P.R. Laws tit. 13, § 30126
(a) Bad debts.—
(1) General rule.— For debts which become worthless within the taxable year; when satisfied that a debt is recoverable only in part, the Secretary may allow such debt as a deduction in an amount not in excess of the part charged off within the taxable year. This clause shall not apply with respect to a debt evidenced by securities as defined in clause (3) of this subsection. This clause shall not apply in the case of a taxpayer other than a corporation or partnership, with respect to a non-business debt, as defined in clause (4) of this subsection. The use of the reserve method for determining the deduction for bad debts shall not be allowed.
(2) Securities becoming worthless.— If any securities, as defined in clause (3), become worthless within the taxable year and are capital assets, the loss resulting therefrom shall, for purposes of this part, be considered a loss from the sale or exchange of capital assets, on the last day of such taxable year.
(3) Definition of securities.— As used in clauses (1), (2), and (4) of this subsection, the term “securities” means bonds, debentures, notes, or certificates, or other evidence of indebtedness, issued by any corporation, including those issued by a government or political subdivision thereof, with interest coupons or in a registered form
(4) Nonbusiness debts.— In the case of a taxpayer other than a corporation or partnership, if a nonbusiness debt becomes worthless within the taxable year, the loss resulting therefrom shall be considered a short-term capital loss.
(A) For purposes of this clause the term “nonbusiness debt” means a debt other than:
(i) A debt created or acquired, as the case may be, in connection with a trade or business of the taxpayer, or
(ii) a debt the loss from the worthlessness of which is incurred in the taxpayer’s trade or business. This clause shall not apply to a debt evidenced by securities as defined in clause (3).
(5) Securities of affiliate corporations.— Bonds, debentures, notes or certificates, or other evidences of indebtedness issued with interest coupons or in a registered form by any corporation affiliated with the taxpayer shall not be deemed capital assets for purposes of clause (2), and clause (1) shall apply with respect to such debt, except that no such deduction shall be allowed under such paragraph with respect to any such debt which is recoverable only in part.
For purposes of this clause, a corporation shall be deemed to be affiliated with the taxpayer only if:
(A) At least ninety-five percent (95%) of each class of its stock is owned directly by the taxpayer; and
(B) more than ninety percent (90%) of the aggregate of its gross income for all taxable years has been from sources other than royalties, rents (except rents derived from rental of properties to employees of the company in the ordinary course of its operating business), dividends, interest (except interest received on deferred purchase price of operating assets sold), annuities, or gains from sales or exchanges of stock and securities, and
(C) the taxpayer is a domestic corporation.
History —Jan. 31, 2011, No. 1, § 1033.06, retroactive to Jan. 1, 2011; Dec. 10, 2011, No. 232, § 28.