P.R. Laws tit. 13, § 30412
The net income of the estate or trust shall be computed in the same manner and on the same basis as in the case of an individual, except as provided herein below:
(a) Subject to the provisions of subsection (e), there shall be allowed as a deduction, instead of the deduction for gifts authorized by § 30135(a)(3) of this title, any part of the gross income, without limitation, that complying with the terms of the testament or the instrument creating the trust, is paid or permanently separated during the tax year with the purpose and in the manner specified in § 30135(a)(3) of this title, or it must be used exclusively for religious purposes, for the establishment, acquisition, maintenance, or operation of a public cemetery not operated for profit, or for the purposes established in § 30471(a)(2)(A) of this title.
(b) There shall be allowed as an additional deduction in computing the net income of the estate or trust the amount of the income of the estate or trust for its taxable year which is to be distributed currently by the fiduciary to the legatees, heirs, or beneficiaries, but the amount so allowed as a deduction shall be included in computing the net income of the legatees, heirs, or beneficiaries whether distributed to them or not. As used in this subsection, “income required to be distributed currently” includes income for the taxable year of the estate or trust which, within the taxable year, becomes payable to the legatee, heir, or beneficiary. No amount allowed as a deduction under this subsection shall be allowed as a deduction under subsection (c) in the same or any succeeding taxable year.
(c) In the case of income received by estates during the period of its administration or settlement, and in the case of income which, at the discretion of the fiduciary, may be either distributed to the beneficiary or accumulated, there shall be allowed as an additional deduction in computing the net income of the estate or trust the amount of the income of the estate or trust for its taxable year which is duly paid or credited during such year to any legatee, heir, or beneficiary, but the amount so allowed as a deduction shall be included in computing the net income of the legatee, heir, or beneficiary.
(d) Rules for application of subsections (b) and (c).— For purposes of subsections (b) and (c):
(1) Amounts distributable out of income or corpus.— In those cases where the amount paid, credited, or to be distributed can be paid, credited, or distributed out of sources other than income, the amount paid, credited, or to be distributed (except under a gift, bequest, devise, or inheritance not to be paid, credited, or distributed at intervals) during the taxable year of the estate or trust shall be considered as income of the estate or trust which is paid, credited, or to be distributed, if the aggregate of the amounts so paid, credited, or to be distributed does not exceed the distributable income of the estate or trust for its taxable year. If the aggregate of the amounts so paid, credited, or to be distributed during the taxable year of the estate or trust in such cases exceeds the distributable income of the estate or trust for its taxable year, the amount so paid, credited, or to be distributed to any legatee, heir, or beneficiary shall be considered income of the estate or trust for its taxable year which is paid, credited, or to be distributed, in an amount which bears the same ratio to the amount of such distributable income as the amount so paid, credited, or to be distributed to the legatee, heir, or beneficiary bears to the aggregate of the amounts so paid, credited, or to be distributed to legatees, heirs, and beneficiaries for the taxable year of the estate or trust. For purposes of this clause, “distributable income” means either:
(A) The net income of the estate or trust calculated with the deductions allowed under subsections (b) and (c) in cases to which this clause does not apply, or
(B) the income of the estate or trust minus the deductions provided in subsections (b) and (c) for cases in which this clause does not apply, whichever is greater. When computing such distributable income, the deductions under subsections (b) and (c) shall be determined without the application of clause (2).
(2) Amounts distributable from income of a prior period.— In cases other than those described in clause (1), if on a date more than sixty-five (65) days after the beginning of the taxable year of the estate or trust, income of the estate or trust for any period becomes payable, the amount of such income shall be considered income of the estate or trust for its taxable year in which paid, credited, or to be distributed to the extent of the income of the estate or trust for such period, or if such period is a period of more than twelve (12) months, the last twelve (12) months thereof.
(3) Distributions in the first sixty-five (65) days of taxable year.—
(A) General rule.— If within the first sixty-five (65) days of any taxable year of the estate or trust, any income of the estate or trust for a period beginning before the beginning of the taxable year becomes payable, such income, up to the income of the estate or trust for the part of such period not falling within the taxable year or, if such part is longer than twelve (12) months, then the last twelve (12) months thereof, shall be considered paid, credited, or distributed on the last day of the preceding taxable year. This paragraph shall not apply with respect to any amount to which paragraph (B) applies.
(B) Payable out of income or corpus.— If within the first sixty-five (65) days out of any taxable year of the estate or trust, an amount which can be paid at intervals out of sources other than income becomes payable, there shall be considered as paid, credited, or distributed on the last day of the preceding taxable year the part of such amount which bears the same ratio to such amount as the part of the interval not falling within the taxable year bears to the period of the interval. If the part of the interval not falling within the taxable year is a period of more than twelve (12) months, the interval shall be considered to begin on the date twelve (12) months before the end of the taxable year.
(4) Excess deductions.— If for any taxable year of an estate or trust the deductions allowed under subsections (b) or (c) solely by reason of clauses (2) or (3)(A) regarding any income which becomes payable to a legatee, heir, or beneficiary exceed the net income of the estate or trust for such year, computed without such deductions, the amount of such excess shall not be included when computing the net income of such legatee, heir, or beneficiary under subsections (b) or (c). In those cases where the income deductible solely by reason of clauses (2) or (3)(A) becomes payable to two or more legatees, heirs, or beneficiaries, the benefit of such exclusion shall be divided among such legatees, heirs, and beneficiaries, in the proportions in which they share in such income. In any case where the estate or trust is entitled to a deduction by reason of clause (1), in the determination of the net income of the estate or trust for purposes of this clause, the amount of such deduction shall be determined with the application of clause (3)(A).
(e) Rules for application of subsection (a) in the case of trusts.—
(1) Trade or business income.— When computing the deduction allowable under subsection (a) to a trust, no amount otherwise allowable under subsection (a) as a deduction shall be allowed as a deduction with respect to income of the taxable year which is allocable to its unrelated business income for such year. As used in this clause, the term “unrelated business income” means an amount equal to the amount which, if such trust were exempt from taxation under § 30471(a)(1) and (2) of this title, would be computed as its unrelated business net income under § 30482 of this title regarding income derived from certain business activities and from certain leases.
(2) Operations of trusts.—
(A) Limitation on deductions for charitable and other contributions.— The amount otherwise allowable under subsection (a) as a deduction shall not exceed fifteen percent (15%) of the net income of the trust (computed without the benefit of subsection (a)) if the trust has engaged in a prohibited transaction, as defined in paragraph (B) of this clause.
(B) Prohibited transactions.— For purposes of this clause, the term “prohibited transactions” means any transaction in which any trust holding income or corpus that has been permanently set aside or is to be used exclusively for charitable or other purposes described in subsection (a):
(i) Lends any part of such income or corpus, without receipt of adequate security, and a reasonable rate of interest, to;
(ii) pays any remuneration, salary, or other compensation from its income or corpus, in excess of a reasonable allowance for personal services actually rendered, to;
(iii) makes any part of its services available on a preferential basis, to;
(iv) uses such income or corpus to make any substantial purchase of securities or any other property, for more than an adequate consideration in money or money’s worth, from;
(v) sells any substantial part of the securities or other property comprising such income or corpus, for less than an adequate consideration in money or money’s worth, to, or
(vi) engages in any other transaction which results in a substantial diversion of such income or corpus, to: the grantor of such trust; any person who has made a substantial contribution to such trust; a member of the family (as defined in § 30137(b)(2)(D) of this title) of an individual who is the grantor of the trust or who has made a substantial contribution to the trust; or a corporation controlled by any such grantor or person, or by the trust itself, through the ownership, directly or indirectly, of fifty percent (50%) or more of the total combined voting power of all classes of stock entitled to vote, or fifty percent (50%) or more of the total value of all classes of stock of the corporation.
(C) Taxable years affected.— The amount otherwise allowable under subsection (a) as a deduction shall be limited as provided in paragraph (A) only for the taxable year subsequent to the taxable year during which the trust is notified by the Secretary that it has engaged in such transaction, unless such trust entered into such prohibited transaction with the purpose of diverting such corpus or income from the purposes described in subsection (a), and such transaction involved a substantial part of such corpus or income.
(D) Future charitable or other contributions of trusts and denied as a deduction under paragraph (C).— If the deduction of any trust under subsection (a) has been limited as provided in this paragraph, such trust, with respect to any taxable year following the taxable year in which notice is received of limitation of deduction under subsection (a), may, under regulations prescribed by the Secretary, file claim for the allowance of the unlimited deduction under subsection (a), and if the Secretary, pursuant to such regulations, is satisfied that such trust will not again knowingly engage in a prohibited transaction, the limitation provided in paragraph (A) shall not apply with respect to taxable years subsequent to the year in which such claim is filed.
(E) Disallowance of certain deductions for charitable or other contributions.— No gift or bequest for religious purposes, or those established in § 30471(a)(2)(A) of this title, otherwise allowable as a deduction under § 30130(a)(1), § 30135(a)(3), or § 30412(a) of this title, shall be allowed as a deduction if made in trust and, in the taxable year of the trust in which the gift or bequest is made, the deduction allowed to the trust under subsection (a) is limited under paragraph (A). With respect to any taxable year of a trust in which such deduction has been so limited by reason of entering into a prohibited transaction with the purpose of diverting such corpus or income from the purposes described in subsection (a), and such transaction involved a substantial part of such income or corpus, and which taxable year is the same, or prior to the taxable year of the trust in which such prohibited transaction occurred, such deduction shall be disallowed to the donor only if such donor or, if such donor is an individual, any member of his/her family, as defined in § 30137(b)(2)(D) of this title, was a party to such prohibited transaction.
(F) Definition.— For purposes of this clause, the term “gift or bequest” means any gift, contribution, bequest, devise, legacy, or transfer for less than the fair value in money or money’s worth, made after December 31, 2010.
(3) For disallowance of certain charitable deductions otherwise allowable under subsection (a), see § 30486 of this title.
(4) Accumulated income.— If the amounts permanently set aside or to be used exclusively for charity and other purposes described in subsection (a) during the taxable year or any preceding taxable year and not actually paid out by the end of the taxable year are:
(A) Unreasonable in amount or duration in order to carry out such purposes of the trust, or
(B) used to a substantial degree for purposes other than those prescribed in subsection (a), or
(C) invested in such a manner as to jeopardize the interests of religious, charitable, scientific, etc..-
The amount otherwise allowable under subsection (a) as a deduction shall be limited to the amount actually paid out during the taxable year and shall not exceed fifty percent (50%) of the net income of the trust (computed without the benefit of subsection (a)).
History —Jan. 31, 2011, No. 1, § 1083.02, retroactive to Jan. 1, 2011; Dec. 10, 2011, No. 232, § 103.