule for qualified subchapter trust.—
(1) In general.— In the case of a qualified subchapter trust with respect to which a beneficiary makes an election under clause (2):
(A) Such trust shall be treated as a trust described in subsection (d)(2)(A)(i), and
(B) the beneficiary of such trust shall be treated as the owner of that portion of the trust which consists of stock in a corporation of individuals with respect to which the election under clause (2) is made.
(2) Election.—
(A) In general.— A beneficiary of a qualified subchapter trust (or his/her legal representative) may elect to have this subsection apply.
(B) Manner and time of election.—
(i) Separate election with respect to each corporation.— An election under this clause shall be made separately with respect to each corporation the stock of which is held by the trust.
(ii) Elections with respect to successive income beneficiaries.— If there is an election under this clause with respect to any beneficiary, an election under this clause shall be treated as made by each successive beneficiary unless such beneficiary affirmatively refuses to consent to such election.
(iii) Time, manner, and form of election.— Any election, or refusal, under this clause shall be made in such manner and form, and at such time, as the Secretary may prescribe through regulation.
(C) Election irrevocable.— An election under this clause, once made, may be revoked only with the consent of the Secretary.
(D) Effectiveness.— An election shall be effective up to a maximum of fifteen (15) days and two (2) months before the date of the election.
(3) Qualified subchapter trust.— For purposes of this subsection, the term “qualified subchapter trust”, in accordance with this subchapter, means a trust:
(A) The terms of which require that:
(i) During the life of the current income beneficiary, there shall be only one (1) income beneficiary of the trust,
(ii) any corpus distributed during the life of the current income beneficiary may be distributed only to such beneficiary,
(iii) the income interest of the current income beneficiary in the trust shall terminate on the earlier of such beneficiary’s death or the termination of the trust, and
(iv) upon the termination of the trust during the life of the current income beneficiary, the trust shall distribute all of its assets to such beneficiary, and
(B) all of the income (pursuant to § 30412(d) of this title) of which is distributed (or required to be distributed) currently to an individual who is a resident of Puerto Rico or a nonresident United States citizen.
(4) Trust ceasing to be qualified.—
(A) Failure to meet requirements of clause (3)(A).— If a qualified subchapter trust ceases to meet any requirement of clause (3)(A), the provisions of this paragraph shall not apply to such trust as of the date it ceases to meet such requirement.
(B) Failure to meet requirements of clause (3)(B).— If any qualified subchapter trust ceases to meet any requirement of clause (3)(B), but continues to meet the requirements of clause (3)(A), the provisions of this paragraph shall not apply to such trust as of the first day of the first taxable year beginning after the first taxable year for which it failed to meet the requirements of clause (3)(B).
(5) Trust constituted before October 31, 1994.—
(A) In general.— For purpose of determining compliance with the requirements of paragraphs (A) and (B) of clause (3), a trust constituted before October 31, 1994, may have more than one income beneficiary of the trust, provided that all income beneficiaries of the trust are beneficiaries thereof as of October 31, 1994.
(B) Compliance with the requirement of § 30581(c)(1)(A) of this title.— For purposes of determining compliance with the requirement of § 30581(c)(1)(A) of this title, each income beneficiary of a trust described in paragraph (A) shall be treated as a stockholder.
History —Jan. 31, 2011, No. 1, § 1115.01, retroactive to Jan. 1, 2011; Dec. 10, 2011, No. 232, § 121.