Authority of the Manager of a Big Corporation to Deduct Items from His Gross Income

January 22, 1960 BIR RULING NO. 067-60 Mr. Eduardo G. Fabian 1524 Felix Huertas Sta. Cruz, Manila S i r : This is with reference to your letter dated June 20, 1959, requesting information as to whether or not a manager of a big corporation is allowed to deduct the following items from his gross income, for income tax purposes, to wit: lexlib (1) Transportation or gas and oil allowance (expenses); (2) Driver's salary; (3) Car depreciation; (4) Car maintenance and repair; (5) Subscription of technical books; and (6) Representation and entertainment expenses for customers or clients which were not refunded by the corporation. In reply thereto, I have the honor to inform you that, in general, all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, including a reasonable allowance for salaries or other compensation for personal services actually rendered, and traveling expenses while away from home in the pursuit of a trade or business, shall be allowed as deductions from the gross income in computing the net income of a taxpayer. (Sec. 30(a)(1), Tax Code.) Based on the foregoing principle of law, the transportation expenses incurred by an individual, whose business requires him to travel, or the expenses in operating his car used exclusively, in making business calls, including chauffeur's salary, gasoline and oil, repairs and depreciation, are deductible from his gross income if said expenses, were not reimbursed by the corporation. If he receives a salary and is also reimbursed his actual transportation expenses, he shall include in his gross income the amount so repaid and may deduct such expenses. However, if the same car is also used for personal or family convenience (which is the more common), only that portion of the expenses attributed to the business may be deducted. Cost of subscription of technical books used by a professional in the practice of his profession or those that would enhance his technical knowledge in the management of the corporation may be claimed as deduction from gross income. However, amounts expended for books of a permanent character are not allowable as deduction. Representation and entertainment expenses may be deducted from the gross income if it can be shown that such are ordinary and necessary in the promotion of the business of the taxpayer. On this point, the Court of Tax Appeals ruled that ". . . . . it has become a business, and to a certain extent a professional practice to entertain actual or prospective customers or clients. Since expenses of this nature generally consist of a mixture of personal and business purposes, whether or not such expenditures will be allowed will depend upon the factor of the necessity of such expenses to earn the income, or that direct business benefits would be derived from such expenditures, or whether the expenses have some definite reasonable purposes connected with the business in hand and reasonably calculated to accomplish the end sought. In this instance, the burden of proof is on the taxpayer to show that such expenditures were primarily business rather than personal expenses." (Santiago Gancayco vs. Collector of Internal Revenue, C.T.A. Case No. 287, Nov. 14, 1957, quoting from Mertens, Law of Federal Income Taxation.) It may be stated here that claims for deductions referred to herein must be substantiated, when required by the Commissioner of Internal Revenue, by record showing in detail the amount and nature of the expenses incurred. cdll Very truly yours, MELECIO R. DOMINGO Commissioner of Internal Revenue