![]() ![]() If the IRS is telling bona fide residents of Puerto Rico that they don’t have to file or report Puerto Rico-source income, what more is there to say? tax return reporting income from worldwide sources, but excluding Puerto Rico source income.” We note that the instructions for bona fide residents of the US Virgin Islands are substantially identical to those quoted for bona fide residents of Puerto Rico.īoth sets of instructions issued by the IRS unequivocally state that a bona fide resident of Puerto Rico need not report Puerto Rico-source income on a US federal income tax return. tax return.” Publication 570 goes on to state that if a bona fide resident of Puerto Rico has other income, (s)he must file a “U.S. 3 IRS Publication 570 specifically states, “If all of your income is from Puerto Rico sources, you are not required to file a U.S. If substantially all of the income earned by a bona fide resident of Puerto Rico is Puerto Rico-source income, the individual may not have sufficient US taxable income to trigger the requirement to file a US federal income tax return. In addition, an Act 60 decree allows a taxpayer to be subject to a 4% Puerto Rico tax (rather than the regular 31% Puerto Rico income tax), if they earn business income that constitutes export service income. However, certain types of income-such as dividends, interest, capital gains and swap income-are exempt from Puerto Rico income taxes if the taxpayer has obtained a Puerto Rico Act 60 decree. 2 This exemption would not be of much interest if the income exempted from US federal income tax was subject to net Puerto Rico income tax. In general, bona fide residents of Puerto Rico are not subject to US federal income tax on items of Puerto Rico-source income. Specifically, the reporting of such items should preclude an Internal Revenue Service (“IRS”) assertion that an extended or no statute of limitations applies to such items. Certain recent developments support the conclusion that such individuals will likely derive a substantial benefit from showing such items on a US federal income tax return. With all due deference to the Bard, one perennial choice that bona fide residents of Puerto Rico 1 face each tax filing season is whether to show items of Puerto Rico-source income not subject to federal income tax on their US tax returns, or-if they don’t otherwise have an obligation to file US returns-whether to file anyway and show the Puerto Rico-source income items.
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