Tax & Compliance The IRS Just Issued a Warning About AI and Your Tax Data. Here Is What It Means for Your Business. The rules that govern tax professionals apply fully to AI-assisted work. There is no AI exception, no grace period, and no “the computer did it” defense. If your accountant or tax attorney is using artificial intelligence to prepare your returns, the IRS has something to say about it. And as a business owner, you should be paying attention, because the data at risk is yours. On June 24, 2026, the IRS Office of Professional Responsibility (OPR) issued Alert 2026-19, “Introductory Guidelines for Responsible AI Use in Federal Tax Practice.” Its message is direct: the rules that govern tax professionals, Treasury Circular 230 (31 C.F.R. Part 10), apply fully to AI-assisted work. In the OPR’s words, technology is a powerful tool, not a substitute for professional judgment. Here is what the warning actually says, and what it means for you. The IRS’s Core Warning: AI Can Fabricate Data, and Your Data Can Leak The bulletin identifies two risks every business owner should understand. First, AI makes things up. Generative AI can produce fabricated outputs (hallucinations), bias, and opaque reasoning. Courts have sanctioned lawyers for filings containing fake citations, with penalties including financial sanctions of several thousand dollars, public censure, mandatory ethics courses, default judgments, removal from cases, and referrals to state bar authorities. And it is not just lawyers. The OPR cites a report Deloitte Australia prepared for the Australian government in 2025 that contained invented quotes attributed to a judge, references to non-existent reports, and books ascribed to the wrong author, all apparently produced by generative AI. Deloitte reportedly refunded part of its fee. If your tax professional files something built on fabricated AI output, the professional gets disciplined, but your return is the one that is wrong. Second, and more important for you: AI tools can expose your confidential tax data. The OPR describes a risk most business owners have never considered: data a firm feeds into an AI system for one client can be repurposed by the program when answering questions about a different client. Your financials could literally bleed into someone else’s file. On top of that, uploading data to public or unsecured AI platforms risks unauthorized disclosure of tax return information, which carries civil and criminal penalties under IRC Sections 6713 and 7216(a), and separately violates Circular 230 Section 10.51(a)(15). “Tax return information” is defined broadly and includes your name, address, and identifying numbers (Treas. Reg. Section 301.7216-1(b)(3)). The IRS’s instruction to practitioners: handle all client data using only secure, enterprise-approved AI. If your tax preparer pastes your financial statements into a free public chatbot, they may be violating federal law with your data. Public AI vs. Private AI: What Is the Difference? The bulletin tells practitioners to use only “secure, enterprise-approved AI” and to never upload sensitive data to public or unsecured systems. Here is what that actually means. Public AI is the free, consumer version of a chatbot, used with no contract governing your data. Think free ChatGPT, free Google Gemini on a personal account, Meta AI inside WhatsApp or Instagram, or any chatbot someone signed up for with a personal email. On these platforms there is no agreement protecting confidentiality, inputs may be used to train the model, and the firm has no control over where the data goes or who can access it. When client financials are pasted into one of these tools, the information has left the firm’s control. Period. Private (enterprise) AI is a tool deployed under a commercial agreement with real data protections: the provider commits in writing that your inputs are not used to train models, data is encrypted, access is controlled by the firm, and usage can be audited. Examples include Claude for Work, ChatGPT Enterprise, Microsoft 365 Copilot running inside a firm’s own Microsoft environment, Azure OpenAI deployments, and the AI built into professional research platforms like Westlaw Edge, Bloomberg Tax, and Lexis-Nexis, which the IRS bulletin itself mentions. Some firms go further and run AI models entirely on their own computers, so sensitive data never leaves the office at all. The Three-Question Test Is there a signed commercial agreement covering confidentiality and data use? Does the provider commit in writing that inputs are not used to train its models? Can the firm control access, monitor usage, and delete data? Yes to all three means enterprise-approved. No to any means the tool should be treated as public, and your data should stay out of it. Watch for the trap in the middle: a paid individual subscription to a consumer chatbot is still not enterprise-approved, because the firm has no agreement, no administrative control, and no audit trail. The account belongs to the employee, not the firm. A simple analogy: public AI is like discussing your finances in a crowded café, where you cannot control who is listening. Private AI is a conference room in your advisor’s office with the door closed and confidentiality agreements signed by everyone inside. What the IRS Now Requires of Your Tax Professional The bulletin walks through five Circular 230 provisions that directly affect the service you receive: 1. Due diligence (Section 10.22). Your practitioner must thoroughly review every AI-created document before it reaches you or the IRS, verifying the accuracy of facts, citations, and calculations. Sole reliance on AI is not permitted; human scrutiny and editing are essential. 2. Fees (Section 10.27(a)). This one goes straight to your bottom line. Billing clients for time not actually spent because AI did the work faster, or double billing for AI-assisted tasks, may constitute an “unconscionable fee.” The OPR says cost savings should be passed on openly, that practitioners should disclose the AI activities performed, and that they should fairly credit cost reductions to the client’s account. 3. Competence (Section 10.35). Practitioners must understand both the tax law and the AI systems they use, including how those systems generate content,
Six Puerto Rico Incentive Programs That Can Cut Your Tax Bill
Puerto Rico Business Incentives Six Puerto Rico Incentive Programs That Can Cut Your Tax Bill Thousands of Puerto Rican companies are quietly paying 4% income tax instead of 37.5%, collecting cash grants, and stacking incentives. Here is what is actually available to you. If your news feed is your only source of information about Puerto Rico, you would think the island is closed for business. Meanwhile, thousands of Puerto Rican companies are quietly paying 4% income tax instead of 37.5%, collecting cash grants from the government, and stacking three or four incentive programs on top of each other. This is the part of the story that does not trend. Puerto Rico offers one of the most comprehensive business incentive frameworks in the United States, and the majority of these benefits are held by local companies and Puerto Rican residents. If you own a business here or you are thinking about starting one, the tools available to you are real, they are legally binding, and they can meaningfully change what your business looks like five years from now. Here is what is actually available. 1. Act 60: Lower Tax Rates Across the Board The headline benefit of Act 60 is a preferential income tax rate that ranges from 1% to 10%, with an average of 4%, compared to a standard corporate rate that can climb to 37.5%. But the tax savings do not stop there. A decree holder can also receive up to 75% exemption on CRIM (property tax), up to 100% exemption on municipal license tax (patente), 100% exemption on dividends, and IVU exemption on qualifying equipment and raw materials. The rate you pay depends on the chapter you qualify under. Manufacturing and Exportation of Services generally land at 4%. Pioneer Industry designation drops that to 1%. PYME status (for businesses under $3 million in revenue) can bring you to 2% for the first five years with 0% patente and 0% CRIM during that window. Young Entrepreneurs between 16 and 35 pay 0% on the first $500,000 of net income for three years. Agriculture pays 10% on income tax but 0% on other municipal and sales taxes. A decree is not a promise from a political administration. It is a contract with the Government of Puerto Rico, protected by the Constitution, that survives changes in government. Most decrees run for 15 years and are renewable for another 15. 2. Tax Credits: Non-Dilutive Capital You Can Sell Tax credits are one of the most misunderstood parts of the incentive system. If your business generates a credit and does not have enough tax liability to use it (because your rate is already 4%), you can sell that credit to another taxpayer on the secondary market, typically for 88 to 92 cents on the dollar. That is real cash back into your business without giving up equity. The Research and Development Tax Credit (RDTC) is a 50% credit on qualified R&D spending in Puerto Rico. Qualifying costs include salaries of R&D personnel, materials, laboratory equipment, and contracted research services. Credits accumulate for up to 10 years if unused, and in some cases can be redeemed by Hacienda at 90%. Manufacturing, tourism, film, and Opportunity Zone credits also exist and follow similar mechanics. 3. EIF: Cash Reimbursements from the Government The Economic Incentives Fund (Fondo de Incentivos Económicos) is the part of the system that most business owners have never heard of. It is not a tax credit. It is cash back on qualified spending, funded by up to 10% of federal contributory income or $125 million annually. EIF reimbursements include 10% to 50% back on new machinery and equipment purchases, $400 to $1,000 per new job created and maintained (varying by salary, region, and industry), and variable reimbursements for infrastructure, training, and marketing. For a manufacturer investing $250,000 in equipment, that can mean $25,000 to $75,000 back in cash, plus additional dollars for every employee hired. 4. WIOA: Up to 75% of Wages Reimbursed During Training Conexión Laboral, administered by DDEC through its Programa de Desarrollo Laboral under Title I of the federal Workforce Innovation and Opportunity Act, reimburses employers for hiring and training local workers. On-the-Job Training (OJT) can cover up to 75% of a new hire’s salary while they are being trained on the job. General training and skills-development reimbursements can reach 50%. The eligibility bar is low: hire local residents into full-time positions at a minimum of $10.50 per hour and register with the local area office. WIOA stacks with essentially every other program on this list. 5. Capital Semilla and DDEC Marketing: Grants for Small and Growing Businesses If your business is too small or too new for Act 60, or if you operate in a sector Act 60 does not cover, Capital Semilla is the program to look at. There are two tracks: Capital Semilla Nuevas Reimburses 100% of qualified startup costs up to $15,000 for businesses with less than 36 months of operation. Eligible spending includes equipment, leasehold improvements, initial inventory, marketing, professional advice, and point-of-sale systems. Capital Semilla Existentes Reimburses 50% to 75% of qualified spending up to $35,000 for businesses with three or more years of operation, sales at or below $3 million, and at least one full-time employee. It is designed for growth: new equipment, expansion, inventory for growth, and technology upgrades. DDEC Marketing Reimbursement Covers 50% of marketing spend up to $10,000 for businesses under $3 million in sales and 25 employees. Contracts run up to 18 months and cover digital campaigns, branding, websites, professional photography and video, and advertising. It is fully compatible with Capital Semilla. 6. Municipal Incentives: San Juan’s Ordinance 28 and CDBG Municipal incentives are the layer most easily missed. In San Juan, Ordinance 28 offers 5 years of patente exemption, 5 years of personal property exemption, and 10 years of real property exemption in designated zones (Santurce, Río Piedras, Condado, Old San Juan, and others). The eligibility triggers are straightforward: create 5 or more new regular jobs,
Pay 4% Tax: Why Export of Services Is the Smartest Move for Puerto Rican Business Owners
Serving Clients Off the Island? You May Be Leaving Money on the Table There is a persistent and costly myth in Puerto Rico: that Act No. 60-2019, as amended, known as the Puerto Rico Incentives Code (“Act 60”), is a tax break reserved for wealthy foreigners. Local business owners hear “tax incentives” and assume the conversation isn’t about them. So they keep paying full freight, year after year, while a tool built largely for them sits unused. The numbers tell a different story. Roughly 65% of Act 60’s incentives are dedicated to Puerto Rico’s own economic development, and more than 60% of all decrees granted over the last 27 years have gone to Puerto Rican entrepreneurs. The most popular of these, by a wide margin, is the Export of Services decree (formerly Act No. 20-2012, as amended). It currently draws the highest volume of decree applications at the Department of Economic Development and Commerce (DDEC). If you provide a service from Puerto Rico to clients located outside the island, this chapter was written with you in mind. What “Export of Services” actually means The phrase sounds technical, but the idea is simple. You are exporting a service when you perform it from Puerto Rico for a client located somewhere else. Your office, your team, and your work stay on the island. Your customer are in the US (think Florida, Texas, New York), Virgin Islands, Spain, Latin America, or anywhere beyond Puerto Rico. That’s it. You don’t ship a product. You don’t open a foreign branch. You simply do what you already do, for clients who happen to be elsewhere. The rule that matters most: the 4% rate applies only to income generated from Puerto Rico through exported services. If your business serves both local and international clients, that’s fine. You request a decree covering the export portion of your income, and that portion is taxed at the preferential rate while your local work is treated normally. The condition is recordkeeping: you must maintain books, records, and billing that clearly separate export income, costs, and expenses to the satisfaction of the Treasury Secretary. The 4% rate then applies to the export portion, and your local work is taxed normally. The benefits: more than just a lower rate Securing an Export of Services decree is not a one-time discount. It is a contract between your business and the Government of Puerto Rico, carrying constitutional protection and lasting up to 15 years, with the option to renew for another 15 years. Because it is an agreement with the government itself and not with any particular administration, it gives you a stable foundation to plan around for years at a time. The core benefits include: 4% fixed income tax rate on income derived from your eligible export activity. 100% exemption on dividends. Distributions of those earnings to you as the owner are fully exempt. 75% exemption on real and personal property taxes (CRIM). 50% exemption on municipal taxes (patente). For a business owner, the dividend exemption alone can be transformative. It means the profit you pull out of the company to reinvest or pay yourself isn’t eroded a second time. The PYME advantage: a 2% rate for smaller businesses Small and medium businesses (“PYME” by its Spanish acronym) have an additional gear. If your business has an average business volume of $3 million or less over the prior three taxable years and had not begun operations before Act 60 took effect, you may qualify as a “New PYME.” That status lowers the rate from 4% to 2% for the first five years of the decree. During those five years, you also pay 0% in municipal taxes (patente) and 0% in property taxes (CRIM). After year five, the rate steps to 4% and the property and municipal exemptions move to 75% and 50% for the remainder of the decree. It’s worth understanding that the PYME rate is a modifier applied on top of an Export of Services decree, not a standalone program. You qualify under Export of Services first, then layer the PYME rate on top if eligible. For a growing company, that is essentially capital you fund your own expansion with, instead of sending it to the government. Does your service qualify? Probably. Act 60 lists 19 categories of eligible service activities, and they are broad. They include: Research and development. Scientific, technical, or commercial research performed in Puerto Rico for clients elsewhere. Think third-party contract research, contract labs, product testing, and innovation work where the findings are delivered to a company off the island. Advertising and public relations. Agencies and consultants that build campaigns, manage media, handle press, and shape reputation for clients located outside Puerto Rico. Consulting. One of the broadest categories. It expressly covers economic, environmental, technological, scientific, managerial, marketing, human resources, IT, and audit consulting. Most advisory firms with a defined specialty fit somewhere here. Advisory services on any industry or business. A catch-all within consulting. Where category 3 names specific disciplines, this covers advisory work on matters tied to any industry, giving room for niche or cross-disciplinary advisors. Creative industries. It reaches ticket sales made outside Puerto Rico (or bought by tourists here), transmission and recording rights sold to audiences off the island, musical productions, and eSports and Fantasy League events held in Puerto Rico. This is the category built for entertainment, media, and content producers. Construction blueprints, engineering, architecture, and project management. Design and technical services for projects, including the drawings themselves and the management of the project, performed for external clients. Professional services. Specifically legal, tax, and accounting. A Puerto Rico law firm or CPA serving mainland or foreign clients exports under this category, as long as the work doesn’t touch Puerto Rico (more on that limit below). Centralized management services. Strategic direction, planning, distribution, logistics, and budgeting run out of a company’s headquarters or regional offices. It also explicitly covers strategic and organizational planning of processes, distribution, and logistics for persons outside Puerto Rico. This
The Tourism Tax Benefits Puerto Rico Built for You
Act 60 Tourism Incentives Puerto Rico, Explained for Entrepreneurs Who Actually Build Things Puerto Rico’s Act 60 Tourism Chapter isn’t just for major hotel chains. It’s a powerful tax framework built for the entire visitor economy, from mountain glamping to nautical charters. When Mateo first walked his family’s acreage in the mountains of Utuado, he didn’t see just a coffee farm. He saw a destination. He envisioned luxury tents above the clouds, farm-to-table dining, and guided agrotourism tours: a business built around the land he already owned. What he didn’t immediately see was the legal and financial framework that would make it bankable. Like most Puerto Rican entrepreneurs, Mateo initially dismissed Act 60’s Tourism Chapter as something for billion-dollar hotel chains, not a startup in the cordillera. He also thought maybe he could turn to short-term rentals. The turning point came when he sat down with me and realized Puerto Rico’s Act 60 tourism incentives weren’t written just for the Ritz and there is a better way to do tourism in Puerto Rico than with AirBnB. Act 60 was written for the visitor economy, i.e. businesses that support tourism (from locals and foreigners). Every business that contributes to why people visit Puerto Rico, and spend money while they’re here, has a seat at this table. What Actually Qualifies as “Tourist Activity” On the lodging side, the qualifying designations are broader than most entrepreneurs expect. Traditional hotels and condohotels qualify with a minimum of fifteen units, a front desk, and employment requirements. Posadas Puertorriqueñas and Guest Houses operations with seven or more units. Bed and breakfasts (minimum three rooms, resident owner, breakfast required). For those building in the agricultural space, agro-lodging, which refers to accommodations with three rooms integrated into a property operated by a bona fide farmer with a tourism incentive extension, is also an eligible designation. Glamping operations with seven or more units qualify, as do tourist villas, defined as a minimum of seven separate units. Hostels with twelve or more beds and one room, round out the lodging side. The experience side is equally broad. Nautical tourism operations such as vessel charters and jet ski rentals qualify, as do tourist marinas. Agrotourism tours on bona fide agricultural land, theme parks, golf courses operated by or associated with a qualifying hotel, casinos operated within a qualifying tourism project, and medical tourism facilities serving patients traveling from around the globe are all eligible as well. And if a project doesn’t fit neatly into any of those categories, there is a catch-all provision under Section 5(i): the Secretary of DDEC has discretionary power to qualify facilities or activities that significantly stimulate the visitor economy. Also, important to note that lenders and property owners that rent their property to tourism developers can also benefit from incentives. Hotels Condohotel Bed and breakfast Posada Guest House Touristic Villa Agrotourism Paradores Vacation Club Glamping Golf course Nautical Tourism Tourism Marina Medical Tourism 15 year contract 4% Income Tax 0% Distributions 75% exemption on real and personal property taxes (CRIM) 50% exemption on municipal taxes (patente) 100% exemption on SUT 100% 4% capital gains 12% royalties The Decree: Your Tax Environment, Contractually Guaranteed Accessing Act 60’s benefits requires obtaining a tax exemption decree, a formal binding contract with the Government of Puerto Rico protected by the constitution. A decree typically runs 15 years with the option to renew for an additional 15. For a startup navigating unpredictable early revenue, that kind of stability is itself a strategic asset. Under the Tourism Chapter, a qualifying business enjoys a 4% fixed income tax rate on eligible tourism income. For businesses with annual revenue under $3 million in their first year, the PYME (Small and Medium Business) designation reduces that rate to 2% for the first five years, a meaningful advantage during the period when cash flow is most constrained. The income tax rate is only part of the picture. The decree also provides a 100% exemption on dividends, meaning profits distributed to the owner are not taxed at the individual level. For overhead, the law offers a 75% exemption on real and personal property taxes (CRIM) and a 50% exemption on municipal taxes (patente). For operations under construction, the 100% sales and use tax and excise tax exemption on qualifying goods, services, and 75% exemption on construction materials can represent a significant reduction in build-out costs. Tourism: Non-Dilutive Capital for the Build Tax Credits While the decree protects what you earn, Tourism Investment Tax Credits help fund the project itself. Think of these as government-issued certificates with a specific dollar value tied to your qualifying investment: non-dilutive capital that doesn’t require giving up equity. Under Act 60, entrepreneurs choose between two credit structures based on their cash flow needs. The 30% Tax Credit Option is front-loaded and favored by projects with significant upfront construction costs. An initial 10% of the credit is released upon obtaining financing, with the remaining 20% distributed in three parts starting at the anniversary of the first guest’s arrival. The 40% Tax Credit Option offers a larger total credit but is back-loaded: the entire 40% is distributed across three equal installments beginning only after that first anniversary of the commencement of operations and first guest stay. Choosing between them is a function of when the project needs capital most. Larger projects or those that the construction may take years will often prefer the 30% structure for its earlier liquidity. A project with lower construction costs but higher operational ramp-up may find the 40% structure more advantageous over time. Three Ways to Turn Credits into Cash Sophisticated operators do not wait for a tax liability to monetize these certificates. There are three primary paths. The most straightforward is direct offset: applying the credit against the business’s own Puerto Rico income tax liability, dollar for dollar. Alternatively, the tax credits can be sold on the secondary market to a third-party taxpayer for cash, which is the most common route. Conservative underwriting typically assumes 90 to 92 cents on the dollar, though peak demand around tax season has driven secondary market pricing as high as 94 to 95 cents. For those
Tax Season Started. Are you ready?
How 480s can keep more money in your pockets Puerto Rico’s tax compliance has many steps; income tax returns, volume of business returns, CRIM personal property return, DOS and DDEC annual reports, informative returns, DTRH returns, and federal returns. Please take this as a reminder that there is an upcoming deadline for your required informative returns (Forms 480). WHAT ARE FORMS 480? Forms 480 are Puerto Rico informative returns, similar to U.S. Forms 1099. They report payments made by a business to vendors, service providers, and other payees during the year. Filing some of these forms is not optional, they are a statutory compliance requirement under the Puerto Rico Internal Revenue Code. For example, you are generally required to file a Form 480.6SP for any professional service provider you paid in excess of $500 and include the amounts withheld or the withholding waiver. Additionally, if Alternative Minimum Tax (AMT) applies, reporting may be required starting at $1 to preserve the deduction. There are also other Forms 480, including but not limited to those applicable to technological tools and subscriptions, royalties, advertising expenses, insurance premiums, among others. WHY ARE 480s CRITICAL? The Puerto Rico Internal Revenue Code conditions the deductibility of many business expenses on the proper and timely filing of the required Forms 480 and, when applicable, the remittance of withholding taxes. Additionally, if you are applying for tax credits under an incentives decree (including Act 60), Forms 480 are an essential part of the AUP evaluation of the compliance process. Failure to file the required 480s may result in the disallowance of expense deductions, even if the expenses were legitimately incurred. WHO MUST FILE AND WHEN? • One Form 480 must be filed by the Company per vendor for payments made during the 2025 tax year. • Filing deadlines vary by form; however, most Forms 480 are due on or before February 28, 2026. Confirm applicable deadlines with your tax preparer. PENALTIES FOR NONCOMPLIANCE. Noncompliance carries significant penalties: • $500 per form for late filing. • $500 per form for failure to file. Penalties apply per vendor, per form. IMPORTANT REMINDERS • Filing Forms 480 is separate from issuing invoices or paying vendors. • Certain payments require withholding unless a valid waiver or certificate of relief applies. • Payments for services rendered by individuals, corporations, and partnerships are generally reported on Form 480.6SP. ACTION REQUIRED. You must contact your tax preparer immediately to: Review all vendors and service providers paid during 2025; Prepare and file all required Forms 480; and Ensure that deductions and tax credits are not jeopardized due to noncompliance. Discuss with your tax preparer about your filing obligations and submitting the required forms accurately and on time. This will enable you to keep more money in your pocket by being compliant. This communication and the attached information are provided for reference and coordination purposes only. Please note that Izquierdo Law LLC is a law firm and does not preparer tax filings. We can provide you with contact information for tax preparers, if you do not have one.
Critical January 30th Deadline for Act 60 Annual Report: Are You Compliant?
Critical January 30, 2026 Deadline for Act 60 Annual Report Compliance What decree holders need to know now If you hold an Act 60 decree in Puerto Rico, the January 15, 2026 deadline for filing the 2024 Exempt Business Annual Report, also known as the Informe Anual Exento (IANE), has now passed. The focus is no longer on extensions. It is now on avoiding penalties and protecting your decree. What is the IANE and why it matters The IANE is a mandatory Act 60 compliance filing submitted through the Incentives Portal. It is how the Puerto Rico Department of Economic Development and Commerce (DDEC) verifies that a decree holder continues to meet the terms and conditions of its Act 60 decree. This filing is separate from the Puerto Rico income tax return and is required even if the tax return was extended. Prior to this year, the Incentives Portal was not enabled for all decree holders under Act 60. This limited which taxpayers could comply electronically and created uncertainty for decree holders under other incentives programs. Historically reporting was only enabled for Act Nos. 73-2008, 20-2012, 22-2012, 135-1997, and 83-2010, as amended (“prior incentives laws”). DDEC Informational Bulletins No. DDEC 2025-007, 2025-008, and DDEC 2025-016 changed this. Now decree holders of Young Entrepreneurs, Scientists, Doctors, Tourism businesses, Private Equity, Historical Zones, Assisted Living, Social Interest Housing, Agroindustries and Bonafide Agriculturer, Film, Air and Maritime Transportation, and Cruise ships can and must file the annual report via the incentives portal. What happens now that the compliance deadline has passed and the January 30 relief window applies Under DDEC Informational Bulletin No. DDEC 2025-016, decree holders who did not file the 2024 IANE are considered non-compliant. DDEC has provided a short relief period, but it is closing quickly. If the IANE is filed on or before January 30, 2026, the non-compliance notice is voided and no automatic penalty applies. This is the final opportunity to file the IANE without financial consequences. Penalties and decree risk after January 30 If the IANE is not filed by January 30, 2026, enforcement escalates: Revocation can result in the loss of Act 60 benefits and the application of regular Puerto Rico income tax rates, which can reach up to 37.5 percent. Who should take action now This applies to Act 60 decree holders, as well as decree holders under prior incentives laws whose decrees are now reported through the Incentives Portal, who were required to file the 2024 IANE and have not yet done so. It does not apply if the report was already filed in accordance with the decree or if the decree does not require filing this report. If you are unsure whether the IANE was required or whether it was properly filed, do not assume compliance. Bottom line January 30, 2026 is the last opportunity to correct non-compliance before penalties and potential decree revocation begin. If you hold an Act 60 decree, now is the time to: Taking action before January 30 can avoid penalties and help protect your Act 60 benefits. If you need assistance reviewing your compliance status or completing the filing, contact us at support@izquierdolawllc.com.
Beyond the Balance Sheet: 5 Unwritten Rules of Business Financing That Put You in Control
Beyond the Balance Sheet: 5 Unwritten Rules of Business Financing That Put You in Control Most entrepreneurs walk into a bank asking for a loan. The most successful ones arrive ready to present an investment case. That shift in mindset changes everything. When you approach lenders with clarity, structure, and preparation, you stop appearing like someone requesting money and start positioning yourself as a business that is ready to grow. Today, lenders and the AI systems that increasingly assist them look at far more than revenue or credit scores. They evaluate how well your business is organized, how compliant you are, how clearly your numbers tell a story, and how disciplined your operations appear. Based on insights from banking veteran Leah Pérez and my experience advising business owners at Izquierdo Law LLC, these are the unwwritten rules that truly determine whether you secure capital and whether you do so from a position of control. Your Legal Structure Determines Your Financing Power Your legal structure shapes every part of the financing process. Entrepreneurs who operate under a DBA are legally indistinguishable from their business, which means the bank evaluates their personal finances because the business has no separate legal identity. In community property jurisdictions such as Puerto Rico, the marital estate is treated as a shared economic unit, which means a spouse’s assets may also be exposed, even if that spouse has no involvement in the business. Many owners are surprised to learn that operating as a DBA automatically places their personal and family assets at risk. By contrast, operating through an LLC or corporation means the business stands as its own legal person. The bank focuses primarily on corporate financial statements, and although shareholders with substantial ownership must still provide personal information, the separation between personal and business assets provides meaningful protection. Financing becomes easier because the structure itself establishes credibility and reduces perceived risk. You May Be Asking for the Wrong Type of Financing One of the first questions any lender asks is the purpose of the funds. This single question determines the exact structure of the loan the bank can offer. If the need is related to short term working capital, inventory, seasonal fluctuations, or cash flow gaps, the appropriate product is a line of credit, which is meant to revolve and typically supports needs that last less than a year. If the funds are intended for long term investments such as equipment, construction, property purchases, or expansions that will generate returns over several years, then the appropriate tool is a term loan with a defined repayment schedule. Many entrepreneurs slow their own approval by requesting a single lump sum for multiple unrelated needs. Banks do not design financing based on convenience. They design it based on purpose. When business owners are transparent about the use of funds, lenders can create a more accurate, affordable, and efficient financing structure that works with the business’s financial reality. A Quick Online Loan Can Block Your Future Access to Credit Online financing platforms make it easy to obtain fast cash, but the agreements often contain terms that restrict the entrepreneur more than expected. Many fintech lenders file a blanket lien over all current and future business assets. This lien usually places them in first position under secured transaction priority rules, which means they have the legal right to your assets before any traditional bank. Even a small online loan can prevent you from using your receivables, equipment, or inventory as collateral when you later need a larger loan for expansion. Many business owners only discover this problem when a bank informs them that every asset they own is already encumbered. The convenience of these fast loans often comes with long term consequences. This is why I always insist that every financing agreement, even those marketed as simple or routine, should be reviewed by an attorney. A single clause in a contract can effectively mortgage your future borrowing capacity. Your Financial Statements Must Tell a Clear and Coherent Story Many business owners think of financial statements as a compliance requirement, but lenders read them as a story. Before a bank evaluates your profit margins, it examines your compliance documents, including permits, corporate registration, tax certifications, and employment compliance. As banking specialist Leah Pérez often reminds clients, the government must be paid first. Lenders will not proceed until they confirm that your business is in good standing. Once compliance is established, lenders review your revenue, expenses, liabilities, and assets, but they also rely heavily on the notes to your financial statements. These notes provide essential context. If your profits dip one year because you invested in solar panels or upgraded machinery, the notes clarify that these are one time costs rather than signs of instability. Without context, the numbers can appear risky. With proper explanation, the same numbers reflect strategic planning and long term thinking. Lenders want to understand not just what the numbers say, but what they mean. Banks Evaluate Your Team as Much as They Evaluate Your Numbers Financing is never only about the business. It is also about the people who run it. Lenders want evidence that the business is managed responsibly and that the owner is supported by competent professionals. When a company has an experienced accountant preparing accurate financials, an administrator ensuring operational discipline, and an attorney providing legal structure and compliance oversight, lenders interpret this as a sign of seriousness and long term viability. Legal support is especially critical during the financing process. When you sign a loan contract, you are making legal representations. If you unintentionally claim the right to pledge assets that are already encumbered, you may be misrepresenting facts without realizing it. An attorney ensures that your legal structure is sound, your assets are properly protected, and your financing contract reflects reality instead of assumptions. This professional support strengthens your credibility and provides lenders with confidence in your decision making. Preparation Is Not Paperwork. Preparation Is Power. Achieving banking readiness is not simply
New Hacienda Guidance Changes How R&D Tax Credits Are Applied in Puerto Rico
Puerto Rico’s Department of the Treasury (Hacienda) has issued Administrative Determination No. 25-02 (DA 25-02), clarifying how Research & Development Tax Credits (RDTCs) can be claimed and used by businesses operating under Act 60-2019, as amended (“Act 60”) or prior incentives laws. Although DA 25-02 expressly references Acts 73-2008 and 83-2010, note that Act 60 recognizes prior incentive decrees and coordinates RDTC use across regimes. The ability to generate and use RDTCs is not new (see our prior posts and videos). Act 52-2022 (“Act 52”) previously changed how RDTCs may be used. DA 25-02 now changes how the credit is split and recorded in the Manejador de Créditos Contributivos (MCC). This update impacts only businesses with an incentives decree that are engaged in qualifying R&D activities in Puerto Rico. Background: R&D Tax Credits Under Incentives Laws If you hold an Act 60 or prior-law incentives decree and invest in eligible R&D activities in Puerto Rico, you can generate an RDTC of up to 50% of your special eligible investment. To claim the credit, you must obtain a Certification from the Department of Economic Development and Commerce (DDEC), supported by an Agreed-Upon Procedures (AUP) report from a licensed Puerto Rico CPA. Historically, the Certification, the AUP, and any amended returns were submitted to the MCC, and the credit appeared as a single transaction per tax year. Act 52 established that credits from tax years beginning after December 31, 2021 may be taken in two (or more) installments: up to 50% in the tax year the DDEC certification is issued (and it may be applied to a not-yet-due income tax return, including extensions), with the balance in subsequent tax years until exhausted. This change created ripples in the tax credit market because the RDTC usage year may no longer match the investment year, and taxpayers can be negatively affected by DDEC issuance timing and market dynamics (including caps under Act 73 of $300mm). It also directly affects cash flow: the purchase price an RDTC seller can obtain often depends on when the RDTC is issued and which returns are due at that time. While unfavorable for some taxpayers, this has been the rule since Act 52. Before DA 25-02 (but after Act 52), the law already required splitting the credit into installments, yet the MCC typically displayed one transaction. In practice, when an RDTC was sold to more than one taxpayer, sale agreements would specify which tax year the credit related to. DA 25-02 addresses monitoring challenges by splitting the MCC record into two transactions aligned with the tax years of use. Why This Matters for Incentives Businesses Doing R&D Under DA 25-02, the RDTC for a single tax year is divided into two separate installments, and each installment has its own identifier in the MCC. The two installments cannot first become available in the same tax year; the first is available in the certification year (or a prior year if the return is still open), and the second is available in subsequent years until exhausted. Each installment is independently transferable, and buyers step into the seller’s timing rules. For lawyers, RDTC sellers and buyers, and CPAs, this means you must review documentation carefully to ensure the RDTC sold and applied matches the correct installment and tax year. If you are executing a block sale, expect additional compliance steps and two separate MCC transfers—one for each installment ID. This structure may also affect pricing, since the market can now value each installment separately—something Hacienda can also track more explicitly via the MCC. Example Company ABC has an Act 60 decree and invests $2 million in R&D in 2024. On September 1, 2025, DDEC issues a $1 million RDTC certification. In the MCC, the RDTC appears in two tranches (installments): Tranche 1 (up to 50%) and Tranche 2 (the remainder). ABC sells the RDTC to Company XYZ, which filed for an extension; its 2024 return is not yet due, so XYZ can use Tranche 1 for its 2024 income tax liability and Tranche 2 for 2025. The transaction documents must reference the specific tranche identifiers, and the MCC transfer must be executed twice—once for each tranche. When the buyer’s CPA applies the credit, they must reference the correct tranche. Our Take DA 25-02 does not change the substantive eligibility of RDTCs; it clarifies how and when they can be used and operationalizes the split inside the MCC as two separate transactions, with timing and transfer rules that can materially affect pricing and cash-flow planning. Questions about R&D tax credits or other Act 60 matters? Contact Izquierdo Law LLC. We’ll help you navigate the new rules, optimize credit use, and stay fully compliant with DDEC and Hacienda requirements.
Unlock Your Business’s Potential: How Puerto Rico’s Act 60 Boosts Manufacturers (Big and Small!)
Are you an entrepreneur or business owner looking to optimize your finances and scale your operations? Puerto Rico offers one of the most powerful tools for doing just that—Act 60, also known as the Puerto Rico Incentives Code. In a recent conversation, Attorney Ana Izquierdo from Izquierdo Law LLC and Víctor Merced from the Department of Economic Development (DDEC) discussed how Act 60 can put “more money in your pocket”—and not just if you’re a massive corporation like Pfizer or Goya. This law was designed to benefit businesses of all sizes, from startups to established conglomerates. Why Act 60 Is a Game-Changer for Manufacturers 1. Drastically Reduced Tax Rates ⚪ Pioneer businesses: as low as 1% corporate income tax. ⚪ SMEs: 2% for the first five years. ⚪ General manufacturing: 4% rate. That’s a huge drop from the usual 37.5% corporate rate. 2. Additional Tax Breaks Act 60 reduces property taxes (CRIM), and even municipal patents—meaning more savings across the board. Eliminates sales and use tax for raw materials and machinery and equipment used in manufacturing. 3. Long-Term Stability Enjoy 15 years of reduced rates, with the possibility of extending another 15 years—30 years of tax benefits in total. A Broader Definition of “Manufacturing” Manufacturing under Act 60 isn’t just assembly lines—it’s any “eligible activity” capable of generating profit. This opens the door for a variety of industries: ⚪ Software Development – A top category for DDEC applications thanks to its low startup costs. ⚪ Intellectual Property Ownership – Qualify even without physical production if you own the IP. ⚪ Third-Party R&D / Contract Manufacturing – Outsource production but keep ownership of the product and benefit from the reduced tax rate. ⚪ Contract Research – Clinical trials and process development can also qualify. ⚪ Key Suppliers – If your products feed into larger manufacturers, you’re eligible too. ⚪ Conglomerates – Yes, they qualify. ⚪ Property Owners – Lease 25%+ of your space to a manufacturer? You could get a 4% decree yourself. The R&D Credit Advantage Act 60 offers up to 50% credits on R&D expenses—with no cap. These credits can be sold forward, giving you extra liquidity while minimizing your tax burden. The only catch? The financial risk of R&D must be with the contracting entity, not the contractor. Don’t Self-Reject – The most common mistake is assuming you don’t qualify. Just ask. Final Takeaway Whether you’re running a high-tech R&D lab, a niche supplier, or a software company, Act 60 could be your key to major tax savings and growth in Puerto Rico. Don’t dismiss your business’s eligibility—evaluate, validate, and see how much more money you could keep in your pocket. 📞 Ready to explore how Act 60 can transform your business? Reach out to Izquierdo Law LLC today. We’ll guide you through the process and help you tap into Puerto Rico’s powerful manufacturing incentives. Learn more about this topic watch the video here. https://youtu.be/Lu05lHSabuk?si=i6q4eOjudSlUkJ4I
3 Errores Costosos Legales Que Cometen Las Empresas Nuevas
https://youtube.com/shorts/pD6zsNTeXFE Lo Que Debes Hacer Antes de Registrar Tu Marca o crear tu Negocio en Puerto Rico Iniciar un nuevo negocio es un viaje emocionante lleno de planificación, creatividad y trabajo duro. Una de las primeras y más importantes decisiones que tomarás será elegir la estructura legal adecuada y seleccionar un nombre y logo memorables. Aunque la emoción de comenzar puede tentarte a “disparar de la vaqueta”, omitir un paso crítico puede causarte dolores de cabeza y gastos significativos más adelante. ¿Ese paso? Investigar a fondo el nombre, logo y elementos de marca que has elegido para tu negocio. Antes incluso de radicar cualquier documento o invertir en el desarrollo de tu marca, es fundamental verificar la disponibilidad del nombre, logo y branding que deseas usar. Esto implica realizar búsquedas tanto en el Departamento de Estado de Puerto Rico como en la base de datos de la Oficina de Patentes y Marcas de los Estados Unidos (USPTO). No hacerlo puede resultar en errores costosos. Las Estructuras Legales de Negocios en Puerto Rico En Puerto Rico, las formas principales para organizar un negocio con fines de lucro son: Negocio Propio (DBA – Doing Business As): Este es un negocio creado por una sola persona natural sin formar una entidad legal separada. Es la forma más sencilla de operar un negocio, ya que no requiere registro como entidad en el Departamento de Estado, aunque puedes registrar un nombre comercial para proteger tu identidad. El dueño reporta las ganancias y pérdidas del negocio en su planilla de contribución sobre ingresos personal y está sujeto a la contribución sobre trabajo por cuenta propia (self-employment tax) sobre las ganancias. En esta estructura, el dueño es personalmente responsable por las deudas y obligaciones del negocio con todos sus bienes presentes y futuros, incluyendo los ganaciales. Corporación: Una corporación es una entidad legal reconocida por ley, separada de sus dueños (accionistas). Un beneficio clave es la responsabilidad limitada de sus dueños. Este tipo de estructura es común para levantar capital (por preferencia de inversionistas foraneos menos familiarizados con las LLC) pero tiene mayores requisitos del Departamento de Estado y en general menos flexibilidad contributiva. Una corporación requieren procedimientos formales bajo la Ley General de Corporaciones, tener estatutos (bylaws), una junta de directores, llevar contabilidad y mantener libros corporativos. Deben radicar un informe anual en el Departamento de Estado a más tardar el 15 de abril. La formación requiere radicar un certificado de incorporación en el Departamento de Estado. El nombre debe distinguirse de otras entidades registradas en el Departamento de Estado y debe incluir términos como “Corporación”, “Corp.”, “Incorporado” o “Inc.”. Deben mantener una oficina designada y un agente residente en Puerto Rico. Los tipos comunes incluyen la Corporación Regular, Corporación Intima (máximo 75 accionistas, menos formalidades), y Corporación de Servicios Profesionales (para profesionales licenciados, todos los accionistas deben estar licenciados, el nombre incluye siglas como CSP o PSC). Por defecto, las corporaciones están sujetas a contribución sobre ingresos corporativa, lo que puede llevar a doble tributación, pero pueden elegir tributación de pass-through si son elegibles. Compañía de Responsabilidad Limitada (LLC – Limited Liability Company): Una LLC es también una entidad jurídica independiente de sus dueños (“Miembros”), cuya responsabilidad es limitada generalmente no excede su aportación de capital. Se organizan radicando un certificado de organización en el Departamento de Estado. Su nombre debe distinguirse de otras entidades registradas en el Departamento de Estado y debe contener las siglas CRL o LLC. Deben tener una oficina registrada y agente residente en Puerto Rico. Por defecto, las LLCs tributan como corporaciones, pero comúnmente eligen ser tratadas como entidades conducto (“Pass-through”) o entidades ignoradas (“Disregarded Entity”) para evitar la doble tributación. Sociedad (Partnership): Una sociedad es un contrato donde dos o más personas acuerdan aportar dinero o bienes para compartir ganancias. Existe cuando varios dueños no han formado una corporación o LLC. Si se aporta un bien inmueble, requiere escritura pública. Una sociedad termina si cambia la composición de los socios. Las fuentes no detallan la responsabilidad de los socios en esta estructura, pero en una sociedad general, los socios suelen ser conjuntamente y solidariamente responsables por las deudas de la sociedad. Nota importante: Independientemente de la estructura, todo negocio en Puerto Rico debe cumplir con requisitos contributivos y regulatorios del IRS, Hacienda, CRIM, municipios, Departamento del Trabajo, Fondo del Seguro del Estado, OGPe, ASUME y otras agencias según la industria.No registrarse y pagar las contribuciones o permisos correspondientes pudiera tener muchisimos costos para el negocio, irrespectivo de su estructura. ¿Qué es una Marca y un Nombre Comercial? Ya que entendemos como un negocio puede operar en Puerto Rico, vamos a discutir que son marcas y nombres comerciales. Una marca (trademark) es un signo o medio signo distintivo que identifica productos o servicios en el mercado. Incluye marcas de fábrica, servicio, certificación y colectivas. Puede estar compuesta por palabras, nombres, frases, símbolos, sonidos, colores o combinaciones. Un nombre comercial (trade name) distingue la actividad comercial de una empresa frente a otras. Usar una marca otorga derechos limitados localmente, pero registrarla en la USPTO proporciona protección nacional. Beneficios clave de registrar una marca: Protección frente a marcas similares para productos/servicios relacionados en EE.UU. y Puerto Rico. Fortalece el valor comercial de la marca. Facilita expansión y licenciamiento. La búsqueda previa (“clearance search”) evita solicitudes rechazadas o conflictos. ¿Por qué registrar también en Puerto Rico? Aunque el registro federal se extiende a PR, el registro local refuerza la posición legal dentro de la jurisdicción, facilita procesos ante tribunales locales, y brinda mayor visibilidad en el entorno comercial puertorriqueño. También permite proteger nombres comerciales que no están cubiertos por la USPTO. ¿Dónde y Cómo Hacer la Búsqueda? Independientemente de la estructura que elijas, antes de usar o registrar un nombre o marca, realiza estas búsquedas: Departamento de Estado de Puerto Rico: En el Departamento de Estado hay que hacer dos búsquedas separadas: (1) Registro de Corporaciones y Otras Entidades Jurídicas (2) Registro de Marcas y Nombres Comerciales.