Determination of income.

Net income of a partnership or association shall be determined and reported on the basis of accepted accounting principles and practices after provision for all costs and expenses incurred in the conduct thereof. Deductions may not be allowed for expenses not related to the production of income, nor may taxes based on income be allowed as a deduction. Notes of Decisions Constitutional Retirement contributions made on behalf of partners is money that the partners would otherwise receive in their share of the net profits of the partnership, and the contributions are made, at least theoretically, at the election of the partners. On the other hand, when an employer makes contributions to an employe’s retirement plan, the contributions are not made by reducing the employe’s salary, and the employe is given no control over whether the contributions are to be made. Furthermore, the employe does not actually or constructively receive the contributions because the receipt of benefits under the retirement plan could be subject to substantial limitations and restrictions. There is, therefore, a legitimate and nonarbitrary reason for distinguishing between partners and employes, thus rendering the Department of Revenue’s regulations constitutional. Smith v. Commonwealth , 684 A.2d 647 (Pa. Cmwlth. 1996). Partnerships Because partners acquire the status of self-employed individuals, any contributions to a retirement plan are not expenses related to the production of income, and therefore, may not be deducted from the partnership’s net profits. Smith v. Commonwealth , 684 A.2d 647 (Pa. Cmwlth. 1996).