![]() ![]() If the taxpayer maintains an office or other fixed place of business in the Unites States to which the capital gains are attributable, the capital gains are U.S. What is the source of my capital gain income?Ĭapital gains of a bona fide resident of Puerto Rico are generally Puerto Rico source – with two prominent exceptions. The bottom line is that the rules are complicated and it is important to evaluate each item of income to understand if it is Puerto Rico source. citizen who is a bona fide resident of Puerto Rico is not a non-resident alien and arguably should not be treated as one under these mirror rules. Note that many provisions of the Code that are relevant to determining the source of income refer to a “non-resident alien.” A U.S. Generally, it is sufficient to substitute “Puerto Rico” for the “United States” and to substitute “ bona fide resident of Puerto Rico” for “United States resident” when reading and applying the normal source rules. To determine what is Puerto Rico source income, one must apply rules similar to those for determining whether income is from sources within the United States or is effectively connected with the conduct of a trade or business within the United States. tax law defines what is not Puerto Rico source income: income treated as income from sources within the United States or as effectively connected with the conduct of a trade or business within the United States. Thus, obtaining the benefits of being a bona fide resident of Puerto Rico is dependent upon demonstrating that items of income are Puerto Rico source. In addition, new residents who obtain an “export services” decree (under Act 20, now Act 60) pay just a four percent rate on certain Puerto Rico source personal services income. income tax rules that exempt certain income of Puerto Rican residents (sections 933 and 937 ) and Puerto Rico’s tax incentives for new residents (Act 22, now Act 60), these new residents can pay a zero percent rate on Puerto Rico source capital gains. This alert, the third and final in a series on how to defend these IRS “Campaign Audits,” explains how to anticipate and defend against challenges that may arise with respect to Puerto Rico source income earned directly by a bona fide resident of Puerto Rico or by a Puerto Rico corporation owned by such a bona fide resident.ĭue to the interplay between U.S. citizens who had recently moved to Puerto Rico and obtained an Act 22 decree. ![]() In January 2021, the IRS launched a “campaign” focused on auditing U.S. ![]()
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