income tax return of taxable corporations and...

2003

1

COMMONWEALTH OF PUERTO RICODEPARTMENT OF THE TREASURY

PO BOX 9022501 SAN JUAN PR 00902-2501

INCOME TAX RETURNOF TAXABLE CORPORATIONS

AND PARTNERSHIPS

MESSAGE FROM THE SECRETARY OF THE TREASURY

Dear Taxpayer:

Through this booklet you can learn about the applicable law provisions to file your 2003Income Tax Return.

I invite you to carefully read the information described herein and find out about anyamendment to the provisions of the Puerto Rico Internal Revenue Code of 1994. To requestadditional information or if you have any doubt regarding our services, you can contact theDepartment of the Treasury's personnel at (787) 721-2020, extension 3611 or toll free at1-800-981-9236. Also, you can access our page in the Internet, www.hacienda.gobierno.pr.

Juan A. Flores Galarza

Approved by the State Elections Commission

2003

2

TABLE OF CONTENT

Relevant Facts .....................................................................................................................................

Taxpayer’s Bill of Rights ....................................................................................................................

Instructions to Complete the Corporation and Partnership Income Tax Return .......................................

Instructions to Complete the Schedules:

Schedule A Corporation and Partnership - Alternative Minimum Tax .........................................

Schedule B Corporation and Partnership - Recapture of InvestmentCredit Claimed in Excess, Tax Credits, and Other Payments and Withholdings ............................................................................................................................

Schedule B1 Corporation and Partnership - Credit for Purchase of Products Manufactured inPuerto Rico and Puerto Rican Agricultural Products .................................................................

Schedule C Corporation and Partnership - Credit for Taxes Paid to the UnitedStates, its Possessions and Foreign Countries ............................................................................

Schedule D Corporation and Partnership - Gains and Losses from Sale orExchange of Property ...............................................................................................................

Schedule E - Depreciation .........................................................................................................

Schedule R - Special Partnership ...............................................................................................

Schedule S Corporation and Partnership - Farming Business .......................................................

Schedule T Corporation and Partnership - Addition to the Tax for Failure to Pay Estimated Taxin Case of Corporations and Partnerships ..................................................................................

Form 480-E- Estimated Tax Declaration ...........................................................................................

Industrial Codes List .........................................................................................................................

Page

3

6

7

15

17

20

22

22

26

26

28

28

30

32

2003

3

NEW TAX BENEFITS

A tax credit is granted for contributions made to theSanta Catalina’s Palace Patronage equal to 50% ofthe contribution made during the taxable year.

· Corporations and partnerships are included withinthe taxpayers eligible for the special tax rate withrespect to eligible interest earned on bonds, notesor other debts issued by certain corporations andpartnerships, from mortgages over residentialproperty located in Puerto Rico. Also, such specialtax rate is reduced from 17% to 10%.

SIGNIFICANT CHANGES ON THE RETURN

Heading

Use the industrial codes table included on page 32 of thisbooklet in order to indicate the industrial codecorresponding to your business.

Part III

Line 19 is included to indicate the tax on eligible interestwhen the election to pay the 10% special tax is exercised.

Schedule B Corporation and Partnership

Part II, line 13, provides to claim the new tax credit forcontributions to the Santa Catalina’s Palace Patronage.

Part III, line 7, provides to claim the special tax withheldat source on eligible interest.

Also, a new Part IV is provided to breakdown the total ofcredit claimed for the purchase of tax credits indicated inPart II, line 7 of this Schedule.

Schedule B1 Corporation and Partnership

Part V, line 5, provides to indicate the tax on eligible interest.

AREA CODE

You must indicate the area code (787 or 939) in theparenthesis located in the spaces provided in the headingof the return to write the phone number.

RETURNED CHECKS FOR INSUFFICIENT FUNDS

Every check drawn on behalf of the Secretary of theTreasury that is returned because of non sufficient funds,will be subject to a $20.00 charge that will be debited fromyour bank account. This charge is in addition to any otherinterest, surcharges or penalties provided by the Code orany other fiscal law, for ommissions in fulfilling your taxresponsibility.

RELEVANT FACTS

FINANCIAL STATEMENTS REQUIREMENT

If the entity has a business volume from taxable operationsof more than $1 million, financial statements reporting theoperations of the taxable year must be included with thereturn.

The financial statement must include a balance sheet, anincome statement and a statement of cash flows. Thesestatements should be submitted with an Audit Reportissued by a certified public accountant (CPA) licensed inPuerto Rico.

It is not acceptable a report that includes consolidatedfinancial statements, in which the operations in PuertoRico are presented as supplementary information. Also,compiled or reviewed statements are not acceptable. Theymust be audited.

SIGNATURE OF THE RETURN BY THESPECIALISTS

If you pay for the preparation of the return, make surethat the return is signed by the specialist and that theregistration number and the employer's identificationnumber of the specialist is included. The Puerto RicoInternal Revenue Code of 1994, as amended (Code),provides civil and criminal sanctions to those Specialistswho fail to submit this information.

The Tax Return Specialist must declare under penalty ofperjury that he/she examined the return and to the best ofhis/her knowledge and belief, the return is correct andcomplete.

If the return is prepared by an accounting firm dulyregistered as a Tax Return Specialist, it must include theemployer's identification number, the registration numberand be signed by the authorized person.

CONTRACTS WITH GOVERNMENTAL ENTITIES

Every person, natural or juridical, contracted by agovernmental entity, must comply with the Executive Order91-24, as amended, and the provisions of the CircularLetters in force at the time of processing the contracts.According to said provisions, every contract subscribedby a governmental entity must include a clause to certifythat the contracted party filed the income tax returns forthe last five years, and that the income, property,unemployment, temporary disability and drivers socialsecurity taxes have been paid.

In addition, in order to approve a contract or purchaseorder, the governmental entity must require the tax returnfiling (Form SC 6088) and debt (Form SC 6096)certifications from the Internal Revenue Area of this

�

�

2003

4

CaguasGoyco Street, Acosta Corner1st Floor Governmental Building Office 110Telephone: (787)258-5255 or (787)745-0666

MayagüezGovernmental Center#50 Nenadich Street Office 102Telephone: (787)265-5200

PonceEurobank Building#26 Hostos Ave.Telephone: (787)844-8800

TECHNICAL ASSISTANCE

For additional information on the technical content ofthis pamphlet or to clarify any doubt, please call (787)721-2020 extension 3611 or 1-800-981-9236.

HACIENDA MAKING CONNECTION

The Department of the Treasury has a site on theINTERNET. Here you can access information about thefollowing services, among others:

Electronic transfer for Individual Tax Returns

Program for the preparation of the IndividualIncome Tax Return 2003

Income Tax Return of Taxable Corporationsand Partnerships

Puerto Rico Internal Revenue Code of 1994, asamended (Spanish only)

Form SC 2898 - Change of Address

Form AS 4809 - Information of Identification Number- Organizations (Employers)

Modelo SC 2800 - Planilla de Contribución sobreCaudal Relicto (Spanish only)

Modelo SC 2800A - Planilla Corta de Contribuciónsobre Caudal Relicto (Spanish only)

Modelo SC 2788 - Planilla de Contribución sobreDonaciones (Spanish only)

Informative Booklet to Provide Orientation aboutyour Income Tax Return (Spanish and English)

Informative Booklet to Provide Orientation on theIncome Tax Responsibilities of Federal, Military andOther Employees

Department, the property tax certification from the CRIMand the corresponding certification from the Departmentof Labor and Human Resources. These documents mustbe requested annually.

In order to expedite the process of issuing thecertifications, every person who has filed income taxreturns for the last 5 years and who does not have taxdebts, or if having debts, has formalized a payment plan,will receive the Tax Return Filing and Debt Certificationautomatically by mail (Form SC 2628). For this purpose, itis necessary that if the corporation is contracted by agovernmental entity, indicate so in the heading of thereturn, page 1.

Sometimes a certification can not be issued in connectionwith the last taxable year since such return may have notbeen already processed. Because of this possibility, it isrecommended to personally file the original return alongwith a copy, in order to receive back said copy sealedwith the Department’s receipt stamp. This service will beoffered at the Department of the Treasury, IntendenteRamírez Building in Old San Juan, at the District Offices,at the Internal Revenue Collections Offices, and at theTax Orientation Centers.

COUPONS BOOKLET FOR THE PAYMENT OFESTIMATED TAX (FORM 480.E-2)

The four installments of estimated tax corresponding tothe 2004 calendar year or to the 2004 - 2005 taxable period,will be made with the booklet revised on 08.03. Paymentsmade with coupons revised previous to said date couldhave problems in their application.

TAXPAYER'S SERVICE FACILITIES

In the Taxpayer's Service Offices, besides informing aboutthe status of your refund, other services are offered: TaxReturn Filing Certifications, Return's Copies, Inheritance andDonations Cases, Individuals, Corporations, Partnerships,Professional Services Waivers and COLA Certificates.

Following is the address and telephone number of our offices:

San JuanIntendente Ramírez Building10 Paseo Covadonga Office 211Telephone: (787)721-2020 extension 3610or 1-800-981-7666

BayamónRoad #22nd Floor Gutiérrez BuildingTelephone: (787)778-4949, (787)778-4973 or(787)778-4974

�

�

�

�

�

�

�

�

�

�

�

�

�

�

�

�

2003

5

Informative Booklet Regarding the Withholding ofIncome Tax at Source in Case of ProfessionalServices (Spanish and English)

Folleto Informativo Contribución sobre Ingresosde Sacerdotes o Ministros (Spanish only)

Folleto Informativo para Aclarar sus Dudas sobreAspectos Contributivos en la Venta de CiertasPropiedades (Spanish only)

Publication 01-03 (Application of Special Ratesin the Case of Sale of Capital Assets - Schedule DIndividual)

Employer's Quarterly Return of Income Tax Withheld(Spanish and English)

Withholding of Income Tax at Sources on Wages(Spanish and English)

You can access at: www.hacienda.gobierno.pr.Also, you can let us know your opinion through ourE-MAIL at: [email protected].

�

�

�

�

�

�

2003

6

The Taxpayer’s Bill of Rights grants the following rightsunder the Code:

To receive a proper, considerate and impartial treatment.

Confidentiality of the information submitted.

All interviews must be at a reasonable time and placefor the taxpayer, in coordination with the employees ofthe Department of the Treasury (Department).

The interview or audit must not be used to harass orintimidate in any manner the person interviewed.

To receive an explanation of the process to which thetaxpayer will be exposed and subject, and the rights thatassist him.

Be assisted by an attorney, accountant, certified publicaccountant, or any other authorized person, at any momentduring the interview.

Be informed prior to the interview, of the intention to tapethe interview, and to be able to obtain an exact copy ofsuch recording prior to the payment of the cost thereof.

Be informed of the nature of your tax liability.

Be advised of your right against self-incrimination, toremain silent and that your silence should not be taken orcommented against you, in case of a possible exposureto a criminal action.

Consult and be advised by an attorney, accountant,certified public accountant, or authorized agent torepresent you within the Department, or to be able tofinish the interview even when it had commenced.

Be notified in writing of any adjustment made by theDepartment as a result of a tax audit when it involves theaddition of interest, penalties and surcharges, as providedby the Code, as well as the exact amount of the adjustmentand the reasons for such changes.

TAXPAYER’S BILL OF RIGHTS

Waive the rights described in the preceding paragraphs,if such waiver is made knowingly and voluntarily.

Grant a written power to authorize any person to representyou during a tax interview or process. Such person shallreceive, for purposes of the interview, equal treatment asyou, unless you are notified that such person isresponsible for an unreasonable delay or interference withthe audit.

Not to be discriminated because of race, color, sex, birth,origin or social condition, or political, religious ideas orassociation of any taxpayer or his representative. Norecords will be kept containing tax information for thesepurposes.

The Department’s employees will explain and protect yourrights during all phases of the process. If you believethat your rights have been violated, you should discussthis matter with the supervisor of the employee. If you donot agree with the action taken by the supervisor, youmay file a complaint with the Office for the Protection ofTaxpayer's Rights.

OFFICE FOR THE PROTECTION OF TAXPAYER'SRIGHTS

The Office for the Protection of Taxpayer's Rights(Ombudsman of the Taxpayer) was created to assure thecompliance of the provisions of the Taxpayer’s Bill ofRights. Said office is located at the Department of theTreasury in Old San Juan, Office 315. For assistance,please call (787)977-6622, (787)977-6638, or (787)721-2020, extensions 3303, 3304 and 3305.

The Ombudsman of the Taxpayer is responsible forattending to the problems and claims of the taxpayersand to facilitate the process between the taxpayers andthe Department of the Treasury. Also, the Ombudsman ofthe Taxpayer has authority to prevent or correct anyinfringement by any employee of the Department of therights of the taxpayer.

For additional information, you can request the booklet:“Carta de Derechos del Contribuyente”.

2003

7

Returns with Refund:DEPARTMENT OF THE TREASURYPO BOX 50072SAN JUAN PR 00902-6272

Returns with Payment and Others:DEPARTMENT OF THE TREASURYPO BOX 9022501SAN JUAN PR 00902-2501

It may also be delivered to the Internal RevenueCollections Office of your municipality, the District Officesof the Department or the Tax Orientation Centers.

AUTOMATIC EXTENSION OF TIME TO FILE THERETURN

A 90 days automatic extension of time to file the return willbe granted if it is requested not later than the due date to filethe return. This will be done using Form AS 2644.

In case of corporations under the provisions of Section936 of the Federal Internal Revenue Code, the extensionof time will be up to the fifteenth day of the ninth monthfollowing the end of the taxable year (five months afterthe prescribed date to file the return).

Every corporation or partnership must pay with the requestfor an automatic extension of time, the entire amount oftax determined.

An extension of time to file the return does not extendthe time for the payment of tax or any installment of thesame.

SCHEDULES TO COMPLETE THE CORPORATIONAND PARTNERSHIP INCOME TAX RETURNS

The following schedules are used, when it is necessary,to file the income tax return of corporations andpartnerships.

Alternative Minimum Tax

Recapture of InvestmentCredit Claimed in Excess,Tax Credits, and OtherPayments and Withholdings

Credit for Purchases ofProducts Manufactured inPuerto Rico and PuertoRican Agricultural Products

INSTRUCTIONS TO COMPLETE THE CORPORATIONAND PARTNERSHIP INCOME TAX RETURN

(a)

(b)

WHO MUST FILE THIS RETURN?

In general, every domestic or foreign corporation orpartnership engaged in trade or business in Puerto Ricomust file this return.

The following entities are not required to file this return: (1)entities covered by the Incentives Acts or TourismDevelopment Act; (2) entities with partially exempt incomeunder the Puerto Rico Agricultural Tax Incentives Act, asamended, or under any other special acts; (3) entities withpartially exempt income under the Tax Incentives Act toHospital Facilities; (4) entities which have earned incomefrom Film Projects or Infrastructure Projects; (5) non-profitorganizations with a tax exemption grant issued by theDepartment of the Treasury which has not been rejected;(6) foreign or domestic life insurance companies; (7)corporations of individuals; (8) special partnerships; or (9)employees-owned special corporations and ordinary andextraordinary members. Nevertheless, these entities mustfile a return designed by the Department of the Treasury, inaccordance to the laws under which they operate.

The term corporation includes limited companies, jointstock companies, limited liability joint stock companies,private corporations, insurance companies, and any otherassociations that receive income or taxable profits.

The term partnership includes general or limited, civilbusiness, industrial, agricultural and professionalpartnerships or of any other kind, whether or not itsconstitution is set forth by public deed or privatedocument. It shall include, furthermore, two or morepersons, under a common name or not, engaged in a jointventure for profit, except as provided with regard tospecial partnerships.

WHEN AND WHERE IT MUST BE FILED?

The income tax return of domestic or foreign corporationsand partnerships engaged in trade or business in PuertoRico, must be filed on or before the fifteenth day of thefourth month following the end of the taxable year. In caseof a foreign corporation or partnership not having anyoffice or place of business in Puerto Rico, the return mustbe filed on or before the fifteenth day of the sixth monthfollowing the end of the taxable year.

The return must be filed in the Department of the Treasury,Returns Processing Bureau, located at 10 PaseoCovadonga, Intendente Ramírez Building in Old San Juan,or mailed to:

Schedule A Corp. and Part.

Schedule B Corp. and Part.

Schedule B1 Corp. and Part.

-

-

-

2003

8

Credit for Taxes Paid to theUnited States, itsPossessions and ForeignCountries

Gains or Losses from Sale orExchange of Property

Depreciation

Credit for Investment,Losses and Amount toCarryover

Investment Funds-Determination of AdjustedBasis, Capital Gain, TaxableIncome and Special Tax

Special Partnership

Farming Business

Addition to the Tax for Failureto Pay Estimated Tax in Case ofCorporations and Partnerships

Foreign Corporations andPartnerships Tax onDividend EquivalentAmount and EffectivelyConnected Interest (BranchProfits Tax)

The schedules and their instructions are available in theDepartment of the Treasury, 10 Paseo Covadonga,Intendente Ramírez Building, Old San Juan, Office 603. Tocontact said office, please call (787)721-2020 extension2645 or 2646.

HEADING OF THE RETURN

If the taxable year of the corporation or partnership is acalendar year, there is no need to enter the dates on whichthe taxable year begins and ends. You must only enter thecorresponding year. If it is a fiscal year, you must enter thedates in the spaces provided in the return.

NAME, EMPLOYER'S IDENTIFICATION NUMBERAND ADDRESS

Enter the name and the registry number of the corporationin the space indicated in the return, as it appears in theDepartment of State records. In case of a partnership,enter its legal name.

Also, enter the employer's identification number in thespace indicated. The employer's identification numberis required to process the return.

If the corporation or partnership does not have anassigned employer's identification number, you mustrequest it from the Federal Internal Revenue Service andnotify it to the Department of the Treasury using FormAS 4809.

Enter the complete address where the business orprincipal office is located, and its telephone number.

Inform the type of industry or business (principal businessactivity). For example, if your principal activity isconstruction of furniture, enter furniture manufacturing,if it is retail sale of furniture, enter furniture retail trade.Use the industrial codes list provided on page 32, in orderto facilitate the description of the commercial activityand enter the corresponding industrial code.

Check the applicable box if it is the first or last return youare filing.

If the corporation or partnership informs a change ofaddress at the moment of filing the return, check theapplicable box. Do not use the label and write the newaddress clearly and legible in the return. On the otherhand, if the change of address is made at any othermoment during the year, you must use Form SC 2898(Change of Address). The same is available at the Formsand Publications Division, Office 603, of theDepartament of the Treasury in Old San Juan, or youmay request it calling (787) 721-2020 exts. 2645 and2646. Also you may obtain it through our Internet siteat www.hacienda.gobierno.pr.

PART I - NET INCOME

Line 2 - Net operating loss deduction from precedingyear

Enter the carryover balance of any net operating lossfrom the preceding year. Submit with the return a schedulewith the determination of the loss to be deducted in thecurrent taxable year and the origination and expiration datesof the loss.

PART II - CREDITS

Line 4 - Dividends or profits received from domesticcorporations or partnerships

Enter 85% of the amount received as dividends or profitsfrom a domestic corporation or partnership taxable underthe Code, but limited to 85% of the net income of thecorporation or partnership.

If the dividend received is from industrial developmentincome derived from operations covered by the provisionsof Act No. 57 of June 13, 1963, as amended, the credit will

Schedule C Corp. and Part.

Schedule D Corp. and Part.

Schedule E

Schedule Q

Schedule Q1

Schedule R

Schedule S Corp. and Part.

Schedule T Corp. and Part.

Form AS 2879

-

-

-

-

-

-

-

-

-

2003

9

be 82.70% of the amount received, but limited to 82.70%of the net taxable income.

The credit of 82.70% does not apply to dividends orprofits distributions derived from operations coveredunder Act No. 78 of September 10, 1993, as amended, orAct No. 8 of January 24, 1987, as amended. Nevertheless,if the corporation or partnership receives dividends orbenefits from a domestic corporation or partnership, itmay use the 85% credit mentioned in the first paragraphof this part.

However, the Code provides the following exceptions:

In the case of a small business investment companyoperating in Puerto Rico under the Small BusinessAct of 1958, there shall be allowed as a credit anamount equal to 100% of the total amount receivedas dividends or profits from a domestic corporationor partnership taxable under the Code.

Subject to certain requirements imposed by theCode, a credit of 100% is allowed against the netincome from the total amount received as dividendsby corporations organized under the laws of anystate of the United States or the Commonwealth ofPuerto Rico, that may be the principal derived fromindustrial development income accrued duringtaxable years beginning prior to January 1, 1993and invested in obligations of the Commonwealthof Puerto Rico, its instrumentalities or politicalsubdivisions, or invested in mortgages secured bythe Puerto Rico Housing Bank and Finance Agencyor in loans or other securities guaranteed bymortgages granted under any general characterpension or retirement system established by theLegislative Assembly of Puerto Rico, themunicipalities and the agencies, entities or publiccorporations of the Commonwealth of Puerto Rico.

There shall be granted a 100% credit against the netincome from the total amount received as dividendsby corporations organized under the laws of any stateof the United States or the Commonwealth of PuertoRico, that may be the principal derived from industrialdevelopment income accrued during taxable yearsbeginning prior to January 1, 1993 and invested inobligations of the Governmental Development Bankfor Puerto Rico or any of its subsidiary corporations,for the financing through the purchase of mortgages,or the construction, purchase or housingimprovements in Puerto Rico made after December31, 1984.

A 100% credit will be granted against the net incomefrom the total amount received as dividends or profitsfrom a domestic controlled corporation or partnership.

1)

2)

3)

4)

Line 6 - Surtax net income credit

Enter $25,000, except in case the corporation orpartnership belongs to a controlled group of corporationsor partnerships which are 80% or more owned, directly orindirectly, by the same person or persons. In those cases,the allowed credit will be only $25,000 for the entire groupof corporations or partnerships.

If a corporation or partnership is a component member of acontrolled group of corporations or partnerships byDecember 31, the credit allowed to such corporation orpartnership for the taxable year that includes such December31, shall be an amount equal to $25,000 distributed amongthe corporations or partnerships that are componentmembers of the group.

If a corporation or partnership has a taxable year of lessthan twelve months that does not include December 31,and is a component member of a controlled group ofcorporations or partnerships with respect to such taxableyear, the allowable credit for that taxable year will be$25,000 distributed among the number of corporations orpartnerships that are component members of the groupas of the last day of said taxable year.

In case of a controlled group of corporations orpartnerships, it is necessary to include with the returnof each member a schedule detailing the apportionmentplan, the name of each one of the corporations orpartnerships that are members of the group, theemployer's identification number and the signature ofthe person or persons responsible for preparing it.

PART III - COMPUTATION OF TAX

Line 9 - Surtax

Multiply line 7 by the applicable tax rate according to thefollowing table, and enter the result.

Surtax Computation Table for taxable years beginningafter June 30, 1995.

If the net income subject tosurtax is:

Not over $75,000

Over $75,000 but not over$125,000


The tax shall be:

5%

$3,750 plus 15% ofthe excess over$75,000


2003

10



Over $275,000

Line 10 - Amount of recapture

If the net income subject to normal tax exceeds $500,000,a 5% tax will be imposed, collected and paid over theexcess. However, the total tax determined shall not exceed39%.

Line 12 - Alternative Tax - Capital Gains

Enter the amount determined on Schedule D Corporationand Partnership, Part VII, line 46.

If the net long term capital gains exceed the net shortterm capital losses, the corporation or partnership mayelect to pay an alternative tax. The alternative tax isdetermined by applying the normal tax rate to the netincome without including the net long term capital gains,plus 12.5% (applicable to property located in Puerto Rico),25% (applicable to other properties) or 7% (applicable tostocks or shares from an eligible corporation orpartnership) over such gains.

Compute the alternative tax using Schedule DCorporation and Partnership - Gains and Losses fromSale or Exchange of Property. Include said schedule withyour return.

Line 17 - Alternative minimum tax

Enter the excess of tentative minimum tax over adjustedregular tax from Schedule A Corporation and Partnership,Part V, line 33.

Every corporation or partnership (except those notengaged in trade or business in Puerto Rico) will besubject, in addition to any other tax imposed by the Code,to a tax equal to the excess, if any, of:

the tentative minimum tax for the taxable year,over

the adjusted regular tax for the taxable year.

The Tentative Minimum Tax for the taxable year will be22% of the amount by which the Alternative MinimumNet Income for the taxable year exceeds the Exempt

1)

2)

Amount. The Tentative Minimum Tax will be reduced bythe Alternative Minimum Credit for taxes paid to a foreigncountry.

To compute the excess of the alternative minimum taxover the adjusted regular tax, you must complete ScheduleA Corporation and Partnership and include it with yourreturn.

Line 18 - Branch profits tax

In addition to any other tax imposed by the Code, thoseforeign corporations and partnerships engaged in trade orbusiness in Puerto Rico that operate as branches, are subjectto a 10% tax of the amount equivalent to the dividend orprofit distribution for the taxable year.

This provision shall not be applicable to any taxable year inwhich the foreign corporations or partnerships engaged in atrade or business in Puerto Rico derived at least 80% of itsgross income from sources within Puerto Rico or from incomeeffectively connected or treated as effectively connected tooperations from a trade or business in Puerto Rico, duringthe 3 taxable years period ended at the closing of said taxableyear.

The corporations and partnerships subject to said additionaltax, must complete Form AS 2879 Branch Profits Tax, andinclude it with their return.

Line 19 - Tax on eligible interest

Enter the tax determined on eligible interest only if youelected to pay the special tax rate of 10%.

Any corporation or partnership may elect to pay the specialtax rate of 10% on the total eligible interest earned on debtissued by corporations and partnerships engaged inindustry or business in Puerto Rico from new mortgagesover residential property located in Puerto Rico. On theother hand, if you elect to include such interest as part ofyour gross income and pay the tax determined accordingto the normal tax rates, do not complete this line and includethe total of such interest in Part IV, line 12 of the return.

The term eligible interest means any interest over bonds,notes or other debts issued by a corporation or partnershipengaged in a trade or business in Puerto Rico, providedthat the proceeds from these debts are invested only inthe industry or business in Puerto Rico of said corporationor partnership within a period of 24 months or less fromthe issuance date of said debts.

Also, interest from mortgage loans over residentialproperty located in Puerto Rico which mortgages aregranted after July 31, 1997, insured or guaranteed by theprovisions of the National Housing Act of June 27, 1934,as amended, or by the provisions of the Servicemen’s




2003

11

Readjustment Act of 1944, will qualify for theaforementioned special tax rate of 10%.

Line 21 - Addition to the Tax for Failure to Pay EstimatedTax

Enter the addition to the tax for failure to pay the minimunestimated tax required, previously determined on ScheduleT Corporation and Partnership. (See instructions tocomplete the Schedules).

Line 23 - Balance of tax due

Enter the difference between the sum of lines 20 and 21,and line 22.

If line 22 is larger than the sum of lines 20 and 21, youmay elect to apply all or part of the tax paid in excess toyour estimated tax for the following year or claim it as arefund. In order to do that, you must indicate so on line25A or 25B of the return.

INTEREST, SURCHARGES AND PENALTIES

Interest

The Code provides for the assessment of interest at a10% annual rate over any tax balance not paid by its duedate.

Surcharges

In case that imposition of interest is applicable, asurcharge of 5% of the amount due will be assessed, ifthe delay in paying exceeds 30 days, but not over 60days; or 10% of the amount due, if the delay exceeds 60days.

Penalties

The Code imposes a progressive penalty from 5% to25% of the total tax for late filing unless you can showreasonable cause for the delay.

Any person required under the Code to file a return ordeclaration, and who voluntarily fails to file such return ordeclaration within the term or terms required by the Code orregulations, in addition to other penalties, shall be guilty ofa misdemeanor and punished by a fine of not more than $500or imprisonment for a term of not more than 6 months, orboth penalties, plus the costs of prosecution.

If any person voluntarily fails to file the above mentionedreturn or declaration (within the terms required by theCode or regulations) with the intention to avoid or defeatany tax imposed by the Code, in addition to otherpenalties, shall be guilty of a felony and punished by afine of not more than $20,000 or imprisonment for a

fixed term of 3 years. If there were aggravatingcircumstances, the established fixed jail penalty may beincreased to a maximum of 5 years; if there wereextenuating circumstances, it may be reduced to amaximum of 2 years, or both penalties, at the discretionof the Court, plus the costs of prosecution.

Line 24 - Amount paid with this return

Make the check or money order payable to the Secretaryof the Treasury. Indicate the employer's identificationnumber and Form 480.20 or 480.10, as applicable, onthe check or money order.

If you decide to pay in cash, you can do it at any of ourInternal Revenue Collections Offices. Make sure toobtain an official receipt from the Collector at the time ofpayment.

If you filed the return after the filing due date or yourequested an extension of time but did not pay the totalamount due, you must compute the applicable interestand surcharges, from the filing due date to the date onwhich the return was filed.

PART IV - GROSS PROFIT ON SALES,MANUFACTURE AND OTHER INCOME

Enter manufacturing and sales costs, as well as the grossprofit from sales. Check the applicable box to indicateyour inventory appraisal method at the beginning andend of the year.

Itemize in Part VI of the return the other direct costs shown online 5. Note that the flexible depreciation of assets used inmanufacture will be included as other direct costs in Part IV,line 5 and Part VI, line 10. The flexible depreciation of assetsother than the ones used in manufacturing, must be entered inPart V, line 39.

Enter on line 12 the eligible interest that you elected to paytaxes at the regular tax rates, among others.

Enter on line 15 the gains from distributable share on thenet income from special partnerships.

Enter on line 16 the distributable share on the net lossfrom special partnerships. To claim this loss, Schedule R- Special Partnership must be completed and includedwith the return.

The losses of a partner in one or more special partnershipsare allowable as a reduction against other income, butonly up to the amount of the adjusted basis of the partner’sinterest in the corresponding partnership and limited to50% of the taxpayer’s net taxable income, determinedwithout taking into consideration such loss.

2003

12

The adjusted basis limitation will be computed for eachSpecial Partnership in which you invested.

If the deduction allowed to the partner for any taxableyear is less than the distributable share on the partnership'snet loss, the partner may claim such excess as a deductionin any following taxable year, subject to the lowest of thelimitations previously mentioned.

Enter on line 17 the amount determined on Schedule SCorporation and Partnership- Farming Business. In casethat the agricultural activity is not the principal source ofincome, any loss incurred may only be carried againstany income derived from the agricultural activity.

PART V - DEDUCTIONS AND NET OPERATINGINCOME (OR LOSS)

Enter the deductions related to your operations on lines21 through 47. Following we provide information aboutsome of those deductions.

Line 21 - Compensation to officers or partners

Enter the compensation paid or accrued to all officers orpartners of the corporation or partnership and detail inPart X of the return.

Line 29 - Interest

Enter the interest paid or accrued during the year. Incase of a financial institution, no deduction shall beallowed for that portion of exempt interest expensesattributable to exempt obligations acquired afterDecember 31, 1987.

Line 32 - Other taxes, patents and licenses

Submit a schedule of the excise taxes, licenses or othertaxes paid.

Line 35 - Meal and entertainment expenses

You may deduct 50% of the expenses actually paid orincurred, up to a limit of 25% of the gross income for thetaxable year, for meal and entertainment expenses directlyrelated with your trade or business or with the production ofincome. You cannot include as part of such expenses, theitems that do not constitute ordinary and necessary expensesof your trade or business.

No deductions shall be allowed for meal and entertainmentexpenses considered extravagant or sumptuous.

Line 38 - Contributions to pension or other qualifiedplans

Enter the contributed amount to pension, profit sharing

or other qualified plans approved by the Secretary of theTreasury. This deduction is subject to certain limitations.

To claim this deduction, you must submit with the returncertain information required by the regulations under theCode.

Line 39 - Flexible depreciation

Enter the amount of flexible depreciation you are entitled,and submit copy of the authorization for the flexibledepreciation option.

The detail of the flexible depreciation will be included inPart (b) of Schedule E - Depreciation.

Line 40 - Accelerated depreciation

In order to be entitled to this deduction, an election touse the Accelerated Depreciation Method must beexercised with the return. Said election may be exercisedonly with respect to property acquired during taxableyears beginning after June 30, 1995. Once the option isexercised, it is irrevocable.

This depreciation method does not apply to automobiles,property used outside Puerto Rico, property used by exemptentities and property used totally or partially in activitiesunder the Industrial Incentives Acts, Tax Incentives Act andTourism Incentives Act, Tourism Development Act,Agricultural Tax Incentives Act, or any other act of similarnature or to intangible property.

The detail of accelerated depreciation shall be included inPart (c) of Schedule E - Depreciation.

Line 41 - Current depreciation and amortization

Submit a detail of the current depreciation, improvementdepreciation and amortization in Parts (a), (d) and (e),respectively, of Schedule E - Depreciation.

The maximum basis to depreciate an automobile acquiredand used in a trade or business or for the production ofincome, is $25,000. This rule applies also to financial leases.

In case of an ordinary lease, the amount of the rent paidduring the taxable year, excluding financial charges, shallbe considered as current depreciation.

For depreciation purposes, the useful life of an automobileused exclusively in selling activities is 3 years, and 5 yearsfor every other automobile.

The $25,000 basis limitation and useful life term do not applyto those automobiles acquired by corporations orpartnerships engaged in the leasing, or transportation ofpassengers or freight businesses.

2003

13

municipality. The total of said contributions is not subjectto the limitations provided by the Code.

Line 44 - Repairs

On this line, claim the expenses which constitute repairsand not improvements to the assets of the corporation orpartnership. Excessive repair expenses will be subject toinvestigation.

Line 45 - Deduction for employers who employhandicapped persons

Enter $400 for each severely handicapped personemployed for at least 20 hours per week during nine monthsof the taxable year. The deduction is allowed for a maximumof 5 severely handicapped persons. In force regulationsof the Vocational Rehabilitation Program of the Departmentof the Family will be used to determine the severelyhandicapped condition.

To claim this deduction, the following must be submittedwith the return:

a certification indicating that the handicapped personhas been employed at least during 9 months of thetaxable year for which the deduction is claimed, and

a certification issued by the Secretary of theDepartment of the Family stating that, in accordanceto its rules and procedures, the person for whom thededuction is claimed is a severely handicappedperson.

Line 46 - Contributions to educational contributionaccounts for the employees' beneficiaries

Enter the amount of contributions to educationalcontribution accounts for the employees' eligiblebeneficiaries up to the maximum amount of $500 for eachbeneficiary, as provided by law. Employer's contributionswill be considered as ordinary and necessary expenses ofthe industry or business, and can be deducted as such inthe year they are made. This contributions must be includedas part of the employee's income by the employer in theyear they are made, and can be claimed as a deduction bythe employee in the same year. The trust's constitutiveinstrument must state that the participants will be thoseindividuals that through a contract or application claimthe benefits provided by such trust.

For additional details, refer to Act No. 409 of October 4,2000.

Also, a deduction for goodwill amortization is granted, aslong as the goodwill is purchased from third parties duringtaxable years beginning after June 30, 1995. The deductionwill be determined using the straight-line method and anuseful life of 15 years.

Line 42 - Bad debts

Enter the accounts receivable that are considereduncollectible. For taxable years beginning after June 30, 1995,the corporations and partnerships will not be able to use thereserve method to compute the deduction for bad debts.Instead, they may claim a deduction only for the debts thatbecome uncollectible within the taxable year (direct write-off method).

Line 43 - Charitable contributions

A corporation or partnership may deduct an amountwhich does not exceed 5% of the net income computedwithout the benefit of this deduction, for contributionsmade to:

the Commonwealth of Puerto Rico, the United Statesor any state or territory, exclusively for publicpurposes;

a corporation, trust or community fund, or foundationcreated or organized in Puerto Rico or in the United Statesthat operates exclusively for religious, charitable,scientific, veteran rehabilitation services, literary oreducational purposes or for the prevention of cruelty tochildren, as long as no part of its earnings inures to thebenefit of any private shareholder or individual;

posts or organizations of war veterans or auxiliaryunits organized in Puerto Rico or in the United States.

Charitable contributions in excess of 5% may be carriedforward to the following 5 taxable years, in chronologicalorder, but the deduction in each one of said following 5taxable years shall not exceed 5% of the net incomedetermined without the benefit of said deduction.

In case that a charitable contribution is made to theEducational Foundation for Free Selection of Schools,you may claim on this line the excess of $500 not claimedas a credit against tax, subject to the limitations establishedby the Code.

The contributions made to a municipality that conductsan activity or event of cultural or historic value, as certifiedby the Institute of Puerto Rican Culture or the CulturalCenter from each municipality, or that makes possible therealization of any cultural or historic work, may be claimedas charitable contributions. The contributed amount shallbe $50,000 or more, and must be made in connection withthe celebration of the centennial foundation of the

1)

2)

�

�

�

2003

14

Line 47 - Other deductions

Every employer may claim annually as an operatingexpense of the industry or business, an amount equal toa month of salary for each employee to which you havegranted the right to nurse their babies or express theirmaternal milk during 30 minutes or two periods of 15minutes daily.

Every business or industry established or to be establishedin the “Península de Cantera” within the next five yearsbeginning from December 25, 2002, will be entitled to claiman additional deduction for salaries paid, equivalent to5% of the minimum applicable salary of each newemployment created within this period (Act No. 20 of July10, 1992, as amended).

Those expenses items for which Part V does not providespecific lines, will be totalized and entered as OtherDeductions. Submit with the return a schedule itemizingthose deductions.

No deductions will be allowed for expenses connected with theownership, use and maintenance of vessels, except for theexpenses of vessels engaged in commercial fishing, transportationor commercial tourism.

PART VI - OTHER DIRECT COSTS

Enter the Other Direct Costs. The total of these costsshould be entered on line 14 of this part and shall beequal to the amount in Part IV, line 5 of the return.

PART VII, VIII AND IX - COMPARATIVE BALANCESHEET, RECONCILIATION OF NET INCOME (ORLOSS) PER BOOKS WITH NET TAXABLE INCOME(OR LOSS) PER RETURN AND ANALYSIS OFRETAINED EARNINGS PER BOOKS ORRECONCILIATION OF DISTRIBUTABLE PROFITAMONG PARTNERS

These statements must be completed in all of its parts inorder for the return to be considered filed. Therefore,you cannot submit these statements in loose sheets. Anyreturn that do not comply with these requirements willbe returned.

The amount in Part VIII, line 10 (Reconciliation of netincome (or loss) per books with net taxable income (orloss) per return) must be the same amount as the one ofPart II, line 5 of this return.

PART X - COMPENSATION TO OFFICERS ORPARTNERS

Include in this part the compensation received by theofficers of the corporation or the partners of thepartnership from salaries or other allowances. Enter theamount claimed in Part V, line 21 of the return.

PART XI - QUESTIONNAIRE

Enter all the information required in the questionnaire inorder to process this return.

SIGNATURE AND OATH OF THE RETURN

The return must be signed and sworn before a notary bythe president, vice president or other principal officerand by the treasurer or assistant treasurer in case ofcorporations; and by the managing partner in case ofpartnerships.

INCOMPLETE RETURN

The return must be completed in all of its parts. All theinformation of the Income Statement, Balance Sheet,Reconciliation of Net Income (or Loss) per Books withNet Taxable Income (or Loss) per Return, and Analysisof Retained Earnings per Books or Reconciliation ofDistributable Profit Among Partners must be detailed.Returns that do not comply with this requirement willbe considered as not filed.

2003

15

INSTRUCTIONS TO COMPLETE THE SCHEDULES

SCHEDULE A CORPORATION ANDPARTNERSHIP - ALTERNATIVE MINIMUM TAX

WHAT IS THE ALTERNATIVE MINIMUM TAX?

The Alternative Minimum Tax is an additional tax whichis imposed when the net income, adjusted by certainpreferential items, exceeds the exempt amount of $50,000.The tax rate for this tax is 22% over said net income.

WHICH ENTITIES ARE SUBJECT TO THEALTERNATIVE MINIMUM TAX?

Every corporation or partnership engaged in trade or businessin Puerto Rico, including insurance companies. In addition, thisapplies to those corporations or partnerships operating underthe Puerto Rico Tax Incentives Act or under any other similaract, with respect to that portion of income derived from taxableoperations.

The following entities are not subject to the alternative minimumtax: (1) foreign corporations and partnerships not engaged intrade or business in Puerto Rico; (2) special partnerships; (3)registered investment companies taxable under the provisionsof Subchapter L of the Code; (4) corporations or partnershipsoperating under Act No. 8 of January 24, 1987 or under anyother similar act, but only on its income derived from its exemptoperations; (5) exempt real estate investment trusts; (6)corporations of individuals; (7) corporations and partnershipsunder the provisions of Tourism Acts; (8) bona fide farmers; (9)employees-owned special corporations and ordinary andextraordinary members.

Prepare and file this schedule with the income tax return,even though no amount may result subject to the impositionof the alternative minimum tax.

PART I - ADJUSTMENTS IN THE COMPUTATION OFTHE ALTERNATIVE MINIMUM NET INCOMEBEFORE BOOKS ADJUSTMENTS AND OPERATINGLOSSES

Line 1- Enter the net income prior to any net operating loss,considering the credit allowed by the Code in relation todividends received from domestic corporations or partnerships,or from industrial development income and excluding the netcapital gain that you elect to pay taxes at the special tax ratesof 7%, 12.5% and 25%. Add lines 2 and 5 of Form 480.10 or480.20, and subtract lines 32, 33 and 34 of Schedule DCorporation and Partnership, as applicable. Anotheralternative for this computation is adding line 35 of ScheduleD Corporation and Partnership and line 2 of Form 480.10 or480.20.

Line 2 - Enter on lines 2(a) through 2(e) the adjustmentsto determine the Alternative Minimum Net Income prior tobook adjustments and operating losses. If the adjustmentsto determine the Alternative Minimum Net Income in Part Iexceed the amount used to determine the regular tax, thedifference (negative) is considered a deduction. On the contrary,if the amount used to determine the regular tax exceeds theadjustments, the difference (positive) will be reflected as anadditional adjustment to the net income.

Line 2(a) - If you used the flexible depreciation method tocompute your regular tax, determine the depreciation usingthe straight-line method and enter here the differencebetween both methods.

Line 2(b) - If you are a merchant in personal property andreported gains through a sales installment plan for theregular tax, you must recognize the gain (or loss) in itsentirety for the year in which the personal property wassold. Enter on this line the difference between bothmethods.

Line 2(c) - If you used the completed contract accountingmethod to report the income (or loss) derived fromconstruction of projects, and such activities exceeded oneyear, recompute your profit (or loss) under the percentage ofcompletion method. Enter on this line the difference betweenboth methods.

Line 2(d) - If the corporation or partnership is a financialinstitution, determine the amount of interest expense notallowable as a deduction attributable to interest incomederived from exempt obligations, irrespective of the dateof its acquisition.

This will be made based on the average balance ratio ofassets of the institution. The adjustment does not applyto exempt obligations related to mortgage loans grantedor guaranteed prior to September 1, 1987 by theCommonwealth of Puerto Rico, its agencies, municipalitiesand instrumentalities, which interest would have beendeductible from the gross income to determine the taximposed by Act No. 34 of June 4, 1975, as amended.

Line 2(e) - If you used the accelerated depreciationmethod to determine the regular tax, compute thedepreciation using the straight-line method. Enter on thisline the difference between both methods.

PART II - ADJUSTMENT FOR THE EXCESS OF THENET INCOME PER BOOKS OVER THE ALTERNATIVEMINIMUM NET INCOME BEFORE ADJUSTMENTS

Line 4 - Enter your net income (or loss) as per your IncomeStatement. For this purpose, Income Statement means a

2003

16

( )

financial statement that reflects the results of theoperations of the corporation or partnership for the taxableyear, accompanied by a Balance Sheet and a Statement ofCash Flows. The statements must be prepared inaccordance with the generally accepted accountingprinciples, and must be audited by a certified publicaccountant licensed in Puerto Rico.

Line 5 - Enter the amortization expense as reported inyour financial statements for goodwill acquired prior toJune 30, 1995 or after July 1, 1995 purchased from affiliates.Enter the difference between the goodwill amortizationexpense as determined from your net income per books,and the goodwill claimed as a deduction in the return.

Line 6 - Enter the Puerto Rico income taxes and any othertaxes on income or excessive profits imposed by the UnitedStates or any of its possessions or foreign countries,considered directly or indirectly in your Income Statement.Do not include the amount of any tax you may have electedto deduct and not claim as credit as provided in the Code.

Line 8 - Enter the total of interest from exempt obligations,but exclude the exempt interest expense or any otherexpenses incurred in the acquisition or withholding of suchobligations.

Line 9 - Enter the total amount received as dividends orprofits from domestic corporations and partnerships or fromindustrial development income, or tourism developmentincome, as defined under the Tourism Incentives Act of1983 or the Puerto Rico Tourism Development Act of 1993,as amended, up to the amount in which the dividends orprofits have not been included in the net income for regulartax purposes.

Line 10 - Enter the net income amount from industrialdevelopment, or derived from exempt income of tourismdevelopment, as defined on the Puerto Rico TourismIncentives Act of 1983 or the Puerto Rico TourismDevelopment Act of 1993. Enter also the amount of thededuction for income derived by a bona fide agriculturalbusiness.

Line 11 - Enter any book income (or loss) from theoperations of a subsidiary included in the IncomeStatement recognized under the equity method, foraccountability of the investment in the subsidiary.

Line 12 - Enter the amount of the reserve for the paymentof catastrophic losses required by Chapter XXV of ActNo. 77 of June 19, 1957, as amended.

Line 13 - Enter the net long term capital gain that youelected to pay taxes at the special tax rates of 7%, 12.5%and 25% (lines 32, 33 and 34 of Schedule D Corporationand Partnership, as applicable).

Line 16 - Subtract line 3 from line 15 (but not less than zero).This is the excess of the Adjusted Net Income per booksover the Alternative Minimum Net Income.

PART III - COMPUTATION OF THE ALTERNATIVEMINIMUM NET INCOME

Line 19 - Enter your net operating loss deduction to be usedin the determination of the alternative minimum tax. Theamount of this deduction cannot exceed 90% of the alternativeminimum net income determined without considering thisdeduction. Any excess of net loss may be carried over to eachone of the following 7 taxable years. The net operating losswill be adjusted as established by the Code.

Line 21 - The alternative minimum tax allows an exemptionof $50,000 if the alternative minimum net income is $500,000or less. That exempt amount is reduced by 25% (but notless than zero) of the excess of the alternative minimumnet income over said amount. If your alternative minimumnet income is $700,000 or more, you are not entitled toclaim any exemption.

To determine the exempt amount follow the instructionsbelow:

A. Maximum exempt amount $50,000

B. Total line 20 ________

C. Less: $500,000

D. Excess of line B over line C ________

E. Multiply line D by 25% ________

F. This is your exempt amount (Subtract line A from line E) ________

PART IV - COMPUTATION OF THE ALTERNATIVEMINIMUM CREDIT FOR FOREIGN TAXES PAID

Line 25 - If line 18 is less than $500,000, the exempt amountis $50,000. If line 18 exceeds $500,000, but less than$700,000, the exempt amount will be $50,000 less 25% ofthe excess over $500,000.

Line 30 - Compute your credit for foreign taxes paidaccording to the Code. Use the formula indicated andadjust the net income by the adjusted items specified inthe Code. The formula is as follows:

Alternative Minimum Net Income from sources outsidePuerto Rico divided by Total Alternative Minimum NetIncome and multiplied by the Tentative Minimum Tax.

Any increase to the Alternative Minimum Net Income due tothe adjustment for the excess of net income as per the Income

2003

17

Statement, will have the same proportion and character of theAlternative Minimum Income determined without consideringsuch increase.

The determined credit is subject to an additional limitation.It may be reduced up to 90% of the Tentative Minimum Tax(line 23) without considering the deduction for netoperating loss used in the determination of the alternativeminimum tax. Determine the credit limitation amount onlines 23 through 30. Any credit amount not claimed in thetaxable year can be carried over to the following 5 years.No part of the credit may be carried back.

PART V - COMPUTATION OF THE ALTERNATIVEMINIMUM TAX

Line 32 - The adjusted regular tax is the same as the regulartax (Form 480.10 or 480.20, Part III, line 13) less the creditableproportion of tax paid to the United States, its possessionsand foreign countries (Schedule B Corporation andPartnership, Part II, line1).

SCHEDULE B CORPORATION AND PARTNERSHIP-RECAPTURE OF INVESTMENT CREDIT CLAIMEDIN EXCESS, TAX CREDITS, AND OTHER PAYMENTSAND WITHHOLDINGS

Use this schedule to determine the recapture ofinvestment credit claimed in excess, the tax credits, andother payments and withholdings.

PART I - RECAPTURE OF INVESTMENT CREDITCLAIMED IN EXCESS

In colums A, B and C you must enter the name and theemployer's identification number of the entity to which theinvestment credit claimed in excess belongs, and check thebox that identifies the act that regulates the investment made.

Enter the credit claimed in excess in previous years as aresult of the intervention of the Secretary or Director ofthe Agency or Department, or the Board who regulateseach of the following acts: Puerto Rico TourismDevelopment Act (Act No. 78 of September 10, 1993, asamended), Solid Waste Authority Act (Act No. 70 of June23, 1978, as amended), Agricultural Incentives Act (ActNo. 225 of December 1, 1995, as amended), CapitalInvestment Fund Act (Act No. 3 of October 6, 1987, asamended), Act for the Creation of the Theatrical Districtof Santurce (Act No. 178 of August 18, 2000), Act for theDevelopment of the Film Industry (Act No. 362 ofDecember 24, 1999), Act for Tax Credit from Investment inHousing Infrastructure (Act No. 98 of August 10, 2001), Act forTax Credits for Investment in the Construction or Rehabilitationof Rental Housing Projects for Low or Moderate IncomeFamilies (Act No. 140 of October 4, 2001) and Act for Credit toInvestors in an exempt business that is in the process of closingits operations in Puerto Rico (Act No. 109 of August 17, 2001).

The total investment carried out by the exempt business in theproject is subject to the revision of the Secretary or Director ofeach Agency or Department, or the Special Work Board (Board)in case of the Theatrical District of Santurce. If the investmentcredit claimed by the investors exceeds the investment creditcomputed by the Secretary, the Director or the Board, this excessshall be due as income tax. In some cases this debt must bepaid by the investors in one installment, and in other cases intwo installments beginning with the first taxable year followingthe date in which the unfulfillment or revocation of the credits isdetermined or any other date provided by law. The Director,other Secretaries or the Board will notify the Secretary of theTreasury the excess of credit claimed by the investors.

The provisions of credit recapture previously mentionedwill not apply to participants and investors that are notdevelopers in a project under the Tourism DevelopmentAct or the Solid Waste Authority Act.

On the other hand, the provisions of credit recaptureunder the Agricultural Tax Incentives Act will apply toparticipants or investors in agricultural businesses.

In case of condohotels, the integrated leasing programoperator must file an annual report to the Director and tothe Secretary identifying the participant units in theintegrated leasing program. Said report must indicate theparticipation beginning date of the participant units, aswell as the date or dates in which one or more units werewithdrawn from the program.

In case of Act No. 178 of 2000 (theatrical business), Act 140 of2001 (rental housing), and Act No. 109 of 2001 (business closingoperations), if any unit or business is withdrawn from theprogram, cease its operations or do not comply with any of therequirements provided by the corresponding law before theexpiration of the 10 year period or other period provided by law,the investor will owe as income tax an amount to be computedas provided by law or as follows, as applicable:

Total investment Balance of the

credit claimed x 10 year period

for the unit or business

The income tax amount owed must be paid in one or twoinstallments, whichever applies, beginning with the first taxableyear following the date of the withdrawal of the unit, the firsttaxable year following the cease of operations or any otherdate provided by law.

Line 1 - Enter the total excess of credit notified by theDirector, the Secretary or the Board, or in the case ofcondohotels, theatrical business, business closingoperations or rental housing projects for low incomefamilies, the total of income tax debt according to theformula previously mentioned or established by law.

Income Tax

owed =

10

2003

18

Line 5 - Enter the contributions made, up to $500, to theEducational Foundation for the Free Selection of Schools.

The contributions made in excess of the allowed creditwill be granted as a deduction under charitablecontributions, up to the limitations established in theCode.

To claim this credit, a certification from the EducationalFoundation or copy of the canceled check must besubmitted as evidence of the contribution made.

Line 6 - Enter as credit the alternative minimum tax paid andnot used in previous years. To be entitled to this credit, theregular tax for the year must exceed the alternative minimumtax for such year, and the alternative minimum tax for previousyears must have been paid. The credit must be determinedas follows:

Regular Tax (Part III, line 11 of thereturn less Part II, line 1 of ScheduleB Corp. and Part.)

Less: Tentative Minimum Tax(Part V, line 31 of Schedule ACorp. and Part.)

Regular Tax Subject to theCredit (Subtract line 2 from line1)

Alternative Minimum TaxCredit Paid in Previous Years(Line 16 or 17, whichever applies,of the return from previous years,which has not been used)

Credit to be Granted (Thesmaller of line 3 or line 4)

If line 4 exceeds line 3, the balance will be carried forwardto future years.

Line 7 - Enter the tax credit acquired during the yearthrough the purchase, exchange or transfer made by theinvestor or participant of the primary investor. Seeinstructions of Schedule Q for the percentages andlimitations to claim in the return.

To claim this credit, the transferor and the transferee mustsubmit a sworn statement notifying the transfer to theSecretary. The sworn statement must be submitted withtheir income tax returns in the year in which thetransaction takes place.

Line 8 - Enter the amount of the credit to be claimed forthe investment in a Film Entity engaged in a Film Project

1)

2)

3)

4)

__________

__________

__________

__________

__________

Line 3 - Multiply line 1 by 50% and enter the result.Transfer the resulting amount to Part III, line 14 of thereturn. If part of the excess was paid in the previous year,enter the balance owed.

On this line you must also include the recapture ofinvestment credit claimed in excess related to any of thefollowing laws: housing infrastructure act and rentalhousing act.

Line 4 - If this is the first year that you make the recapture,subtract line 3 from line 1 and enter the difference. This willbe the tax debt to be paid for next year. If this is the secondyear of recapture, subtract lines 2 and 3 from line 1.

PART II - TAX CREDITS

Line 2 - Enter the credit portion attributable to dividendsreceived from industrial development income,corresponding to the 3% of the investment made by thesubsidiary in the acquisition, construction and expansionof buildings and other structures used in manufacture,which exceeds the investment in such propertiespossessed by the subsidiary as of March 31, 1977.

If the corporation has not enjoyed a tax exemption under Act57 of 1963, Act 26 of 1978 or Act 8 of 1987 for two taxableyears, the credit will be granted to the parent corporation forthe increase in investment made by the subsidiary after theend of the second year of the tax exemption.

In order to be entitled to such credit, the investment mustbe made prior to January 1, 1993.

This credit may be carried over to subsequent taxable years.However, investments made in real property to obtain thewaiver established on paragraph 6(a) of Section 4 of Act 8of 1987, cannot be used for purposes of this credit.

Line 3 - Enter the amount determined on Schedule Q.

To claim this credit you must submit with the return thefollowing:

Schedules Q and Q1 duly completed.

A document indicating or showing the credit earned forthe investment in the different capital investment fundsor direct investments, such as Solid Waste Facilities, TaxIncentives, Agricultural Incentives, Theatrical District ofSanturce, Feature Films, as well as Tourism DevelopmentFund.

Copy of the certification issued by the regulatoryagencies.

Copy of the notification or sworn statement issued by theregulatory agency to inform the credit distribution.

1.

2.

3.

4.

5.

2003

19

and/or Infrastructure Project under Act No. 362 of

December 24, 1999.

In the case of an investment in a Film Entity engaged in aFilm Project, the credit will be 40% of those amounts ofthe budget paid to residents of Puerto Rico, but thisamount cannot exceed 50% of the capital contributed incash to the Film Entity in exchange of stocks or sharesissued in a primary issuance.

In the case of an investment in a Film Entity engaged inan Infrastructure Project, the credit will be the smallerbetween: 40% of the investment contributed in cash tothe Film Entity in exchange of stocks or shares issued ina primary issuance or 20% of the Infrastructure Projectbudget.

All tax credit not used in the taxable year can be carriedover to following years until it is completely used.

To claim said credits you must submit the followingevidence:

the license of the Film Entity where you invested;

notification made to the Puerto Rico Commissioner ofFinancial Institutions (Commissioner), to theSecretary of the Treasury and to the investorsregarding the credits distribution;

certificate from the Accountant regarding the expensesdisbursed of the Budget or indicating that the Bond wasplaced, according to the case; and

in the case of cessionaries, notification made to theSecretary of the Treasury and to the Commissioner.

For more details refer to Act No. 362 of December 24,1999.

Line 9 – Enter the amount of the credit for infrastructureinvestment to developers of housing projects,recommended by the designated officials of the HousingDepartment and the Department of the Treasury. Itconsists of two parts:

credit for infrastructure investment which benefitssocial interest or middle class housing projects thatbelongs to the petitioner, and

credit for infrastructure investment required by agovernmental agency which benefits housingprojects or other projects that do not belong to thepetitioner, or in which the petitioner, its stockholders,partners or persons do not have a majorityproprietorship interest.

The amount of the credit will be:

75% of the infrastructure’s cost that benefits socialinterest housing projects of the petitioner;

50% of the infrastructure’s cost that benefits middleclass housing projects of the petitioner; and

100% of the infrastructure’s cost that benefitshousing projects and other projects that do notbelong to the petitioner.

The petitioner must file an application with the HousingDepartment, with copy to the Department of the Treasury.

The credit will be available:

Once the infrastructure work and the housing projectis completed;

The Secretary of the Housing Department certifiesthe investment;

The Secretary of the Treasury certifies theavailability of the credit; and

The infrastructure work be completed within amaximum term of 3 years from the date in which theSecretary of the Housing Department issues thecorresponding Approval Certification.

Every credit not used in a taxable year may be carriedover to subsequent years, until totally used.

For additional details refer to Act No. 98 of August 10,2001 and its regulations.

Line 10 – Enter the amount of credit for investment in theconstruction or rehabilitation of rental housing projectsfor low or moderate income families.

Every owner of a rental housing project for low or moderateincome families may qualify for a tax credit of $0.50 forevery $1.00 of eligible investment used in a newconstruction or substantial rehabilitation of housing unitsfor rent to low or moderate income families.

The petitioner must file an application with the HousingFinance Authority.

The tax credit may be used once a credit certificationguarantees the following:

The total construction or rehabilitation has beencompleted within the term provided by law;

The eligible investment was realized as establishedin the detail of costs of the new construction or

1)

2)

3)

4)

.

.

.

.

.

.

.

.

.

.

.

2003

20

substantial rehabilitation of the housing project as itwas submitted by the petitioner in the application;and

The total housing units have been rented to low ormoderate income families within the term providedby law.

Every credit not used in the taxable year may be carriedover to subsequent years, up to a maximum of 10 years.

For additional details refer to Act No. 140 of October 4,2001 and its regulations.

Line 11 – Enter the amount of the credit for investment ina exempt business that is in the process of closing itsoperations in Puerto Rico. Every investor may claim anindustrial investment credit equal to 50% of its eligibleinvestment.

The credit must be claimed in two installments: the firsthalf in the year that the eligible investment was made,and the balance in subsequent years.

Every investor must request an AdministrativeDetermination to the Secretary of the Treasury beforeclaiming the industrial investment credit.

Every industrial investment credit not used in the taxableyear may be carried over to subsequent years, until totallyused.

For additional details refer to a Act No. 109 of August 17,2001.

Line 13 - Enter 50% of contributions made to the SantaCatalina’s Palace Patronage (Patronage). However, suchcredit cannot exceed $250,000 for taxable year 2003.

To claim this tax credit you must submit the certificationissued by the Patronage evidencing that the contributionwas made and accepted.

Such part of the credit not used in the taxable year inwhich the contribution was made, may be carried over tosubsequent years, until totally used.

Remember that contributions to the Patronage generatea tax credit. Therefore, such contribution cannot beclaimed as part of the deduction for charitablecontributions.

Line 15 - Enter the total amount of other income tax creditsnot included on the preceding lines. If this line includescredits from different concepts, you must submit aschedule showing a breakdown of such credits. You mustalso submit documents or evidences to support suchcredits.

PART III - OTHER PAYMENTS AND WITHHOLDINGS

Enter on lines 1 through 7, the amount of tax paid orwithheld concerning the types of income described onthese lines.

Line 5 - Enter the amount withheld over payments forservices rendered. In order to claim this credit, you mustsubmit Form 480.6B. If you cannot submit it, you mustsubmit a sworn statement indicating the name, address,employer's identification number and telephone numberof the person who made the deposit or payment, as wellas the total amount of the deposits and the tax withheld.

Line 7 - Enter the tax withheld at source on eligible interestif you exercised the option to pay the special tax rate of10%. You must submit with your return Form 480.6B.

SCHEDULE B1 CORPORATION AND PARTNERSHIP– CREDIT FOR PURCHASE OF PRODUCTSMANUFACTURED IN PUERTO RICO AND PUERTORICAN AGRICULTURAL PRODUCTS

PART I – CREDIT FOR PURCHASE OF PRODUCTSMANUFACTURED IN PUERTO RICO (SECTION1040C)

Section 1040C of the Code provides a credit against theincome tax to those manufacturing businesses (except thosewith a tax exemption decree) that purchase productsmanufactured in Puerto Rico, including component partsand accessories. The credit will be equal to 25% of theincrease in the purchases of such products during the taxableyear in which the credit is claimed, over the average of thepurchases of such products during the previous 3 taxableyears, or that part of such period that may be applicable.

The credit may be used to reduce up to 10% the tax of themanufacturing business.

Enter in the spaces provided for each manufacturingbusiness from which the products were acquired the name,employer's identification number, manufacturing businessidentification number and the value (cost) of eachpurchase. In case of manufacturing businesses with a taxexemption decree, the manufacturing businessidentification number will be the decree number. If thebusiness does not have a decree, enter the numberassigned by the Industrial Development Company. Theeligible business must keep the necessary recordsevidencing the value of the purchases for which the creditis claimed. Do not include purchases of products that havebeen manufactured in Puerto Rico by businesses relatedwith the business claiming the credit.

Line 6 – Enter the amount of the credit carried from previousyears not used due to the 10% limitation. Submit a detailedschedule showing the breakdown of said carry forward.

.

2003

21

Eligible business is every enterprise engaged in trade orbusiness in Puerto Rico whose annual sales volume doesnot exceed $5,000,000.

This credit may be used to reduce up to 25% the tax of theeligible business.

Enter in the spaces provided for each manufacturing businessfrom which you acquired the products, the name, employer'sidentification number, manufacturing business identificationnumber and the value (cost) of each purchase. In case ofmanufacturing businesses with a tax exemption decree, themanufacturing business identification number will be the decreenumber. If the business does not have a decree, enter the numberassigned by the Industrial Development Company. The eligiblebusiness must keep the necessary records evidencing the valueof the purchases for which the credit is claimed. Do not includepurchases of products which have been manufactured in PuertoRico by persons related to the eligible business.

Line 6 - Enter the amount of credit carried from previousyears due to the 25% limitation. Submit a detailed scheduleshowing the breakdown of said carry forward.

PART IV - CREDIT FOR INCREASE IN PURCHASES OFPUERTO RICAN AGRICULTURAL PRODUCTS(SECTION 1040F)

Section 1040F of the Code provides a credit to everyeligible business that increases the purchases of PuertoRican agricultural products in substitution of importedproducts for local sale.

The credit will be not less than 5% and up to a maximum of 20%of the increase in the purchase value of agricultural productsharvested, produced and elaborated in Puerto Rico during thetaxable year in which the credit is claimed, over the average ofthe purchases of such products during the previous 3 taxableyears, or that part of such period that may be applicable.

Eligible business is the one that acquires Puerto Ricanagricultural products through a contract between suchbusiness, the Secretary of Agriculture and an agriculturalproduction group promoted by the Department of Agricultureor an Agricultural Sector organized under the Puerto RicoAgriculture and Livestock Industry Regulating Act or with aQualified Farmer.


Enter in the spaces provided, the name of each AgriculturalProduction Group, Agricultural Sector or Qualified Farmerfrom which you made the purchases; the purchases increase;the percentage granted; and the amount of each creditaccording with the Tax Credit Certification issued by theDepartment of Agriculture.

PART II – CREDIT FOR PURCHASE OF PRODUCTSMANUFACTURED IN PUERTO RICO FOREXPORTATION (SECTION 1040D)

Section 1040D of the Code provides a credit to everyeligible business that buys, directly or through relatedpersons, products manufactured in Puerto Rico to beexported and sold outside of Puerto Rico for their use andconsumption in the exterior. The amount of the credit is10% of the increase in the purchases of productsmanufactured in Puerto Rico during the taxable year inwhich the credit is claimed, over the average value of thepurchases of such products made during the previous 3taxable years, or that part of such period that may beapplicable.

Eligible businesses are those engaged in trade or businessin Puerto Rico which are not under any tax incentives actor similar acts.


Enter in the spaces provided for each manufacturing businessfrom which you acquired the products, the name, employer'sidentification number, manufacturing business identificationnumber and the value (cost) of each purchase. In case ofmanufacturing businesses with a tax exemption decree, themanufacturing business identification number will be thedecree number. If the business does not have a decree, enterthe number assigned by the Industrial DevelopmentCompany. The eligible business must keep the necessaryrecords evidencing the value of the purchases for which thecredit is claimed. Do not include purchases of products whichhave been manufactured in Puerto Rico by persons relatedto the eligible business and by manufacturing businesseswhich have directly or through related persons, an investmentin the exterior in excess of $10,000,000.

Line 6 – Enter the amount of the credit carried from previousyears not used due to the 25% limitation. Submit a detailedschedule showing the breakdown of said carry forward.

PART III – CREDIT FOR PURCHASE OF PRODUCTSMANUFACTURED IN PUERTO RICO FOR LOCALSALE AND CONSUMPTION (SECTION 1040E)

Section 1040E of the Code provides a credit to every eligiblebusiness that buys products manufactured in Puerto Ricoand which are sold locally for their use or consumption inPuerto Rico. The credit is 10% of the increase in thepurchases of products manufactured in Puerto Rico duringthe taxable year in which the credit is claimed, over theaverage of the purchases of such products made during theprevious 3 taxable years, or that part of such period that maybe applicable.

2003

22

Line 2- Enter the amount of credit carried from previousyears due to the 25% limitation. Submit a detailed scheduleshowing the breakdown of said carry forward.

SCHEDULE C CORPORATION AND PARTNERSHIP -CREDIT FOR TAXES PAID TO THE UNITED STATES,ITS POSSESSIONS AND FOREIGN COUNTRIES

Use this schedule to determine the portion of the taxespaid to the United States, its possessions and foreigncountries allowable as a credit.

To claim a credit for taxes paid to the United States, itspossessions and foreign countries, it is necessary thatyou:

Paid or accrued income tax outside of Puerto Rico.

Included taxable income from sources outside ofPuerto Rico on your Puerto Rico income tax return.

Submit evidence of the tax paid outside Puerto Rico(copy of canceled checks and copy of the returnfiled to the IRS or foreign countries). If the paymentreceipt or the tax return is written in a foreignlanguage, you must provide a certified translation ofthe same.

PART I - DETERMINATION OF NET INCOME FROMSOURCES OUTSIDE OF PUERTO RICO

Line 1 - Enter the gross income from sources outside of PuertoRico. Gross income from sources outside of Puerto Rico isdetermined by subtracting from the gross income of the return,the income from sources within Puerto Rico not taxable in theUnited States, its possessions and foreign countries. Therefore,it is important to determine the source of income at the momentof filing the return.

The source of income is determined as follows:

Interest and dividends - It is determined by theresidence or place of incorporation of the payer.

Services compensation - It is determined by the placewhere the services are rendered.

Rents and royalties - It is determined by the place wherethe property is located or by the place of use, or of theprivilege of using patents, copyrights, trademarks,goodwill and other similar property.

Profit on the sale of inventory - It is determined bythe place where the title of goods is transferred. Thereis an exemption for the acquisition of productsmanufactured outside of Puerto Rico.

Profit on the sale of personal property - It isdetermined by the place where the title of suchproperty is transferred.

Profit on the sale of real property - It is determinedby the place where such property is located.

PART II - DETERMINATION OF NET INCOME FROMALL SOURCES

Determine the net income from all sources in accordanceto the income tax return.

PART III - TAXES PAID OR ACCRUED TO THEUNITED STATES, ITS POSSESSIONS AND FOREIGNCOUNTRIES

Indicate the payment date and the total tax paid or accrued.

If the tax was paid in a foreign currency, such tax must betranslated to U.S. dollars at the date of the payment. Aschedule indicating the translation to U.S. dollars must besubmitted with the return.

PART IV - DETERMINATION OF CREDIT

Determine the credit to be claimed, and enter the amountto which you are entitled.

In case the net income subject to normal tax is derived fromtwo or more countries, the allowable credit with respect toeach country or possession will be determined separately.

The amount of credit shall not exceed the same proportionof the tax against which such credit is taken, which thetaxpayer's normal tax net income from sources within suchcountry bears to its entire normal tax net income for the sametaxable year.

The credit for taxes paid cannot exceed the amount paidto the United States, its possessions and foreigncountries.

SCHEDULE D CORPORATION ANDPARTNERSHIP - GAINS AND LOSSES FROMSALE OR EXCHANGE OF PROPERTY

Use this schedule to determine the gains or losses fromthe sale or disposition of capital assets. A capital assetmay be defined as a property acquired for investment.

The term capital asset means property possessed by thetaxpayer (related or not to its industry or business), butdoes not include: (a) goods in hand of the taxpayer’sbusiness or other property of similar nature that can beproperly included in the taxpayer’s inventory, if it was inhand at the close of the taxable year, or property possessed

1)

2)

3)

1)

2)

3)

4)

5)

6)

2003

23

by the taxpayer primarily for the sale to customers duringthe ordinary course of its trade or business, or (b) propertyused in its trade or business subject to the allowance forcurrent depreciation, or real property used in its trade orbusiness.

Capital gains or losses are classified as short or longterm depending on the period held. If the assets wereheld not more than 6 months, it is considered as shortterm gain or loss. On the other hand, if the assets wereheld for more than 6 months, it is considered as long termgain or loss.

To determine short and long term capital gains or losses,you must provide the description and location of theproperty sold and complete the information in Columns(A) through (F), Parts I, II, III and IV, with respect to theproperties.

Once you determine a gain in the sale or exchange ofcapital assets, you must identify the location of theproperty. This information will determine, in part, theincome tax rate applicable to the long term capital gain.For long term capital gain derived from the sale of certainproperty located in Puerto Rico, the special rate will be12.5%. Other property not defined as property located inPuerto Rico, is subject to the prevailing rate of 25%.

For purposes of sale or exchange of capital assets, theterm property located in Puerto Rico means:

Every real property located in Puerto Rico.

Stock certificates issued by domestic corporations, ordistributable share of a partner in a domesticpartnership's capital.

Stock certificates and distributable share in foreigncorporations or partnerships, when no less than 80%of the gross income of said foreign corporation orpartnership for the three (3) year period ended with theclose of your taxable year previous to the transactionthat generated the long term capital gain, or for suchpart of said period in which the corporation orpartnership have existed, was derived from Puerto Ricosources in accordance with the provisions of the Code.

Bonds, notes or other debt obligations issued by:

The Commonwealth of Puerto Rico;

municipalities of the Commonwealth of PuertoRico; or

authorities or public corporations of theCommonwealth of Puerto Rico and itsmunicipalities.

Bonds, notes and other debt obligations of an individualresident of Puerto Rico; or from a domestic corporationor partnership; or guaranteed by real property located inPuerto Rico.

Bonds, notes or other debt obligations of foreigncorporations or partnerships when no less than 80%of the gross income of said foreign corporation orpartnership for the three (3) year period ended withthe close of your taxable year previous to thetransaction that generated the long term capital gain,or for such part of said period in which the corporationor partnership have existed, was derived from PuertoRico sources in accordance with the provisions ofthe Code.

The adjusted basis of the property is its original cost, plus thepermanent improvements, less the accumulated depreciation.Do not include lodging expenses (i.e hotels) nor travel expenses(i.e. airline tickets).

Sale expenses include sales commissions,advertisements, legal, appraisal and other similarexpenses. Do not include lodging expenses (i.e. hotels)nor travel expenses (i.e. airline tickets).

Also, every eligible person may elect to pay a tax of 7% onthe total excess of any net long term capital gain over anynet short term capital loss from the sale of shares from aneligible corporation or partnership. For this purposes,eligible person means any person:

(1) that is a shareholder or partner, or became a shareholder orpartner, of an eligible corporation or partnership at themoment in which said corporation or partnership makesits first stocks or shares sales offer at the New York StockExchange, NASDAQ or any other national stock marketin the United States of America, provided that the offer ismade after June 30, 1997 and before January 1, 2008;

(2) that became a shareholder or partner of an eligiblecorporation or partnership at the moment in which saidcorporation or partnership makes a new issuance ofstocks or shares (including portfolio shares or stocks),provided that the stocks or shares of such entity arevaluated at the New York Stock Exchange, NASDAQ orany other national stock market in the United States ofAmerica, and the offer of the new issuance is made afterJune 30, 1997 and before January 1, 2008;

(3) that is a shareholder or partner, or became ashareholder or partner of an eligible corporation orpartnership at the moment in which said shareholdersor partners make their first stocks or shares salesoffer at the New York Stock Exchange, NASDAQ orany other national stock market in the United Statesof America, provided that the offer is made after June30, 1997 and before January 1, 2008;

a)

b)

c)

d)

(i)

(ii)

(iii)

e)

f)

2003

24

Eligible corporation or partnership means:

any private corporation or particular partnership,both domestic, which makes a stocks or shares salesoffer as described in the preceding sections (1) and(2), with the purpose of obtaining funds to be usedon its industry or business in Puerto Rico, includingimprovements or expansions of said industry orbusiness, or in the acquisition of a new industry orbusiness in Puerto Rico;

any private corporation or particular partnership,both domestic, which stocks or shares became publicbecause its stockholders or shareholders make theirfirst stocks or shares offer as described in thepreceding section (3), at the New York StockExchange, NASDAQ or any other national stockmarket in the United States of America, provided thatthe offer is made after June 30, 1997 and beforeJanuary 1, 2008.

In case that the eligible person to claim the 25%, 12.5%and 7% special tax rates has derived capital gains fromseveral categories, and at the same time has capital losses,to determine the net capital gain under each category,said losses will be applied against the gains in theproportion that each one of these gains bears with thetotal amount of said gains.

PART I - SHORT-TERM CAPITAL ASSETS GAINSAND LOSSES (HELD 6 MONTHS OR LESS)

Your must inform in this part every short term capital gainsand losses, irrespectively of their category.

Line 1 - Enter the sum of Column (F).

Line 3 - If you elected to pay taxes using the bracketmethod, enter the amount reported on Form 480.6 SE,regarding the distributable share on the net short termcapital gain (or loss) from special partnerships.

PART II - LONG -TERM CAPITAL ASSETS GAINSAND LOSSES (HELD MORE THAN 6 MONTHS)(PROPERTY LOCATED IN PR - SECTION1121(c)(2)(A))

You must inform in this part only long term capital gainsand losses derived from the sale of property located inPuerto Rico, as this term was previously defined in theinstructions of this Schedule.

Line 7 - Enter the sum of Column (F).

Line 8 - Enter the amount determined on Form 480.6 SE.

PART III - LONG - TERM CAPITAL ASSETS GAINSAND LOSSES (HELD MORE THAN 6 MONTHS)(OTHER PROPERTIES- SECTION 1121(c)(2)(C))

You must inform in this part only long term capital gainsand losses derived from the sale of other properties notincluded in the term property located in Puerto Rico.

Lines 11 and 12 - Refer to instructions of lines 7 and 8 ofPart II, respectively.

PART IV - LONG - TERM CAPITAL ASSETS GAINSAND LOSSES (HELD MORE THAN 6 MONTHS)(SHARES FROM ELIGIBLE CORPORATION ORPARTNERSHIP - SECTION 1121(c)(2)(B))

You must inform in this part only long term capital gains andlosses derived from the sale of stocks or shares from aneligible corporation or partnership, as this term is defined inthe instructions of this Schedule.

Lines 15 and 16 - Refer to instructions of lines 7 and 8 ofPart II, respectively.

PART V - SUMMARY OF CAPITAL GAINS ANDLOSSES

Line 19 - Enter here only the net capital gains determinedon lines 6, 10, 14 and 18.

Enter the net short term capital gain, ifany, determined in Part I, line 6.

Enter the net long term capital gain fromproperty located in P.R., if any,determined in Part II, line 10.

Enter the net long term capital gain fromother properties, if any, determined in PartIII, line 14.

Enter the net long term capital gain fromshares of an eligible corporation orpartnership, if any, determined in Part IV,line 18.

Line 20 - Enter here only net capital losses determined onlines 6, 10, 14 and 18.

Enter the net short term capital loss, ifany, determined in Part I, line 6.

Enter the net long term capital loss fromproperty located in P.R., if any,determined in Part II, line 10.

Enter the net long term capital loss from

.

.

Column A -

Column B -

Column C -

Column D -

Column A -

Column B -

Column C -

2003

25

other properties, if any, determined in PartIII, line 14.

Enter the net long term capital loss orshares from an eligible corporation orpartnership, if any, determined in Part IV,line 18.

Line 21- This line must be used only when one (1) ofColumns B, C or D reflects a loss on line 20. Such losswill be applied proportionally to the gains, if any, reflectedin the other Columns of line 19, except Column A. If theother Columns do not reflect a gain on line 19, enter zeroin the boxes.

Line 22 - This line must be used only when two (2) ofColumns B, C or D reflect a loss on line 20. The sum ofsuch losses will be applied to the gain, if any, reflected inthe other Column of line 19, except Column A. If theother Column does not reflect any gain on line 19, enterzero in the boxes.

Line 23 - Totalize Columns B, C and D. If any Columnreflected a loss on line 20, enter zero in the boxes.

Line 24 - If line 20, Column A reflects a loss, apply thesame proportionally to the gains, if any, reflected on line19. If any Column reflected gains on line 19, enter zero.

On this line, the net short term capital loss reflected online 20, Column A is applied proportionally to the longterm capital gains reflected on line 19, Columns B, C or D,after having applied proportionally the net long termcapital losses of the other categories.

Line 25 - Totalize Columns B, C and D. If any of theseColumns reflected a loss on line 20, enter zero in the boxes.

Line 26 - Add the total of Columns B, C and D, line 25.However, if on line 19 there was not reflected any gain inColumns B, C and D and you entered an amount on line20, Column A, add line 20, Columns A, B, C and D.

Line 28 - The amount to be entered on this line will dependon each particular situation.

If line 19, Column A reflects a short term capital gain, andat the same time line 26 reflects zero or a loss smaller thansuch gain, enter on this line the amount of line 27.

If line 26 reflects zero or a gain, and at the same time line 19,Column A reflects a short term capital gain, enter on this linethe amount of line 19, Column A.

If any of the previously described situations do not applyenter zero on this line.

Line 29 - Enter on this line the gain reflected on line 26, ifany. That is, if the amount reflected on line 26 is zero or aloss, enter zero.

Line 30 - Enter the sum of the excess of the net short termand long term capital gains over the short term and longterm capital losses.

Losses not allowed - It will not be recognized any loss incurredin any sale or other disposition of stocks or securities ifsubstantially identical stocks or securities were purchased,or if it was agreed through a contract or purchase option toacquire substantially identical stocks or securities within 30days prior to or after the sale or disposition date, except incase of stock and security dealers with respect to operationsmade in the ordinary course of business.

No deduction shall be allowed with respect to losses fromsale or exchange of property executed directly or indirectly(except in case of distributions in liquidation), betweenan individual and a corporation or partnership in whichthat individual possesses, directly or indirectly, more than50% of the outstanding stocks or has more than 50% of apartnership equity; or (except in case of distributions inliquidation) between two corporations, between twopartnerships or between a corporation and a partnership, ofwhich any of these corporations or partnerships outstandingstocks or partnership equity is more than 50% owned,directly or indirectly, by or for the same individual.

Gains and losses from involuntary conversions and fromthe sale or exchange of certain property used in the tradeor business - The term property used in the trade or businessmeans property that is used in the trade or business, heldfor more than 6 months and that is subject to the allowancefor current depreciation, and real property used in the tradeor business, held for more than 6 months, and which isproperty not included in the taxpayer’s inventory if inhand at the close of the taxable year, or property held bythe taxpayer primarily for the sale to customers in theordinary course of its trade or business.

The Code provides for a special treatment for gains andlosses derived from the sale or exchange of depreciableproperty used in the trade or business held for more than 6months, and for gains and losses from a compulsory orinvoluntary conversion of such depreciable property and ofcapital assets, held for more than 6 months. Such gains couldbe treated as long term capital gains and taxed at a 12.5%(applicable to property located in Puerto Rico) and 25%(applicable to other properties not included in the definitionof property located in Puerto Rico) rate, or the normal taxrates, whichever is lower.

Column D -

2003

26

Submit Schedule E with your return.

SCHEDULE R - SPECIAL PARTNERSHIP

Part I of Schedule R is used every year to determine thetaxpayer's basis in each special partnership. Part II of thisschedule is used in those taxable years in which the taxpayerclaims its distributable share on the special partnership'slosses in the current year, as well as those losses carriedover from previous years. Also, Part II provides for thereduction of the carryover losses by the distributable shareon income and profits attributable to the partner during theyear.

You must complete this schedule annually whether theSpecial Partnership has derived gains (or losses) or not.

PART I - ADJUSTED BASIS DETERMINATION OF APARTNER IN ONE OR MORE SPECIALPARTNERSHIPS

Line 1 - Enter the amount from Part I, line 4 of last year'sSchedule R.

The basis of a partner's share from a Special Partnership willbe the amount of cash, or the adjusted basis of any propertythat is not considered cash, contributed to said partnership.

This basis will be adjusted by the following entries ortransactions made during the current taxable year andothers included in previous year's income tax return.

Line 2 - Basis increase

Enter the partner's distributable share on previous year'sincome and profits. For example, in the case of a taxpayerwith a calendar taxable year, enter the total distributableshare on the special partnership's income or profitincluded in the income tax return filed on April 15 ofprevious year (or later if you requested an extension oftime to file your return). This amount must be the same asthe one shown on line 7, Part II of Schedule R included inprevious year's income tax return.

through (d) These entries are from the current taxableyear.

Enter the proportion of income or gain attributable toyour share on the income from agriculture earned bythe special partnership, which is tax exempt under Section1023(s) of the Code.

Enter other income or gains like for example, thedistributable share on the dividends and interestreceived by the special partnership.

PART VII - DETERMINATION OF ALTERNATIVE TAX- CAPITAL GAIN

Lines 32, 33 and 34 - The amounts to include on theselines, in the cases that you elect to pay taxes on suchitems at the special rates, come from Schedule DCorporation and Partnership, line 25, as applicable. Thenet short term capital gains must be taxed at the regularrates and they can not be transferred to this line.

You must enter zero on any line in which you decide to paytaxes at the regular rates on the gain and do not elect thespecial rates. This is in the cases where you derived gains inmore than one of the concepts indicated on this line.

For additional information and examples related to thisSchedule, refer to Publication 01-03 (Aplicación de lasTasas Especiales en el Caso de la Venta de Activos deCapital - Anejo D Individuo). You can request thisPublication at the Forms and Publications Division, Office603 of the Department of the Treasury in Old San Juan, orcalling (787) 721-2020, extensions 2645 and 2646.

SCHEDULE E - DEPRECIATION

This schedule will be used to inform each one of the propertiesfor which depreciation expense is claimed. Spaces are providedfor current, flexible and accelerated depreciation; improvementsdepreciation and amortization.

The following information must be provided on theschedule:

property classification;date acquired;allowable cost or basis;depreciation claimed on previous years;estimated useful life to determine the depreciation;depreciation claimed this year.

Part (b) - Flexible Depreciation

To be entitled to claim the flexible depreciation instead ofcurrent depreciation, the Code requires to make an electionthrough a sworn statement to be filed not later than 30days after the close of the taxable year. Said option maybe exercised only over property acquired by the taxpayerprior to June 30, 1995.

Part (c) - Accelerated Depreciation

The election may be exercised only over propertyacquired by the taxpayer during taxable years beginningafter June 30, 1995. The election, once made, is irrevocable.

Refer to the instructions of Part V of the return or to theCode and its regulations, for other requirements andprovisions in connection with the deduction under theflexible and accelerated depreciation methods.

��

(a)

(b)

(e)

(f)

2003

27

Line 3 - Basis decrease

Enter the distributable share on the loss attributable tothe partner in previous year. For example, in the case of ataxpayer with a calendar taxable year, enter the totaldistributable share on the special partnership's lossincluded in the income tax return filed on April 15 ofprevious year (or later if you requested an extension oftime to file your return). To determine the total loss claimedon previous year's return, add lines 5(c), 8 and 13 of PartII from Schedule R included on previous year's return. Inorder to add lines 5(c), 8 and 13 use the parenthesis ofline 8, if the excess is a loss. For example, if line 5(c) is$12,000, line 8 ($2,000) and line 13 $1,000, the result will be$11,000 ($12,000 + ($2,000) + $1,000).

The distributable share on special partnership'scapital assets loss.

Distributions made to the partner by the SpecialPartnership, whether in cash or in property, includingtax exempt income.

The amount claimed as credit against the income tax onprevious taxable year for investments made in specialpartnerships engaged in the production of feature filmsor under the Puerto Rico Tourism Development Act of1993, the Puerto Rico Capital Investment Fund Act, thePuerto Rico Agricultural Tax Incentives Act, as amended,or any other credit admitted by law to the partners relatedto the Special Partnership's activities.

The amount taken as credit against the income taxfor withholding of tax at source from the distributableshare made to a resident partner (33%) or to a non-resident alien partner (29%).

Any expense from the Special Partnership not allowedas a deduction while determining your net incomeand that is not capitalized.

The distributable share on net losses from tax exemptoperations under the Tourism Incentives Act of 1983and the Tourism Development Act of 1993.

Line 4 - If the amount on this line is less than zero, enterzero.

PART II - DETERMINATION OF PARTNER’SALLOWABLE LOSSES IN ONE OR MORE SPECIALPARTNERSHIPS

If the Special Partnership derived losses, the partner maytake such losses as a deduction from the net income. Saidloss will be limited to the adjusted basis of the partner’sshare in the partnership at the end of the taxable year inwhich the loss of the partnership ocurred, or up to 50% of

the taxpayer’s net taxable income determined withoutconsidering said loss, whichever is smaller.

The adjusted basis limitation will be determined for eachone of the Special Partnerships in which the partnerinvests.

If the deduction allowed to the partner for any taxableyear is smaller than its distributable share in thepartnership's net loss, the partner may claim said excessas a deduction in any subsequent taxable year, subject tothe smaller of the previously mentioned limitations.

Line 5(a) - Enter the amount distributed from the partner’sloss in accordance to its share percentage in the SpecialPartnership. This amount is informed to the partner onForm 480.6 SE.

Line 5(b) - Enter the carryover losses which were notclaimed in previous years due to the limitation.

This amount must be the same as the one shown on line14, Part II of Schedule R included on previous year'sincome tax return.

If a partner possesses shares in losses from more thanone Special Partnership, the balance subject to the losscarryover, as determined on the previous taxable year,will be proportionally attributed to the loss of each one ofthe partnerships. Said attribution will be done by usingas factor the adjusted basis of the partner’s share in eachone of the partnerships at the end of the previous taxableyear.

Line 6 - Enter on this line the amount determined in PartI, line 4. If the special partnership has an exemption decreeunder the Puerto Rico Tourism Incentives Act or the PuertoRico Tourism Development Act, you may use the debts ofthe Special Partnership in proportion to your share toincrease your adjusted basis, only to claim losses of theSpecial Partnership from this activity.

Line 7 - Enter the partner's distributable share on theincome and profits derived from the Special Partnershipduring the year. This amount is reflected on Form 480.6SE.

Line 8 - If the amount on this line is a loss, use theparenthesis.

Line 9 - Enter the smaller of the amounts on lines 6(c) and8. This will be the maximum amount to which the partneris entitled to take as a deduction for losses during thistaxable year.

Line 10 - Enter the result of the computation fromline 9. In cases in which the partner has losses in

(a)

(b)

(c)

(d)

(e)

(f)

(g)

2003

28

more than one partnership, enter the result of the sumfrom line 9, Columns A through C. This is the totalamount of losses to claim for this taxable year.

Line 11 - Subtract the Adjusted Gross Income withoutconsidering the losses from Special Partnerships. Thiswill be the net income subject to the computation of line12.

Line 12 - Enter 50% of line 11. This limitation determineswhich amount of the total of losses on line 10 you willclaim on this year's return.

Line 13 - Enter the smaller of line 10 or 12. This is theamount that you may deduct in your return this year.

SCHEDULE S CORPORATION ANDPARTNERSHIP - FARMING BUSINESS

Use this schedule to determine the agricultural taxablebenefit.

However, if you claimed benefits under the provisions of thePuerto Rico Agricultural Tax Incentives Act (Act 225 ofDecember 1, 1995, as amended), refer to the Income TaxReturn for Exempt Businesses under the Puerto RicoIncentives Programs (Form 480.30(II)).

SCHEDULE T CORPORATION AND PARTNERSHIP– ADDITION TO THE TAX FOR FAILURE TO PAYESTIMATED TAX IN CASE OF CORPORATIONSAND PARTNERSHIPS

Use this Schedule to determine the addition to the tax forfailure to pay the minimum estimated tax required.

PART I – ESTIMATED TAX REQUIRED

Line 2 – Enter the sum of credits corresponding to foreigntaxes paid and to withholdings at source, and other similarcredits provided by the Code or any other special act thatmay be applicable. Include also the amount of tax paid inexcess in previous years that you elected to credit to theestimated tax for the taxable year. Add line 16, Part II ofSchedule B Corporation and Partnership, and lines 3through 7, Part III of Schedule B Corporation andPartnership.

Line 6 – Complete this line if an income tax return was filed forthe immediate previous taxable year. Otherwise, go to line 8 andenter the amount from line 5.

If an income tax return was filed for the immediate previoustaxable year, enter the tax to be paid without consideringthe estimated tax payments. Subtract lines 3 through 6,Part III of Schedule B Corporation and Partnership fromline 19, Part III, page 1 of previous year return.

Example: The information of previous taxable year incometax return is:

2002 income tax returnNet Income $380,000Credits 5,800Withholdings at source 1,000

The estimated tax for the current year, based on previoustaxable year income tax return information but using thecurrent tax rates would be:

Normal tax $76,000Additional tax 51,950Alternative Minimum Tax 0

Tax Liability $127,950

Less:Credits and Withholdings (6,800)

Estimated Tax based on previousyear income tax information $121,150

Line 7 – If an income tax return was filed for the immediateprevious taxable year, determine the estimated tax basedon the immediate previous taxable year income tax return.For purposes of this computation, you must use currentyear tax rates.

Section A – Estimated Tax to be Paid per Installment Placingthe Net Income on an Annual Basis

Line 9 – Enter the months of the taxable year elapsedbefore the month for which the payment of the installmentis required. For example, if the taxable year is a calendaryear and operations began on January 1, in columns (a),(b), (c) and (d), you must enter 3, 5, 8 and 11.

Line 20 – Enter the total tax credits and withholdings atsource for the taxable year.

Line 22 – In order to determine the amount to be enteredin columns (b), (c) and (d), you must complete lines 26through 29 of previous column of Section B (EstimatedTax Required).

PART II – FAILURE TO PAY

Line 30 – Check calendar year if your taxable year endedon December 31. Otherwise, check fiscal year. Enter incolumns (a), (b), (c) and (d), the date corresponding to the15th day of the fourth month, sixth month, ninth month andtwelfth month of the taxable year, respectively.

If you filed an extension of time to file the Estimated TaxDeclaration, enter in column (a) the date granted to file thesame.

2003

29

Line 31 – If you do not use the method of placing the netincome on an annual basis to determine the minimumestimated tax required per installment, and the obligationto file the estimated tax declaration was met for the firsttime, before the first day of the fourth month of the taxableyear or if you were required to file an Estimated TaxDeclaration during the previous taxable year, enter in eachone of the columns 25% of line 8. If the obligation was metfor the first time after the last day of the third month andbefore the first day of sixth month of the taxable year,enter 33% of line 8 in columns (b), (c) and (d). If theobligation was met for the first time after the last day ofthe fifth month and before the first day of ninth month ofthe taxable year, enter 50% of line 8 in columns (c) and (d).If the obligation was met for the first time after the lastday of the eighth month and before the first day of twelfthmonth of the taxable year, enter 100% of line 8 in column(d).

Line 32 – Enter in column (a) the total estimated taxamount paid not later than April 15 of the taxable year(the 15th day of the fourth month of the taxable year if youhave a fiscal year); in column (b), the total estimated taxamount paid after April 15 of the taxable year (the 15th dayof the fourth month of the taxable year if you have a fiscalyear) and not later than June 15 of the taxable year (the15th day of the sixth month of the taxable year if you havea fiscal year); in column (c), the total estimated tax amountpaid after June 15 of the taxable year (the 15th day of thesixth month of the taxable year if you have a fiscal year)and not later than September 15 of the taxable year (the15th day of the ninth month of the taxable year if you havea fiscal year); and in column (d), the total estimated taxamount paid after September 15 of the taxable year (the15th day of the ninth month of the taxable year if you havea fiscal year) and not later than December 15 of the taxableyear (the 15th day of the twelfth month of the taxable yearif you have a fiscal year).

Line 33 – If various payments were made in the periodsdescribed in the instructions for line 32, indicate theamount and date of the payments.

Line 34 – To determine the amount to be entered incolumns (b), (c) and (d), you must complete lines 35 trough40 of previous column.

PART III – ADDITION TO THE TAX FOR FAILURETO PAY

Line 41 – If the failure to pay on line 37 was covered inonly one payment (overpayment) made after the due date,multiply line 37 by 20%. If the failure to pay on line 37 wascovered in two or more payments (overpayments) madeafter the due date, do not write anything on this line andcomplete the table corresponding to the installment,located on page 2 of this Schedule.

Line 42 – If the failure to pay on line 37 was covered inonly one payment (overpayment) made after the due date,enter the number of days elapsed from the date in whichthe estimated tax payment must have been paid and theearliest between the date in which the payment(overpayment) was made, or the 15th day of the fourthmonth following the close of the taxable year.

Any overpayment, after covering the estimated tax paymentof the corresponding installment, will be attributed first tothe amount of estimated tax of previous installments dueand not paid and then to the subsequent installments.

If the failure to pay on line 37 was covered with two ormore payments (overpayments) made after the due date,do not write anything on this line and complete the tablecorresponding to the installment on page 2 of thisSchedule. Determine the days elapsed from the due dateof the estimated tax installment and the earliest betweenthe date of each one of the payments or overpaymentsapplied, or or the 15th day of the fourth month followingthe close of the taxable year.

The date of the overpayment applied, will be the date inwhich the payment that caused such overpayment was made.

Line 43 - If the failure to pay on line 37 was covered inonly one payment (overpayment) made after the due date,divide the number of days entered on line 42 by 365 andmultiply the result by line 41. If the failure to pay on line37 was covered with two or more payments(overpayments) made after the due date, enter the totalfrom the table corresponding to the installment, locatedon page 2 of this Schedule.

PART IV - TABLES TO CALCULATE THE ADDITIONTO THE TAX FOR FAILURE TO PAY THEINSTALLMENTS OF ESTIMATED TAX

Calculate the penalty for each one of the amounts due bythe dates of their respective payments, using the tableson page 2 of this Schedule.

Example:

The minimum estimated tax for the current year was $4,000.The net income was not placed on an annual basis tocalculate the minimum estimated tax, thus, the taxpayerhad to make four estimated tax installments for 4/15, 6/15,9/15 and 12/15 of the current year of $1,000, respectively.The following payments were made:

Date Amount 4/15 600 5/30 150 6/15 1,000 9/15 1,100 12/15 1,000

2003

30

The current year tax was totally met on the date prescribedby the Code to file the same, without considering anyextension of time. Therefore, the taxpayer totally paid thecurrent year tax by April 15 following the close of thetaxable year. The computation of line 21 will be:

FORM 480-E-ESTIMATED TAX DECLARATION

The Estimated Tax Declaration (Form 480-E) must be filednot later than the 15th day of the fourth month of thetaxable year, except when the requirements to file are metfor the first time:

After the last day of the third month and prior to thefirst day of the sixth month of the taxable year, thefiling date will be not later than the 15th day of thesixth month of the taxable year; or

After the last day of the fifth month and prior to thefirst day of the ninth month of the taxable year, thefiling date will be not later than the 15th day of theninth month of the taxable year; or

After the last day of the eighth month and prior tothe first day of the twelfth month of the taxable year,the filing date will be the 15th day of the twelfthmonth of the taxable year.

The Declaration may be filed at the Internal RevenueCollections Office of the Municipality where the taxpayerresides or sent to:

DEPARTMENT OF THE TREASURYRETURNS PROCESSING BUREAUPO BOX 9022501SAN JUAN PR 00902-2501

Every taxpayer required to file a Declaration, must write thename, address and the employer's identification number, and

Amount dueand not paidbefore thepayment

Amount ofpayment or

overpayment

Date of payment oroverpayment

Days elapsed from the due date Multiply (a)by 20% by

(d)365

(a)$400250150

(b)$150 100 150

(c)5/309/154/15

(d)45153365

(e)$10 21 30 $ 61

Line 37 of Column (a)

Subtract the amount in Column (b) of the preceding line from the amount in Column (a) of the preceding line.

Total: Add Column (e) and transfer to Part III, line 43, Column (a) ...........................................................

TABLE 1 - Payments to Meet the First Installment Made After its Due Date (4/15)

��

�

�

1)

2)

3)

check the applicable box to indicate if the same is amended. Inaddition, you must indicate the taxable year for which theestimated tax payments will be applied, and the type of taxpayer.

Determine the estimated tax to be paid for theindicated taxable year. This amount cannotbe less than the smaller of the followingamounts:

90% of the tax to be paid at the end ofthe taxable year, or

100% of the tax paid in the previoustaxable year.

Enter as estimated credit the amount withheldfor services rendered by the entity or theamount withheld on distributable share ofprofits from Special Partnerships. If you arefilling out an Amended Estimated TaxDeclaration, also enter on this line the totalamount of the installments paid, if any, beforethis amendment.

Enter as credit the tax paid in excess in theprevious year applied as estimated taxpayment on the income tax return. If youchoose to claim this credit against one of thedetermined installments, enter zero and go toline 5.

Divide the result on line 5 by the number ofremaining installments.

Enter the tax paid in excess in the previousyear applied as estimated tax payment in theincome tax return that will be claimed against

Line 1 -

.

.

Line 2 -

Line 4 -

Line 6 -

Line 7 -

2003

31

the amount of any installment. If such creditwas already considered on line 4, it cannot beconsidered again.

PAYMENT OF ESTIMATED TAX

If the Declaration is filed prior to the first day of the fourthmonth of the taxable year, the estimated tax will be paid infour installments:

1st installment: the 15th day of the fourth month

2nd installment: the 15th day of the sixth month

3rd installment: the 15th day of the ninth month

4th installment: the 15th day of the twelfth month

If the Declaration is filed after the last day of the thirdmonth and prior to the first day of the sixth month of thetaxable year, the installments will be:

1st installment: the 15th day of the sixth month

2nd installment: the 15th day of the ninth month

3rd installment: the 15th day of the twelfth month

If the Declaration is filed after the last day of the fifthmonth and prior to the first day of the ninth month of thetaxable year, the installments will be:

1st installment: the 15th day of the ninth month

2nd installment: the 15th day of the twelfth month

If the Declaration is filed after the last day of the eighthmonth and before the first day of the twelfth month of thetaxable year, the total estimated tax will be paid on the 15thday of twelfth month of the taxable year.

The estimated tax installments will be paid along with apayment coupon (Forms 480.E-1 or 480.E-2). Taxpayerswho filed a Declaration in the previous year, will receive abooklet containing 4 coupons (Forms 480.E-2) preprintedwith your name, address and employer's identificationnumber. Taxpayers who have not received the couponbooklet, must visit the Errors Correction and Estimated andEmployer Manual Coupons Section (Office 401) of theDepartment of the Treasury in Old San Juan, where a paymentcoupon booklet (Form 480.E-1) will be prepared. Foradditional information, call (787) 722-1499 or (787) 721-2020,extension 2446 or 2456.

Estimated tax payments must be made at participant banks(if you have the preprinted coupon), at the Internal RevenueCollections Offices or at the Returns Processing Bureau atthe address previously indicated.

Payments with checks in the participating banks must bemade payable to the order of such banks. Payments madeat the Internal Revenue Collections Offices shall be madewith manager’s checks, personal checks or money orderspayable to the Secretary of the Treasury.

EXTENSION OF TIME

If for a reasonable cause, a taxpayer is unable to file theDeclaration or pay the tax as indicated, an extension oftime to file the Declaration may be requested to theSecretary. No extension of time will be granted for a periodlonger than 3 months. The extension shall be requestedusing Form AS 2650.

AMENDED DECLARATION

If after filing the Declaration it is determined that the estimatedtax will be substantially increased or reduced as a result of achange in income, deductions or for any other reason, anAmended Declaration must be filed. The AmendedDeclaration must be identified by checking the applicablebox. The increase or reduction of the estimated tax will beproportionally distributed among the remaining installments.Any Amended Declaration filed after the 15th day of theninth month following the beginning of the taxable year as aresult of an increase in the previously estimated tax, mustinclude the total amount of said increase. The AmendedDeclaration in this case will be unnecessary if on the dateprescribed for its filing, the final income tax return has beenfiled and the balance of tax due has been paid.

PENALTIES

The Code establishes penalties for not filing theDeclaration and for not paying the estimated taxinstallments. Also, a penalty is imposed for determining asubstantially lower amount of estimated tax.

2003

32

PUBLIC ADMINISTRATION

NORTH AMERICAN INDUSTRY CLASSIFICATION SYSTEM (SCIAN)

SECTOR CODE ECONOMIC ACTIVITY DESCRIPTION

AGRICULTURE AND FISHING

ENERGY AND MINING

CONSTRUCTION

MANUFACTURING

TRADE

TRASNPORTATION

INFORMATION

FINANCE AND INSURANCE

REAL ESTATE AND RENTAL

PROFESSIONAL, SCIENT. & TEHCNICAL SERVICES

EDUCATIONAL SERVICES

HEALTH SERVICES

ARTS AND RECREATION

ACCOMMODATION AND FOOD SERVICES

OTHER SERVICES

111113115212221222236237238311312313315316321322323324325326327331333334335337431432433435436437461462463464466467468469481483484485486487488491492511512513521522523524531532541561611621622623624711713721722811812813931

Crop productionFishingAgriculture servicesMiningElectric power generation and transmissionCollection, treatment and supply of waterResidential and not residential constructionConstruction of water, electricity, telecommunications and transportation systemsConstruction servicesFood manufacturingBeverages, tobacco and cigarettes manufacturingTextiles, carpets, curtains and other products manufacturingClothing manufacturingShoes manufacturingWood products manufacturingPaper manufacturingBooks, newspapers and magazines printingPetroleum refiningChemical products manufacturingPlastic products manufacturingChina, bricks, tiles, cement, pipes, lime, plaster and glass products manufacturingIron, steel, aluminum and tools manufacturingAgriculture, fishing, construction, and others machinery manufacturingComputers and electronic products manufacturingElectrical equipment, appliance and component manufacturingFurniture and related products manufacturingFood and beverage wholesale tradeClothing and shoes wholesale tradePharmaceutical and personal care products wholesale tradeMachinery and equipment wholesale tradeMotor vehicles wholesale tradeOther products wholesale tradeFood and beverage retail tradeDepartments stores retail tradeClothing and shoes retail tradePharmaceutical and personal care products retail tradeFurniture and electrical goods retail tradeHardware retail tradeMotor vehicle, gasoline, diesel and parts retail tradeOthers retail tradeAir transportationGeneral water transportationGeneral freight trucking transportationTransit and ground passenger transportationCrude oil transportationScenic and sightseeing transportation, land and waterAirports and ports administrationPostal services transportationCouriers and messengers services transportationNewspapers, magazines, books and software publishersProduction and distribution of movies, television programs and music publishersProduction and broadcasting of radio programsCommercial and mortgage bankingCredit intermediation and related activitiesBrokers and securities dealersInsurance companies, agents and independent insurance carriersRental of real property and real estate brokersRental of personal property (automobiles, machinery, etc.)Professional, scientific and technical servicesEmployment, collection, security and waste disposal agenciesGeneral education schools, non universityAmbulatory health care servicesHospitalsNursing and residential care facilitiesSocial assistancePromoters of public shows and artistsRecreation and sports centersHotels, motels and boarding housesRestaurants, food preparation services, drinking places and night clubsAutomotive mechanical, body, paint and interior repair, and maintenance of automobiles and trucksPersonal care services, beauty salons, laundries and funeral homesProfessional, labor and civic associations and political organizationsPublic administration in general

2003

33

PRESORTED STANDARD

U.S. PostagePAID

San Juan, P.R.Permit 3049

COMMONWEALTH OF PUERTO RICODEPARTMENT OF THE TREASURYPO BOX 9022501SAN JUAN PR 00902-2501

DO NOT FORGET TO WRITE YOUR EMPLOYER'S IDENTIFICACION NUMBERIN THE CORRESPONDING BOX IN THE RETURN AND SCHEDULES. THISNUMBER IS NECESSARY TO PROCESS YOUR RETURN.

IMPORTANT NOTICE:

TAKE OFF AND USE THIS LABEL IN YOUR RETURN IF THE DATA ISCORRECT. IF THERE IS ANY INCORRECT INFORMATION IN THE LABEL,DISREGARD AND WRITE YOUR PERSONAL INFORMATION CORRECTLYIN YOUR TAX RETURN.

IMPORTANT:

income tax return of taxable corporations and...

Documents