SECTION 3. APPLICATION OF

NONCOMPULSORY PAYMENT REGULATIONS TO AMENDED PUERTO RICO TAX DECREES

The Treasury Department and the IRS are aware that questions have arisen as to whether a decision to amend an existing tax decree pursuant to Act 52-2022 will cause any amount remitted to Puerto Rico in excess of the amount of tax that would have been owed but for amending the existing tax decree to be considered a noncompulsory payment under §1.901-2(e) (5), and therefore not an amount of foreign income tax paid or accrued for which a credit is allowed under section 901.

October 11, 2022 276 Bulletin No. 2022–41

To facilitate Puerto Rico’s transition to Act 52-2022, and given Puerto Rico’s status as a territory of the United States, the Treasury Department and the IRS have determined it is necessary and appropriate to provide guidance on the application of Treas. Reg. §1.901-2(e)(5) to amounts remitted to Puerto Rico under the terms of a tax decree amended pursuant to Act 52-2022 on or before December 31, 2022. Therefore, the Treasury Department and the IRS intend to issue regulations under section 901 (the “forthcoming proposed regulations”) to provide that amending an existing tax decree with Puerto Rico pursuant to Act 52-2022, on or before December 31, 2022, does not cause any amount of foreign income tax paid or accrued to Puerto Rico pursuant to the amended tax decree to be treated as a noncompulsory amount under Treas. Reg. §1.901-2(e)(5).

Under the forthcoming proposed regulations, amending an existing tax decree pursuant to Act 52-2022 (as enacted on June 30, 2022) will not, solely by reason of any difference in the amount of income tax liability to Puerto Rico under the existing tax decree as compared with the amended tax decree, be considered to increase the taxpayer’s liability for Puerto Rico income tax over time for purposes of Treas. Reg. §1.901-2(e)(5) if the existing tax decree is amended pursuant to Act 52-2022 on or before December 31, 2022, and the taxpayer’s Puerto Rico income tax liability under the amended tax decree in each taxable year is less than the amount of income tax the taxpayer would have owed to Puerto Rico under Puerto Rico’s generally applicable income tax laws in the absence of any tax decree in the taxable year. No inference as to the application of the noncompulsory payment regulations in any other context should be drawn from this Notice.