Professional Documents
Culture Documents
(1) Paid or incurred in carrying on or which are directly Salaries and Wages
attributable to the development, management, Given for personal services must be actually
operation and/or conduct of the trade, business or rendered and reasonable.
exercise of profession;
1 ARNAEZ, EMBODO, DE LOS SANTOS, MANGADLAO, ROMERO
Summary and Requisites of Allowable Deductions EXPENSES
To be allowed deduction withholding tax must property nor appreciably prolong its life, but keep it in
have been paid [RR No. 12-2013]. an ordinarily efficient working condition, may be
deducted as expenses, provided the plant or property
Bonuses (Deductible) (G-A-P)
account is not increased by the amount of such
(a) made in good faith
(b) given as additional compensation for personal expenditure.
services actually rendered (b) Extraordinary repairs are not deductible they are
(c) payments, when added to the stipulated capital expenditures
salaries, do not exceed a reasonable compensation for (1) Repairs which add material value to the property or
the services rendered appreciably prolong its life
(2) Repairs in the nature of replacement, to the extent
Traveling expenses (R-I-T-I) that they arrest deterioration and appreciably prolong
the life of the property, should be charged against the
Include transportation expenses and meals and lodging
[Sections 65 and 66, Rev. Reg. No. 2] depreciation reserves if such account is kept. [Sec. 68,
(1) Reasonable and necessary. Rev. Regs. 2]
(2) Incurred or paid while away from home
(3) Tax home is principal place of business (away from Nota Bene: All maintenance expenses on account of
home) nondepreciable vehicles for taxation purposes are
(4) Incurred or paid in conduct of trade or business.
disallowed in its entirely. [RR No. 12-2012]
Nota Bene: Taxpayer: Manila-Office-Customers place of
Expenses under lease agreements (deductible)
business-Allowed Employee (residence)-office and back- Not
Allowed (personal expenses).
(1) Required as a condition for continued use or
Cost of materials (Deductible) possession;
(2) For purposes of the trade, business or possession;
Only to the amount that they are actually consumed (3) Taxpayer has not taken or is not taking title to the
and used in operation during the year for which the property or has no equity other than that of lessee,
return is made, provided that their cost has not been user, or possessor.
deducted in determining the net income for any
previous year.
Expenses for professionals (Deductible)
Rentals and/or other payments for use or
possession of property: (R-P-T) Year the professional services rendered, (not year they
are billed, provided all events is present.
(1) Required as a condition for continued use or All events test requires:
possession of property. (a) Fixing a right to income or liability to pay; and
(2) Purposes of trade business or profession. (b) The availability of reasonably accurate
(3) Taxpayer has not taken or is not taking title to the determination of such income or liability.
property or has no equity other than that of lessee,
Nota Bene:
user, or possessor.
Not necessary liability/income known absolutely.
Nota Bene:
Reasonable accuracy which implies something less
Accrual basis- deductible -liability is incurred during the than an exact or completely accurate amount.
period of use. [Commissioner v. Isabela Cultural Corporation, GR.
Cash basis- deductible when it is incurred and paid. 172231, Feb. 12, 2007]
Prepaid rental- taxable income to the lessor in the year
when it was received. A professional (claim deductions)
Advance payment -not deductible-lessee until the
1) the cost of supplies used by him in the practice
period is used.
of his profession
2) expenses paid in the operation and repair of
Repairs and maintenance
transportation equipment used in making
(a) Incidental or ordinary repairs are deductible. professional calls
Repairs which neither materially add to the value of the 3) dues to professional societies
trade or business shall be allowed as deduction from gross income: (b) If the indebtedness is payable in periodic
Provided, however, That the taxpayer's otherwise allowable deduction for
interest expense shall be reduced by an amount equal to the following
amortizations, only the amount of interest which
percentages of the interest income subjected to final tax: corresponds to the amount of the principal amortized
or paid during the year shall be allowed as deduction in
"Forty-one percent (41%) beginning January 1, 1998;
"Thirty-nine percent (39%) beginning January 1, 1999; and such taxable year.
"Thirty-eight percent (38%) beginning January 1, 2000. (c) Interest payments made between related taxpayers.
(d) Interest on indebtedness incurred to finance
"(2) Exceptions. - No deduction shall be allowed in respect of interest
under the succeeding subparagraphs: petroleum exploration.
"(a) If within the taxable year an individual taxpayer
reporting income on the cash basis incurs an indebtedness on which an
interest is paid in advance through discount or otherwise: Provided, That
CASES WHEN NO DEDUCTION IS ALLOWED BETWEEN
such interest shall be allowed as a deduction in the year the indebtedness is RELATED TAXPAYERS
paid: Provided, further, That if the indebtedness is payable in periodic
(1) Between members of the family (brother,
amortizations, the amount of interest which corresponds to the amount of
the principal amortized or paid during the year shall be allowed as deduction sister, ascendant, descendant, lineal
in such taxable year; descendant)
"(b) If both the taxpayer and the person to whom the
(2) Between an individual and a corporation-
payment has been made or is to be made are persons specified under
Section 36(B); or where the individual paid interest on a loan
"(c) If the indebtedness is incurred to finance petroleum granted by the corporation more than 50% of
exploration.
the capital stock of which is owned by the
"(3) Optional Treatment of Interest Expense. - At the option of the individual
taxpayer, interest incurred to acquire property used in trade, business or
(3) Between two corporations- where one
exercise of a profession may be allowed as a deduction or treated as a
capital expenditure. corporation owns more than 50% of the other
(4) Between a grantor and fiduciary of a trust
(5) Between the fiduciary of a trust and the
REQUISITES FOR DEDUCTIBILITY fiduciary of another trust with the same
(1) There is an indebtedness. grantor
(2) The indebtedness is that of the taxpayer (6) Between a fiduciary of a trust and a beneficiary
(3) The indebtedness is connected with the taxpayers of such trust.
trade, profession, or business.
(4) The interest must be legally due.
(5) The interest must be stipulated in writing. INTEREST SUBJECT TO SPECIAL RULES
(6) The taxpayer is LIABLE to pay interest on the Interest paid in advance
indebtedness. a. No deduction shall be allowed if within the
(7) The indebtedness must have been paid or accrued taxable year an individual taxpayer
during the taxable year. reporting income on cash basis incurs an
(8) The interest payment arrangement must not be indebtedness on which an interest is paid
between related taxpayers in advance through discount or otherwise.
(9) The interest must not be incurred to finance b. But the deduction shall be allowed in the
petroleum operations. year the indebtedness is paid
(10) In case of interest incurred to acquire property
used in trade, business or exercise of profession, the Interest periodically amortized
same was not treated as a capital expenditure If the interest is payable in periodic
amortizations, the amount of interest
Note: The taxpayers allowable deduction for interest which corresponds to the amount of the
expense have been reduced by an amount equal to principal amortized or paid during the year
33% of the interest income subjected to final tax. shall be allowed as deduction in such
(Effective January 1, 2009) taxable year
At the option of the taxpayer, interest "(2) Limitations on Deductions. - In the case of a nonresident alien
individual engaged in trade or business in the Philippines and a resident
expense on a capital expenditure may be foreign corporation, the deductions for taxes provided in paragraph (1) of
allowed as: this Subsection (C) shall be allowed only if and to the extent that they are
connected with income from sources within the Philippines.
(1) A deduction in full in the year when
incurred; "(3) Credit Against Tax for Taxes of Foreign Countries. - If the
(2) A capital expenditure for which the taxpayer signifies in his return his desire to have the benefits of this
paragraph, the tax imposed by this Title shall be credited with:
taxpayer may claim only as a deduction the
"(a) Citizen and Domestic Corporation. - In the case of a
periodic amortization of such expenditure. citizen of the Philippines and of a domestic corporation, the amount of
income taxes paid or incurred during the taxable year to any foreign country;
and
Should the taxpayer elect to deduct the "(b) Partnerships and Estates. - In the case of any such
interest payments against its gross income, individual who is a member of a general professional partnership or a
beneficiary of an estate or trust, his proportionate share of such taxes of the
the taxpayer cannot at the same time
general professional partnership or the estate or trust paid or incurred
capitalize the interest payments. In other during the taxable year to a foreign country, if his distributive share of the
words, the taxpayer is not entitled to both income of such partnership or trust is reported for taxation under this Title.
charge. [Paper Industries Corp. v. "(4) Limitations on Credit. - The amount of the credit taken under
Commissioner, 250 SCRA 434] this Section shall be subject to each of the following limitations:
"(a) The amount of the credit in respect to the tax paid or
incurred to any country shall not exceed the same proportion of the tax
Reduction of Interest Expense/ Interest against which such credit is taken, which the taxpayer's taxable income from
Arbitrage sources within such country under this Title bears to his entire taxable
income for the same taxable year; and
The taxpayer's allowable deduction for interest
"(b) The total amount of the credit shall not exceed the
expense shall be reduced by an amount equal same proportion of the tax against which such credit is taken, which the
to 33% of the interest income subjected to final taxpayer's taxable income from sources without the Philippines taxable
under this Title bears to his entire taxable income for the same taxable year.
tax; effective January 1, 2009. [RA 9337]
"(5) Adjustments on Payment of Incurred Taxes. - If accrued taxes
when paid differ from the amounts claimed as credits by the taxpayer, or if
This limitation is apparently intended to
any tax paid is refunded in whole or in part, the taxpayer shall notify the
counter the tax arbitrage scheme where a Commissioner, who shall redetermine the amount of the tax for the year or
taxpayer obtains an interest-bearing loan and years affected, and the amount of tax due upon such redetermination, if
any, shall be paid by the taxpayer upon notice and demand by the
places the proceeds of such loan in
Commissioner, or the amount of tax overpaid, if any, shall be credited or
investments that yield interest income subject refunded to the taxpayer. In the case of such a tax incurred but not paid, the
to preferential tax rate of 20% final withholding Commissioner as a condition precedent to the allowance of this credit may
require the taxpayer to give a bond with sureties satisfactory to and to be
tax. approved by the Commissioner in such sum as he may require, conditioned
upon the payment by the taxpayer of any amount of tax found due upon
any such redetermination. The bond herein prescribed shall contain such
further conditions as the Commissioner may require.
TAXES
"(6) Year in Which Credit Taken. - The credits provided for in
Section 34-(C) Taxes. - Subsection (C)(3) of this Section may, at the option of the taxpayer and
"(1) In General. - Taxes paid or incurred within the taxable year in irrespective of the method of accounting employed in keeping his books, be
connection with the taxpayer's profession, trade or business, shall be taken in the year in which the taxes of the foreign country were incurred,
allowed as deduction, except: subject, however, to the conditions prescribed in Subsection (C)(5) of this
(a) The income tax provided for under this Title; Section. If the taxpayer elects to take such credits in the year in which the
"(b) Income taxes imposed by authority of any foreign taxes of the foreign country accrued, the credits for all subsequent years
country; but this deduction shall be allowed in the case of a taxpayer who shall be taken upon the same basis, and no portion of any such taxes shall
does not signify in his return his desire to have to any extent the benefits of be allowed as a deduction in the same or any succeeding year.
paragraph (3) of this Subsection (relating to credits for taxes of foreign
countries); "(7) Proof of Credits. - The credits provided in Subsection (C)(3)
"(c) Estate and donor's taxes; and hereof shall be allowed only if the taxpayer establishes to the satisfaction of
"(d) Taxes assessed against local benefits of a kind tending the Commissioner the following:
to increase the value of the property assessed. "(a) The total amount of income derived from sources
without the Philippines;
"Provided, That taxes allowed under this Subsection, when refunded or "(b) The amount of income derived from each country,
credited, shall be included as part of gross income in the year of receipt to the tax paid or incurred to which is claimed as a credit under said paragraph,
the extent of the income tax benefit of said deduction. such amount to be determined under rules and regulations prescribed by
the Secretary of Finance; and
because of the requirement that the loss must f. The taxpayer must not claim these losses as
actually be sustained by the taxpayer. part of or for estate tax purposes.
g. You must be able to substantiate the
c. They are incurred in business or directly casualty loss that you have incurred; you need to
related to your trade, business or profession. submit proof of such loss.
d. It must not be compensated by insurance or
other forms of indemnity. In the case of Casualty losses, you have an additional
e. It must not be made as part of your requirement that the losses must be reported to the
deductions for estate tax purposes. BIR for purposes of allowing them to be claimed as a
(You have to compute for your gross estate and there deduction, on top of the requirements that they are
will be deductions. Part of the deductions from gross related to the trade, business and profession, and to
estate are losses which are incurred in business. So if the ascertainment of the losses.
you are claiming for purposes of estate taxation, you
cannot claim it anymore as part of your deduction for
income tax purposes.) NET OPERATING LOSS CARRY-OVER (NOLCO)
(3) Net Operating Loss Carry-Over. - The net operating loss of the business
or enterprise for any taxable year immediately preceding the current
CASUALTY LOSSES taxable year, which had not been previously offset as deduction from gross
income shall be carried over as a deduction from gross income for the next
three (3) consecutive taxable years immediately following the year of such
REQUISITES FOR DEDUCTIBILITY OF CASUALTY LOSSES
loss: Provided, however, That any net loss incurred in a taxable year during
a. The losses are that of the taxpayer. which the taxpayer was exempt from income tax shall not be allowed as a
b. They are actually sustained by the taxpayer deduction under this Subsection: Provided, further, That a net operating loss
carry-over shall be allowed only if there has been no substantial change in
during the taxable year when he/she is claiming it.
the ownership of the business or enterprise in that
ASCERTAINMENT OF THE LOSSES (i) Not less than seventy-five percent (75%) in nominal value of outstanding
issued shares., if the business is in the name of a corporation, is held by or
Meaning, the losses are determined in what tax year. on behalf of the same persons; or
Let us say the losses occur in 2013, but it was only in
(ii) Not less than seventy-five percent (75%) of the paid up capital of the
the following year where they were able to determine
corporation, if the business is in the name of a corporation, is held by or on
the extent of the loss, then the loss will be claimed as a behalf of the same persons.
deduction in 2014. It was only in 2014 where the losses
For purposes of this subsection, the term 'net operating loss' shall mean the
were actually sustained and determined.
excess of allowable deduction over gross income of the business in a taxable
year.
c. They are incurred in relation to business or Xxx
year, after the computation for the yearly income, you Why? What is the reason behind that?
will incur a loss, technically you do not pay any taxes Where do you base the 2% MCIT? From the GROSS
anymore, but you can claim for a tax refund. INCOME.
Where do you deduct the NOLCO? From your NET
Taxpayers who are entitled to the deduct NOLCO from INCOME; it is part of your allowable deductions.
gross income:
a. Any individual engaged in trade or business or in the b. The running of the 3-year period for NOLCO
exercise of his profession expiration is not interrupted by the fact that the
b. Domestic and resident foreign corporations subject corporation is subject to MCIT.
to normal corporate income tax
Limitations; when you cannot claim NOLCO:
What is peculiar about this NOLCO? 1. If the taxpayer was tax exempt during that time
GR: For business expenses or deductions, it must be that the taxpayer incurred the loss.
incurred during the taxable year. 2. NOLCO is allowed only if there is a substantial
An exception: NOLCO change in the ownership of the business or enterprise.
You did not incur the loss this year but you incurred it When is there a substantial change?
last year. But the law allows you to carry-over the net (i) Not less than seventy-five percent (75%) in nominal
loss incurred in the previous taxable years. value of outstanding issued shares, if the business is in
the name of a corporation, is held by or on behalf of the
How long can you avail of this NOLCO? You can carry same persons
this over for the next 3 consecutive taxable years. (ii) Not less than seventy-five percent (75%) of the paid
up capital of the corporation, if the business is in the
Situation: You have a loss this year. Next year you also name of a corporation, is held by or on behalf of the
have a loss. The following year, you gain income. How same persons.
do you deal with it? How do you make the application
of the NOLCO? We can just call this as the 75% equity rule.
You apply the first in first out (FIFO) basis. There is no substantial change of ownership if at least
75% of the equity, ownership or interests, if the
GR: The operating loss that you have incurred for this business is in the name of the corporation, is held by or
taxable year, you can carry it over for the next 3 taxable on behalf of the same persons
years.
Exception: You are allowed up to 5 years if you are Taxpayers not entitled to pay NOLCO as deductions:
engaged in mining, other than oil and gas wells. 1. Offshore Banking Units (OBUs)
xxx 2. Enterprises registered with the BOI with
Provided, That for mines other than oil and gas wells, a net operating loss
without the benefit of incentives provided for under Executive Order No.
respect to BOI-registered activities; such as enjoyment
226, as amended, otherwise known as the Omnibus Investments Code of of income tax holiday incentives
1987, incurred in any of the first ten (10) years of operation may be carried
3. Enterprises registered under the PEZA
over as a deduction from taxable income for the next five (5) years
immediately following the year of such loss. The entire amount of the loss 4. Enterprises registered under the Bases
shall be carried over to the first of the five (5) taxable years following the Conversion and Development Act
loss, and any portion of such loss which exceeds the taxable income of such
5. Corporations engaged in international shipping
first year shall be deducted in like manner form the taxable income of the
next remaining four (4) years. or air carriers
6. Persons claiming the OptionalStandard
Does it matter if the taxpayer is subjected to MCIT? Deduction
It does not really matter because what happens is that 7. Any person enjoying exemption from income
in the previous year you suffered a NOLCO. tax during the period they are exempt from income tax
1. Domestic stocks
For shares of stocks, you distinguish if it is sold in the What is the reason behind the last rule?
local stock exchange or there is direct selling. There will You do not deduct the capital loss because it is not
be tax implications. related to your business. As a principle in deductions,
2. Real properties found in the Philippines only those which are related in trade or business are
Normally it is 6% capital gains tax. There are also those part of your deductible expenses. This is found under:
which are exempted and those transferred to the
government. (C) Limitation on Capital losses. - Losses from sales or
exchange capital assets shall be allowed only to the
3. Other properties those which are not extent of the gains from such sales or exchanges. If a
domestic stocks or real properties located in the bank or trust company incorporated under the laws of
Philippines the Philippines, a substantial part of whose business is
If there is any capital gain, of course that capital gain the receipt of deposits, sells any bond, debenture,
will form part of the gross income. How about if there note, or certificate or other evidence of indebtedness
is a loss? issued by any corporation (including one issued by a
government or political subdivision thereof), with
(4) Capital Losses. - interest coupons or in registered form, any loss
(a) Limitations. - Loss from sales or Exchanges of capital assets shall be
resulting from such sale shall not be subject to the
allowed only to the extent provided in Section 39. foregoing limitation and shall not be included in
(b) Securities Becoming Worthless. - If securities as defined in Section 22 (T)
determining the applicability of such limitation to other
become worthless during the taxable year and are capital assets, the loss
resulting therefrom shall, for purposes of this Title, be considered as a loss losses.
from the sale or exchange, on the last day of such taxable year, of capital
assets.
Exception: Bank or trust company incorporated under
SEC. 39. Capital Gains and Losses. -
the laws of the Philippines, a substantial part of whose
(A) Definitions. - As used in this Title - business is the receipt of deposits, sells any bond,
(1) Capital Assets. - The term 'capital assets' means property held by the
debenture, note, or certificate or other evidence of
taxpayer (whether or not connected with his trade or business), but does indebtedness issued by any corporation (including one
not include stock in trade of the taxpayer or other property of a kind which
issued by a government or political subdivision
would properly be included in the inventory of the taxpayer if on hand at
the close of the taxable year or property held by the taxpayer primarily for thereof), with interest coupons or in registered form
sale to customers in the ordinary course of his trade or business, or property
used in the trade or business, of a character which is subject to the
(B) Percentage Taken into Account - In the case of a
allowance for depreciation provided in Subsection (F) of Section 34; or real
property used in trade or business of the taxpayer. taxpayer, other than a corporation, only the following
percentages of the gain or loss recognized upon the
(2) Net Capital Gain. - The term 'net capital gain' means the excess of the
gains from sales or exchanges of capital assets over the losses from such
sale or exchange of a capital asset shall be taken into
sales or exchanges. account in computing net capital gain, net capital loss,
and net income.
(3) Net Capital Loss. - The term 'net capital loss' means the excess of the
losses from sales or exchanges of capital assets over the gains from such (1) One hundred percent (100%) if the capital asset
sales or exchanges. has been held for not more than twelve (12) months;
and
Principles/rules when you deal with losses: (2) Fifty percent (50%) if the capital asset has been
1. Ordinary losses can be charged against held for more than twelve (12) months;
ordinary gains. This is what we call as holding period.
2. Ordinary losses can be charged against the
capital gains. Things to remember:
3. Capital losses can be charged against capital 1. The holding period may either be short term or
gains. long term:
4. Capital losses can never be charged against a. Short term: Not more than 12 months
ordinary gains. b. Long term: More than 12 months
Charged against: Ordinary gain 2. Capital
This gain
holding period applies only to individuals.
Ordinary loss
It will never apply to corporations.
Capital loss
Corporations will always recognize either 100% of the So basically the seller here is a mere speculator. He
capital gains or 100% of the capital loss. would sell stocks but the stocks are not yet in his
possession, and he does not own the stocks yet. The
(D) Net Capital Loss Carry-Over shares of stocks will be delivered to him at a later
(D) Net Capital Loss Carry-Over. - If any taxpayer, period. Now if the stocks will become cheaper by the
other than a corporation, sustains in any taxable year a time he sells it, he will have a gain. But at the time of
net capital loss, such loss (in an amount not in excess of selling, or at the time he is already obliged to transfer
the net income for such year) shall be treated in the the stocks to the buyer if the stocks prices will go up
succeeding taxable year as a loss from the sale or high, he will incur a loss.
exchange of a capital asset held for not more than
twelve (12) months. What is the tax treatment of these gains or losses?
They are treated as if they are capital transactions. This
This is different from NOLCO. NCLCO just deals with is pretty much the same with the failure to exercise
capital loss. privileges or options to buy a certain property. Capital
The net capital loss that you incurred in this current gains or capital losses will be recognized accordingly.
year can be carried over in the following year. It is just
for 1 year, not 3 years. SECURITIES BECOMING WORTHLESS
SEC 34(D)(b) Securities Becoming worthless. If securities as defined in
Section 22 (T) become worthless during the taxable year and are capital
Requirements for the application of NCLCO: assets, the loss resulting therefrom shall, for purposes of this Title, be
1. The taxpayer must be an individual. considered as a loss from the sale or exchange, on the last day of such
taxable year, of capital assets.
Corporations cannot claim NCLCO.
2. The taxpayer carries a net capital loss. Securities becoming worthless are to be
treated as a capital loss if incurred from a sale or an
3. The net capital loss can be carried over on the
exchange of transaction. Thats a given because the
succeeding taxable year. If you are not able to carry this
moment that there will be an exchange or sale, it does
over, you are barred.
not mean that it is totally worthless, but definitely
4. The amount carried over should not exceed the
there will be a loss. You can treat that loss as part of
net income for the year the carry-over is to be applied.
your capital loss.
NOLCO NCLCO
Securities becoming totally worthless, you can
Pertains to operating Pertains to capital losses
write it off from your book of accounts. Meaning, you
losses
can immediately treat it as part of your losses. This is
The period of carry-over Only for one year or the
one of the exceptions to the rule that there must be an
is 3 years succeeding taxable year
actual exchange or transaction.
Applies to both Applies only to individuals
individuals and
China Banking Corporation vs CA (July 19, 2000)
corporations
When the securities become worthless, there is clearly
There is no holding There is a holding period
no sale or exchange but the law deems the loss anyway
period
to be a loss from the sale or exchange of capital assets.
WASH SALES
SHORT SALE SEC. 38. Losses from Wash Sales of Stock orSecurities.
(A)In the case of any loss claimed to have been sustained from any sale or
SEC 39 (F) Gains or losses from Short Sales, Etc. For purposes of this Title - other disposition of shares of stock or securities where it appears that within
(1) Gains or losses from short sales of property shall be considered a period beginning thirty (30) days before the date of such sale or disposition
as gains or losses from sales or exchanges of capital assets; and and ending thirty (30) days after such date, the taxpayer has acquired (by
(2) Gains or losses attributable to the failure to exercise privileges purchase or by exchange upon which the entire amount of gain or loss was
or options to buy or sell property shall be considered as capital recognized by law), or has entered into a contact or option so to acquire,
gains or losses. substantially identical stock or securities, then no deduction for the loss shall
be allowed under Section 34 unless the claim is made by a dealer in stock or
securities and with respect to a transaction made in the ordinary course of
In 39F, short selling pertains to selling something
the business of such dealer.
which you do not own yet at the time of the sale. The
losses from short sales shall be considered as sale or
exchange of capital assets.
A wash sale is, in general, a purchase and a sale and development expenditures pertaining thereto shall be allowed as a
deduction xxx
of substantially identical stocks or securities within a b. In case a producing well is subsequently abandoned, the
period provided by law. unamortized costs thereof, as well as the undepreciated costs of equipment
directly used therein shall be allowed as a deduction xxx
taxable year and are capital assets, the loss resulting therefrom shall, in the (1) Sending of statement of accounts
case of a taxpayer other than a bank or trust company incorporated under
the laws of the Philippines a substantial part of whose business is the receipt (2) Collection letters
of deposits, for the purpose of this Title, be considered as a loss from the (3) Giving the account to a lawyer for collection
sale or exchange, on the last day of such taxable year, of capital assets.
(4) Filing the case in court
Bad debts are debts resulting from the worthlessness Note: The filing of a case in court is not absolutely
or uncollectibility, in whole or in part, of amounts due required in order to ascertain a debt as uncollectible,
the taxpayer actually ascertained to be worthless and such as when court action shall be more costly to the
the corresponding receivable should have been written taxpayer.
off or charged off within the taxable year.
The Debt is Uncollectible Despite the Efforts of the (b) collection through court action may be more costly
Taxpayer to the taxpayer;