Special Partnership

A Special Partnership is a partnership or  corporation, that meets certain requirements and has elected not to pay any income tax on its income but, instead, to have the partners pay the tax on it, even though the corresponding income is not distributed.  Although the eligibility of a partnership for special treatment depends on the nature of the partnership's income, it is the partner who is taxed on the ratable portion of the income as if he had carried on the business activity.

A Special Partnership computes its gross income and deductions, to arrive at taxable income, in the same manner a regular partnership or corporation would, with certain exceptions.  One exception is that special partnerships are  not allowed a deduction for carryover net operating losses.  This is so because every year the partners pick up their share of income or loss in their income tax returns.  

The responsibility of partners for the  partnership's liabilities may be limited to their contribution to the partnership if special partnership treatment is elected.  The must comply with all the special partnership condition and the name of the partnership most indicate its special status by the  use of the initial S.E. or L.P.

Special partnership treatment is available only if the partnership or corporation elects such treatment.  To qualify, the partnership must meet the following requirements:

1. Derive during each taxable year at least 70% of its gross income from sources within Puerto Rico.

 2. Derive at least 70% of its gross income from one of the following business activities:

• Construction;
• Land development;
• The substantial rehabilitation of buildings and structures;
• Sale or rental of buildings or structures;
• Manufacturing which generates substantial employment;
• Tourism;
• Agriculture;
• Exporting products or services to foreign countries;
• The production of feature films;
• A business for the construction, operation or maintenance of public roads and its attached facilities.

1. Name and address of the special partnership,
2. Name and address of the managing partner,
3. Description of the business or businesses of the special partnership,
4. The special partnership's employer's social security number,
5. The provision of the local income tax under which it qualifies as a special partnership, (i.e.,   land development)
6. The accounting period and the accounting method to be used by the special partnership.

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