Income Taxatio

8/9/2019 Income Taxatio

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I. BASIC STRUCTURAL AND

DEFINITIONAL CONCEPTS

A. Meaning of Income

SEC. 32 Gross Income. -

(A) Genera De!"n"#"on. - Except when otherwise provided in this Title, gross

income means all income derived from whatever source, including (but not limited

to) the following items:

(1) Compensation for services in whatever form paid, including, but not limited to

fees, salaries, wages, commissions, and similar items

(!) "ross income derived from the conduct of trade or business or the exercise of

a profession

(#) "ains derived from dealings in propert$

(%) &nterests

(') ents

() o$alties

(*) +ividends() nnuities

(.) /ri0es and winnings

(1) /ensions and

(11) /artner2s distributive share from the net income of the general professional

partnership3

Baniqued: Income in the NIRC is an enumeration. If it’s not found in Sec. 32 is it

income? It could be. Including but not limited to is the ording of the la.

!octor and "a#er barters ser$ices% is that income? Is that ta&able? 'his is $er#

difficult to monitor.

Income means all wealth which flows into the taxpa$er other than as a mere

return of capital3 n example of a mere return of capital is the pa$ment of loans

receivable3 &ncome can also mean as a flow of the fruits of one4s labor

&ncome includes earnings, lawfull$ or unlawfull$ ac5uired, without consensual

recognition, express or implied, of an obligation to repa$ and without restriction as

their disposition3

s a general rule, mere increase in the value of propert$ is 67T income but

merel$ an unreali0ed increase in capital3 6o income is derived b$ the owner until

after the actual sale of the propert$ in excess of its original cost3 (+e 8eon)

9isher vs3 Trinidad: &ncome as contrasted with capital or propert$ is to be the

test3 The essential difference between capital and income is that capital is a fund

income is a flow3 fund of propert$ existing at an instant of time is called capital3

flow of services rendered b$ that capital b$ the pa$ment of mone$ from it or

an$ other benefit rendered b$ a fund of capital in relation to such fund through a

period of time is called an income3 Capital is wealth, while income is the service of

wealth3 The fact is that propert$ is a tree, income is the fruit labor is a tree,

income the fruit capital is a tree, income the fruit3

9Conwi v3 CT: &ncome ma$ be defined as an amount of mone$ coming to a

person or corporation within a specified time, whether as pa$ment for services,

interest or profit from investment3 ;nless otherwise specified, it means cash or its

e5uivalent3 &ncome can also be though of as flow of the fruits of one2s labor3

9C& v3 Tours 6 amounts received b$ a local tourist and travel

agenc$ included in a pac?age fee from tourists or foreign tour agencies, intended

or earmar?ed for hotel accommodations form part of gross receipts sub@ect to #A

contractor4s tax

"ross receipts sub@ect to tax under the Tax Code do not include monies or receipts

entrusted to the taxpa$er which do not belong to them and do not redound to the

taxpa$er4s benefit3 /arentheticall$, the room charges entrusted b$ the foreign

travel agencies to the private respondents do not form part of its gross receipts

within the definition of the Tax Code3 The said receipts never belonged to the

private respondent3 The private respondent never benefited from their pa$ment to

the local hotels3 This arrangement was onl$ to accommodate the foreign travel

agencies3

9Eisner vs3 Bacomber: &ncome ma$ be defined as the gain derived from capital,

from labor, or from both combined, including profit gained through sale or

conversion of capital3

Bere growth or increment of value in a capital investment is not income income

is essentiall$ a gain or profit, in itself, of exchangeable value, proceeding from

capital, severed from it, and derived or received b$ the taxpa$er for his separate

use, benefit, and disposal3 &d3

stoc? dividend, evincing merel$ a transfer of an accumulated surplus to the

capital account of the corporation, ta?es nothing from the propert$ of the

corporation and adds nothing to that of the shareholder3 tax on such dividends

is a tax an capital increase, and not on income, and, to be valid under the

Constitution, such taxes must be apportioned according to population in the

several states3

9ames vs3 ;


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from both legal and illegal sources, to remove the incongruit$ of having the gains

of the honest laborer taxed and the gains of the dishonest immune

B. Rea"$a#"on

&t is a separation from capital, resulting in receipt of income

9Eisner v3 Bacomber: Dstoc? dividendD shows that the compan$2s accumulated

profits have been capitali0ed, instead of distributed to the stoc?holders or retainedas surplus available for distribution in mone$ or in ?ind should opportunit$ offer3

ar from being a reali0ation of profits of the stoc?holder, it tends rather to

postpone such reali0ation, in that the fund represented b$ the new stoc? has been

transferred from surplus to capital, and no longer is available for actual

distribution3

9achrach v3


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the additional amount extracted as punishment for the same conduct which

caused the in@ur$3 nd we find no such evidence of intent to exempt these

pa$ments3

F. Reco,er o! De'&c#e' I#ems Ta/ Bene!"#

Pr"nc"%es

9ani5ued: =hen there4s a fire, then the person claims a loss (/'B) in grossincome in that $ear3 &n the following $ear, the insurance compan$ pa$s me m$

insurance claim3 =hat happens nowI


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5. Re"m&rsemen# !or +ron*!& Dea#1 o!

In6&r

L. Fr"n*e Bene!"#s

SEC. 33. S%ec"a Trea#men# o! Fr"n*e Bene!"#.-

(A) Im%os"#"on o! Ta/.- final tax of #!A is hereb$ imposed on the:

(1) grossed-up monetar$ value of fringe benefit

(!) furnished or granted to the emplo$ee (except ran? and file emplo$ees as

defined herein)

(#) b$ the emplo$er, whether an individual or a corporation (unless the fringe

benefit is re5uired b$ the nature of, or necessar$ to the trade, business or

profession of the emplo$er, or when the fringe benefit is for the convenience or

advantage of the emplo$er)3

The tax herein imposed is pa$able b$ the emplo$er which tax shall be paid in the

same manner as provided for under or to hire, transfer, suspend, la$-

off, recall, discharge, assign or discipline emplo$ees3

S&%er,"sor em%oees -- those who, in the interest of the emplo$er, effectivel$

recommend such managerial actions if the exercise of such authorit$ is not merel$

routinar$ or clerical in nature but re5uires the use of independent @udgment3

ll emplo$ees not falling within an$ of the above definitions are considered ran*+

and+file em,lo#ees3

ringe benefits given to a ran?-and-file emplo$ee are treated as ,art of his

com,ensation income sub-ect to income ta& and ithholding ta& on com,ensation

income3

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;nder the regulations, the T is actuall$ due from the emplo$ee but paid b$ the

emplo$er for and in behalf of the emplo$ee3 =hen the emplo$er pa$s the T in

behalf of the emplo$ee, the tax becomes an additional benefit of the emplo$ee

sub@ect thereto3 Thus the need to gross up the monetar$ value of the fringe

benefit3

The "BJ of fringe benefit granted or furnished b$ the emplo$er to the emplo$ee is

deductible from gross income as an ordinar$ and necessar$ business expense,

provided the final tax in 1'A) on the

grossed up monetar$ value

(!) "BJ determined b$ dividing the BJ b$ the difference (*'A>'A) between

1A and the said applicable tax rates (!'A>1'A)

Baniqued: /h# do still need fringe benefits ta&? /hen the benefits ould be

included alread# in the gross com,ensation income of the 00? If Congress had not

enacted 1B'% ho ould such fringe benefits be treated? Because before there

as a huge lea*age in the ta&able base% e$en if the 0R ere su,,osed to ithhold

such ta& from the 00s% the# didn’t do it So the Congress no itemied certain

items of 1B'.

Criticism 4 It is anti+,oor. Ran* and file is made use to bear the ta&% hile the

su,er$isor# em,lo#ees and managerial em,lo#ees are borne b# the 0R.

'a*e note of the housing ,ri$ileges in 5ousing (ri$ilege. 67 of the 189% then

67 ,a #un. Not the entire amount of the fringe benefit is ta&ed. Same ith

motor $ehicles ;See RR+3+

Note% if the com,an# ,a#s for the tra$el e&,enses of an em,lo#ee for a

con$entionbusiness meeting% -ust ,ro$e that it as for a business ,ur,ose

;substantiate ith the actual occurrence of the con$ention>. 0h ,ano ,ag sinama

si 8isis? 0h di ta&able sa *an#a #un.

7. Con,en"ence o! #1e Em%oer Tes#

De!"n"#"on3 &f meals, living 5uarters, and other facilities and privileges arefurnished to an emplo$ee for the convenience of the emplo$er, and incidental to

the re5uirement of the emplo$ee4s wor? or position, the value of that privilege

need not be included as compensation3

E/am%es.

13 The value of the meals given to the emplo$ee is not taxable, if the emplo$er

provides the meals for a substantial non- compensator$ business purpose

(generall$, when emplo$ee is re5uired to be on dut$ during the meal period)3

!3 8odging is not taxable if the emplo$ee must accept the lodging on the

emplo$er4s business premises as a condition of his emplo$ment3

9Collector vs3 Fenderson: re the allowances for rental of the apartment furnished

b$ the husband-taxpa$er2s emplo$er-corporation, including utilities such as light,

water, telephone, etc3 and the allowance for travel expenses given b$ his

emplo$er-corporation to his wife in 1.'! part of taxable incomeI

The 5uarters, therefore, that the$ occupied at the Embass$ partments consisting

of a large sala, three bedrooms, dining room, two bathrooms, ?itchen and a large

porch, and at the osaria partments consisting of a ?itchen, sala dining room,

two bedrooms and a bathroom, exceeded their personal needs3 ut the exigencies

of the husband-taxpa$er2s high executive position, not to mention social standing,

demanded and compelled them to live in amore spacious and pretentious 5uarters

li?e the ones the$ had occupied3

That is wh$ his emplo$er-corporation had to grant him allowances for rental and

utilities in addition to his annual basic salar$ to ta?e care of those extra expenses

for rental and utilities in excess of their personal needs3

Fence, the fact that the taxpa$ers had to live or did not have to live in the

apartments chosen b$ the husband-taxpa$er2s emplo$er-corporation is of no

moment, for no part of the allowances in 5uestion redounded to their personal

benefit or was retained b$ them3

Baniqued: If the em,lo#ee benefits from it ,ersonall#% does that ma*e it ta&able?

N@. 'he mere fact that the em,lo#ee deri$es some incidental benefit from it% it

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doesn’t mean that it is ta&able under the 1B' as long as it is ,rimaril# for the

con$enience of the em,lo#er.

"ast note: It does not follo that because the 1ringe Benefits are not sub-ect to

1B' that the# are not sub-ect to ta& at all. It ma# be that the 1B ma# become ,art

of com,ensation income and ma# be sub-ect to income ta&.

N. De 7"n"m"s Bene!"#s

RR 2-89 Sec. 2.:9.;(A)(3) Fac""#"es an' %r","e*es o! a rea#",e sma

,a&e3 L 7rdinaril$, facilities and privileges (such as entertainment, medical

services, or so called Dcourtes$D discounts on purchases), furnished or offered b$

an emplo$er to his emplo$ees generall$, are not considered as compensation

sub@ect to withholding if such facilities or privileges are of:

13 relativel$ small value and are offered or furnished b$ the emplo$er

!3 merel$ as a means of promoting the health, goodwill, contentment, or

efficienc$ of his emplo$ees3

=here compensation is paid in propert$ other than mone$, the emplo$er shall

ma?e necessar$ arrangements to ensure that the amount of the tax re5uired to

be withheld is available for pa$ment to the Commissioner3

Tax implication of de minimis benefits: EMEB/TE+ from tax3 Fowever, should the

amount of the benefits given be in EMCE supervisor$ emplo$ees - The amount in excess of the

ceiling prescribed is taxable as a fringe benefit (i3e3, there will be a #!A tax

imposed on the grossed-up monetar$ value of the residual amount)3

!3 &f given to ran?-and-file emplo$ees - The amount in excess of the ceiling

prescribed is taxable as salar$ or compensation income

Baniqued: /h# is it e&cluded from ta&? 'hese are benefits that are tri$ial%Benefits of relati$el# small $alue furnished to 00 for their ell being.

II. DEFINITION OF GROSS INCO7E

A. S#a#or De!"n"#"on

SEC. 32 Gross Income. -

(A) Genera De!"n"#"on. - Except when otherwise provided in this Title, gross

income means all income derived from whatever source, including (but not limited

to) the following items:

(1) Compensation for services in whatever form paid, including, but not limited to

fees, salaries, wages, commissions, and similar items

(!) "ross income derived from the conduct of trade or business or the exercise of

a profession

(#) "ains derived from dealings in propert$

(%) &nterests

(') ents

() o$alties

(*) +ividends() nnuities

(.) /ri0es and winnings

(1) /ensions and

(11) /artner2s distributive share from the net income of the general professional

partnership3

9ani5ued: This is not intended to be exclusive

B. Com%ensa#"on !or Ser,"ces

Com%ensa#"on Income. &ncome arising from an E-EE relationship3 &t means all

remuneration for services performed b$ an EE for his E, including the cash valueof all remuneration paid in an$ medium other than cash3

Pro!ess"ona "ncome refers to the fees received b$ a professional from the

practice of his profession, provided that there is no emplo$er-emplo$ee

relationship between him and his clients3 This fact is material for purposes of

taxation because there is no deduction allowed against compensation income, but

allowable deductions ma$ be made from professional income

Baniqued: "a#ers attend board meetings% the# recei$e ,ansit% ,er diems%

siomai% (A%% and director bonuses. 5o are these treated% com,ensation

income or business income? 'he first thing #ou should as* is hether there is 00+

0R relationshi,? @rdinaril# if #ou are not an em,lo#ee% it is a business income.

'he ithholding ta& that ould a,,l# is not that a,,lied to 00s but the ithholding

ta& under creditable ithholding ta&.

tt#. 0s,inosa is a full time em,lo#ees of '96 for e&am,le ;Senior 9(>% the# also

sit in the board% the# also gain ,er diems% ho is this going to be treated? s*

again% is there a 00+0R relationshi,. 0S there is 'he# are full time em,lo#ees of

the 8etro (acific Drou,.

C. Income !rom B&s"ness or E/erc"se o!

Pro!ess"on

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9ani5ued:

0&am,le in com,uting amount realied: ou ,a# me F% and #ou gi$e me

shares of stoc* $alued at another 2%. 8@EN' R0"IG0! is (3%

/hat is a BSIS? If I bought a car for (F%% ;acquisition cost>% then I use it

in the ,ractice of m# ,rofession% e$er# #ear I claim 2% as de,reciation% so

m# cost in that motor $ehicle is G0R@ hat is the basis? G0R@ "S@ 'hat is thead-usted basis. 'he de,reciation alloance ould reduce #our original basis or

original cost.

/hat if there is a re,air on maintenance on the car of (F%% hat then ould

be the effect of that on the ad-usted basis? ou then ,ut that on the ad-usted

basis% it increases. 'his is a C(I'" 0H(0N!I'ER0% not deducted outright but

s,read out in 6 #ears.

I bu# a land is (3%%% through the #ears I as claiming deductions for

de,reciation in the building ;#ou cannot de,reciate the land>% hat is the effect of

that de,reciation alloance on m# original basis? It ill R0!EC0 m# original basis.

BE' if I introduce im,ro$ements on m# building% li*e an ele$ator% so hat is the

im,act of that modern ele$ator s#stem? It ill be !!0! '@ '50 @RIDIN"BSIS 'hat is the !ES'0! BSIS

Inheritance% there is estate ta& ;heirs ,a#>. 'ransfer b# reason of donation% there

is donors ta&. !onor’s ta& is based on the 189 of the ,ro,ert# donated at the time

of the donation.

/h# is there a difference? If a ,ro,ert# is inherited and acquired b# donation? Sa

inherited ,ro,ert# 189 at time of inheritance% sa donation *ung ano #ung cost

nung donor% @R fm$ at the time the donation as made for (ER(@S0 @1 "@SS.

I acquire land (6%% ;onal $alue> I ,aid (A%%. Basis is

(A%%. ou are fore$er S'ECJ /I'5 "@/ BSIS. 'he loer #our basis is%

the higher #our gain be% the higher ta& #ou ill ha$e to ,a#.

So is it ala#s good to under$alue the land e are bu#ing? 8a# !@S 268% ta,os

ang ibibiga# mo sa BIR FK68% o*a# ba #an? No that is I""0D"% cons,iring to

under$alue the ta&. 0$en if it is acce,ted ,ractice it cannot be condoned. Besides

if #ou agree to under$alue and #ou subsequentl# sell this ,ro,ert# #ou are stuc*

ith a lo basis ;of course this does not a,,l# to a ca,ital asset% basis is

irrele$ant>

E. Pass",e Income < In#eres#= Ren#= Roa#

an' D","'en'

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;. In#eres#

In#eres# "ncome, in general, are included in the gross income of the

creditor>depositor ;68E


9/78

lessor ma$ at his option report the income therefrom upon either of the following

bases:

(a) The lessor ma$ report as income at the time when such buildings or

improvements are completed the fair mar?et value of such buildings or

improvements sub@ect to the lease3 ;@utright method>

(b) The lessor ma$ spread over the life of the lease the estimated depreciated

value of such buildings or improvements at the termination of the lease and report

as income for each of the lease all ade5uate part thereof3 ;S,read+out method>

3. Roa#

Roa#"es means pa$ments of an$ ?ind received as a consideration for the use of

or the right to use an$ cop$right of literar$ artistic or scientific wor?3

o$alties can be sold regularl$ and thus be considered as an active business

income sub@ect to the normal corporate income tax or passive income sub@ect to

final withholding tax3

RULES ON RO>ALT> AS A PASSI?E INCO7E

A. RO>ALT> PAID B> A DO7ESTIC CORPORATION

13 ecipient is a citi0en, resident alien, or a non Gresident alien engaged in trade

or business in the /hilippines, or a esident oreign Corporation

- o$alt$ income from sources within the /hilippines is sub@ect to !A final

withholding tax3 ut ro$alt$ on boo?s and other literar$ wor?s and musical

compositions is sub@ect to 1A final tax3

!3 ecipient is a non-resident alien not engaged in trade or business in the

/hilippines

- o$alt$ income from sources within the /hilippines is sub@ect to !'A final

withholding income tax3

#3 ecipient is a non-resident foreign corporation

- o$alt$ income from sources within the /hilippines is sub@ect to #A final

withholding tax3

B. RO>ALT> PAID B> A FOREIGN CORPORATION

13 ecipient is a resident citi0en and a domestic corporation

- A DO7ESTIC CORPORATION!


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a3 ecipient is a citi0en, resident alien, or 6 engaged in trade or business)

1A final withholding tax starting anuar$ 1, !3

b3 ecipient is a non-resident alien not engaged in trade or business


11/78

Each partner shall report as gross income his distributive share, actuall$ or

constructivel$ received, in the net income of the partnership

SEC. :3(D) Ne# Income o! a Par#ners1"% Deeme' Cons#r&c#",e Rece",e'

Par#ners. - The taxable income declared b$ a partnership for a taxable $ear

which is sub@ect to tax under


12/78

9/irovano v3 C&: /irovano expected or was promised further compensation over

and in addition to his regular emoluments as /resident and "eneral Banager3 The

fact that his services contributed in a large measure to the success of the

compan$ did not give rise to a recoverable debt, and the conve$ances made b$

the compan$ to his heirs remain a gift or donation3 This is emphasi0ed b$ the

directors2 esolution of anuar$ , 1.%*, that Dout of gratitudeD the compan$

decided to renounce in favor of /irovano2s heirs the proceeds of the life insurance

policies in 5uestion3 The true consideration for the donation was, therefore, the

compan$2s gratitude for his services, and not the services themselves3

9Commissioner v3 +uberstein: &n 6o3 #*, +uberstein, an individual taxpa$er,

gave to a business corporation, upon re5uest, the names of potential customers3

The information proved valuable, and the corporation reciprocated b$ giving

+uberstein a Cadillac automobile, charging the cost thereof as a business expense

on its own corporate income tax return3 The Tax Court concluded that the car was

not a DgiftD excludable from income3

=hen determining whether something is a gift for taxation purposes, the critical

consideration is the transferor2s intention3 This is a 5uestion of fact that must be

determined on a Dcase-b$-case basisD3 The bod$ that levies the tax must conduct

an ob@ective in5uir$ that loo?s to Dthe mainsprings of human conduct to the

totalit$ of the fact of each case3D 7n review, the trier of fact must consider all ofthe evidence in front of it and determine whether the transferor2s intention was

either disinterested or involved3

+uberstein was considered 67T a gift3 Botive was not disinterested, it was for

past services and to encourage future references3


13/78

13 death

!3 sic?ness or

#3 other ph$sical disabilit$ or

%3 for an$ cause be$ond the control of the said official or emplo$ee3

RA :; RPBP

etiring emplo$ee must be in the

service of same emplo$er

C76T&6;7;


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&n the foreign government income, even if it is exercising a proprietar$ function, it

is still exempt3

(c) Pr"$es an' Aar's. - /ri0es and awards made primaril$ in recognition of

religious, charitable, scientific, educational, artistic, literar$, or civic achievement

but onl$ if:

(i) The recipient was selected without an$ action on his part to enter the contest

or proceeding and

(ii) The recipient is not re5uired to render substantial future services as a

condition to receiving the pri0e or award3

(') Pr"$es an' Aar's "n S%or#s Com%e#"#"on. - ll pri0es and awards

granted to athletes in local and international sports competitions and tournaments

whether held in the /hilippines or abroad and sanctioned b$ their national sports

associations3

e) ;3#1 7on#1 Pa an' O#1er Bene!"#s. - "ross benefits received b$ officials

and emplo$ees of public and private entities: /rovided, however, That the total

exclusion under this subparagraph shall not exceed Thirt$ thousand pesos

(/#,) which shall cover:

(i) enefits received b$ officials and emplo$ees of the national and local

government pursuant to epublic ct 6o3

(ii) enefits received b$ emplo$ees pursuant to /residential +ecree 6o3 '1, as

amended b$ Bemorandum 7rder 6o3 !, dated ugust 1#, 1.

(iii) enefits received b$ officials and emplo$ees not covered b$ /residential

decree 6o3 '1, as amended b$ Bemorandum 7rder 6o3 !, dated ugust 1#,

1. and

(iv) 7ther benefits such as productivit$ incentives and Christmas bonus:

/rovided, further, That the ceiling of Thirt$ thousand pesos (/#,) ma$ beincreased through rules and regulations issued b$ the


15/78

Sec. 23(B) nonresident citi0en is taxable onl$ on income derived from sources

within the /hilippines3

Sec. 23(C) n individual citi0en of the /hilippines who is wor?ing and deriving

income from abroad as an overseas contract wor?er is taxable onl$ on income

derived from sources within the /hilippines: /rovided, That a seaman who is a

citi0en of the /hilippines and who receives compensation for services rendered

abroad as a member of the complement of a vessel engaged exclusivel$ in

international trade shall be treated as an overseas contract wor?er

Sec. 22(E) The term 2nonresident citi0en2 means:

(1) citi0en of the /hilippines who establishes to the satisfaction of the

Commissioner the fact of his ph$sical presence abroad with a definite intention to

reside therein3

(!) citi0en of the /hilippines who leaves the /hilippines during the taxable $ear

to reside abroad, either as an immigrant or for emplo$ment on a permanent basis3

(#) citi0en of the /hilippines who wor?s and derives income from abroad and

whose emplo$ment thereat re5uires him to be ph$sicall$ present abroad most of

the time during the taxable $ear3

(%) citi0en who has been previousl$ considered as nonresident citi0en and who

arrives in the /hilippines at an$ time during the taxable $ear to reside

permanentl$ in the /hilippines shall li?ewise be treated as a nonresident citi0en for

the taxable $ear in which he arrives in the /hilippines with respect to his income

derived from sources abroad until the date of his arrival in the /hilippines3

(') The taxpa$er shall submit proof to the Commissioner to show his intention of

leaving the /hilippines to reside permanentl$ abroad or to return to and reside in

the /hilippines as the case ma$ be for purpose of this


16/78

7 C76TCT7 "ross receipts G sales returns, discounts or allowances K

"ross &ncome G deductions K net income x tax rate K tax due

'here is no cost of sales here.

;T what exactl$ does cost of goods meanI +irect labor, raw materials, insurance

cost, freight if the materials were imported from abroad3 /aano naman $ung nasa

Ba?ati, principal officeI Findi $un direct labor, administrative expenses $un3


17/78

the expenses allowable as deductions under this Chapter, a private educational

institution, referred to under


18/78

expenses part thereof constituted her personal expenses3 There having been no

means b$ which to ascertain which expense was incurred b$ her in connection

with the business of Bariano amora and which was incurred for her personal

benefit, the Collector and the CT in their decisions, considered 'A of the said

amount of /!,.'*3 as business expenses and the other 'A, as her personal

expenses3 =e hold that said allocation is ver$ fair to Bariano amora, there

having been no receipt whatsoever, submitted to explain the alleged business

expenses, or proof of the connection which said expenses had to the business or

the reasonableness of the said amount of /!,.'*33 =hile in situations li?e thepresent, absolute certaint$ is usuall$ no possible, the CT should ma?e as close

an approximation as it can, bearing heavil$, if it chooses, upon the taxpa$er

whose inexactness is of his own ma?ing3

9Collector vs3 amir: The next 5uestion raised b$ appellant refers to amir2s claim

for car depreciation and salar$ of his driver in the sums of /3 and

/1,%%3, respectivel$3 lthough petitioner had disallowed one-half (1>!) of

these claims, it appearing that the car was used b$ amir for personal and

business purposes, the lower court allowed, as deductions, three-fourths (#>%) of

said amounts, the car having been used b$ amir Dmore for business than for

personal purposeD

9tlas Consolidated vs3 C&: =e sustain the ruling of the tax court that theexpenditure of /!','!#31% paid to /3R3 Bac?er U Co3 as compensation for services

carr$ing on the selling campaign in an effort to sell tlas2 additional capital stoc?

of /#,#!', is not an ordinar$ expense3 The said expense is not deductible from

tlas gross income in 1.' because expenses relating to recapitali0ation and

reorgani0ation of the corporation, the cost of obtaining stoc? subscription,

promotion expenses, and commission or fees paid for the sale of stoc?

reorgani0ation are capital expenditures3

That the expense in 5uestion was incurred to create a favorable image of the

corporation in order to gain or maintain the public2s and its stoc?holders2

patronage, does not ma?e it deductible as business expense3 s held in the case

of =elch vs3 Felvering, efforts to establish reputation are a?in to ac5uisition of

capital assets and, therefore, expenses related thereto are not business expense

but capital expenditures3

9C& vs3 allowances and sales discounts) for taxpa$ers engaged in sale of

goods or properties 7

13A of net revenue (i3e3, gross revenue less discounts) for taxpa$ers engaged

in sale of services, including exercise of profession and use or lease of properties3

Fowever, if the taxpa$er is deriving income from both sale of goods>properties

and services, the allowable E expense shall in all cases be determined based on

an apportionment formula ta?ing into consideration the percentage of the net

sales>net revenue to the total net sales>net revenue, but which in no case shall

exceed the minimum percentage ceiling provided3

pportionment formula:

6et net revenue

x ctual Expense

Total 6et sales and net revenue

B. In#eres#

Sec. 3(B) In#eres#.-

(;) In General . <

The amount of interest:

(1) paid or incurred within a taxable $ear on

(!) indebtedness in connection with the taxpa$er2s profession, trade or business

(#) shall be allowed as deduction from gross income:

(ro$ided% hoe$er , That the taxpa$er2s otherwise allowable deduction for interest

expense shall be reduced b$ %!A of the interest income sub@ect to final tax3

(ro$ided that effective anuar$ 1, !., the percentage shall be ##A

(2) Exceptions. - 6o deduction shall be allowed in respect of interest under the

succeeding subparagraphs:

(a) &f within the taxable $ear an individual taxpa$er reporting income on the cash

basis incurs an indebtedness on which an interest is paid in advance through

1


19/78

discount or otherwise: /rovided, That such interest shall be allowed a a deduction

in the $ear the indebtedness is paid:

(ro$ided% further , That if the indebtedness is pa$able in periodic amorti0ations,

the amount of interest which corresponds to the amount of the principal amorti0ed

or paid during the $ear shall be allowed as deduction in such taxable $ear

(b) &f both the taxpa$er and the person to whom the pa$ment has been made or

is to be made are persons specified under 4 'his is ,rone to

fabrication.

1!


20/78

5o about a sibling of an ado,ted child? Sir sa#s for all intents and ,ur,oses #ou

ha$e to be considered a sibling of the legitimate child.

5o about beteen cousins?

2.Interest ,aid in ad$ance 4 Etang a*o sa’#o% (F8% baba#aran *ita 3 #ears from

no. (ero #ung interest na baba#aran *o *inaltas mo na% it is ,aid u,front.

K% na ang ma*u*uha mo. It is onl# deductible hen the indebtedness is

(I!% 0HC0(' hen the indebtedness is ,aid in installments% so for e$er#

amortiation #ou ,a#% ,art of that is interest and ,rinci,al re,a#ment. 'he

interest com,onent of that amortiation ill be the one alloed as a deduction.

S@ 5@/ !@ @E !0'0R8IN0 '5IS? 8adali lang #an% bibig#an *a ng ban* ng

schedule. 8a# statement *a d#an. Na*aba#ad *a na ng isang taon% hindi gumala

ang ,rinci,al 'hat means for a long time all #ou ,a# is interest. /ill the ban*s

com,utation is controlling? Sir doesn’t *no. Ban*s com,utation as folloed

before. ;Baniqued>

9C& vs3 /alanca: =e do not see an$ element in this case which can @ustif$ a

departure from or abandonment of the doctrine in the /rieto case above3 &n both

this and the said case, the taxpa$er sought the allowance as deductible items

from the gross income of the amounts paid b$ them as interests on delin5uent tax

liabilities3 7f course, what was involved in the cited case was the donor2s tax whilethe present suit pertains to interest paid on the estate and inheritance tax3 This

difference, however, submits no appreciable conse5uence to the rationale of this

Court2s previous determination that interests on taxes should be considered as

interests on indebtedness within the meaning of


21/78

(b) The total amount of the credit shall not exceed the same proportion of the tax

against which such credit is ta?en, which the taxpa$er2s taxable income from

sources without the /hilippines taxable under this Title bears to his entire taxable

income for the same taxable $ear3

() A'6&s#men#s on Pamen# o! Inc&rre' Ta/es. G &f:

13 accrued taxes when paid differ from the amounts claimed as credits b$ the

taxpa$er, or

!3 if an$ tax paid is refunded in whole or in part, the taxpa$er shall notif$ theCommissioner who shall redetermine the amount of the tax for the $ear or $ears

affected, and the amount of tax due upon such redetermination, if an$, shall be

paid b$ the taxpa$er upon notice and demand b$ the Commissioner, or the

amount of tax overpaid, if an$, shall be credited or refunded to the taxpa$er3

&n the case of such a tax incurred but not paid, the Commissioner as a condition

precedent to the allowance of this credit ma$ re5uire the taxpa$er to give a bond

with sureties satisfactor$ to and to be approved b$ the Commissioner in such sum

as he ma$ re5uire, conditioned upon the pa$ment b$ the taxpa$er of an$ amount

of tax found due upon an$ such redetermination3 The bond herein prescribed shall

contain such further conditions as the Commissioner ma$ re5uire3

() >ear "n +1"c1 Cre'"# Ta@en. - The credits provided for in


22/78

Countries

=orldwide Taxable &ncome

Tax 8imit

Baniqued:

Deneral Rule: ll ta&es incurred in connection ith the ,ursuit of business is

deductible from gross income e&ce,t:

F. Income ta& itself

2. 1oreign income ta&.

3. 0state 'a&. 4 'rusts and estates are se,arate ta&able ,ersons. /hile the estate

is not #et settled and then it earns income% ho ,a#s the ta&? No one ill ,a# the

ta& but the estate itself.

A. !onors 'a&

6. 'a&es assessed against local benefits 4 'he "DE ma# introduce a street or an#

infrastructure hich ma# benefit an# ,ro,ert#. If the im,ro$ement tends to

benefit a large number of ,ro,erties or the entire neighborhood then the ta&es

ill then be alloable.

1oreign 'a& Credit 4 Income ta& is ,aid b# a ta&,a#er to a foreign countr# is notdeductible% that is the general rule. /hen is it then deductible? If I signif# m#

intention to a$ail of the credit% I ont be able to get the deduction.

See com,utations on ,er countr# limit and orldide limit.

Su,,ose I li$e in a condo% and the R(' ,aid in the condominium on the land%

halla#s% roofto,s% ele$ators etc. 8# share in that is 26%. Can I share in the

deduction on the R(' I ,aid? 'he ,a#or is the condominium% and the tenants are

charged their share. Sir sa#s that the# can deduct. our allocable share in the R('

,aid b# the condominium can be deducted. ssociation should not claim the

deduction

Su,,ose that I ,a# ta&es% li*e R('% then a #ear or to later% nag*amali ,ala then

nag+file *a ng refund% so the# refund. So hat is #our obligation hen #ou ha$e

refund? Re,ort that as ,art of gross income because of the ,rinci,le of ta&

benefit. Same ith bad debt% deducted then #ou reco$er it thereafter.

9Bercur$ +rug vs3 C&: &t is worth$ to mention that epublic ct 6o3 *%#! had

undergone two (!) amendments first in !# b$ epublic ct 6o3 .!'* and most

recentl$ in !1 b$ epublic ct 6o3 ...%3 The !A sales discount granted b$

establishments to 5ualified senior citi0ens is now treated as tax deduction and not

as tax credit

D. Losses

Sec.3(D)(;) In Genera.- 8osses actuall$ sustained during the taxable $ear

and not compensated for b$ insurance or other forms of indemnit$ shall be

allowed as deductions:

(a) &f incurred in trade, profession or business

(b) 7f propert$ connected with the trade, business or profession, if the loss arises

from fires, storms, shipwrec?, or other casualties, or from robber$, theft or

embe00lement3

The


23/78

Baniqued: 'he loss must be connected ith the ,ursuit of business. nd must be

sustained during the ta&able #ear. 'he loss must arise from

F. 1ires

2. Storms

3. Shi,rec*

A% casualties

6. Robber#

. 'heft

K. 0mbelement

Note that if #ou are indemnified% then #ou cannot claim the loss.

/hat if #ou deduct it alread# then #ou are indemnified? 'hen reco$er# of

deducted items a,,lies.

Su,,ose #ou are an entre,reneur of a restaurant% #our customer then eats a

sta,le ire !inemanda *a. Nag settle *a. Can #ou claim the settlement as

deduction from gross income? 0S 'his is negligence of the em,lo#ee. @ther

situations are co$ered b# the losses ,ro$ision li*e ,roduct liabilit# and negligence

of em,lo#ees.

If there is a ,ending case% then #ou settle% is that a closed and com,letedtransaction alread#?

9ernande0 Fermanos vs C& G Taxpa$er claimed losses from worthless shares of

stoc?3 & sa$s wh$ did $ou ta?e the deduction immediatel$ when $ou still have

assets, hence this is not $et a closed and completed transaction3


24/78

13 &ndividuals engaged in trade or business or in the exercise of his profession3

!3 +omestic and resident foreign corporations sub@ect to normal income tax

#3


25/78

exploration and development expenditures pertaining thereto shall be allowed as a

deduction: /rovided, That accumulated expenditures incurred in that area prior to

anuar$ 1, 1.*. shall be allowed as a deduction onl$ from an$ income derived

from the same contract area3 &n all cases, notices of abandonment shall be filed

with the Commissioner3

(b) &n case a producing well is subse5uentl$ abandoned, the unamorti0ed costs

thereof, as well as the undepreciated costs of e5uipment directl$ used therein ,

shall be allowed as a deduction in the $ear such well, e5uipment or facilit$ is

abandoned b$ the contractor: /rovided, That if such abandoned well is reentered

and production is resumed, or if such e5uipment or facilit$ is restored into service,

the said costs shall be included as part of gross income in the $ear of resumption

or restoration and shall be amorti0ed or depreciated, as the case ma$ be3

E. Ba' De#s

Sec. 3(E)(;) In Genera. -

(1)+ebts due to the taxpa$er

(!)actuall$ ascertained to be worthless and

(#)charged off within the taxable $ear

except those:13 not connected with profession, trade or business and

!3 those sustained in a transaction entered into between parties mentioned under


26/78

&n a debt there is interest3 &n e5uit$ there is a share in investment3 =ith debt it is

deductible in gross income3 &n e5uit$, dividend pa$ment is not deductible3 &n

e5uit$, the loss of that e5uit$ is a capital loss, a loss of investment3

This is a ver$ important case since it distinguishes a @oint venture from one that is

not3 &f there is a @oint venture, there is no debt3 Fence it was an investment or

e5uit$3

9/hil efining Co3 vs3 C: The contentions of /C that nobod$ is in a better

position to determine when an obligation becomes a bad debt than the creditor

itself, and that its @udgment should not be substituted b$ that of respondent court

as it is /C which has the facilities in ascertaining the collectibilit$ or

uncollectibilit$ of these debts, are presumptuous and uncalled for3 The Court of

Tax ppeals is a highl$ speciali0ed bod$ specificall$ created for the purpose of

reviewing tax cases3 Through its expertise, it is undeniabl$ competent to

determine the issue of whether or not the debt is deductible through the evidence

presented before it

F. Cos# Reco,er De%rec"a#"on an'

Amor#"$a#"on

Sec. 3(F)(;) There shall be allowed as a depreciation deduction a reasonable

allowance for:

13 the exhaustion, wear and tear (including reasonable allowance for

obsolescence)

!3 of propert$ used in the trade or business3

&n the case of propert$ held b$ one person for life with remainder to another

person, the deduction shall be computed as if the life tenant were the absolute

owner of the propert$ and shall be allowed to the life tenant3

&n the case of propert$ held in trust, the allowable deduction shall be apportioned

between the income beneficiaries and the trustees in accordance with the

pertinent provisions of the instrument creating the trust, or in the absence of such

provisions, on the basis of the trust income allowable to each3

(2) Use o! Cer#a"n 7e#1o's an' Ra#es. - The term Dreasonable allowanceD as

used in the preceding paragraph shall include, but not limited to, an allowance

computed in accordance with rules and regulations prescribed b$ the


27/78

() De%rec"a#"on o! Pro%er#"es Use' "n 7"n"n* O%era#"ons. - an allowance for

depreciation in respect of all properties used in mining operations other than

petroleum operations, shall be computed as follows:

(a) t the normal rate of depreciation if the expected life is ten (1) $ears or less

or

(b) +epreciated over an$ number of $ears between five (') $ears and the

expected life if the latter is more than ten (1) $ears, and the depreciation

thereon allowed as deduction from taxable income: /rovided, That the contractor

notifies the Commissioner at the beginning of the depreciation period which

depreciation rate allowed b$ this F 6 Q 2#ear

+EINING B''NE Q our de,reciation alloance is much bigger in the

earlier #ears.

Fst #ear Q (A 4 (A

2nd #ear Q A7 & O(F+AP Q (2A

3rd #ear Q A7 & O(F+A+2AP Q FA.A

0 OF T/E 1E'! +IGIT ET/O+

6A32F Q F6

6F6 & F Q (33.33

AF6 & F Q (2.K

9Consolidated Bines vs3 C: The initial memorandum of the & examinerassigned to verif$ the income tax liabilities of the Compan$ pursuant to the

latter2s claim of having overpaid its income taxes states the basic reason wh$ the

Compan$2s claimed depreciation should be disallowed or re-ad@usted, thus: since

D333, up to its completion (the incomplete asset) has not been and is not capable of

use in the operation, the depreciation claimed could not, in fairness to the

"overnment and the taxpa$er, be considered as proper deduction for income tax

purposes as the said asset is still under construction

9asilan Estates vs3 C&: +epreciation commences with the ac5uisition of the

propert$ and its owner is not bound to see his propert$ graduall$ waste, without

ma?ing provision out of earnings for its replacement3 &t is entitled to see that from

earnings the value of the propert$ invested is ?ept unimpaired, so that at the end

27


28/78

of an$ given term of $ears, the original investment remains as it was in the

beginning3 &t is not onl$ the right of a compan$ to ma?e such a provision, but it is

its dut$ to its bond and stoc?holders, and, in the case of a public service

corporation, at least, its plain dut$ to the public3 ccordingl$, the law permits the

taxpa$er to recover graduall$ his capital investment in wasting assets free from

income tax3 Boreover, the recover$, free of income tax, of an amount more than

the invested capital in an asset will transgress the underl$ing purpose of a

depreciation allowance3 or then what the taxpa$er would recover will be, not onl$

the ac5uisition cost, but also some profit3 ecover$ in due time thru depreciation

of investment made is the philosoph$ behind depreciation allowance the idea of

profit on the investment made has never been the underl$ing reason for the

allowance of a deduction for depreciation3

ccordingl$, the claim for depreciation be$ond /#,%!3% or in the

amount of /1,'3%. has no @ustification in the law3

8impan vs3 C&: 7n the third assigned error, suffice it to state that this Court has

alread$ held that Ddepreciation is a 5uestion of fact and is not measured b$

theoretical $ardstic?, but should be determined b$ a consideration of actual factsD,

and the findings of the Tax Court in this respect should not be disturbed when not

shown to be arbitrar$ or in abuse of discretion

G. De%e#"on

Sec. 3(G) De%e#"on o! O" an' Gas +es an' 7"nes. -

(;) In Genera. - &n the case of oil and gas wells or mines, a reasonable

allowance for depletion or amorti0ation computed in accordance with the cost-

depletion method shall be granted under rules and regulations to be prescribed b$

the or mines, or

(b) shall be deductible in full in the $ear paid or incurred or at the election of the

taxpa$er, ma$ be capitali0ed and amorti0ed if such expenditures incurred are for

producing wells and>or mines in the same contract area3

D&ntangible costs in petroleum operationsD refers to an$ cost incurred in petroleum

operations which in itself has no salvage value and which is incidental to and

necessar$ for the drilling of wells and preparation of wells for the production of

petroleum: /rovided, That said costs shall not pertain to the ac5uisition or

improvement of propert$ of a character sub@ect to the allowance for depreciation

except that the allowances for depreciation on such propert$ shall be deductible

under this


29/78

ore or other minerals are shown to exist in sufficient commercial 5uantit$ and

5ualit$ and shall end upon commencement of actual commercial extraction3

(3) De%e#"on o! O" an' Gas +es an' 7"nes De'&c#"e a Nonres"'en#

A"en "n'","'&a or Fore"*n Cor%ora#"on3 - &n the case of a nonresident alien

individual engaged in trade or business in the /hilippines or a resident foreign

corporation, allowance for depletion of oil and gas wells or mines under paragraph

(1) of this


30/78

(ii) n$ amount paid to ac5uire an asset used (or held for use) directl$ in carr$ing

out one or more purposes for which the accredited nongovernment organi0ation

was created or organi0ed3

n amount set aside for a specific pro@ect which comes within one or more

purposes of the accredited nongovernment organi0ation ma$ be treated as a

utili0ation, but onl$ if at the time such amount is set aside, the accredited

nongovernment organi0ation has established to the satisfaction of the

Commissioner that the amount will be paid for the specific pro@ect within a period

to be prescribed in rules and regulations to be promulgated b$ the


31/78

4. Con#r""ons #o Em%oees Pens"on

Tr&s#s

Sec. 3(4) Pens"on Tr&s#s. - n emplo$er establishing or maintaining a pension

trust to provide for the pa$ment of reasonable pensions to his emplo$ees shall be

allowed as a deduction (in addition to the contributions to such trust during the

taxable $ear to cover the pension liabilit$ accruing during the $ear, allowed as a

deduction under


32/78

9B3E Folding Corporation vs3 C: The C surel$ cannot be guilt$ of gravel$

abusing its discretion when it refused to consider, in lieu of the unsubmitted

additional cash slips, the special record boo?s which are onl$ secondar$ evidence3

The cash slips were the best evidence3

7. O%#"ona S#an'ar' De'&c#"on

Sec. 3(L) O%#"ona S#an'ar' De'&c#"onL&n lieu of the deductions allowed

under the preceding


33/78

&f the taxpa$er dies during the taxable $ear, his estate ma$ still claim the personal

and additional exemptions for himself and his dependent(s) as if he died at the

close of such $ear3

&f the spouse or an$ of the dependents dies or if an$ of such dependents marries,

becomes twent$-one (!1) $ears old or becomes gainfull$ emplo$ed during the

taxable $ear, the taxpa$er ma$ still claim the same exemptions as if the spouse or

an$ of the dependents died, or as if such dependents married, became twent$-one

(!1) $ears old or became gainfull$ emplo$ed at the close of such $ear3

(D) Persona E/em%#"on Aoae #o Nonres"'en# A"en In'","'&a. -

nonresident alien individual engaged in trade, business or in the exercise of a

profession in the /hilippines shall be entitled to a personal exemption in the

amount:

(1) e5ual to the exemptions allowed in the income tax law in the countr$ of which

he is a sub@ect - or citi0en,

(!) to citi0ens of the /hilippines not residing in such countr$,

(#) not to exceed the amount fixed in this


34/78

?I. RECOGNITION OF GAINS AND LOSSES

FRO7 SALES OF PROPERT>

A. Re&"remen# o! Rea"$a#"on

There has to be a severance or reali0ation of the income from the propert$ that itis derived from3 =hen does reali0ation come inI


35/78

The actual gain from the sale of real propert$ classified as an ordinar$ asset b$ an

individual or corporation is sub@ect to income tax at the graduated income tax

rates or normal corporate income tax3 The gain is arrived at b$ deducting the cost

or the ad@usted basis of the propert$ sold from the amount reali0ed3

C/&T8


36/78

Or'"nar asse#s are those assets primaril$ used in the ordinar$ course of

business, Examples are:

(1) &nventor$ intended for sale in the normal course of business

(!) eal propert$ used in business including real propert$ for rent

(#) ssets used in business sub@ect to depreciation, such as e5uipment

Ca%"#a asse#s generall$ those assets that are not primaril$ used in the ordinar$

course of trade or business3 Examples are:

(1)


37/78

(!) sells an$ bond, debenture, note, or certificate or other evidence of

indebtedness issued b$ an$ corporation (including one issued b$ a government or

political subdivision thereof), with interest coupons or in registered form,

an$ loss resulting from such sale shall not be sub@ect to the foregoing limitation

and shall not be included in determining the applicabilit$ of such limitation to

other losses3

9ardine +avis vs3 C&: &ssue here is that the & sa$ing that ever$ transaction is

a separate transaction3 Fence $ou can4t claim the capital loss immediatel$3 Hou

onl$ claim it at the end of the $ear in the final consolidated return3

CT ;8&6":


38/78

Sec. 2(D)(2) E/ce%#"on. - The provisions of paragraph (1) of this


39/78

(a) corporation, which is a part$ to a merger or consolidation, exchanges

propert$ solel$ for stoc? in a corporation, which is a part$ to the merger or

consolidation or

(b) shareholder exchanges stoc? in a corporation, which is a part$ to the merger

or consolidation, solel$ for the stoc? of another corporation also a part$ to the

merger or consolidation or

(c) securit$ holder of a corporation, which is a part$ to the merger or

consolidation, exchanges his securities in such corporation, solel$ for stoc? or

securities in such corporation, a part$ to the merger or consolidation3

6o gain or loss shall also be recogni0ed if propert$ is transferred to a corporation

b$ a person in exchange for stoc? or unit of participation in such a corporation of

which as a result of such exchange said person, alone or together with others, not

exceeding four (%) persons, gains control of said corporation: /rovided, That

stoc?s issued for services shall not be considered as issued in return for propert$3

(3) E/c1an*e No# Soe "n 5"n'. -

(a) &f, in connection with an exchange described in the above exceptions:

(1) an individual, a shareholder, a securit$ holder or a corporation

(!) receives not onl$ stoc? or securities permitted to be received without therecognition of gain or loss,

(#) but also mone$ and>or propert$,

the gain, if an$, but not the loss, shall be recogni0ed but in an amount not in

excess of the sum of the mone$ and fair mar?et value of such other propert$

received:

/rovided, That as to the shareholder, if the mone$ and>or other propert$ received

has the effect of a distribution of a taxable dividend, there shall be taxed as

dividend to the shareholder an amount of the gain recogni0ed not in excess of his

proportionate share of the undistributed earnings and profits of the corporation

the remainder, if an$, of the gain recogni0ed shall be treated as a capital gain3

(b) &f, in connection with the exchange described in the above exceptions, the:

(1) transferor corporation

(!) receives not onl$ stoc? permitted to be received without the recognition of

gain or loss

(#) but also mone$ and>or other propert$,

then (i) if the corporation receiving such mone$ and>or other propert$ distributes

it in pursuance of the plan of merger or consolidation, no gain to the corporation

shall be recogni0ed from the exchange, but (ii) if the corporation receiving such

other propert$ and>or mone$ does not distribute it in pursuance of the plan of

merger or consolidation, the gain, if an$, but not the loss to the corporation shall

be recogni0ed but in an amount not in excess of the sum of such mone$ and the

fair mar?et value of such other propert$ so received, which is not distributed3

() Ass&m%#"on o! L"a""#. G

(a) &f the taxpa$er, in connection with the exchanges described in the foregoing

exceptions, receives:

(1) stoc? or securities

(!) which would be permitted to be received without the recognition of the gain if

it were the sole consideration,

(#) and as part of the consideration, another part$ to the exchange assumes a

liabilit$ of the taxpa$er, or ac5uires from the taxpa$er propert$, sub@ect to a

liabilit$,

then such assumption or ac5uisition shall not be treated as mone$ and>or other

propert$, and shall not prevent the exchange from being within the exceptions3

(b) &f the amount of the liabilities assumed plus the amount of the liabilities to

which the propert$ is sub@ect exceed the total of the ad@usted basis of the

propert$ transferred pursuant to such exchange, then such excess shall be

considered as a gain from the sale or exchange of a capital asset or of propert$which is not a capital asset, as the case ma$ be3

() Bas"s -(a) The basis of the stoc? or securities received b$ the transferor upon

the exchange specified in the above exception shall be the same as the basis of

the propert$, stoc? or securities exchanged, decreased b$:

(1) the mone$ received, and

(!) the fair mar?et value of the other propert$ received,

and increased b$

(1) the amount treated as dividend of the shareholder and

(!) the amount of an$ gain that was recogni0ed on the exchange:

/rovided, That the propert$ received as DbootD shall have as basis its fair mar?et

value:

/rovided, further, That if as part of the consideration to the transferor, the

transferee of propert$ assumes a liabilit$ of the transferor or ac5uires form the

latter propert$ sub@ect to a liabilit$, such assumption or ac5uisition (in the amount

of the liabilit$) shall, for purposes of this paragraph, be treated as mone$ received

b$ the transferor on the exchange:

/rovided, finall$, That if the transferor receives several ?inds of stoc? or

securities, the Commissioner is hereb$ authori0ed to allocate the basis among the

several classes of stoc?s or securities3

3!


40/78

(b) The basis of the propert$ transferred in the hands of the transferee shall be

the same as it would be in the hands of the transferor increased b$ the amount of

the gain recogni0ed to the transferor on the transfer3

() De!"n"#"ons. -

(a) The term 2securities2 means bonds and debentures but not 2notesD of whatever

class or duration3

(b) The term 2merger2 or 2consolidation2, when used in this


41/78

/hat about in a consolidation? H and disa,,ear ith G as a sur$i$ing entit#.

!e facto merger 7 ollibee cor,oration acquires all of the assets of !encio’s ;note%

SS0'S onl#> /hat does ollibee gi$e? Shares of stoc* in the ollibee cor,oration.

!encio does not disa,,ear.

'his is found in Sec. A;C>;>;b> ++ all or substantiall# all the ,ro,erties of

another cor,oration.

Substantiall# all means at least =7 of the assets of the cor,oration of hoseassets are acquired.

5ere there is no need for control in merger and consolidation% but the one

required is that it is onl# for a BESIN0SS (ER(@S0. 9"I! BESIN0SS (ER(@S0.

So hen ("!' ants to acquire ollibee for some ta& benefits% the la ill then

disregard the non recognition transaction and become ta&able.

If ("!' acquires Sun Cellular% there is a $alid business ,ur,ose% efficienc# of

o,erations% centralied management. Cost sa$ing and cost efficient.

S@ hen is the ta& realied? It is merel# a ta& deferral.

/hat if a cor,oration is dissol$ed or liquidated. /hat ha,,ens in a liquidation?'he assets ill no go to the shareholders% question no is hat is the ta&

consequence? @n its face% there is no sale or e&change% but for ta& ,ur,oses this

is treated as a sale or e&change. So it is as if the S5 sold their shares in e&change

for assets. So if there is a gain here% ho is the gain com,uted? @rdinar# gain na

Su,,ose that the cor,oration decreases its ca,ital stoc*% hence #ou ill return the

in$estment to some of the S5. So in case of redem,tion% ho is the gain treated?

It is a sale or e&change. But ill the ordinar# income ta& rates a,,l#? 1or the

longest time% it as CD'. But no it is a ca,ital gain BE' sub-ect to ordinar#

income ta& rates. 'his is seen in the case of /eis $s. 8eer.

9Commissioner v3 ufino: The basic consideration, of course, is the purpose of the

merger, as this would determine whether the exchange of properties involved

therein shall be sub@ect or not to the capital gains tax3 The criterion laid down b$

the law is that the mergerD must be underta?en for a bona fide business purpose

and not solel$ for the purpose of escaping the burden of taxation3D =e must

therefore see? and ascertain the intention of the parties in the light of their

conduct contemporaneousl$ with, and especiall$ after, the 5uestioned merger

pursuant to the +eed of ssignment of anuar$ ., 1.'.3

&t is clear, in fact, that the purpose of the merger was to continue the business of

the 7ld Corporation, whose corporate life was about to expire, through the 6ew

Corporation to which all the assets and obligations of the former had been

transferred3 =hat argues strongl$, indeed, for the 6ew Corporation is that it was

not dissolved after the merger agreement in 1.'.3 7n the contrar$, it continued

to operate the places of amusement originall$ owned b$ the 7ld Corporation and

transfered to the 6ew Corporation, particularl$ the Capitol and 8$ric Theaters, in

accordance with the +eed of ssignment3 The 6ew Corporation, in fact, continues

to do so toda$ after ta?ing over the business of the 7ld Corporation twent$-seven

$ears ago3

G. Pre!eren#"a Trea#men# o! Ca%"#aGa"ns

Sec. 38(B) Percen#a*e Ta@en In#o Acco&n#. - &n the case of a taxpa$er, other

than a corporation, onl$ the following percentages of the gain or loss recogni0ed

upon the sale or exchange of a capital asset shall be ta?en into account in

computing net capital gain, net capital loss, and net income:

(1) 7ne hundred percent (1A) if the capital asset has been held for not more

than twelve (1!) months and

(!) ift$ percent ('A) if the capital asset has been held for more than twelve

(1!) months

Sec. 38(C) L"m"#a#"on on Ca%"#a Losses. - 8osses from sales or exchanges ofcapital assets shall be allowed onl$ to the extent of the gains from such sales or

exchanges3

&f a ban? or trust compan$ incorporated under the laws of the /hilippines, a

substantial part of whose business is the:

(1) receipt of deposits,

(!) sells an$ bond, debenture, note, or certificate or other evidence of

indebtedness issued b$ an$ corporation (including one issued b$ a government or

political subdivision thereof), with interest coupons or in registered form,

an$ loss resulting from such sale shall not be sub@ect to the foregoing limitation

and shall not be included in determining the applicabilit$ of such limitation to

other losses3

Sec. 38(D) Ne# Ca%"#a Loss Carr-o,er. - &f an$ taxpa$er, other than a

corporation, sustains in an$ taxable $ear a net capital loss, such loss (in an

amount not in excess of the net income for such $ear) shall be treated in the

succeeding taxable $ear as a loss from the sale or exchange of a capital asset held

for not more than twelve (1!) months3

?II. DEFINITION OF CORPORATION

41


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Sec. 22(B) the term )cor,oration) shall include:

(1) partnerships, no matter how created or organi0ed,

(!) @oint-stoc? companies,

(#) @oint accounts (cuentas en participacion),

(%) association, or

(') insurance companies,

;T does not include:

(1) general professional partnerships and

(!) a @oint venture or consortium formed for the purpose of underta?ing

construction pro@ects or engaging in petroleum, coal, geothermal and other energ$

operations pursuant to an operating consortium agreement under a service

contract with the "overnment.

)Deneral ,rofessional ,artnershi,s) are partnerships formed b$ persons for the

sole purpose of exercising their common profession, no part of the income of

which is derived from engaging in an$ trade or business3

(C) The term )domestic) , when applied to a corporation, means created or

organi0ed in the /hilippines or under its laws3

(D) The term )foreign)% when applied to a corporation, means a corporation whichis not domestic3

Genera T%es o! Cor%ora#"ons

13 +omestic Corporation GCreated and organi0ed in the /hilippines

!3oreign Corporation G 7ne that is not domestic3

a3 esident oreign Corporation G foreign corporation engaged in

trade or business in the /hilippines

b3 6on- resident Corporation G foreign corporation not engaged in

trade or business in the /hilippines

The /hilippines adopted the law of incorporation test3 Thus for income tax

purposes, a corporation registered with the . S@ hen the dad contributed the land% is

that ta&able at all? No. 'here is no sale.

/hat about if the# ,artici,ate in ,re+selling? Is that ta&able income? 'here is a

realiation.

1irst M: /hat did the# form? Not a cor,oration% ithout S0C a,,ro$al eh. It ma#

be a ,artnershi,. S@ ho do e ta& it? 'he ,artnershi, ill be treated li*e a

cor,oration. 'hat is hat the ta& code ,ro$ides.

So the ,artnershi, ill be ta&ed at 37% then the ,artners hen the# recei$e

,rofits% it is ta&able at F7.

/hat If it is not treated as a cor,oration% li*e for e&am,le a co+onershi,? @nl#

the indi$idual ,artners ill be sub-ect to ta&% right?

0&am,le: 1 contributes land. C -oins to contribute financial e&,ertise. 'he# form a

-oint $enture. 'he# create tonhouses. 7 to C% A7 to 1. Since it is a -oint

$enture% then it is not sub-ect to ta&% right?

1or the longest time% it as not ta&able. 5oe$er% no% it is ta&able alread#% and

treated as a cor,oration for ta& ,ur,oses.

Su,,ose that ,arents die in a ,lane crash% the# had a 2% sq m lot. Child F and

Child 2 inherited the lot. But since it’s too big decided to subdi$ide it for them tosell. Muestion% are the# considered to ha$e a -oint $enture that can be ta&ed as a

cor,oration? In @BI""@S% the# said the# are merel# co+oners.

Co+onershi, $s. (artnershi, 4 (artnershi, is treated li*e a cor,oration. BE' once

co+onershi, goes be#ond its normal acti$ities it ma# be treated as a ,artnershi,

etc. ;li*e subdi$iding inherited lots and engaging in the business of real estate>

In case of a ,artnershi,% the distribution is not called di$idends. ou ha$e ENI'S

@1 (R'ICI('I@N% these are for all intents of ,ur,oses treated as shares of

stoc*. So an# distribution of this is ta&ed at F7

42


43/78

Remember the Calasan and Ro-as case% if #ou acti$el# ,ursue% and shoing an

intent to engage in commercial transactions. ;Building roads etc.>% then that is a

-oint $enture.

s a general rule% a @IN' 90N'ER0 is ta&able li*e a cor,oration. 'here are

hoe$er 2 -oint $entures are not ta&able li*e a cor,oration:

F. 9 for construction ,ro-ects

2. (etroleum% coal% and geothermal etc.

(artnershi,s as a DRule are ta&able as cor,orations. 0&ce,tion is Deneral(rofessional (artnershi,. (artnershi, is merel# a flo through entit#.

But ta*e note% D(( is a 9'B"0 ,erson. /hat ha,,ens if there is distribution to

the ,artners? Is that 9'B"0 also? No.

/hat if there is a ta& la firm% then there are accountants there as ell too. (ano

#an ta&able na? Is that still a D((? 1or e&am,le S9% has la#ers accountants and

engineers. No anser. Bahala na da si Comm 5enares.

97billos v3 Commissioner: s a general rule, income of co-ownerships is not

sub@ect to tax, if the activities of the co-owners are limited to the preservation of

the propert$ and the collection of income therefrom3 &n each case, the co-owner is

taxed individuall$ on his distributive share3

or tax purposes, the co-ownership of inherited properties is automaticall$

converted into an unregistered partnership the moment the said common

properties and>or the incomes derived therefrom are used as a common fund with

intent to produce profits for the heirs in proportion to their respective shares in

the inheritance as determined in a pro@ect partition either dul$ executed in an

extra@udicial settlement or approved b$ the court in the corresponding testate or

intestate proceeding3 The reason for this is simple3 rom the moment of such

partition, the heirs are entitled alread$ to their respective definite shares of the

estate and the incomes thereof, for each of them to manage and dispose of as

exclusivel$ his own without the intervention of the other heirs, and, accordingl$ he

becomes liable individuall$ for all taxes in connection therewith3 &f after suchpartition, he allows his share to be held in common with his co-heirs under a

single management to be used with the intent of ma?ing profit thereb$ in

proportion to his share, there can be no doubt that, even if no document or

instrument were executed for the purpose, for tax purposes, at least, an

unregistered partnership

9/ascual v3Commissioner: /etitioners bought two (!) parcels of land in 1.'3

The$ did not sell the same nor ma?e an$ improvements thereon3 &n 1., the$

bought another three (#) parcels of land from one seller3 &t was onl$ 1. when

the$ sold the two (!) parcels of land after which the$ did not ma?e an$ additional

or new purchase3 The remaining three (#) parcels were sold b$ them in 1.*3 The

transactions were isolated3 The character of habitualit$ peculiar to business

transactions for the purpose of gain was not present3 Fence, there is a clear

evidence of co-ownership

9Evangelista vs3 C&: /etitioners borrowed mone$ from their father and purchased

several lands3 or several $ears, these lands were leased to tenants b$ the

petitioners3 &n 1.'%, respondent Collector of &nternal evenue demanded from

petitioners the pa$ment of income tax on corporations3 /artnership, as has been

defined in the civil code refers to two or more persons who bind themselves to

contribute mone$, properl$, or industr$ to a common fund, with the intention of

dividing the profits among themselves3 Thus, petitioners, being engaged in thereal estate transactions for monetar$ gain and dividing the same among

themselves constitute a partnership so far as the Code is concerned and are

sub@ect to income tax for corporation3

9fisco vs3 C: &n the case before us, the ceding companies entered into a /ool

greement or an association that would handle all the insurance businesses

covered under their 5uota-share reinsurance treat$ and surplus reinsurance treat$

with Bunich3 The following unmista?abl$ indicates a partnership or an association

covered b$


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determined that such distribution, apportionment or allocation is necessar$ in

order to prevent evasion of taxes or clearl$ to reflect the income of an$ such

organi0ation, trade or business3

9ilinvest case: /arent Compan$ borrows from B, same interest rate, then lends

it at A to the subsidiar$3 &s that tax avoidance or evasionI The parent had a tax

benefit from the interest deduction3 nother 5uestion, can the Commissioner

impute income to the parent compan$I


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5J income ta& rate is F6.67% (hili,,ines is 37 for cor,oration. S@ there is a big

incenti$e for a foreign cor,oration to reflect more income in 5J rather than reflect

a bigger income in the (hili,,ines. (hili,,ine subsidiar# ill ha$e a $er# high cost

of sales% then #our gross ,rofit or gross income ill be $er# small if not nil% hence

#our ta& in (hils is $er# minimal. nd then the ,rofit ill be boo*ed in 5J. So if

#ou are a common ,arent of the (hili,,ine com,an# and 5J com,an#% #ou tr# to

reflect the income in 5J.

;. Pr"ma Fac"e Case o! S&s#an#"a

Un'er'ecara#"on

Sec. 29(B) &n case of:

13 willful neglect to file the return within the period prescribed b$ this Code or b$

rules and regulations, or

!3 in case a false or fraudulent return is willfull$ made, the penalt$ to be imposed

shall be fift$ percent ('A) of the tax or of the deficienc$ tax, in case, an$

pa$ment has been made on the basis of such return before the discover$ of the

falsit$ or fraud:

/rovided, That a substantial underdeclaration of taxable sales, receipts or income,

or a substantial overstatement of deductions, as determined b$ the Commissioner

pursuant to the rules and regulations to be promulgated b$ the ear

SEC. 3. Genera R&e. - The taxable income shall be computed upon the basis

of the taxpa$er2s annual accounting period (fiscal $ear or calendar $ear, as the

case ma$ be) in accordance with:

13 the method of accounting regularl$ emplo$ed in ?eeping the boo?s of such

taxpa$er,

!3 but if no such method of accounting has been so emplo$ed, or if the method

emplo$ed does not clearl$ reflect the income, the computation shall be made in

accordance with such method as in the opinion of the Commissioner clearl$

reflects the income3

&f the taxpa$er2s annual accounting period is:

13 other than a fiscal $ear, as defined in


46/78

Accr&a 7e#1o' "enerall$ reports income when earned and reports expensewhen incurred3 &f earned from sale of goods, income is to be reported in the $ear

of sale, irrespective of collection3

Baniqued: Cash method: /hen #ou actuall# recei$e ,a#ment% or hen #ou

actuall# ,a# an e&,ense.

ccrual method: 1ollos an all e$ents test% hen circumstances are such hen

#our liabilit# or income become fi&ed or determinable% no need to e&act. ou -ust

need reasonable certaint#accurac#L that’s hen #ou record it.

9Commisioner v3 &sabela: The$ were not billing the clients for # % and '3 and

then on that4s when the taxpa$er wanted the expenses to be declared as

deductions3 & disallowed it, since the$ were for legal services rendered in # %

and '3 =h$ now onl$I & said $ou failed to accrue when the$ were supposed to

be accrued3 &sabela was denied expense for legal fees3 ec3 The$ claimed it in a

taxable period when it was supposed to be for another taxable period3

The re5uisite that it must have been paid or incurred during the taxable $ear is

further 5ualified b$


47/78

There should be deducted from such gross income all expenditures made during

the taxable $ear on account of the contract, account being ta?en of the material

and supplies on hand at the beginning and end of the taxable period for use in

connection with the wor? under the contract but not $et so applied3 &f upon

completion of a contract, it is found that the taxable net income arising thereunder

has not been clearl$ reflected for an$ $ear or $ears, the Commissioner ma$ permit

or re5uire an amended return3

E. Ins#amen# Sae ,s. De!erre' Pamen#

Sae

SEC. 8. Ins#amen# Bas"s. -

(A) Saes o! Deaers "n Persona Pro%er#. - ;nder rules and regulations

prescribed b$ the


48/78

actuall$ in cash3 &f $ou can show that that was the intention from da$ 1, then

that4s clearl$ a circumvention3

F. In'"rec# 7e#1o's o! Com%"n* Income

6et worth method G Classic case is C Corona3 llegation is that he ac5uired so

man$ properties in Ba?ati3 +isparit$ between net worth and the assets he had3

ut & forgot to ta?e into account the beginning net worth of C Corona3

&n case of her daughter and her husband, & invo?ed the expenditure method3

The$ were ac5uiring properties left and right but the income the$ were reporting

cannot @ustif$ the expenditures3

9/ere0 v3 CT: 7n the application of the net worth method of determining taxable

income, used b$ the collector and upheld b$ the court below, it must he explained

that the method is based upon the general theor$ that mone$ and other assets in

excess of liabilities of a taxpa$er (after an accurate and proper ad@ustment of non-

deductible items) not accounted for b$ his income tax returns, leads to the

inference that part of his income has not been reported

. INCO7E TAATION OF FOREIGN

PERSONS

A. O%era#",e Ta/"n* Pro,"s"ons o! NIRC

Sec#"on 2. Income Ta/ Ra#es. (A) Ra#es o! Income Ta/ on In'","'&a

C"#"$en an' In'","'&a Res"'en# A"en o! #1e P1""%%"nes.

(1) n income tax is hereb$ imposed

(c) 7n the taxable income defined in


49/78


50/78

declaration of such dividends or for such part of such period as the corporation

has been in existence) was derived from sources within the /hilippines as

determined under the provisions of this


51/78

stoc*% it is (5I"I((IN0 S@ERC0. 5ence the general rule on ,ersonal ,ro,ert#

ith regard to source rules shall not a,,l# to sales of shares of stoc*.

. !i$idends 4 If ,aid b# !omestic Cor,oration% then that is (hili,,ine

source income e$en if a credit is made outside the (hili,,ines. (aano ,ag

foreign? Denerall# no ta&% declarant is foreign and reci,ient is foreign.

/hen ill the di$idends declared b# foreign cor,oration be considered

1ili,ino? If 67 of its income is deri$ed in the (hili,,ines for the last 3

#ears. ;Sec. A2;>;2>;b>>

(C) Gross Income From So&rces +"#1o #1e P1""%%"nes. - The following

items of gross income shall be treated as income from sources without the

/hilippines:

(1) &nterests other than those derived from sources within the /hilippines as

provided in paragraph (1) of


52/78


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destination, regardless of the place of sale or pa$ments of the passage or freight

documents3

Sec. 29(A)() O!!s1ore Ban@"n* Un"#s. - The provisions of an$ law to the

contrar$ notwithstanding, income derived b$:

13 offshore ban?ing units

!3 authori0ed b$ the ang?o


54/78

SEC. . Im%os"#"on o! Ta/. -

(A) A%%"ca#"on o! Ta/. - The tax imposed b$ this Title upon individuals shall

appl$ to the income of estates or of an$ ?ind of propert$ held in trust, including:

(1) &ncome accumulated in trust for the benefit of:

13 unborn or unascertained person or persons with contingent interests, and

!3 income accumulated or held for future distribution under the terms of the will

or trust

(!) &ncome which is:13 to be distributed currentl$ b$ the fiduciar$ to the beneficiaries, and

!3 income collected b$ a guardian of an infant which is to be held or distributed as

the court ma$ direct

(#) &ncome received b$ estates of deceased persons during the period of

administration or settlement of the estate and

(%) &ncome which, in the discretion of the fiduciar$, ma$ be either distributed to

the beneficiaries or accumulated3

(B) E/ce%#"on. - The tax imposed b$ this Title shall not appl$ to:

13 emplo$ee2s trust which forms part of a pension,

!3 stoc? bonus or profit-sharing plan of an emplo$er for the benefit of some or all

of his emplo$ees &

(1) contributions are made to the trust b$ such emplo$er, or emplo$ees, or both

for the purpose of distributing to such emplo$ees the earnings and principal of the

fund accumulated b$ the trust in accordance with such plan, and

(!) if under the trust instrument it is impossible, at an$ time prior to the

satisfaction of all liabilities with respect to emplo$ees under the trust, for an$ part

of the corpus or income to be (within the taxable $ear or thereafter) used for, or

diverted to, purposes other than for the exclusive benefit of his emplo$ees:

/rovided, That an$ amount actuall$ distributed to an$ emplo$ee or distributeeshall be taxable to him in the $ear in which so distributed to the extent that it

exceeds the amount contributed b$ such emplo$ee or distributee3

(C) Com%a#"on an' Pamen#. -(;) In Genera. - The tax shall be computed

upon the taxable income of the estate or trust and shall be paid b$ the fiduciar$,

except as provided in


55/78

SEC. 2. E/em%#"on Aoe' #o Es#a#es an' Tr&s#s. - or the purpose of the

tax provided for in this Title, there shall be allowed an exemption of Twent$

thousand pesos (/!,) from the income of the estate or trust3 ;6% na

da>

SEC. 3. Re,ocae Tr&s#s. - =here at an$ time the power to revest in the

grantor title to an$ part of the corpus of the trust is vested:

(1) in the grantor either alone or in con@unction with an$ person not having a

substantial adverse interest in the disposition of such part of the corpus or the

income therefrom, or(!) in an$ person not having a substantial adverse interest in the disposition of

such part of the corpus or the income therefrom,

the income of such part of the trust shall be included in computing the taxable

income of the grantor3

SEC. . Income !or Bene!"# o! Gran#or.-(A) +1ere an %ar# o! #1e "ncome

o! a #r&s#

(1) is, or in the discretion of the grantor or of an$ person not having a substantial

adverse interest in the disposition of such part of the income ma$ be held or

accumulated for future distribution to the grantor, or

(!) ma$, or in the discretion of the grantor or of an$ person not having a

substantial adverse interest in the disposition of such part of the income, be

distributed to the grantor, or

(#) is, or in the discretion of the grantor or of an$ person not having a substantial

adverse interest in the disposition of such part of the income ma$ be applied to

the pa$ment of premiums upon policies of insurance on the life of the grantor,

such part of the income of the trust shall be included in computing the taxable

income of the grantor3

() s used in this


56/78

'rustee recei$es income% is there a ta&?

/hen the trustee transfers the ,ro,ert# to the beneficiaries% is there a ta&?

'he trust is an on ta&able entit#. It ill file its on income ta& returns. So hat

ill it re,ort? 'he income accumulated. 'he trustee ill sign the income ta& return

on behalf of the trust. 'rustee is the one ho ,a#s the income ta& return.

Can the trustee claim the deductions in Sec. 3A? 0S. See Sec. F% it’s the same

a# li*e an indi$idual.

But there are additional deductions See Sec. F. It is onl# hen the trustee is

authoried to distribute to the beneficiaries can the trustee be entitled to deduct.

/hat is the effect of distribution to the income to the beneficiaries% as directed in

the trust? It is an alloable deduction. Current distributions to the beneficiaries is

deductible in the trust.

Drantor transfers ,ro,ert# to the trustee% beneficiar# is also me. Is there an# ta&

at all? Is there a donation? 'here is no donation here because the beneficiar# is

also #ou. No donors ta&.

Re$ocable trust: I can ta*e the cor,us bac* at an# time% the statutor# basis is

Sec. 3. Drantor can reco$er the cor,us or an# ,art thereof. /here the income iscollected for the benefit of the grantor% the statutor# basis is Sec. A.

0states: dies an. F 2F3. /hat ta& is ,a#able? 0state ta&. 27 ma&imum.

ccrues on the date of death. But ,aid months later. Is this the ta& e are

concerned here? N@. /hate$er rental income that has accrued from an. F ill

form ,art of the estate is the one concerned.

/hat if an F 2FA comes% and still there is no settlement. /hat is the ,icture

li*e? /ho ill re,ort the rental income? 'he administrator. Can it file income ta&

returns? es. Is it entitled to deductions? es.

If there is an#thing distributed to the heir% that is deducted to the estate% and

ta&able to the beneficiar#.

II. TA RETURNS= RATES AND

PA>7ENTS

A. In'","'&a Re#&rns

Sec#"on ;. In'","'&a Re#&rn. -

(A) Re&"remen#s. -

(;) Except as provided in paragraph (!) of this


57/78

(a) resident citi0en - on his income from all sources

(b) nonresident citi0en - on his income derived from sources within the

/hilippines

(c) resident alien - on his income derived from sources within the /hilippines

and

(d) nonresident alien engaged in trade or business in the /hilippines - on his

income derived from sources within the /hilippines3

(B) +1ere #o F"e. - Except in cases where the Commissioner otherwise permits,

the return shall be filed with an:

13 authori0ed agent ban?,

!3 evenue +istrict 7fficer,

#3 Collection gent or

%3 dul$ authori0ed Treasurer of the cit$ or municipalit$ in which such person has

his legal residence or principal place of business in the /hilippines, or if there be

no legal residence or place of business in the /hilippines,

'3 with the 7ffice of the Commissioner3

(C) +1en #o F"e. -

(;) The return of an$ individual specified above shall be filed on or before the

fifteenth (1'th) da$ of pril of each $ear covering income for the preceding

taxable $ear3(2) &ndividuals sub@ect to tax on capital gains

(a) rom the sale or exchange of shares of stoc? not traded thru a local stoc?

exchange as prescribed under


58/78

(C) Re#&rn o! Cor%ora#"on Con#em%a#"n* D"sso"on or Reor*an"$a#"on. -

Ever$ corporation shall, within thirt$ (#) da$s after the adoption

Documents

Income Taxatio