commonwealth of puerto rico department...

2000

Hacienda is at your service1

COMMONWEALTH OF PUERTO RICODEPARTMENT OF THE TREASURY

PO BOX 9022501 SAN JUAN PR 00902-2501

INCOME TAX RETURNOF TAXABLE CORPORATIONS

AND PARTNERSHIPS

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TABLE OF CONTENT

Relevant Facts ...............................................................................................................................

Taxpayer’s Bill of Rights ................................................................................................................

Instructions to Complete the Corporation and Partnership Income Tax Return.......................

Instructions to Complete the Schedules:

Schedule A Corporation and Partnership - Alternative Minimum Tax .......................

Schedule B Corporation and Partnership - Recapture of InvestmentCredit Claimed in Excess, Tax Credits, and Other Payments and Withholdings .......................................................................................................................

Schedule C Corporation and Partnership - Credit for Taxes Paid to the United States, its Possessions and Foreign Countries ............................................................

Schedule D Corporation and Partnership - Gains or Losses from Sale orExchange of Property ......................................................................................................

Schedule E - Depreciation ............................................................................................

Schedule R - Special Partnership .................................................................................

Schedule S Corporation and Partnership - Farming Business ..................................

Form 480-E- Estimated Tax Declaration ..................................................................................

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NEW TAX BENEFITS

Act No. 362 of December 24, 1999 grants a taxcredit to investors in a Film Entity engaged in aFilm Project or Infrastructure Project.

In the case of an investment in a Film Entityengaged in a Film Project, the credit will beequivalent to 40% of those amounts of thebudget paid to residents of Puerto Rico, butcannot exceed 50% of the capital contributedin cash to the Film Entity in exchange for stocksor shares issued in a primary issuance (Seeinstructions Schedule B Corporation andPartnership).

In the case of an investment in a Film Entityengaged in a Infrastructure Project, the creditwill be the smaller of: 40% of the investmentcontributed in cash to the Film Entity inexchange for stocks or shares issued in aprimary issuance or 20% of the InfrastructureProject's budget (See instructions Schedule BCorporation and Partnership).

SIGNIFICANT CHANGES

Schedule B Corporation and Partnership

A new line is added on Schedule B Corporationand Partnership, Part ll: line 9 - Credit forinvestment Act No. 362 of 1999: Film Projectand/or Infrastructure Project. This new line willbe used to claim the credit for the investment in aFilm Entity engaged in a Film Project orInfrastructure Project.

FINANCIAL STATEMENTS REQUIREMENT

If the entity has a business volume from taxableoperations of more than $1 million, financialstatements reporting the operations of the taxableyear must be included with the return. Such financialstatement must include a balance sheet, an incomestatement and a statement of cash flows. Thesestatements should be submitted with an Audit Reportissued by a certified public accountant (CPA)licensed in Puerto Rico.

It is not acceptable a report that includesconsolidated financial statements, in whichthe operations in Puerto Rico are presentedas supplementary information. Also, compiledor reviewed statements are not acceptable.They must be audited.

RELEVANT FACTS

SIGNATURE OF THE RETURN BY THESPECIALISTS

If you pay for the preparation of the return,make sure that the return is signed by thespecialist and the registration number or socialsecurity number of the specialist is includedin a legible form. The Puerto Rico InternalRevenue Code of 1994, as amended (Code),imposes civil and criminal sanctions to thoseSpecialists who fail to submit this information.

The Tax Return Specialist must declare underpenalty of perjury that he/she examined the returnand to the best of his/her knowledge and belief, thereturn is correct and complete.

If the return is prepared by an accounting firm dulyregistered as a Tax Return Specialist, it must includethe employer's identification number, the registrationnumber and be signed by the authorized person.

CONTRACTS WITH GOVERNMENTAL ENTITIES

Every person, natural or juridical, contracted by agovernmental entity, must comply with the ExecutiveOrder 91-24, as amended, and the provisions of theCircular Letters in force at the time of processingthe contracts. According to said provisions, everycontract subscribed by a governmental entity mustinclude a clause to certify that the contracted partyfiled the income tax returns for the last five years,and that the income, property, unemployment,temporary disability and drivers social security taxeshave been paid.

In addition, in order to approve a contract orpurchase order, the governmental entity mustrequire the tax return filing (Modelo SC 2888) anddebt (Modelo SC 6096) certifications from theInternal Revenue Area of this Department, theproperty tax certification from the CRIM and thecorresponding certification from the Departmentof Labor and Human Resources. Thesedocuments must be requested annually.

In order to expedite the process of issuing thecertifications, every person who has filed incometax returns for the last 5 years and who does nothave tax debts, or if having debts, has formalized apayment plan, will receive the Tax Return Filing andDebt Certification automatically by mail (Modelo SC2628). For this purpose, it is necessary that ifthe corporation is contracted by a governmentalentity, indicate so in the heading of the return,page 1.

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Sometimes a certification can not be issued inconnection with the last taxable year since suchreturn may have not been already processed.Because of this possibility, it is recommended topersonally file the original return along with a copy,in order to receive back said copy sealed with theDepartment’s receipt stamp. This service will beoffered at the Department of the Treasury,Intendente Ramírez Building in Old San Juan, atthe District Offices, at the Internal RevenueCollections Offices, and at the Tax OrientationCenters.

COUPONS BOOKLET FOR THE PAYMENTOF ESTIMATED TAX (FORM 480.E-2)

The four installments of estimated tax correspondingto the 2001 calendar year or to the 2001-2002 taxableperiod, will be made with the booklet revised on 08.00.Payments made with coupons revised previous tosaid date could have problems in their application.

TAXPAYER'S SERVICE FACILITIES

In the Taxpayer's Service Offices, besides informingabout the status of your refund, other services areoffered: Tax Return Filing Certifications, Return'sCopies, Inheritance and Donations Cases, Individuals,Corporations, Partnerships, Professional ServicesWaivers and COLA Certificates.

Following is the address and telephone number ofour offices:

San JuanIntendente Ramírez Building10 Paseo Covadonga Office 211Telephone: 721-2020 extension 3610or 1-800-981-7666

BayamónRoad #22nd Floor Gutiérrez BuildingTelephone: 778-4949 or 778-4973

CaguasGoyco Street1st Floor Governmental Building Office 110Telephone: 258-5272 or 258-5255

MayagüezGovernmental Center#50 Nenadich Street Office 102Telephone: 265-5200

PonceEurobank Building#26 Hostos Ave.Telephone: 844-8800

TECHNICAL ASSISTANCE

For additional information on the technical contentsof this pamphlet or to clarify any doubts, please call721-2020 extension 3611 or 1-800-981-9236.Also, you can use TeleHacienda service at 721-0510 or toll free at 1-800-981-0675. This service isonly available in Spanish.

HACIENDA MAKING CONNECTION

The Department of the Treasury has a site on theINTERNET. Here you can access information about thefollowing services, among others:

Electronic transfer Individual Tax Return(Only Short Form returns with refund)

Program for the preparation of the IndividualIncome Tax Return 2000

TeleHacienda (Spanish only)

Income Tax Return of Taxable Corporationsand Partnerships

Puerto Rico Internal Revenue Code of 1994,as amended (Spanish only)

Form SC 2898 - Change of Address

Form AS 4809 - Information of IdentificationNumber - Organizations (Employers)

Modelo SC 2800 - Planilla de ContribuciónSobre Caudal Relicto (Spanish only)

Modelo SC 2800A - Planilla Corta deContribución Sobre Caudal Relicto (Spanish only)

Modelo SC 2788 - Planilla de ContribuciónSobre Donaciones (Spanish only)

Informative Booklet to Provide Orientation aboutyour Income Tax Return (Spanish and English)

Informative Booklet to Provide Orientation onthe Income Tax Responsibilities of Federal,Military and Other Employees

Informative Booklet Regarding the 7% TaxWithholding in Case of Professional Services(Spanish and English)

Folleto Informativo Contribución sobre Ingresosde Sacerdotes o Ministros (Spanish only)

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Folleto Informativo para Aclarar sus Dudassobre Aspectos Contributivos en la Ventade Ciertas Propiedades (Spanish only)

You can access at: http://www.hacienda .prstar.net.Also, you can let us know your opinion through ourE-MAIL at: [email protected].

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The Taxpayer’s Bill of Rights grants the followingrights under the Code:

To receive a proper, considerate and impartialtreatment.

Confidentiality of the information submitted.

All interviews must be at a reasonable time andplace for the taxpayer, in coordination with theemployees of the Department of the Treasury(Department).

The interview or audit must not be used to harassor intimidate in any manner the person interviewed.

To receive an explanation of the process to whichthe taxpayer will be exposed and subject, and therights that assist him.

Be assisted by an attorney, accountant, certifiedpublic accountant, or any other authorized person,at any moment during the interview.

Be informed prior to the interview, of the intentionto tape the interview, and to be able to obtain anexact copy of such recording prior to the paymentof the cost thereof.

Be informed of the nature of your tax liability.

Be advised of your right against self-incrimination,to remain silent and that your silence should notbe taken or commented against you, in case of apossible exposure to a criminal action.

Consult and be advised by an attorney, accountant,certified public accountant, or authorized agent torepresent you within the Department, or to be ableto finish the interview even when it had commenced.

Be notified in writing of any adjustment made bythe Department as a result of a tax audit when itinvolves the addition of interest, penalties andsurcharges, as provided by the Code, as well asthe exact amount of the adjustment and the reasonsfor such changes.

TAXPAYER’S BILL OF RIGHTS

Waive the rights described in the precedingparagraphs, if such waiver is made knowingly andvoluntarily.

Grant a written power to authorize any person torepresent you during a tax interview or process.Such person shall receive, for purposes of theinterview, equal treatment as you, unless you arenotified that such person is responsible for anunreasonable delay or interference with the audit.

Not to be discriminated because of race, color, sex,birth, origin or social condition, or political, religiousideas or association of any taxpayer or hisrepresentative. No records will be kept containingtax information for these purposes.

The Department’s employees will explain andprotect your rights during all phases of theprocess. If you believe that your rights have beenviolated, you should discuss this matter with thesupervisor of the employee. If you do not agreewith the action taken by the supervisor, you mayfile a complaint with the Office for the Protectionof Taxpayer's Rights.

OFFICE FOR THE PROTECTION OF TAXPAYER'SRIGHTS

The Office for the Protection of Taxpayer's Rights(Ombudsman of the Taxpayer) was created toassure the compliance of the provisions of theTaxpayer’s Bill of Rights. Said office is located atthe Department of the Treasury in Old San Juan,Office 800. For assistance, please call 723-1080or 721-1532.

The Ombudsman of the Taxpayer is responsiblefor attending to the problems and claims of thetaxpayers and to facilitate the process betweenthe taxpayers and the Department of the Treasury.Also, the Ombudsman of the Taxpayer has authorityto prevent or correct any infringement, by anyemployee of the Department, of the rights of thetaxpayer.

For additional information, you can request thebooklet: “Carta de Derechos del Contribuyente”.

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The return must be filed in the Department of theTreasury, Returns Processing Bureau, located at10 Paseo Covadonga, Intendente Ramírez Buildingin Old San Juan, or mailed to:

Returns with Refund:DEPARTMENT OF THE TREASURYPO BOX 50072SAN JUAN PR 00902-6272

Returns with Payment and Others:DEPARTMENT OF THE TREASURYPO BOX 9022501SAN JUAN PR 00902-2501

It may also be delivered to the Internal RevenueCollections Office of your municipality, the DistrictOffices of the Department or the Tax OrientationCenters.

AUTOMATIC EXTENSION OF TIME TO FILE THERETURN

A 90 days automatic extension of time to file thereturn will be granted if it is requested not laterthan the due date to file the return. This will bedone using Form AS 2644.

In case of corporations under the provisions ofSection 936 of the Federal Internal Revenue Code,the extension of time will be up to the fifteenthday of the ninth month following the end of thetaxable year (five months after the prescribed dateto file the return).

Every corporation or partnership must pay with therequest for an automatic extension of time, theentire amount of tax determined.

An extension of time to file the return doesnot extend the time for the payment of tax orany installment of the same.

SCHEDULES TO COMPLETE THECORPORATION AND PARTNERSHIP INCOMETAX RETURNS

The following schedules are used, when it isnecessary, to file the income tax return ofcorporations and partnerships.

INSTRUCTIONS TO COMPLETE THE CORPORATIONAND PARTNERSHIP INCOME TAX RETURN

(a)

(b)

WHO MUST FILE THIS RETURN?

In general, every domestic or foreign corporation orpartnership engaged in trade or business in PuertoRico must file this return.

The following entities are not required to file thisreturn: (1) entities covered by the Incentives Acts orTourism Development Act; (2) entities with partiallyexempt income under the Agricultural Tax IncentivesAct of Puerto Rico, as amended, or under any otherspecial act; (3) entities which have earned incomefrom Film Projects or Infrastructure Projects; (4) non-profit organizations with a tax exemption grantissued by the Department of the Treasury whichhas not been rejected; (5) foreign or domestic lifeinsurance companies; (6) corporations of individuals;(7) special partnerships; or (8) employees-ownedspecial corporations and ordinary and extraordinarymembers. Nevertheless, these entities must file areturn designed by the Department of the Treasury,in accordance to the laws under which they operate.

The term corporation includes limited companies,joint stock companies, limited liability joint stockcompanies, private corporations, insurancecompanies, and any other associations that receiveincome or taxable profits.

The term partnership includes general or limited, civilbusiness, industrial, agricultural and professionalpartnerships or of any other kind, whether or not itsconstitution is set forth by public deed or privatedocument; and it shall include, furthermore, two ormore persons, under a common name or not,engaged in a joint venture for profit except as providedwith regard to special partnerships.

WHEN AND WHERE IT MUST BE FILED?

The income tax return of domestic or foreigncorporations and partnerships engaged in trade orbusiness in Puerto Rico, must be filed on or beforethe fifteenth day of the fourth month following theend of the taxable year. In case of a foreigncorporation or partnership not having any office orplace of business in Puerto Rico, the return mustbe filed on or before the fifteenth day of the sixthmonth following the end of the taxable year.

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Alternative MinimumTax

Recapture of InvestmentCredit Claimed inExcess, Tax Credits,and Other Paymentsand Withholdings

Credit for Taxes Paid tothe United States, itsPossessions and ForeignCountries

Gains or Losses fromSale or Exchange ofProperty

Depreciation

Credit for Investment,Losses and Amount toCarryover

Investment Funds-Determination ofAdjusted Basis, CapitalGain, Taxable Incomeand Special Tax

Special Partnership

Farming Business

Foreign Corporationsand Partnerships Taxon Dividend EquivalentAmount and EffectivelyConnected Interest(Branch Profits Tax)

The schedules and their instructions are availablein the Department of the Treasury, 10 PaseoCovadonga, Intendente Ramírez Building, Old SanJuan, Office 603. To contact said office, please call721-2020 extension 2645 or 2646.

HEADING OF THE RETURN

If the taxable year of the corporation or partnershipis a calendar year, there is no need to enter thedates on which the taxable year begins and ends.You must only enter the corresponding year. If it isa fiscal year, you must enter the dates in the spacesprovided in the return.

Schedule A Corp. and Part.

Schedule B Corp. and Part.

Schedule C Corp. and Part.

Schedule D Corp. and Part.

Schedule E

Schedule Q

Schedule Q1

Schedule R

Schedule S Corp. and Part.

Form AS 2879

NAME, EMPLOYER'S IDENTIFICATION NUMBER AND ADDRESS

Enter the name and the register number of thecorporation in the space indicated in the return, asit appears in the Department of State records. Incase of a partnership, enter its legal name.

Also, enter the employer's identification number inthe space indicated. The employer's identificationnumber is required to process the return.

If the corporation or partnership does not have anassigned employer's identification number, youmust request it from the Federal Internal RevenueService and notify it to the Department of theTreasury using Form AS 4809.

Enter the complete address where the businessor principal office is located, and its telephonenumber.

Inform the type of industry or business (principalbusiness activity). For example, if the source ofincome is agriculture and the main business activityis sugar cane growing, enter sugar cane; if coffeegrowing, enter coffee. If the source of income is atrading business and the main business activity ishardware, enter hardware . If the source of incomeis sale of furniture, enter furniture. If the source ofincome is manufacturing and the main activity isthe manufacturing of shoes, enter shoes.

Check the applicable box if it is the first or lastreturn you are filing. If the address of the corporationor partnership has changed, check the applicablebox. Complete Form AS 2898 (Change of Address)included in this pamphlet.

PART I - NET INCOME

Line 2 - Net operating loss deduction frompreceding year

Enter the carryover balance of any net operatingloss from the preceding year. Submit with the returna schedule with the determination of the loss to bededucted in the current taxable year and theorigination and expiration dates of the loss.

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agencies, entities or public corporations of theCommonwealth of Puerto Rico.

There shall be granted a 100% credit againstthe net income from the total amount receivedas dividends by corporations organized underthe laws of any state of the United States or theCommonwealth of Puerto Rico, that may be theprincipal derived from industrial developmentincome accrued during taxable years beginningprior to January 1, 1993 and invested inobligations of the Governmental DevelopmentBank for Puerto Rico or any of its subsidiarycorporations, for the financing through thepurchase of mortgages, or the construction,purchase or housing improvements in PuertoRico made after December 31, 1984.

A 100% credit will be granted against the netincome from the total amount received asdividends or profits from a domestic controlledcorporation or partnership.

Line 6 - Surtax net income credit

Enter $25,000, except in case the corporation orpartnership belongs to a controlled group ofcorporations or partnerships which are 80% or moreowned, directly or indirectly, by the same personor persons. In those cases, the allowed credit willbe only $25,000 for the entire group of corporationsor partnerships. If a corporation or partnership is acomponent member of a controlled group ofcorporations or partnerships at December 31, thecredit allowed to such corporation or partnershipfor the taxable year that includes such December31, shall be an amount equal to $25,000 distributedamong the corporations or partnerships that arecomponent members of the group.

If a corporation or partnership has a taxable year ofless than twelve months that does not includeDecember 31, and is a component member of acontrolled group of corporations or partnerships withrespect to such taxable year, the allowable creditfor that taxable year will be $25,000 distributedamong the number of corporations or partnershipsthat are component members of the group as ofthe last day of said taxable year.

In case of a controlled group of corporations orpartnerships, it is necessary to include with thereturn of each member a schedule detailing theapportionment plan, the name of each one ofthe corporations or partnerships that aremembers of the group, the employer'sidentification number and the signature of theperson or persons responsible for preparing it.

PART II - CREDITS

Line 4 - Dividends or profits received fromdomestic corporations or partnerships

Enter 85% of the amount received as dividends orprofits from a domestic corporation or partnershiptaxable under the Code, but limited to 85% of thenet income of the corporation or partnership.

If the dividend received is from industrialdevelopment income derived from operationscovered by the provisions of Act No. 57 of June 13,1963, as amended, the credit will be 82.70% of theamount received, but limited to 82.70% of the nettaxable income.

The credit of 82.70% does not apply to dividendsor profits distributions derived from operationscovered under Act No. 78 of September 10, 1993,as amended, or Act No. 8 of January 24, 1987, asamended. Nevertheless, if the corporation orpartnership receives dividends or benefits from adomestic corporation or partnership, it may usethe 85% credit mentioned in the first paragraph ofthis part.

However, the Code provides the followingexceptions:

In the case of a small business investmentcompany operating in Puerto Rico under theSmall Business Act of 1958, there shall beallowed as a credit an amount equal to 100%of the total amount received as dividends orprofits from a domestic corporation orpartnership taxable under the Code.

Subject to certain requirements imposed by theCode, a credit of 100% is allowed against thenet income from the total amount received asdividends by corporations organized under thelaws of any state of the United States or theCommonwealth of Puerto Rico, that may bethe principal derived from industrial developmentincome accrued during taxable years beginningprior to January 1, 1993 and invested inobligations of the Commonwealth of PuertoRico, its instrumentalit ies or polit icalsubdivisions, or invested in mortgages securedby the Puerto Rico Housing Bank and FinanceAgency or in loans or other securitiesguaranteed by mortgages granted under anygeneral character pension or retirement systemestablished by the Legislative Assembly ofPuerto Rico, the municipalities and the

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PART III - COMPUTATION OF TAX

Line 9 - Surtax

Multiply line 7 by the applicable tax rate accordingto the following table, and enter the result.

Surtax Computation Table for taxable yearsbeginning after June 30, 1995.

If the net income subjectto surtax is:

Not over $75,000

Over $75,000 but not over$125,000

Over $125,000 but not over$175,000

Over $175,000 but notover $225,000

Over $225,000 but notover $275,000

Over $275,000

Line 10 - Amount of recapture

If the net income subject to normal tax exceeds$500,000, a 5% tax will be imposed, collected andpaid over the excess. However, the total taxdetermined shall not exceed 39%.

Line 12 - Alternative Tax - Capital Gains

Enter the amount determined on Schedule DCorporation and Partnership, Part IV, line 26.

If the net long term capital gains exceed the netshort term capital losses, the corporation orpartnership may elect to pay an alternative tax. Thealternative tax is determined by applying the normaltax rate to the net income without including the netlong term capital gains, plus 25% over said gains.

Compute the alternative tax using ScheduleD Corporation and Partnership - Gains andLosses from Sale or Exchange of Property.Include said schedule with your return.

Line 17 - Alternative minimum tax

Enter the excess of tentative minimum tax overadjusted regular tax from Schedule A Corporationand Partnership, Part V, line 32.

Every corporation or partnership (except thosenot engaged in trade or business in Puerto Rico)will be subject, in addition to any other taximposed by the Code, to a tax equal to theexcess, if any, of:

the tentative minimum tax for the taxableyear, over

the adjusted regular tax for the taxable year.

The Tentative Minimum Tax for the taxable year willbe 22% of the amount by which the AlternativeMinimum Net Income for the taxable year exceedsthe Exempt Amount. The Tentative Minimum Taxwill be reduced by the Alternative Minimum Creditfor taxes paid to a foreign country.

To compute excess of the alternative minimumtax over the adjusted regular tax, you mustcomplete Schedule A Corporation andPartnership and include it with your return.

Line 18 - Branch profits tax

In addition to any other tax imposed by the Code,those foreign corporations and partnerships engagedin trade or business in Puerto Rico that operate asbranches, are subject to a 10% tax of the amountequivalent to the dividend or profit distribution forthe taxable year.

This provision shall not be applicable to any taxableyear in which the foreign corporations orpartnerships engaged in a trade or business inPuerto Rico derived at least 80% of its gross incomefrom sources within Puerto Rico or from incomeeffectively connected or treated as effectivelyconnected to operations from a trade or businessin Puerto Rico, during the 3 taxable years periodended at the closing of said taxable year.

The corporations and partnerships subject to saidadditional tax, must complete Form AS 2879Branch Profits Tax, and include it with theirreturn.

The tax shall be:

5%

$3,750 plus 15% ofthe excess over$75,000

$11,250 plus 16% ofthe excess over$125, 000

$19,250 plus 17%of the excess over$175,000



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Line 22 - Amount paid with this return

Make the check or money order payable to theSecretary of the Treasury. Indicate theemployer's identification number and Form480.20 or 480.10, as applicable, on the checkor money order.

If you decide to pay in cash, you can do it at anyof our Internal Revenue Collections Offices. Makesure to obtain an official receipt from the Collectorat the time of payment.

If you file the return after the filing due date or yourequested an extension of time but did not pay thetotal amount due, you must compute the applicableinterest and surcharges, from the filing due datethrough the date on which the return was filed.

PART IV - GROSS PROFIT ON SALES,MANUFACTURE AND OTHER INCOME

Enter manufacturing and sales costs, as well asthe gross profit from sales. Check the applicablebox to indicate your inventory appraisal method atthe beginning and end of the year.

Itemize in Part VI of the return the other direct costsshown on line 5. Note that the flexible depreciationof assets used in manufacture will be included asother direct costs in Part IV, line 5 and Part VI, line10. The flexible depreciation of assets other thanthe ones used in manufacturing, must be enteredin Part V, line 39.

Enter on line 15 the distributable share on the netincome from special partnerships.

Enter on line 16 the distributable share on the netloss from special partnerships. To claim this loss,Schedule R must be completed and included withthe return.

The losses of a partner in one or more specialpartnerships are allowable as a reduction againstother income, but only up to the amount of theadjusted basis of the partner’s interest in thecorresponding partnership and limited to 50% ofthe taxpayer’s net taxable income, determinedwithout taking into consideration such loss.

The adjusted basis limitation will be computed foreach Special Partnership in which you invested.

If the deduction allowed to the partner for any

Line 21 - Balance of tax due

Enter the difference between line 19 and line 20.

If line 20 is larger than line 19, you may elect toapply all or part of the tax paid in excess to yourestimated tax for the following year or claim it as arefund. In order to do that, you must indicate so online 23A or 23B of the return.

INTEREST, SURCHARGES AND PENALTIES

Interest

The Code provides for the assessment of interestat a 10% annual rate over any tax balance not paidby its due date.

Surcharges

In case that imposition of interest is applicable, asurcharge of 5% of the amount due will beassessed, if the delay in paying exceeds 30 days,but not over 60 days; or 10% of the amount due, ifthe delay exceeds 60 days.

Penalties

The Code imposes a progressive penalty from 5%to 25% of the total tax for late filing unless you canshow reasonable cause for the delay.

Any person required under the Code to file a returnor declaration, and who voluntarily fails to file suchreturn or declaration within the term or termsrequired by the Code or regulations, in addition toother penalties, shall be guilty of a misdemeanorand punished by a fine of not more than $500 orimprisonment for a term of not more than 6 months,or both penalties, plus the costs of prosecution.

If any person voluntarily fails to file the abovementioned return or declaration (within theterms required by the Code or regulations)with the intention to avoid or defeat any taximposed by the Code, in addition to otherpenalties, shall be guilty of a felony andpunished by a fine of not more than $20,000or imprisonment for a fixed term of 3 years. Ifthere were aggravating circumstances, theestablished fixed jai l penalty may beincreased to a maximum of 5 years; if therewere extenuating circumstances, it may bereduced to a maximum of 2 years, or bothpenalties, at the discretion of the Court, plusthe costs of prosecution.

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Line 38 - Contributions to pension or otherqualified plans

Enter the contributed amount to pension, profitsharing or other qualified plans approved by theSecretary of the Treasury. This deduction is subjectto certain limitations.

To claim this deduction, you must submit with thereturn certain information required by the regulationsunder the Code.

Line 39 - Flexible depreciation

Enter the amount of flexible depreciation you areentitled, and submit copy of the authorization forthe flexible depreciation option.

The details of the flexible depreciation will beincluded in Part (b) of Schedule E - Depreciation.

Line 40 - Accelerated depreciation

In order to be entitled to this deduction, an electionto use the Accelerated Depreciation Method mustbe exercised with the return. Said election may beexercised only with respect to property acquiredduring taxable years beginning after June 30, 1995.Once the option is exercised, it is irrevocable.

This depreciation method does not apply toautomobiles, property used outside Puerto Rico,property used by exempt entities and property usedtotally or partially in activities under the IndustrialIncentives Acts, Tax Incentives Act and TourismIncentives Act, Tourism Development Act,Agricultural Tax Incentives Act, or any other act ofsimilar nature or to intangible property.

The details of accelerated depreciation shallbe included in Part (c) of Schedule E - Depreciation.

Line 41 - Current depreciation and amortization

Submit a detail of the current depreciation andamortization in Part (a) and Part (d) ofSchedule E - Depreciation.

The maximum basis to depreciate an automobileacquired and used in a trade or business or for theproduction of income, is $25,000. This rule appliesalso to financial leases.

In case of an ordinary lease, the amount of the rentpaid during the taxable year, excluding financialcharges, shall be considered as currentdepreciation.

taxable year is less than the distributable share onthe partnership's net loss, the partner may claimsuch excess as a deduction in any following taxableyear, subject to the lowest of the limitationspreviously mentioned.

Enter on line 17 the amount determined onSchedule S Corporation and Partnership-Farming Business. In case that the agriculturalactivity is not the principal source of income, anyloss incurred may only be carried against anyincome derived from the agricultural activity.

PART V - DEDUCTIONS AND NET OPERATINGINCOME (OR LOSS)

Enter the deductions related to your operations onlines 21 through 46. Following is information of someof those deductions.

Line 21 - Compensation to officers or partners

Enter the compensation paid or accrued to allofficers or partners of the corporation or partnershipand detail in Part X of the return.

Line 29 - Interest

Enter the interest paid or accrued during the year.In case of a financial institution, no deduction shallbe allowed for that portion of exempt interestexpenses attributable to exempt obligationsacquired after December 31, 1987.

Line 32 - Other taxes, patents and licenses

Submit a schedule of the excise taxes, licenses orother taxes paid.

Line 35 - Meal and entertainment expenses

You may deduct 50% of the expenses actually paidor incurred, up to a limit of 25% of the gross incomefor the taxable year, for meal and entertainmentexpenses directly related with your trade orbusiness or with the production of income. Youcannot include as part of such expenses, the itemsthat do not constitute ordinary and necessaryexpenses of your trade or business.

No deductions shall be allowed for meal andentertainment expenses considered extravagant orsumptuous.

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In case that a charitable contribution is made tothe Educational Foundation for Free Selection ofSchools, you may claim on this line the excess of$500 not claimed as a credit against tax, subjectto the limitations established by the Code.

The contributions made to a municipality thatconducts an activity or event of cultural or historicvalue, as certified by the Institute of Puerto RicanCulture or the Cultural Center from eachmunicipality, or that makes possible the realizationof any cultural or historic work, may be claimed ascharitable contributions. The contributed amountshall be $50,000 or more, and must be made inconnection with the celebration of the centennialfoundation of the municipality. The total of saidcontributions is not subject to the aforementionedlimitations.

Line 44 - Repairs

On this line, claim the expenses which constituterepairs and not improvements to the assets of thecorporation or partnership. Excessive repairexpenses will be subject to investigation.

Line 45 - Deduction for employers who employhandicapped persons

Enter $400 for each severely handicapped personemployed for at least 20 hours per week duringnine months of the taxable year. The deduction isallowed for a maximum of 5 persons severelyhandicapped. In force regulations of the VocationalRehabilitation Program of the Department of theFamily will be used to determine the severelyhandicapped condition.

To claim this deduction, the following must besubmitted with the return:

a certification indicating that the handicappedperson has been employed at least during 9months of the taxable year, and

a certification issued by the Secretary of theDepartment of the Family stating that, inaccordance to its rules and procedures, theperson for whom the deduction is claimed is aseverely handicapped person.

Line 46 - Other deductions

The total amount of any expenses for which Part Vof the return does not provide specific lines toinclude them, must be entered as Other Deductions.Submit a schedule of those deductions withthe return.

For depreciation purposes, the useful life of anautomobile used exclusively in selling activities is3 years, and 5 years for every other automobile.

The $25,000 basis limitation and useful life termdo not apply to those automobiles acquired bycorporations or partnerships engaged in theleasing, or transportation of passengers or freightbusinesses.

Also, a deduction for goodwill amortization isgranted, as long as the goodwill is purchased fromthird parties during taxable years beginning after June30, 1995. The deduction will be determined usingthe straight line method and an useful life of 15 years.

Line 42 - Bad debts

Enter the accounts receivable that are considereduncollectible. For taxable years beginning after June30, 1995, the corporations and partnerships willnot be able to use the reserve method to computethe deduction for bad debts. Instead, they mayclaim a deduction only for the debts that becomeuncollectible within the taxable year (direct write-off method).

Line 43 - Charitable contributions

A corporation or partnership may deduct an amountwhich does not exceed 5% of the net incomecomputed without the benefit of this deduction, forcontributions made to:

the Commonwealth of Puerto Rico, theUnited States or any state or territory,exclusively for public purposes;

a corporation, trust or community fund, orfoundation created or organized in PuertoRico or in the United States that operatesexclusively for religious, charitable,scientific, veteran rehabilitation services,literary or educational purposes or for theprevention of cruelty to children, as longas no part of its earnings inures to thebenefit of any private shareholder orindividual;

posts or organizations of war veterans orauxiliary units organized in Puerto Rico orin the United States.

Charitable contributions in excess of 5% may becarried forward to the following 5 taxable years, inchronological order, but the deduction in each oneof said following 5 taxable years shall not exceed5% of the net income determined without the benefitof said deduction.

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Sheet, Reconciliation of Net Income (or Loss) perBooks with Net Taxable Income (or Loss) perReturn, and Analysis of Retained Earnings perBooks or Reconciliation of Distributable ProfitAmong Partners must be detailed. Returns thatdo not comply with this requirement will beconsidered as not filed.

No deductions will be allowed for expensesconnected with the ownership, use andmaintenance of vessels, except for the expensesof vessels engaged in commercial fishing,transportation or commercial tourism.

PART VI - OTHER DIRECT COSTS

Enter the Other Direct Costs. The total of thesecosts should be entered on line 14 of this part andshall be equal to the amount in Part IV, line 5 of thereturn.

PART VII, VIII AND IX - COMPARATIVEBALANCE SHEET, RECONCILIATION OF NETINCOME (OR LOSS) PER BOOKS WITH NETTAXABLE INCOME (OR LOSS) PER RETURNAND ANALYSIS OF RETAINED EARNINGS PERBOOKS OR RECONCILIATION OFDISTRIBUTABLE PROFIT AMONG PARTNERS

These statements must be completed in all of itsparts in order that the return be considered filed.Therefore, you cannot submit these statements inloose sheets. Any return that do not comply withthese requirements will be returned.

The amount in Part VIII, line 10 (Reconciliation ofnet income (or loss) per books with net taxableincome (or loss) per return) must be the sameamount as the one of Part II, line 5 of this return.

PART X - COMPENSATION TO OFFICERS ORPARTNERS

Include in this part the compensation received bythe officers of the corporation or the partners of thepartnership from salaries or other allowances. Enterthe amount claimed in Part V, line 21 of the return.

PART XI - QUESTIONNAIRE

Enter all the information required in the questionnairein order to process this return.

SIGNATURE AND OATH OF THE RETURN

The return must be signed and sworn before a notaryby the president, vice president or other principalofficer and by the treasurer or assistant treasurerin the case of corporations; and by the managingpartner in the case of partnerships.

INCOMPLETE RETURN

The return must be completed in all of its parts. Allthe information of the Income Statement, Balance

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INSTRUCTIONS TO COMPLETE THE SCHEDULES

SCHEDULE A CORPORATION ANDPARTNERSHIP - ALTERNATIVE MINIMUM TAX

WHAT IS THE ALTERNATIVE MINIMUM TAX?

The Alternative Minimum Tax is an additional taxwhich is imposed when the net income, adjustedby certain preferential items, exceeds the exemptamount of $50,000. The tax rate for this tax is22% over said net income.

WHICH ENTITIES ARE SUBJECT TO THEALTERNATIVE MINIMUM TAX?

Every corporation or partnership engaged in tradeor business in Puerto Rico, including insurancecompanies. In addition, this applies to thosecorporations or partnerships operating under thePuerto Rico Tax Incentives Act or under any othersimilar act, with respect to that portion of incomederived from taxable operations.

The following entities are not subject to thealternative minimum tax: (1) foreign corporationsand partnerships not engaged in trade or businessin Puerto Rico; (2) special partnerships; (3)registered investment companies taxable under theprovisions of Subchapter L of the Code; (4)corporations or partnerships operating under ActNo. 8 of January 24, 1987 or under any other similaract, but only on its income derived from its exemptoperations; (5) exempt real estate investmenttrusts; (6) corporations of individuals; (7)corporations and partnerships under the provisionsof Tourism Acts; (8) bona fide farmers; (9)employees-owned special corporations and ordinaryand extraordinary members.

Prepare and file this schedule with the income taxreturn, even though no amount may resultsubject to the imposition of the alternativeminimum tax.

PART I - ADJUSTMENTS IN THE COMPUTATIONOF THE ALTERNATIVE MINIMUM NET INCOMEBEFORE BOOKS ADJUSTMENTS ANDOPERATING LOSSES

Line 1- Enter the net income prior to any netoperating loss, considering the credit allowed bythe Code in relation to dividends received fromdomestic corporations or partnerships, or fromindustrial development income. Add lines 2 and 5of Form 480.10 or 480.20.

Line 2 - Enter on lines 2(a) through 2(e) theadjustments to determine the Alternative Minimum NetIncome prior to book adjustments and operatinglosses. If the adjustments to determine the AlternativeMinimum Net Income in Part I exceed the amountused to determine the regular tax, the difference(negative) is considered a deduction. On the contrary,if the amount used to determine the regular tax exceedsthe adjustments, the difference (positive) will bereflected as an additional adjustment to the net income.

Line 2(a) - If you used the flexible depreciationmethod to compute your regular tax, determine thedepreciation using the straight line method andenter here the difference between both methods.

Line 2(b) - If you are a merchant in personal propertyand reported gains through a sales installment planfor the regular tax, you must recognize the gain (orloss) in its entirety for the year in which the personalproperty was sold. Enter on this line the differencebetween both methods.

Line 2(c) - If you used the completed contractaccounting method to report the income (or loss)derived from the construction of projects, and suchactivities exceeded one year, recompute your profit(or loss) under the percentage of completionmethod. Enter on this line the difference betweenboth methods.

Line 2(d) - If the corporation or partnership is afinancial institution, determine the amount ofinterest expense not allowable as a deductionattributable to interest income derived from exemptobligations, irrespective of the date of itsacquisition.

This will be made based on the average balanceratio of assets of the institution. The adjustmentdoes not apply to exempt obligations related tomortgage loans granted or guaranteed prior toSeptember 1, 1987 by the Commonwealth ofPuerto Rico, its agencies, municipalities andinstrumentalities, which interest would have beendeductible from the gross income to determine thetax imposed by Act No. 34 of June 4, 1975, asamended.

Line 2(e) - If you used the accelerated depreciationmethod to determine the regular tax, compute thedepreciation using the straight line method. Enteron this line the difference between both methods.

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PART II - ADJUSTMENT FOR THE EXCESSOF THE NET INCOME PER BOOKS OVERTHE ALTERNATIVE MINIMUM NET INCOMEBEFORE ADJUSTMENTS

Line 4 - Enter your net income (or loss) as per yourIncome Statement. For this purpose, IncomeStatement means a financial statement that reflectsthe results of the operations of the corporation orpartnership for the taxable year, accompanied by aBalance Sheet and a Statement of Cash Flows. Thestatements must be prepared in accordance with thegenerally accepted accounting principles, and mustbe audited by a certified public accountant licensedin Puerto Rico.

Line 5 - Enter the amortization expense as reportedin your financial statements for goodwill acquiredprior to June 30, 1995 or after July 1, 1995purchased from affiliates. Enter the differencebetween the goodwill amortization expense asdetermined from your net income per books, andthe goodwill claimed as a deduction in the return.

Line 6 - Enter the Puerto Rico income taxes andany other taxes on income or excessive profitsimposed by the United States or any of itspossessions or foreign countries, considereddirectly or indirectly in your Income Statement. Donot include the amount of any tax you may haveelected to deduct and not claim as credit asprovided in the Code.

Line 8 - Enter the total of interest from exemptobligations, but exclude the exempt interest expenseor any other expenses incurred in the acquisition orwithholding of such obligations.

Line 9 - Enter the total amount received as dividendsor profits from domestic corporations and partnershipsor from industrial development income, or tourismdevelopment income, as defined under the TourismIncentives Act of 1983 or the Puerto Rico TourismDevelopment Act of 1993, as amended, up to theamount in which the dividends or profits have beenincluded in the net income for regular tax purposes.

Line 10 - Enter the net income amount from industrialdevelopment, or derived from exempt income fromtourism development, as defined on the TourismIncentives Act of Puerto Rico of 1983 or the TourismDevelopment Act of Puerto Rico of 1993. Enter alsothe amount of the deduction for income derived by abona fide agricultural business.

Line 11 - Enter any book income (or loss) from theoperations of a subsidiary included in the IncomeStatement recognized under the equity method, foraccountability of the investment in the subsidiary.

Line 12 - Enter the amount of the reserve for thepayment of catastrophic losses required byChapter XXV of Act No. 77 of June 19, 1957, asamended.

Line 15 - Subtract line 3 from line 14 (but not lessthan zero). This is the excess of the Adjusted NetIncome per books over the Alternative Minimum NetIncome.

PART III - COMPUTATION OF THE ALTERNATIVEMINIMUM NET INCOME

Line 18 - Enter your net operating loss deductionto be used in the determination of the alternativeminimum tax. The amount of this deduction cannotexceed 90% of the alternative minimum net incomedetermined without considering this deduction. Anyexcess of net loss may be carried forward toeach one of the following 7 taxable years. Thenet operating loss will be adjusted as establishedby the Code.

Line 20 - The alternative minimum tax allows anexemption of $50,000 if the alternative minimumnet income is $500,000 or less. That exempt amountis reduced by 25% (but not less than zero) of theexcess of the alternative minimum net income oversaid amount. If your alternative minimum netincome is $700,000 or more, you are not entitledto claim any exemption.

To determine the exempt amount follow theinstructions below:

A. Maximum exempt amount $50,000

B. Total line 19 ________

C. Less: $500,000

D. Excess of line B over line C ________

E. Multiply line D by 25% ________

F. This is your exempt amount (Subtract line A from line E) ________

PART IV - COMPUTATION OF THE ALTERNATIVEMINIMUM CREDIT FOR FOREIGN TAXES PAID

Line 24 - If line 17 is less than $500,000, the exemptamount is $50,000. If line 17 exceeds $500,000,but less than $700,000, the exempt amount will be$50,000 less 25% of the excess over $500,000.

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The amount invested in the project by the exemptbusiness is subject to verification by the Directorof each agency within the 3 years following thenotification of the credit distribution among theinvestors. If the investment credit claimed by theinvestors exceeds the investment credit determinedby the Director, said excess will constitute anincome tax debt. Such debt must be paid by theinvestors in two installments beginning on the firsttaxable year following the expiration date of the 3years period previously mentioned. The Director willnotify the Secretary of the Treasury the creditclaimed in excess by the investors.

The 3 years period can be postponed by the Directorthrough an order issued by him, but never for anadditional period over 2 years.

The provisions of credit recapture previouslymentioned will not apply to participants andinvestors that are not developers in a projectunder the Tourism Development Act or theSolid Waste Authority Act.

On the other hand, the provisions of creditrecapture under the Agricultural TaxIncentives Act will apply to participants orinvestors in agricultural businesses.

In case of condohotels, the integrated leasingprogram operator must file an annual report to theDirector and to the Secretary identifying theparticipant units in the integrated leasing program.Said report must indicate the participation beginningdate of the participant units, as well as the date ordates in which one or more units were withdrawnfrom the program.

If any unit is withdrawn from the program prior to theexpiration of the 10 year period, the investor will haveas an income tax debt an amount computed asfollows:

Total tourism Balance of theinvestment credit x 10 years periodclaimed for the unit

The income tax debt will be paid in two installments,beginning on the first taxable year following the dateof the retirement of the unit from the integratedleasing program.

Line 1 - Enter the amount of the excess creditnotified by the Director, or in case of condohotels,the amount of tax debt as determined by thepreviously mentioned formula.

Line 29 - Compute your credit for foreign taxes paidaccording to the Code. Use the formula indicatedand adjust the net income by the adjusted itemsspecified in the Code. The formula is as follows:

Alternative Minimum Net Income from sourcesoutside Puerto Rico divided by Total AlternativeMinimum Net Income and multiplied by theTentative Minimum Tax.

Any increase to the Alternative Minimum Net Incomedue to the adjustment for the excess of net incomeas per the Income Statement, will have the sameproportion and character of the Alternative MinimumIncome determined without considering suchincrease.

The determined credit is subject to an additionallimitation. It may be reduced up to 90% of theTentative Minimum Tax (line 22) without consideringthe deduction for net operating loss used in thedetermination of the alternative minimum tax.Determine the credit limitation amount on lines 22through 29. Any credit amount not claimed inthe taxable year can be carried forward to thefollowing 5 years. No part of the credit may becarried back.

PART V - COMPUTATION OF THE ALTERNATIVEMINIMUM TAX

Line 31 - The adjusted regular tax is the same asthe regular tax (Form 480.10 or 480.20, Part III,line 13) less the creditable proportion of tax paid tothe United States, its possessions and foreigncountries (Schedule B Corporation and Partnership,Part II, line1).

SCHEDULE B CORPORATION ANDPARTNERSHIP - RECAPTURE OFINVESTMENT CREDIT CLAIMED IN EXCESS,TAX CREDITS, AND OTHER PAYMENTS ANDWITHHOLDINGS

Use this schedule to determine the recapture ofinvestment credit claimed in excess, the tax credits,and other payments and withholdings.

PART I - RECAPTURE OF INVESTMENT CREDITCLAIMED IN EXCESS

Enter the credit claimed in excess on previousyears as a result of an audit performed by theDirector of the Agency (the Director) that regulateseach one of the following acts: Tourism DevelopmentAct, Solid Waste Authority Act, AgriculturalIncentives Act and Capital Investment Fund Act.

TaxDebt =

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You must enter the name of the entity and theemployer's identification number, and check thecorresponding box for the investment credit claimedin excess, according to the classification and theAct under which it was claimed.

Line 3 - Multiply line 1 by 50% and enter the result.Transfer the resulting amount to Part III, line 14 ofthe return.

If part of the excess was paid in the previous year,enter the balance owed.

Line 4 - Subtract line 3 from line 1 and enter thedifference. This will be the tax debt to be paid fornext year. If this is the second year of recapture,subtract lines 2 and 3 from line 1.

PART II - TAX CREDITS

Line 2 - Enter the credit portion attributable todividends received from industrial developmentincome, corresponding to the 3% of the investmentmade by the subsidiary in the acquisition,construction and expansion of buildings and otherstructures used in manufacture, which exceeds theinvestment in such properties possessed by thesubsidiary as of March 31, 1977.

If the corporation has not enjoyed a tax exemptionunder Act 57 of 1963, Act 26 of 1978 or Act 8 of1987 for two taxable years, the credit will be grantedto the parent corporation for the increase ininvestment made by the subsidiary after the end ofthe second year of the tax exemption.

In order to be entitled to such credit, the investmentmust be made prior to January 1, 1993.

This credit may be carried forward to subsequenttaxable years. However, investments made in realproperty to obtain the waiver established onparagraph 6(a) of Section 4 of Act 8 of 1987, cannotbe used for purposes of this credit.

Line 3 - Enter the amount determined on Schedule Q.

To claim this credit you must submit with thereturn the following:

Schedules Q and Q1 duly completed.

A document indicating or showing the creditearned for the investment in the different capitalinvestment funds or direct investments, suchas Solid Waste Facilities, Tax Incentives,Agricultural Incentives, Feature films, as wellas Tourism Development Fund.

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Copy of the certification issued by theregulatory agencies.

Copy of the notification or sworn statementissued by the regulatory agency to inform thecredit distribution.

Line 5 - Enter the contributions made, up to $500,to the Educational Foundation for the Free Selectionof Schools.

The contributions made in excess of the allowed creditwill be granted as a deduction under charitablecontributions, up to the limitations established in theCode.

To claim this credit, a certification from theEducational Foundation or copy of thecanceled check must be submitted as evidenceof the contribution made.

Line 6 - Enter as credit the alternative minimumtax paid and not used in previous years. To beentitled to this credit, the regular tax for the yearmust exceed the alternative minimum tax for suchyear, and the alternative minimum tax for previousyears must have been paid. The credit must bedetermined as follows:

Regular Tax (Part III, line 11 ofthe return less Part II, line 1 ofSchedule B Corp. and Part.)

Less: Tentative MinimumTax (Part V, line 30 ofSchedule A Corp. and Part.)

Regular Tax Subject tothe Credit (Subtract line 2from line 1)

Alternative Minimum TaxCredit Paid in PreviousYears (Line 16 or 17,whichever applies, of thereturn from previous years,which has not been used)

Credit to be Granted (Thesmaller of line 3 or line 4)

If line 4 exceeds line 3, the balance will becarried forward to future years.

Line 7 - Enter the tax credit acquired during theyear through the purchase, exchange or transfermade by the investor or participant of the primaryinvestor. See instructions of Schedule Q for thepercentages and limitations to claim in the return.

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To claim this credit, the transferor and the transfereemust submit a sworn statement notifying the transferto the Secretary. The sworn statement must besubmitted with their income tax returns in the yearin which the transaction takes place.

Line 9 - Enter the amount of the credit to be claimedfor the investment in a Film Entity engaged in aFilm Project and/or Infrastructure Project under ActNo. 362 of December 24 of 1999.

In the case of an investment in a Film Entity engagedin a Film Project, the credit will be 40% of thoseamounts of the budget paid to residents of PuertoRico, but this amount cannot exceed 50% of thecapital contributed in cash to the Film Entity inexchange of stocks or shares issued in a primaryissuance.

In the case of an investment in a Film Entity engagedin an Infrastructure Project, the credit will be thesmaller between: 40% of the investment contributedin cash to the Film Entity in exchange of stocks orshares issued in a primary issuance or 20% of theInfrastructure Project budget.

All tax credit not used in the taxable year can becarried over to following years until it is completelyused.

To claim said credits you must submit the followingevidence:

the license of the Film Entity where youinvested;

notification made to the Puerto RicoCommissioner of Financial Institutions(Commissioner), to the Secretary of the Treasuryand to the investors of the credits distribution;

certificate from the Accountant regarding theexpenses disbursed of the Budget or indicatingthat the bond was placed, according to thecase; and

in the case of cessionaries, notification madeto the Secretary of the Treasury and to theCommissioner.

For more details refer to Act No. 362 of December24 of 1999.

PART III - OTHER PAYMENTS ANDWITHHOLDINGS

Enter on lines 1 through 6, the amount of tax paidor withheld concerning the types of incomedescribed on these lines.

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Line 5 - Enter the amount withheld over paymentsfor services rendered. In order to claim this credit,you must submit Form 480.6B. If you cannot submitit, you must submit a sworn statement indicatingthe name, address, employer's identification numberand telephone number of the person who made thedeposit or payment, as well as the total amount ofthe deposits and the tax withheld.

SCHEDULE C CORPORATION ANDPARTNERSHIP - CREDIT FOR TAXES PAID TOTHE UNITED STATES, ITS POSSESSIONS ANDFOREIGN COUNTRIES

Use this schedule to determine the portion of thetaxes paid to the United States, its possessionsand foreign countries allowable as a credit.

To claim a credit for taxes paid to the United States,its possessions and foreign countries, it isnecessary that you:

Paid or accrued income tax outside of PuertoRico.

Included taxable income from sources outsideof Puerto Rico in your Puerto Rico income taxreturn.

Submit evidence of the tax paid outside PuertoRico (copy of canceled checks and copy ofthe return filed to the IRS or foreign countries).If the payment receipt or the tax return is writtenin a foreign language, you must provide acertified translation of the same.

PART I - DETERMINATION OF NET INCOMEFROM SOURCES OUTSIDE OF PUERTO RICO

Line 1 - Enter the gross income from sourcesoutside of Puerto Rico. Gross income from sourcesoutside of Puerto Rico is determined by subtractingfrom the gross income of the return, the income fromsources within Puerto Rico not taxable in the UnitedStates, its possessions and foreign countries.Therefore, it is important to determine the source ofincome at the moment of filing the return.

The source of income is determined as follows:

Interest and dividends - It is determined by theresidence or place of incorporation of the payer.

Services compensation - It is determined bythe place where the services are rendered.

Royalties - It is determined by the place ofpayment for the use of, or the privilege of using,patents, copyrights, trademarks, goodwill andproperty, among others.

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Profit on the sale of inventory - It is determinedby the place where the title of goods istransferred. There is an exemption for theacquisition of products manufactured outsideof Puerto Rico.

Profit on the sale of personal property - It isdetermined by the place where the title of suchproperty is transferred.

Profit on the sale of real property - It isdetermined by the place where such propertyis located.

PART II - DETERMINATION OF NET INCOMEFROM ALL SOURCES

Determine the net income from all sources inaccordance to the income tax return.

PART III - TAXES PAID OR ACCRUED TO THEUNITED STATES, ITS POSSESSIONS ANDFOREIGN COUNTRIES

Indicate the payment date and the total tax paid oraccrued.

If the tax was paid in a foreign currency, such taxmust be translated to U.S. dollars at the date of thepayment. A schedule indicating the translation toU.S. dollars must be submitted with the return.

PART IV - DETERMINATION OF CREDIT

Determine the credit to be claimed, and enter theamount to which you are entitled.

In case the net income subject to normal taxis derived from two or more countries, theallowable credit with respect to each countryor possession will be determined separately.

The amount of credit shall not exceed the sameproportion of the tax against which such credit istaken, which the taxpayer's normal tax net incomefrom sources within such country bears to its entirenormal tax net income for the same taxable year.

The credit for taxes paid cannot exceed theamount paid to the United States, itspossessions and foreign countries.

SCHEDULE D CORPORATION ANDPARTNERSHIP - GAINS AND LOSSES FROMSALE OR EXCHANGE OF PROPERTY

Use this schedule to determine the gains or lossesfrom the sale or disposition of capital assets. Acapital asset may be defined as a property acquiredfor investment.

The term capital asset means property possessedby the taxpayer (related or not to its industry orbusiness), but does not include: (a) goods in handof the taxpayer’s business or other property ofsimilar nature that can be properly included in thetaxpayer’s inventory, if it was in hand at the close ofthe taxable year, or property possessed by thetaxpayer primarily for the sale to customers duringthe ordinary course of its trade or business, or (b)property used in its trade or business subject tothe allowance for current depreciation, or realproperty used in its trade or business.

Capital gains or losses are classified as shortor long term depending on the period held. Ifthe assets were held not more than 6 months, it isconsidered as short term gains or losses. If theassets were held for more than 6 months, it isconsidered as long term gains or losses.

To determine short and long term capital gains orlosses, you must describe the property sold andcomplete the information in columns (A) through(F), Parts I and II, with respect to the properties.

The adjusted basis of the property is its originalcost, plus the permanent improvements, less theaccumulated depreciation.

Sale expenses include sales commissions,advertisements, legal, appraisal and other similarexpenses. Do not include lodging expenses (i.e.hotels) nor travel expenses (i.e. airline tickets).

PART I - SHORT-TERM CAPITAL ASSETS GAINSAND LOSSES (HELD 6 MONTHS OR LESS)

Line 1 - Enter the sum of column (F).

Line 3 - If you elected to pay taxes using the bracketmethod, enter the amount reported on Form 480.6SE, regarding the distributable share on the net shortterm capital gain (or loss) from special partnerships.

PART II - LONG -TERM CAPITAL ASSETS GAINSAND LOSSES (HELD MORE THAN 6 MONTHS)

Line 7 - Enter the sum of column (F) of Part II.

Line 8 - Enter the amount determined on Form480.6 SE.

PART III - SUMMARY OF CAPITAL GAINS ANDLOSSES

Line 14 - Enter the sum of the excess of the netshort term and long term capital gains over the shortterm and long term capital losses.

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The following information must be provided on theschedule:

property classification;date acquired;allowable cost or basis;depreciation claimed on previous years;estimated useful l ife to determine thedepreciation;depreciation claimed this year.

Part (b) - Flexible Depreciation

To be entitled to claim flexible instead of currentdepreciation, the Code requires to make an electionthrough a sworn statement to be filed not later than30 days after the close of the taxable year. Saidoption may be exercised only over property acquiredby the taxpayer prior to June 30, 1995.

Part (c) - Accelerated Depreciation

The election may be exercised only over propertyacquired by the taxpayer during taxable yearsbeginning after June 30, 1995. The election, oncemade, is irrevocable.

Refer to the instructions of Part V of the returnor to the Code and its regulations, for otherrequirements and provisions in connectionwith the deduction under the flexible andaccelerated depreciation methods.

Submit Schedule E with your return.

SCHEDULE R - SPECIAL PARTNERSHIP

Part I of Schedule R is used every year to determinethe taxpayer's basis in each special partnership.Part II of this schedule is used in those taxableyears in which the taxpayer claims his/herdistributable share on the special partnership'slosses in the current year, as well as those lossescarried over from previous years. Also, Part IIprovides for the reduction of the carryover losses bythe distributable share on income and profitsattributable to the partner during the year.

You must complete this schedule annually whetherthe Special Partnership has derived gains (or losses)or not.

PART I - ADJUSTED BASIS DETERMINATION OFA PARTNER IN ONE OR MORE SPECIALPARTNERSHIPS

Line 1 - Enter the amount from Part I, line 4 of lastyear's Schedule R.

Losses not allowed - It will not be recognized anyloss incurred in any sale or other disposition ofstocks or securities if substantially identical stocksor securities were purchased, or if it was agreedthrough a contract or purchase option to acquiresubstantially identical stocks or securities within30 days prior to or after the sale or disposition date,except in case of stock and security dealers withrespect to operations made in the ordinary courseof business.

No deduction shall be allowed with respect tolosses from sale or exchange of property executeddirectly or indirectly (except in case of distributionsin liquidation), between an individual and acorporation or partnership in which that individualpossesses, directly or indirectly, more than 50%of the outstanding stocks or has more than 50% ofa partnership equity; or (except in case ofdistributions in l iquidation) between twocorporations, between two partnerships or betweena corporation and a partnership, of which any ofthese corporations or partnerships outstandingstocks or partnership equity is more than 50%owned, directly or indirectly, by or for the sameindividual.

Gains and losses from involuntary conversionsand from the sale or exchange of certainproperty used in the trade or business - Theterm property used in the trade or business meansproperty that is used in the trade or business, heldfor more than 6 months and that is subject to theallowance for current depreciation, and real propertyused in the trade or business, held for more than 6months, and which is property not included in thetaxpayer’s inventory if in hand at the close of thetaxable year, or property held by the taxpayerprimarily for the sale to customers in the ordinarycourse of its trade or business.

The Code provides for a special treatment for gainsand losses derived from the sale or exchange ofdepreciable property used in the trade or businessheld for more than 6 months, and for gains andlosses from a compulsory or involuntary conversionof such depreciable property and of capital assets,held for more than 6 months. Such gains could betreated as long term capital gains and taxed at a25% rate, or the normal tax rates, whichever islower.

SCHEDULE E - DEPRECIATION

This schedule will be used to inform each one of theproperties for which depreciation expense is claimed.Spaces are provided for current, flexible andaccelerated depreciation, and for improvementsamortization.

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The basis of a partner's share from a SpecialPartnership will be the amount of cash, or theadjusted basis of any property that is not consideredcash, contributed to said partnership.

This basis will be adjusted by the following entriesor transactions made during the current taxable yearand others included in previous year's income taxreturn.

Line 2 - Basis increase

Enter the partner's distributable share onprevious year's income and profits. For example,in the case of a taxpayer with a calendar taxableyear, enter the total distributable share on thespecial partnership's income or profit includedin the income tax return filed on April 15 ofprevious year (or later if you requested anextension of time to file your return). Thisamount must be the same as the one shownon line 7, Part II of Schedule R included inprevious year's income tax return.

through (d) These entries are from the currenttaxable year.

Enter the proportion of income or gainattributable to your share on the income fromagriculture earned by the special partnership,which is tax exempt under Section 1023 (s) ofthe Code.

Enter other income or gains like for example,the distributable share on the dividends andinterest received by the special partnership.

Line 3 - Basis decrease

Enter the distributable share on the lossattributable to the partner in previous year. Forexample, in the case of a taxpayer with acalendar taxable year, enter the totaldistributable share on the special partnership'sloss included in the income tax return filed onApril 15 of previous year (or later if you requestedan extension of time to file your return). Todetermine the total loss claimed in previousyear's return, add lines 5(c), 8 and 13 of Part IIfrom Schedule R included in previous year'sreturn. In order to add lines 5(c), 8 and 13 usethe parenthesis of line 8, if the excess is a loss.For example, if line 5(c) is $12,000, line 8($2,000) and line 13 $1,000, the result will be$11,000 ($12,000 + ($2,000) + $1,000).

The distributable share on special partnership'scapital assets loss.

Distributions made to the partner by the SpecialPartnership, whether in cash or in property,including tax exempt income.

The amount taken as credit against the incometax on previous taxable year for investmentsmade in special partnerships engaged in theproduction of feature films or under the TourismDevelopment Act of Puerto Rico of 1993, theCapital Investment Fund Act of Puerto Rico,the Agricultural Tax Incentives Act of PuertoRico, as amended, or any other credit admittedby law to the partners related to the SpecialPartnership's activities.

The amount taken as credit against theincome tax for withholding of tax at sourcefrom the distributable share made to a residentpartner (33%) or to a non-resident alien partner(29%).

Any expense from the Special Partnership notallowed as a deduction while determining yournet income and that is not capitalized.

The distributable share on net losses from taxexempt operations under the Tourism IncentivesAct of 1983 and the Tourism Development Actof 1993.

Line 4 - If the amount on this line is less than zero,enter zero.

PART II - DETERMINATION OF PARTNER’SALLOWABLE LOSSES IN ONE OR MORESPECIAL PARTNERSHIPS

If the Special Partnership derived losses, the partnermay take such losses as a deduction from the netincome. Said loss will be limited to the adjustedbasis of the partner’s share in the partnership atthe end of the taxable year in which the loss of thepartnership ocurred, or up to 50% of the taxpayer’snet taxable income determined without consideringsaid loss, whichever is smaller.

The adjusted basis limitation will be determined foreach one of the Special Partnerships in which thepartner invests.

If the deduction allowed to the partner for any taxableyear is smaller than its distributable share in thepartnership's net loss, the partner may claim saidexcess as a deduction in any subsequent taxableyear, subject to the smaller of the previouslymentioned limitations.

(a)

(b)

(e)

(f)

(a)

(b)

(c)

(d)

(e)

(f)

(g)

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Line 5(a) - Enter the amount distributed from thepartner’s loss in accordance to its share percentagein the Special Partnership. This amount is informedto the partner on Form 480.6 SE.

Line 5(b) - Enter the carryover losses whichwere not claimed in previous years due to thelimitation.

This amount must be the same as the one shownon line 14, Part II of Schedule R included in previousyear's income tax return.

If a partner possesses shares in losses from morethan one Special Partnership, the balance subjectto the loss carryover, as determined on the previoustaxable year, will be proportionally attributed to theloss of each one of the partnerships. Said attributionwill be done by using as factor the adjusted basisof the partner’s share in each one of the partnershipsat the end of the previous taxable year.

Line 6 - Enter on this line the amount determinedin Part I, line 4. If the special partnership has anexemption decree under the Tourism IncentivesAct of Puerto Rico or the Tourism DevelopmentAct of Puerto Rico, you may use the debts of theSpecial Partnership in proportion to your share toincrease your adjusted basis, only to claim lossesof the Special Partnership from this activity.

Line 7 - Enter the partner's distributable share onthe income and profits derived from the SpecialPartnership during the year. This amount is reflectedon Form 480.6 SE.

Line 8 - If the amount on this line is a loss, use theparenthesis.

Line 9 - Enter the smaller of the amounts on lines6(c) and 8. This will be the maximum amount towhich the partner is entitled to take as a deductionfor losses during this taxable year.

Line 10 - Enter the result of the computation fromline 9. In cases in which the partner has losses inmore than one partnership, enter the result of thesum from line 9, Columns A through C. This is thetotal amount of losses to claim for this taxableyear.

Line 11 - Subtract the Adjusted Gross Incomewithout considering the losses from SpecialPartnerships. This will be the net income subject tothe computation of line 12.

Line 12 - Enter 50% of line 11. This limitationdetermines which amount of the total of losses online 10 you will claim on this year's return.

Line 13 - Enter the smaller of line 10 or 12. This isthe amount that you may deduct in your return thisyear.

SCHEDULE S CORPORATION ANDPARTNERSHIP - FARMING BUSINESS

Use this schedule to determine the agricultural taxablebenefit.

However, if you claimed benefits under the provisionsof the Agricultural Tax Incentives Act of Puerto Rico(Act 225 of December 1,1995, as amended), referto the Income Tax Return for Exempt Businessesunder the Puerto Rico Incentives Programs (Form480.30(II)).

FORM 480-E-ESTIMATED TAX DECLARATION

The Estimated Tax Declaration (Form 480-E) mustbe filed not later than the 15th day of the fourthmonth of the taxable year, except when therequirements to file are met for the first time:

After the last day of the third month and priorto the first day of the sixth month of the taxableyear, the filing date will be not later than the15th day of the sixth month of the taxable year;or

After the last day of the fifth month and prior tothe first day of the ninth month of the taxableyear, the filing date will be not later than the15th day of the ninth month of the taxable year;or

After the last day of the eighth month and priorto the first day of the twelfth month of thetaxable year, the filing date will be the 15thday of the twelfth month of the taxable year.

The Declaration may be filed in the Internal RevenueCollections Office of the Municipality where thetaxpayer resides or sent to:

DEPARTMENT OF THE TREASURYRETURNS PROCESSING BUREAUPO BOX 9022501SAN JUAN PR 00902-2501

Every taxpayer required to file a Declaration, mustwrite the name, address and the employer'sidentification number, and check the applicable boxto indicate if the same is original or amended. Inaddition, you must indicate the taxable year forwhich the estimated tax payments will be applied,and the type of taxpayer.

1)

2)

3)

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Determine the estimated tax to be paidfor the indicated taxable year. Thisamount cannot be less than the smallerof the following amounts:

90% of the tax to be paid at theend of the taxable year, or

100% of the tax paid in the previoustaxable year.

Enter as estimated credit the amountwithheld for services rendered by the entityor the amount withheld on distributableshare of profits from Special Partnerships.If you are filling out an Amended EstimatedTax Declaration, also enter on this linethe total amount of the installments paid,if any, before this amendment.

Enter as credit the tax paid in excessin the previous year applied as estimatedtax payment in the income tax return. Ifyou choose to claim this credit againstone of the determined installments, enterzero and go to line 5.

Divide the result on line 5 by the numberof remaining installments.

Enter the tax paid in excess in the previousyear applied as estimated tax payment inthe income tax return that will be claimedagainst the amount of any installment. If suchcredit was already considered on line 4, itcannot be considered again.

PAYMENT OF ESTIMATED TAX

If the Declaration is filed prior to the first day of thefourth month of the taxable year, the estimated taxwill be paid in four installments:

1st installment: the 15th day of the fourth month

2nd installment: the 15th day of the sixth month

3rd installment: the 15th day of the ninth month

4th installment: the 15th day of the twelfth month

If the Declaration is filed after the last day of thethird month and prior to the first day of the sixthmonth of the taxable year, the installments will be:

1st installment: the 15th day of the sixth month

2nd installment: the 15th day of the ninth month

3rd installment: the 15th day of the twelfth month

If the Declaration is filed after the last day of thefifth month and prior to the first day of the ninthmonth of the taxable year, the installments will be:

1st installment: the 15th day of the ninth month

2nd installment: the 15th day of the twelfth month

If the Declaration is filed after the last day of the eigthmonth and before the first day of the twelfth month ofthe taxable year, the total estimated tax will be paidon the 15th day of twelfth month of the taxable year.

The estimated tax installments will be paid along witha payment coupon (Forms 480.E-1 or 480.E-2).Taxpayers who filed a Declaration in the previous year,will receive a booklet containing 4 coupons(Forms 480.E-2) preprinted with your name, addressand employer's identification number. Taxpayers whohave not received the coupon booklet, must visit theEstimated and Employer Manual Coupons Section(Office 421-A) of the Department of the Treasury (OldSan Juan), where a payment coupon booklet (Form480.E-1) will be prepared. For additional information,call 722-1499 or 721-2020, extension 2446 or 2456.

Estimated tax payments must be made at participantbanks (if you have the preprinted coupon), at the InternalRevenue Collections Offices or at the Returns ProcessingBureau at the address previously indicated.

Payments with checks in the participating banks mustbe made payable to the order of such banks. Paymentsmade at the Internal Revenue Collections Offices shallbe made with manager’s checks, personal checks ormoney orders payable to the Secretary of the Treasury.

EXTENSION OF TIME

If for a reasonable cause, a taxpayer is unable to filethe Declaration or pay the tax as indicated, anextension of time to file the Declaration may berequested to the Secretary. No extension of time willbe granted for a period longer than 3 months. Theextension shall be requested using Form AS 2650.

AMENDED DECLARATION

If after filing the Declaration it is determined that theestimated tax will be substantially increased orreduced as a result of a change in income, deductionsor for any other reason, an Amended Declaration mustbe filed. The Amended Declaration must be identifiedby checking the applicable box. The increase orreduction of the estimated tax will be proportionallydistributed among the remaining installments. AnyAmended Declaration filed after the 15th day of theninth month following the beginning of the taxableyear as a result of an increase in the previouslyestimated tax, must include the total amount of said

Line 1 -

Line 2 -

Line 4 -

Line 6 -

Line 7 -

•

•

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increase. The Amended Declaration in this case willbe unnecessary if on the date prescribed for its filing,the final income tax return has been filed and thebalance of tax due has been paid.

PENALTIES

The Code establishes penalties for not filing theDeclaration and for not paying the estimated taxinstallments. Also, a penalty is imposed fordetermining a substantially lower amount of estimatedtax.

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