Compliance
Tax Compliance in Puerto Rico for Bona Fide Residents after IRS Clarified Foreign Tax Credit Rules
With recent IRS guidance, bona fide residents of Puerto Rico must watch how tax decree amendments interact with foreign tax credit rules—miss the details, and you could lose big benefits.
By NomadicTax Research Team • 5-8 min read • August 18, 2026
## Background: Decrees & Foreign Tax Credit Rules
In IRS Notice regarding Puerto Rico’s Act 52-2022, regulatory changes under Treas. Reg. § 1.901-2 and § 1.903-1 clarify how amendments to tax decrees affect a taxpayer’s foreign tax credit eligibility. Importantly, a bona fide resident who amended their decree **on or before December 31, 2022** and whose tax under the decree each year is lower than what would apply under standard Puerto Rico tax law may still satisfy foreign tax credit rules. ([irs.gov](https://www.irs.gov/pub/irs-irbs/irb22-41.pdf?utm_source=openai))
## Key Compliance Tasks
- **Track amendment dates**: Decrees amended after Dec. 31, 2022 generally fall outside safe-harbor rules.
- **Compare annual tax liability** under the decree vs what standard tax would be.
- **Document bona fide residency** using test criteria—presence, tax home, closer connection.
- **Identify income sources**: Puerto Rico vs U.S. vs Other foreign—IRS source rules remain strict.
- **File IRS forms properly**, including U.S. federal return (excluding Puerto Rico source income if exempt) and Puerto Rico return (worldwide income if resident), as required. Publication 54 and 570 are helpful guides. ([irs.gov](https://www.irs.gov/publications/p54?utm_source=openai))
## Examples of Compliance Scenarios
- **Example A**: You moved in late 2021, got your decree amended on Dec. 30, 2022, & your decree tax liability is consistent year-over-year — you remain eligible under the regulation for foreign tax credits.
- **Example B**: You moved in 2023 or amended decree in 2023—you may not qualify for noncompulsory payment safe harbor and risk losing potential foreign tax credits.
## Practical Tips & Checklist
- Keep **detailed records** of decree amendment documents.
- Maintain calculation sheets showing step-by-step comparison each tax year.
- Retain all **travel, residency, employment, lease data** supporting bona fide resident claims.
- Consult with tax professionals specialized in U.S. territories and international tax law.
## Bottom Line
While Puerto Rico’s Act 52-2022 remains an attractive incentive, maintaining clarity in compliance is essential. Miss deadlines or misjudge liability, and a major portion of intended benefit could evaporate. Stay vigilant, maintain documentation, and align your actions with IRS’s published regulations.