Agreed Upon Procedures Required to Claim Certain Deductions for the 2019 Income Tax Returns

The PR Code was amended by Act No. 257 of 2018, to establish the requirement to submit an AUP or a Compliance Attestation Report prepared by a Certified Public Accountant (“CPA”) with current license in Puerto Rico (hereinafter “CPA Report”). On the referred reporting, the CPA inspects and confirms that the claimed expenses are expenses incurred and evidenced to generate the income from self-employment of an individual, as a requirement for such expenses to be deductible for purposes of the Alternate Basic Tax (“ABT”) in the same way as they are deductible to determine the net income subject to the normal tax. A similar requirement was imposed on any entity taxed as a corporation to be able to claim, for purpose of the Alternative Minimum Tax (“AMT”), the same deductions claimed to determine the net income subject to the normal tax.
Considering the above, on December 9, 2019 the Secretary of the Treasury issued the Internal Revenue Circular Letter 19-14 (“Circular Letter”) to inform that, for these purposes, the required report will be an Agreed Upon Procedures (“AUP”), and to establish the contents of, and the procedures the CPA must follow to prepare such AUP. This determination and the procedures were established in a joint effort with the College of Certified Public Accountants.


This new requirement for the AUP will apply to any business, including an individual business, corporation, partnership, special partnership, limited liability company, corporation of individuals, insurance companies, cooperatives, real estate investment trusts or any other entity engaged in a trade or business or for the production of income in Puerto Rico (“Business”), who wants to determine its net income subject to ABT or AMT considering all of the expenses claimed to determine its net income subject to the normal tax. To comply with this, the AUP must be submitted together with their Income Tax Return (“Tax Return”). For pass-through entities, the AUP will be required to be submitted, at the pass-through level, when the owners of the entity opt to claim their distributable share of the expenses to determine the net income subject to ABT or AMT, as applicable, in their Tax Returns.
As an exception to this AUP requirement, the Business may elect to submit an Audited Financial Statement together with its Tax Return.

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