GENERAL PROFESSIONAL PARTNERSHIPS

- GPP is not a taxable entity for income tax purposes

- Share of partners in partnership profit is deemed distributed to the partners in the year profit is
earned whether actually distributed or not
- When the GPP claims itemized deductions, the partners cannot claim for OSD, except those
which were not claimed by the GPP as itemized deductions personal expenses

FOREIGN CORPORATION
- FC effecting a donation are subject to donors tax only if the property donated is located in the
PHs. Accordingly, donation of a FC of its own shares of stocks in favor of resident employees is
not subject to donors tax.
- However, if 85% of the business of the FC is located in the PH or the shares donated have
acquired business situs in the PHs, the donation may be taxed in the PH subject to the rule of
reciprocity.

TEST IN DETERMINING INCOME

1) Realization Test
2) Claim of right doctrine
3) Income from whatever source
4) Economic benefit test

FRINGE BENEFITS
- However, the FB of RNF employees are treated as part of his compensation income subject to
income tax and withholding tax on compensation income, which must be withheld and deducted
by his employer from the compensation income of the employee

DE MINIMIS BENEFITS
- Exempt even if received by the RNF and supervisory or managerial employees

CAPITAL ASSETS
1) If the seller or transferor is a dealer in securities, the shares of stock (whether listed and traded
in the local stock exchange, listed but not traded in the local stock exchange, or not listed) shall
be treated as ordinary assets and the ordinary gain, if any, from the sale or transfer thereof shall
be subject to the graduated income tax rates or NCIT
2) If the seller or transferor is not a dealer in securities, the shares of stock are regarded as capital
assets. There is need to determine if the shares of stock are listed and traded in a local stock
exchange.
- If shares of stock are listed and traded in the local stock exchange, the transaction is exempt
from income tax, regardless of the nature of the business of the seller or transferor. Subject to
of 1% stock transaction tax on the gross selling price
- If shares of stock are not listed, or they are listed but not traded, in the local stock exchange, the
net capital gains realized during the year, if any, shall be subject to the final capital gains tax
equivalent to 5% of the net capital gains not exceeding P100,000.00, and 10% on any amount in
excess of P100,000.00 paid within 30 days from the date of sale.
REAL PROPERTY
- Real estate dealer: 5%-32% (RC, RA, NRA-ETB), 25% (NRA-NETB), 30% NCIT (DC/FC)
- Exempt: socialized housing, economic housing subject to expanded withholding tax, NFC: 30%
- Not a Real estate dealer:
o Ordinary asset if: used in trade, business or profession; or treated as fixed asset used in
trade, business or profession subject to depreciation, follow tax above
o Capital asset: 6% capital gains tax based on gross selling price or FMV whichever is
higher
- FC are not entitled to preferential tax rates

SALE OF PRINCIPAL RESIDENCE, EXEMPT IF:

1) Entire proceeds must be used to utilize in acquiring a new principal residence within 18 months
from the date of disposition;
2) Notification with the CIR of the intention to avail of the exemption within 30 days from date of
sale;
3) Open an escrow account with a bank deposit the 6% capital gains tax due on the sale.

TAX SPARING RULE

- Credit granted by the residence country for foreign taxes that for some reasons were not actually
paid to the source country but that would have been paid under the countrys normal tax rules.

ITEM OF EXCLUSION BECAUSE IT IS SUBJECT TO ANOTHER INTERNAL REVENUE TAX

- The value of property acquired by gift, bequest, devise, or descent is exempt from income tax on
the part of the recipient, because the receipt of such property is already subject to transfer
taxes. The policy of Congress is to impose only one kind of direct taxeither the income tax or
transfer taxon these transactions.

EXCLUSIONS FROM GROSS INCOME

PROCEEDS OF LIFE INSURANCE POLICIES
- Paid by reason of the death of an insured to his estate or to any beneficiary (but not a transferee
for a valuable consideration), directly or in trust, are excluded from the gross income of the
beneficiary. It is immaterial whether the proceeds are received in a single sum or in installments.
However, interest payments are included in income. Exceeded premiums, included.
- Amounts received through accident or health insurance, not taxable

NON-STOCK, NON-PROFIT HOSPOITAL ORGANIZED FOR CHARITABLE PURPOSES

- Although generally exempt from income tax, becomes taxable on income derived from activities
conducted for profit.
- Services rendered to paying patients are considered activities conducted for profit subject to
10% preferential tax rate

DEDUCTIONS
1) Itemized
 2) OSD
3) Special

BUSINESS EXPENSE
1) It must be ordinary and necessary;
2) It must be paid or incurred during the taxable year;
3) It must be paid or incurred in carrying on or which are directly attributable to the development,
management, operation and/or conduct of the trade, business, or exercise o profession;
4) It must be supported by adequate invoices or receipts;
5) It is not contrary to law, public policy or morals; and
6) The tax required to be withheld on the expense paid or payable is shown to have been remitted
to the BIRd

INTERESTS
1) There must be a valid and existing indebtedness;
2) The indebtedness must be that of the taxpayer;
3) The interest must be legally due and stipulated in writing;
4) The interest expense must be paid or incurred during the taxable year;
5) The indebtedness must be connected with the taxpayers trade, business or exercise of
profession;
6) The interest payment arrangement must not be between related;
7) The interest is not expressly disallowed by law, and
8) The amount of interest deducted does exceed the limit set forth in the law

TAXES
LOSSES
- Bad debt theory: loss from theft or embezzlement occurring in the year and discovered in
another year is ordinarily deductible for the year in which sustained, discovered or when the
right of recovery becomes worthless.

TAX BENEFIT RULE

- TP is obliged to declare as taxable income subsequent recovery of bad debts in the year they
were collected to the extent of the tax benefit enjoyed by the TP when the bad debts were
written-off and claimed as deductions from gross income.
- It also applies to taxes previously deducted but which were subsequently refunded or credited.

DEPRICIATION
CHARITABLE CONTRIBUTIONS

OSD
- Available only to RC, RA, DC, RFC
- 40%

IMMEDIACY TEST
- To determine the reasonable needs of the business in order to justify an accumulation of
earnings