The Tax Credit applications of business income persons present special auditing questions because of the various types of deductions taken before arriving at the net business profits amount. The special definition of what constitutes income in the Tax Credit law is the basis for the policy that any deductions for "actual out-of-pocket expenses" are permissible; whereas, deductions for "paper expenses" such as depreciation are impermissible [Section 9-104(a)(7); COMAR 18.07.01.03F(1)(c)].

If the income is shown on line 12 of Form 1040, then a copy of Schedule C must be attached to the income tax return of persons with net business profits or losses.

Local Tax Credit employees should contact their respective central office coordinators with any questions about the particular applicant's business income and related deductions. Local employees are required further to send the living expenses affidavit form (HTC-15B) to any business income person whose actual property tax bill based upon the prior year's tax rate will exceed 15% of the total income reported by the person.