- 5 -
from self-employment tax. See sec. 1401; sec. 1.1402(a)-9,
Income Tax Regs. Residents of Puerto Rico are required to
compute net earnings from self-employment in the same manner as a
U.S. individual without regard to section 933. See sec.
1402(a)(6); sec. 1.1402(a)-9, Income Tax Regs.; see also sec.
1.1402(a)-1, Income Tax Regs. (defining the term “net earnings
from self-employment” to include the gross income derived in a
taxpayer’s trade or business less the deductions allowed by
chapter 1 that are attributable thereto).
I. Substantiation of Business Expense Deductions
In general, section 162 allows a deduction for all the
ordinary and necessary expenses paid or incurred during the
taxable year in carrying on any trade or business. Whether an
expenditure satisfies the requirements of section 162 is a
question of fact. Commissioner v. Heininger, 320 U.S. 467, 475
(1943). The taxpayer must keep records sufficient to establish
the amounts of the items required to be shown on his Federal
income tax return. See sec. 6001; sec. 1.6001-1(a), (e), Income
Tax Regs.
When a taxpayer establishes that he has incurred a
deductible expense but is unable to substantiate the exact
amount, the Court may estimate the deductible amount in some
circumstances (the Cohan rule). See Cohan v. Commissioner, 39
F.2d 540, 543-544 (2d Cir. 1930). But the Court can estimate the
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Next
Last modified: March 27, 2008