Procedures to Claim Carryback of Net Operating Losses Generated During 2020

On November 17, 2021, the Puerto Rico Treasury Department issued Administrative Determination 21-09 (AD 21-09), where it establishes the procedures that allow eligible taxpayers to claim carryback of net operating losses due to the COVID-19 emergency in Puerto Rico. This is possible through a program established by Act 57 of 2020, known as the “Complementary Act to address the effects of the COVID-19 Emergency on the Puerto Rico Economy”.

In summary, any net operating loss generated during 2020, may be carried back and used to reduce 2018 and 2019 net operating income. 

There are, however, certain limitations, as follows:

  • This benefit is not available to:
  1. Any type of business that generates gross income of more than $10 million dollars.
  2. Taxpayers that fall within the definition of a “Large Taxpayer”*
  3. Taxpayers that are treated for tax purposes as flow-through entities, although its members or partners are eligible to apply for the program.
  • The maximum amount of losses that may be carried back to the years 2018 and 2019 is $200,000.
  • The maximum amount of refund will be $50,000.

It is important to note that the limitation that usually applies to the application of net operating losses, which prevents 100% of the use of the loss, does not apply to these carryback losses. As such, it will be possible to reduce the amount of net income to zero when applying to this program.

To apply, eligible taxpayers should complete a new form published by the Puerto Rico Treasury Department, Form 483.5, which is included with AD 21-09. This new form can only be filed online via SURI web platform. 

The due date to file this form varies depending on the due date of the 2020 return, as follows:

  1. If the return was due November 17, 2021 (including extension request), then Form 483.5 must be filed by January 31, 2022.
  2. If the return is due after November 17, 2021, then Form 483.5 must be filed the last day of the month that follows the due date (including extensions).

At RSM Puerto Rico, our tax consultants can help you determine if this program will benefit you. Contact us. 

 

*As such term is defined under Section 1010.01(a)(35) of the Puerto Rico Internal Revenue Code of 2011, as amended.  As a general rule, large taxpayers are:

  1. a commercial bank or trust company;a private bank;
  2. a securities or brokerage house;
  3. an insurance company, including an International Insurer
  4. an entity engaged in the business of telecommunications; or
  5. an entity whose volume of business is fifty million (50,000,000) or more, for the preceding taxable year.