Esta ley enmienda el Código de Rentas Internas de Puerto Rico de 1994 para establecer una disposición transitoria que permite que las distribuciones de fondos de cuentas de retiro individual, así como los fondos acumulados en dichas cuentas sobre los cuales el contribuyente elija pagar impuestos por adelantado, sean gravados a una tasa especial del 10% durante el período del 1 de julio de 2004 al 31 de diciembre de 2004. La ley establece limitaciones en la cantidad sujeta a esta tasa especial ($20,000), el procedimiento para elegir el pago anticipado, las excepciones a la tasa especial y las obligaciones de retención y pago para los fiduciarios de las cuentas. También exime de la penalidad por distribuciones antes de los 60 años a los montos distribuidos bajo esta disposición.
(Approved September 14, 2004)
To add a Section 1169A to Act No. 120 of October 31, 1994, as amended, known as the "Puerto Rico Internal Revenue Code of 1994," in order to temporarily allow that the distributions of funds deposited in the individual retirement accounts as well as those funds in said accounts on which the taxpayer chooses to pay the taxes in advance, be taxed at a special rate.
The main duty of the Department of the Treasury is to ensure that the public policy of the Commonwealth of Puerto Rico is fair and just and that the amounts collected covered into the General Fund through the levy and collection of taxes is sufficient to comply with the obligations and the budgetary expenses of the government agencies and entities that offer their services to the citizens.
It is generally known that a serious problem arose the past year concerning the shortage of over five hundred million dollars to cover the budget of the past fiscal year because of the high level of the public debt of the Commonwealth of Puerto Rico left by the past administration. This situation required the need for the present administration to establish certain alternate sources of financing and to develop certain measures for fiscal
control that would help to comply with the constitutional mandate to achieve a balanced budget.
In spite of the fact that the government of the Commonwealth of Puerto Rico took extraordinary measures to make the local economy more dynamic and strong, as well as to foster the use and consumption of the goods produced on the Island, these measures were not sufficiently effective. Not only should the measures we need to approve balance the budget for the next fiscal year but they must also guarantee the financial solidity and the good credit standing of the Commonwealth of Puerto Rico. It is for this reason that we need to once more evaluate the measures taken and to seek other alternatives to procure funds for our treasury, always taking into consideration and affecting as little as possible, the good quality of life our people deserve. After studying several alternatives we propose to temporarily allow that the distributions of funds deposited in Individual Retirement Accounts be taxed at a special rate. We also propose that the special rate likewise apply to those funds accrued in said accounts on which the taxpayer chooses to pay the taxes in advance.
This measure, together with the public policy which seeks to effectively control expenditures and increase the budget of our country while fostering the development of the local economy in general, as well as with efficient supervisory efforts to ensure compliance with the tax laws of Puerto Rico, shall contribute to the procurement of the funds needed to strengthen the economic resources of the Commonwealth of Puerto Rico.
Section 1.-A Section 1169A is hereby added to Act No. 120 of October 31, 1994, as amended, to read as follows:
"Section 1169A.-Transitory Provisions for Individual Retirement Accounts
(a) General Rule.-Subject to the limitations established in paragraph (1), any amount of an individual retirement account paid or distributed during the period between July 1, 2004 and December 31, 2004, or any amount accrued and undistributed in an individual retirement account on which, during the same period and according to paragraph (2), the taxpayer chooses to pay the tax in advance, shall be subject to a tax of ten (10) percent in lieu of any other tax imposed under the Code. For the purposes of this Section, the term 'Individual Retirement Account' shall have the same meaning it has under subsections
(a) and
(b) of Section 1169 of Act No. 120 of October 31, 1994, as amended. (1) Limitations: (A)(i) The provisions of subsection
(a) shall apply to the totality of the payments or distributions of the individual retirement accounts that, except for the provisions of this Section, would be subject to the payment of income tax pursuant to Section 1169(d)(1), that are made during the period established in subsection
(a) to the owners or beneficiaries of said accounts and whose total amount does not exceed twenty thousand $(20,000)$ dollars. (ii) Any amount accrued and undistributed in an individual retirement account on
which the taxpayer chooses to pay the ten (10) percent tax in advance, according to the provisions of paragraph two (2). (B) Any distributions or payment which exceeds the limit established in subsection (A) shall be subject to taxation according to the provisions of Section 1169(d). (2) Choice of paying in advance the tax on accrued and undistributed amounts.- (A) Any owner or beneficiary of an individual retirement account may choose to pay in advance during the period between July 1, 2004 and December 31, 2004, the tax of ten (10) percent imposed by this subsection on the totality or on part of any amount accrued and undistributed in an individual retirement account, that if distributed or paid would be subject to the payment of income tax pursuant to Section 1169(d)(1). The basis of the taxpayer in said individual retirement account shall increase in the amount on which the taxpayer chose to pay the tax in advance. (B) Choice and payment.-The choice must be made within the period provided in subsection (A), by filling out the form provided for this purpose by the Secretary. The tax must be paid at the Internal Revenue Collection Centers of the Department of the Treasury of Puerto Rico.
(3) Exceptions.-The special rate of ten (10) percent shall not apply to the following distributions: (A) Distributions of funds contributed to individual retirement accounts after December 31, 2003. (B) Distributions made during the period established in subsection
(a) because of the provisions of paragraphs (2), (3), (4), (5) or (6) of subsection
(d) of this Section 1169(d).
(b) Obligation to deduct and withhold.-Any trustee of an individual retirement account who makes distributions of individual retirement accounts subject to the tax established in subsection
(a) must deduct and withhold from said distributions an amount equal to ten (10) percent of the total amount of the same.
(c) Obligation to pay or deposit deducted or withheld taxes.Any trustee of an individual retirement account who is obligated to deduct and withhold any tax under the provisions of subsection
(b) , shall pay the total of the tax thus deducted and withheld pursuant to the provisions of Section 1169(d)(1) (F). Said trustee shall be responsible to the Secretary for the payment of said tax and shall not be responsible to any other person for the total of any payment thereof.
(d) No withholding.-Should the trustee of an individual retirement account, in violation of the provisions of this subsection, fail to make the withholding referred to in subsection
(b) , of the amount which should have been deducted and withheld (unless the receiver of the distribution pays the tax to the Secretary) shall collected
from the trustee of the individual retirement account following the same procedure as if it were a tax owed by the trustee.
(e) Penalties.-For the provisions relative to the penalties applicable for failing to withhold or deposit the tax provided in subsection
(a) see Section 6060.
(f) Exemption from the penalty for distributions prior to the sixty (60) years.-Any amount distributed, or understood to be distributed, pursuant to the provisions of this Section, shall not be subject to the penalty imposed in paragraph (1) of subsection
(g) of Section 1169."
Section 2.-This Act shall take effect immediately after its approval.
I hereby certify to the Secretary of State that the following Act No. 279 (H.B. 4869) of the $7^{ ext {th }}$ Session of the $14^{ ext {th }}$ Legislature of Puerto Rico:
AN ACT to add a Section 1169A to Act No. 120 of October 31, 1994, as amended, known as the "Puerto Rico Internal Revenue Code of 1994," in order to temporarily allow that the distributions of funds deposited in the individual retirement accounts as well as those funds in said accounts on which the taxpayer chooses to pay the taxes in advance, be taxed at a special rate, has been translated from Spanish to English and that the English version is correct.
In San Juan, Puerto Rico, today $25^{ ext {th }}$ of October of 2005.
Francisco J. Domenech Director