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Fiddler González & Rodríguez, P.S.C., P.O. Box 363507, San Juan, PR 00936-3507.

 

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Myrna Y. Medina-Massanet

(787) 759-3830

mymedina@fgrlaw.com

 

 

 

 

 

*Special Tax Counsel

 

 

March 28, 2017

 

Internal Revenue Circular Letter No. 17-5: Taxpayer Rehabilitation Program

 

On March 17, 2017, the Puerto Rico Treasury Department (the “Department”) issued Internal Revenue Circular Letter No. 17-05 (“CL 17-05”), to establish the Taxpayer Rehabilitation Program ("TRP"), which aims to reform and rehabilitate taxpayers by granting payment plans for assessed debts that are pending for collection. This program is intended to serve as an incentive for taxpayers to keep their accounts up to date and to commit themselves to fulfilling their tax responsibilities prospectively. CL 17-05 repeals Internal Revenue Circular Letter No. 16-10 issued August 8, 2016 and Informative Bulletin No. 09-14 issued November 10, 2009.

 

Under the TRP, the Puerto Rico Secretary of Treasury (the “Secretary”) will grant payment plans for the following five categories of debts:

 

      • Income tax;

      • Temporary Special Tax on Real Property (Act 9-2007) (“Special Tax”);

      • Sales and Use Tax (“SUT”);

      • Withholding Tax owed by employers and withholding agents (“Withholding Tax”); and

      • Excise Tax.

 

The payment plan could be automatic or regular, depending on the category of the debt and its total accumulated principal.

 

I. Automatic Payment Plans

 

An Automatic Payment Plan (“APP”) does not require the evaluation of the economic capacity of the taxpayer in order to be approved nor does it require a warranty of payment. In addition, the Secretary may forgive assessed fines and penalties under this plan. The APP is available for Income Tax, Special Tax, SUT and Withholding Tax.

 

The APP will be granted in accordance with the following terms and conditions:

 

A. Income Tax

 

          i. Principal balance of $10,000 or less

 

     • Maximum period of 24 months from the date of approval of the APP.

     • Direct Debit is the only accepted method of payment.

     • Monthly payments until debt is paid in full, including interest and surcharges.

 

          ii. Principal balance greater than $10,000, up to $25,000

 

      • Requires down payment for an amount equivalent to ten percent (10%) of the principal

        amount.

      • Monthly payments until debt is paid in full, including interest and surcharges.

      • Maximum period of 36 months from the date of approval of the APP.

      • Direct Debit is the only accepted method of payment.

 

          iii. Principal balance greater than $25,000, up to $50,000

 

       • Requires down payment for an amount equivalent to twenty percent (20%) of the

          Principal amount.

       • Monthly payments until the debt is paid in full, including interest and surcharges.

       • Maximum period of 36 months from the date of approval of the APP.

       • Direct Debit is the only accepted method of payment.

 

B. Temporary Special Tax on Real Property

 

      • Monthly payments until the debt is paid in full, including interest and surcharges.

      • Maximum period of 24 months from the date of approval of the APP.

      • Direct Debit is the only accepted method of payment.

      • Does not require down payment.

 

C. Sales and Use Tax and Withholding Tax

 

          i. Principal balance of $10,000 or less

 

      • Requires down payment for an amount equivalent to ten percent (10%) of the principal

         amount.

      • Monthly payments until the debt is paid in full, including interest and surcharges.

      • Maximum period of 12 months from the date of approval of the APP.

      • Direct Debit is the only accepted method of payment.

 

          ii. Principal balance greater than $10,000, up to $25,000

 

       • Requires down payment for an amount equivalent to twenty percent (20%) of the

         principal amount.

       • Monthly payments until the debt is paid in full, including interest and surcharges.

       • Maximum period of 24 months from the date of approval of the APP.

       • Direct Debit is the only accepted method of payment.

 

          iii. Principal balance greater than $25,000, up to $50,000

 

      • Requires down payment for an amount equivalent to twenty percent (20%) of the

        principal amount.

      • Monthly payments until the debt is paid in full, including interest and surcharges.

      • Maximum period of 36 months from the date of approval of the APP.

      • Direct Debit is the only accepted method of payment.

 

II. Regular Payment Plan

 

The Regular Payment Plans (“RPP”) shall be granted by the Department only to those taxpayers who prove, to the satisfaction of the Secretary, that they do not have the economic capacity to pay the balance due. The application for the RPP will be evaluated by officers of the Collection Districts, who will authorize the approval of the RPP Agreement.

 

Income Tax, Sales and Use Tax and Withholding Tax debts with a principal amount in excess of $50,000, and Excise Tax debts in any amount, are eligible to RPP under the following conditions:

 

        1. The Taxpayer must complete and submit Form SC 3325, "Statement of Financial

             Position of Individuals" or Form Model SC 3326, "Statement of Financial Position of

             Businesses or Corporations", as applicable.

        2. A down payment is required at the time of approval of the RPP, the amount of which

            shall be determined by the Secretary in proportion to the ability of the taxpayer to pay.

            However, this amount can never be less than ten percent (10%) of the principal owed.

 

        3. The term within which the taxpayer must pay the debt in its entirety shall be

            determined by the Secretary in proportion to the ability of the taxpayer to pay.

        4. Direct debit is the only accepted method of payment.

        5. The Department may request a warranty of payment as a condition for approval of the

            RPP.

 

III. Additional requirements for Sales and Use Tax and Withholding Tax Payment Plans

 

In all SUT cases, the taxpayer must deposit the SUT in weekly installments through the Internal Revenue Unified System platform ("SURI", for its Spanish acronym). The sum of the total weekly installments deposited during the month must represent at least 90% of the total SUT determined in the Sales and Use Tax Monthly Return for that month. If the annual sales volume exceeds $125,000, merchants must maintain a fiscal terminal at all times in their respective localities.

 

In all SUT and Withholding Tax cases, when the taxpayer is a legal entity, the officers or responsible persons for the collection and payment of the withholding tax must accept, as part of the Agreement, the imposition of the penalty established in Section 6080.02 of the 2011 Puerto Rico Internal Revenue Code, as amended (the “Code”), if the Taxpayer fails to comply with the payment plan requirements.

 

IV. How to apply

 

A. For an Automatic Payment Plan

 

Taxpayers interested in obtaining an Automatic Payment Plan must submit an application using the Form SC 3509 (for individuals) or Form Model SC 3510 (for businesses and corporations), as applicable. This Form must be submitted by e-mail to the following address: plandepago@hacienda.pr.gov.

 

B. For a Regular Payment Plan

 

A taxpayer interested in obtaining a Regular Payment Plan must submit an application in a letter format to the corresponding office of the Collection District. The application must include the following information:

 

     1. Personal information of the taxpayer;

     2. Personal information of the spouse, in the case of married individuals;

     3. Employer information, in the case of salaried individuals (including spouse);

     4. The category of debt under which the taxpayer is eligible and its respective balance at

          the time of application;

     5. Information about the bank account from which the direct debit will be made;

     6. Copy of Statement of Financial Position of Individuals (Model SC 3325), or Statement of

         Financial Position of Businesses or Corporations (Model SC 3326), as applicable,

         accompanied by the required documentation;

     7. The last two statements of all bank accounts or investments held by the taxpayer in

         financial institutions, cooperatives or similar institutions located in and outside of Puerto

         Rico (including spouse); and

     8. Copy of a debt certification showing the type and date of the debts that are requested to

         be included in the Regular Payment Plan.

 

Authorized Representatives must provide Form SC 2745, "Power of Attorney and Declaration of Representation".

 

V. Fail to Comply with a Payment Plan Agreement

 

If the taxpayer fails to comply with the requirements of the Payment Plan Agreement or with any subsequent tax liability:

 

     • The Department will proceed to impose all applicable fines and penalties established in

        the Code, without the need for additional notification to the Taxpayer;

     • The Department will terminate the Agreement and proceed with the collection of the

        outstanding balance of the debt plus any fines and penalties that have been forgiven as

        part of the payment plan;

     • The Department may use any collection mechanism provided by the Code to collect the

        debt and/or the warranty of payment;

     • The Department may report the debt to the various credit bureaus and the U.S. Treasury Offset Program maintained by the federal government, among others.

 

VI. Other Considerations

 

The taxpayer must include in the applicable payment plan all debts assessed by the Department as of the date of the request. Fines and penalties subject to exoneration through the approval of a payment plan under the provisions of CL 17-05 shall be those that have been assessed and that are pending payment as of the date of signing the Agreement. Those taxpayers who have various types of debts that in aggregate exceed $50,000, must request a Regular Payment Plan, even if they have debts that would individually qualify for an Automatic Payment Plan. Suppliers of goods and services to the government that at the time of requesting the payment plan demonstrate, to the satisfaction of the Secretary, that they have invoices processed and pending for payment, may request that said invoices be applied against the accumulated balance of their debts. For further information regarding this or any other tax issue, please contact our tax attorneys.

 

 

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**©2014 Fiddler, González & Rodríguez, P.S.C. This Watch has been prepared by Fiddler, González & Rodríguez, P.S.C. for informational purposes only and does not constitute legal advice. This information does not create, and receipt of it does not constitute, a lawyer-client relationship. Readers should not act upon this without seeking advice from professional advisers. Fiddler, González & Rodríguez, P.S.C. and its members assume no responsibility to inform you of additional changes in law or any other legal issues related to the matters advised in this e-mail.

 

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