The Treasury Department (TD) issued its Internal Revenue Circular Letter No. 19-14 (CC RI 19-04) to inform on the content and procedures related to the Report on Agreed Upon Procedures or the Compliance Attestation required under Law 257 of December 10, 2018.  The report must be prepared by an Authorized Public Account (CPA) with a current license to do business as such in Puerto Rico. 

For self-employed individuals, the CPA will inspect and confirm that the expenses claimed are the expenses incurred and needed to produce income as a self-employed individual.  This is a requirement so that such expenses can be deducted on the Basic Alternate Tax (CBA) in the same way they can be deducted to determine the gross income subject to the normal tax imposed by law. 

Likewise, CC RI 19-04 establishes the requirement for any entity that pays taxes as a corporation to submit the CPA’s report in order to claim under the Minimum Alternate Tax (CAM) the same deductions claimed to determine the gross income subject to the normal tax imposed.   

For more information on the CBA or CAM Calculation please refer to our newsletter titled “Changes on the Alternate Basic Tax (CBA),


Expenses Subject to the CPA’s Report and the Type of Report the CPA Must Prepare

For compliance purposes, the TD, along with the College of CPAs of Puerto Rico, has determined that the type of report required in order to claim the deduction of certain expenses to determine the gross income for both the CBA (individuals) or CAM (corporations) will be the Report on Agreed Upon Procedures (AUP).  The TD also determines the language the CPA must use on the AUP, and the reach of the procedures must conform to the normal standards of attestation. 


Expenses subject to AUP are as follows:

  • Auto expenses
  • Expenses for other motor vehicles
  • Repairs and maintenance
  • Travel expenses
  • Meal and entertainment expenses
  • Office materials and equipment
  • Materials used by the industry or business
  • Stamps, vouchers, and duties
  • Shipping and handling charges
  • Uniforms
  • Parking and tolls
  • Office expenses
  • Bank charges
  • Contributions made to educational accounts that benefit employees
  • Expenses either incurred or paid to stockholders, or to related persons or individuals
  • Losses caused by fire, hurricanes or by any other disaster, or by theft
  • Uncollectible debts
  • Management or administrative charges not included in the informative declaration
  • Expenses paid on property rented to the Puerto Rico Industrial Development Company or to the Business and Export Company
  • Expenses for subscriptions or memberships
  • Expenses for licenses or non-capitalized computer programs
  • Donations
  • Deductions under Law 185-2014
  • Any other expense not subject to be included in the Informative Declaration.


The following expenses are deductible to determine the gross income subject to either the CBA or CAM, as they apply, and not subject to the AUP:

  • Interests on business debts
  • Taxes, municipal patents, and licenses, including municipal taxes, sales, and use taxes, excise taxes, or payments to the State Insurance Fund
  • Depreciation and amortization of property used by the business
  • Contributions to qualified pension plans
  • Deductions for employers that hire disabled/handicapped persons


In addition, the following expenses may be deducted to determine the gross income subject to the normal contribution, the CBA or CAM, as it applies, provided that such expenses have been informed on the Withholding Voucher or on the corresponding Informative Declaration: 

  • Salaries paid to employees, including directors and officers
  • Employer’s contribution to the Federal Social Security (FICA and Medicare)
  • Federal and state unemployment insurance
  • Rendered services
  • Outsourcing services
  • Commissions paid to other businesses or merchants
  • Rent or lease expenses including personal or real estate property
  • Insurance premiums paid for health and accident plans; property and contingency insurance, public responsibility insurance, and bonds
  • Telecommunications services, including internet and cable or satellite TV services, used at the industry or business
  • Utility services such as water and sewage and electricity
  • Advertisement services and ads
  • Royalties
  • Special contributions for consulting and professional services under Law 48-2013
  • Interest paid on mortgage loans or on car leases
  • Membership fees in professional associations that benefit employees
  • Maintenance fees paid to Homeowner’s Associations
  • Continuous education expenses paid for the benefit of employees


In order to be able to deduct the expenses to determine the gross income subject to either the CBA or CAM, the AUP must be submitted along with the filing of the Income Tax Return.  The AUP submission applies to the 2019 Income Tax Return and subsequent filings. 


Schedule a Free Consultation

Leave a Reply

Your email address will not be published. Required fields are marked *

More Posts


Law 257 of December 10, 2018 (Law 257-2018) established a new Earned Income Credit (EIC) for individuals that have lived in Puerto Rico for the

Read More »