UNIVERSITY OF THE PHILIPPINESCOLLEGE OF LAW

SYLLABUSTAX 1 - INCOME TAXATION

1« SEM, A.Y. 2011-2012Prof. Dina D. Lucenario

Section III-CSaturdays, 2:00 - 5:00pm

Suggested References:

Casasola & Bcrnaldo, National Internal Revenue Code of 1997,2009 ed.

Aban, Law of Basic Taxation in the Philippines, rev. ed. /0? - stttJ t J JJD i r n a a r n p a o , Ta x P r i n c i p l e s a n d R e m e d i e s , 2 0 1 0 e d . , ' 1 'Domondon, Taxation vol. I (General Principles), 2009 ed. ?e% ' e ^ ^^"iMamalateo, Reviewer on Taxation, 2008 ed.Vitug & Acosta, Tax Law and Jurisprudence, 2006 ed.

Mamalateo, Philippine Income Tax, 2004 ed./Valencia, Income Taxation, 5th ed.Domondon, Taxation vol. II (Income Taxation), 2009 ed.

PART A: GENERAL PRINCIPLES OF TAXATION

June 18,2011 Session

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I. Taxation

A. DefinitionB. Nature of Internal Revenue Law

- Hilado v CIR 100 Phil 288C. Scope and Nature of Taxation C&im<*^

- Sec. 28, Art. VI, 1987 Constitution (M\Uo«V*i- Sison v Ancheta, 130 SCRA 654 ? \t^.- CIR v Pineda, 21 SCRA 105 S««(X •- Phil. Guaranty v CIR, 13 SCRA 775 ^- Collector vYuseco, 3 SCRA 313- CIR v Algue, Inc., L-28896, Feb. 17,1988

D. Underlying Theory and Basis; Necessity Theory; Benefit-Received Principle- 71 Am ]ur2"d 346-347- Commissioner v. Algue, 158 SCRA 9- NPC v. Cabanatuan, GR149110, April 19,2003- Lorenzo v. Posadas, 64 Phil 353

E. Purpose of TaxationGeneral / Fiscal/ Revenue- Commissioner v. Algue, supra

4

- PAL v. Edu, 164 SCRA 320- Tolentino v. Secretary of Finance, 235 SCRA 630; 249 SCRA 628Non-revenue/Special or Regulatory- Osmena v. Orbos, 220 SCRA 703- Caltex v. COA, 208 SCRA 755

F. Principles of a Sound Tax System- Chavez vOngpin, 186 SCRA 331- Taganito Mining v. CIR, CTA Case 4702, April 28,1995

G. Comparison with Police Power and Eminent Domain- Roxas v. CTA, 23 SCRA 276- Tanada v. Angara, GR118295, May 2,1997- LTO v. City of Butuan, GR 131512, Jan. 20,2000- Phil Match Co. v. Cebu, 81 SCRA 99- Matalin v Mun. Council of Malabang, 143 SCRA 404- Lutzv. Araneta, 98 Phil 48- NTCv.CA, 311 SCRA 508

II. Taxes

A. Definition- 71 Am Jur2™» 343-346

B. Essential Characteristics of Taxes- Tan v. Del Rosario, 237 SCRA 324- CIR v. Santos, GR 119252, Aug. 18,1997

C. Taxes distinguished from:1. Debts

- Caltex v COA, 208 SCRA 726- Francia v IAC, 162 SCRA 735- RP v Ericta and Sampaguita Pictures, 172 SCRA 653- Republic v. Mambulao Lumber Company, 4 SCRA 622- Philex Mining v. CIR, GR 125704, August 28,1998- Domingo v Carlitos, 8 SCRA 443 - &Afc l«»i **} ,

2. License Fees- Progressive Dev. Corp. v QC, 172 SCRA 629- PAL v Edu, 164 SCRA 320- ESSOvCIR,175SCRA149

3. Special Assessments/Levies- Apostolic Prefect v Treasurer of Baguio, 71 Phil. 547

4. Tolls- 71 Amjur351

5. Penalties- NDC v CIR 151, SCRA 472

6. Custom DutiesD. Tax Evasion; Tax Avoidance

- Sec. 254, NIRC- Republic v.Gonzales, 13 SCRA 633- Delpher Traders v. IAC, 157 SCRA 349- CIR v. Lincoln Philippine Life, GR 119176, Mar. 19,2002

June 25,2011 Session

in. Sources of Tax Law

A. Constitution

B. Statutes- RA 8424, as amended- RA 9337- Tariff and Customs Code- Book II, Local Government Code- Special Laws

C Administrative Issuances- BIR Revenue Administrative Order (RAO) No. 1-2003- Revenue Regulations

- Sees. 244 - 245, NIRC- Revenue Administrative Order 01-03- Revenue Memorandum Circular 20-86- Art. .7, Civil Code- Asturias Sugar Central v Comm., 29 SCRA 617- Tan v. Del Rosario, 237 SCRA 234- CIR v. Seagate Technology, GR 153866, Feb. 11,2005

• BIR Rulings- Sees. 4,246, NIRC- CIR v Burroughs Ltd., G.R. 66653, June 19,1986- CIR v Mega Gen. Merchandising, 166 SCRA 166- PBCOM vs. CIR, 302 SCRA 241

D. Tax/Revenue Ordinances- Tuazon v. CA, 212 SCRA 739• Hagonoy Market Vendor v. Municipality of Hagonoy, GR 137621,

Feb. 6,2002- Jardine Davies v. Aliposa, GR 118900, Feb. 27,2003

E. Tax Treaties- Tanada v. Angara, GR 118295, May 2,1997

F. Case Laws (SC/CA/CTA)G. Legislative Materials

IV. Limitations Upon the Power of Taxation

INHERENT LIMITATIONS

A. Public Purposes- Lutz v Araneta, 98 Phil. 48- Pascual v Sec. of Public Works, 110 Phil. 331

B. Delegation of Taxation Power- Sec 5, Art. X, 1987 Constitution- Sec. 28(2), Art. VI, 1987 Constitution- Sec. 401, Tariff and Customs Code- Phil Comm. Satellite Corp. v Alcuaz, 180 SCRA 218- Meralco v. Prov. of Laguna, 306 SCRA 750- Pepsi-Cola Co. v City of Butuan, 24 SCRA 789- Smith Bell & Co. v CIR, L-28271, July 25,1975- LTO v. City of Butuan, supra- City Government of Quezon City v. Bayantel, GR 162015,

Mar. 6,2006- Garcia v. Executive Secretary, 210 SCRA 219- Osmena v. Orbos, 220 SCRA 703- CIR v. CA, GR 119761, Aug. 29,1996

C Exemption of Government Agencies- Sees. 27(C) and 30(1), NIRC- Executive Order 93- PD1931- Maceda v. Macaraig, supra- Mactan Cebu Airport v. Marcos, GR 120082, Sept. 11,1996- BIR Ruling No. 013-2004, Sept. 13,2004

D. Territoriality or Situs of Taxation- Manila Gas v. Collector, 62 Phil 895- Vegetable Oil Corp. v Trinidad, 45 Phil. 822- Wells Fargo Bank v Col, 70 Phil. 325- Iloilo Bottlers v. Iloilo City, 164 SCRA 607- CIR v.BOAC, 149 SCRA 395- Hopewell Power v. Commissioner, CTA Case 5310, Nov. 18,1998- Smith v. Commissioner, CTA Case 6268, Sept. 12,2002- Collector v. Lara, 102 Phil 813

E. International Comity- Sec. 2, Art. 11,1987 Constitution- Tanada v. Angara, GR 118295, May 2,1997- Mitsubishi Corp. v. CIR, CTA Case 6139, Dec. 17,2003

E. Double Taxation- Procter & Gamble Co. v Mun of Jagna, 94 SCRA 894- Sanchez v CIR, 97 Phil. 687- Punzalan v Mun Board of Manila, 95 Phil. 46- CIRv.SC Johnson & Sons, Inc., 309 SCRA 87

July 2,2011 Session

CONSTITUTIONAL LIMITATIONS

A Due Process Cause- Sec. 1, Art. Ill, 1987 Constitution- Com. of Customs v CTA & Campos Rueda Co., 152 SCRA 641- Phil Bank of Comm v. CIR, 302 SCRA 241- Sison v Ancheta, 130 SCRA 654

B. Equal Protection Clause- Sec. 1, Art. Ill, 1987 Constitution- Ormoc Sugar Co. v. Treasurer of Ormoc City, 22 SCRA 603- Villegas v. Hsui Chiong Tsai Pao, 86 SCRA 270- Shell Co. v Vano, 94 Phil. 388- Tiu v. CA, 301 SCRA 279- Tan v. Del Rosario, 237 SCRA 324- Phil. Rural Electric v. Secretary, GR 143706, June 10,2003

C. Rule of Taxation shall be Uniform and Equitable- Sec. 28(1), Art. VI, 1987 Constitution- Pepsi-Cola v Butuan City, 24 SCRA 789- Manila Race Horse v dela Fuente, 88 Phil. 60- Sison v. Ancheta, 130 SCRA 654- Tolentino v. Sec of Finance, 249 SCRA 628

D. Non- Impairment of Contracts- Sec. 10, Art. Ill & Sec. 11, Art XII, 1987 Constitution- CIR v Lingayen Gulf Electric Co., 164 SCRA 67- Misamis Oriental v CEPALCO, 181 SCRA 38- Phil. Rural Electric v. Secretary, supra

E. Non- Imprisonment for Non-payment of Poll Tax- Sec. 20, Art. Ill, 1987 Constitution

F. Prohibition against Taxation of Religious and Charitable Institutions- Sec. 28(3), Art. VI, 1987 Constitution- Lladoc v CIR, 14 SCRA 292- Province of Abra v Hernando, 107 SCRA 1021- Abra Valley College v.Aquino, 162 SCRA 106

G. Prohibition against Taxation of Non-stock Non-profit EducationalInstitutions

- Sec. 4(3), Art. XIV, 1987 Constitution- Sec. 28(3), Art. VI, 1987 Constitution- Sees. 27(B) and 30(H), NIRC- DOF Order 137-87- DOF Order 149-95- BIR Revenue Memorandum Circular 76-2003- BIR Revenue Memorandum Circular (RMQ No. 45-95- BIR Revenue Regulations No. 13-98- CIR v. CA & YMCA, 298 SCRA 83

H. Freedom of Religious Worship- Sec. 5, Art. Ill, 1987 Constitution- American Bible Society v Manila, 101 Phil. 386

I. Passage of Tax Bills/ Granting of Tax Exemption- Sec. 24, Art. VI, 1987 Constitution- Sec. 28(4), Art. VI, 1987 Constitution- Tolentino v Secretary of Finance, 249 SCRA 628

J. Veto Power of the President- Sec. 27(2), Art. VI, 1987 Constitution

K. Non-impairment of SC Jurisdiction- Sec. 5(2)(b), Art. VIH, 1987 Constitution

V. Construction of Tax Laws

A. General Rules of Construction of Tax Laws- Stevedoring v Trinidad, 43 Phil. 803- Lorenzo v. Posada, 64 Phil 353- Umali v. Estanislao, 209 SCRA 446- CIR v. Solidbank, GR 148191, Nov. 25,2003- Collector v. La Tondena, 5 SCRA 665

B. Mandatory vs. Directory Provisions- Serafica v Treasurer of Ormoc City, 27 SCRA 110- Roxas v. Rafferty, 37 Phil 958- Pecsonv.CA, 222 SCRA 580

C. Application of Tax Laws- Art. 2, Civil Code- CIR v. CA, GR 119761, Aug. 29,1996- CIR v. Telefunken, 249 SCRA 401- OR v. Michel Lhuillier, GR 150947, July 25,2003- CIR v. Benguet Corp., GR 134587, July 8,2005

VI. EXEMPTIONS FROM TAXATION

A. In General- Greenfield v. Meer, 77 Phil 394- Basco v. PAGCOR, 196 SCRA 52- CIR v Botelho Shipping Corp., 20 SCRA 487- CIR v CTA, GCL Retirement Plan, 207 SCRA 487- CIR v Guerrero, 21 SCRA 180- Phil. Acetylene v CIR, 20 SCRA 1056- Maceda v Macaraig, Jr., 197 SCRA 771- Sea-Land Service v CA, 357 SCRA 441- Davao Gulf v. CIR, GR 117359, July 23,1998- PLDT v. Davao City, GR 143867, Aug. 22,2001

B. Compared with Other TermsTax Remission/Condonation- Surigao Con. Min. v. Collector, 9 SCRA 728Tax Amnesty-PD370- EO 399 (as amended by EO 422); BIR Revenue Regulations Nos. 6-2005

and 10-2005- OR v. CA, 240 SCRA 368- OR v. Marubeni, GR 137377, Dec. 18,2001Exclusion/ Deduction-Sec. 32(B), NIRC-Sec. 34, NIRC

B. Construction of Tax Exemptions- E. Rodriguez, Inc. v Collector, 28 SCRA 119- Republic Flour Mills v CIR, 31 SCRA 148- Wonder Mechanical Engineering v CTA, 64 SCRA 555- Luzon Stevedoring Corp. v CTA, 163 SCRA 647- Floro Cement v Hen. Gorospe ,200 SCRA 480- CIR v Ledesma, 31 SCRA 95- Resins, Inc. v Auditor Gen. 25, SCRA 754CI- CIR v CA & YMCA, 298 SCRA 83- CIR v. CA, GR 124043, Oct. 14,1998- Misamis Oriental Asso. V. DOF, 238 SCRA 63- Nestle Phils, v. CA, GR 134114, July 6,2001- Coconut Oil Refiners v. Torres, GR 132527, July 29,2005- Maceda v. Macaraig, 196 SCRA 771- Maceda v. Macaraig, 223 SCRA 217

July 9,2011 Session

PARTB: INCOME TAXATION

I. OVERVIEW AND GENERAL PRINCIPLES

A. Income- Sec. 36, Revenue Regulations No. 2- Conwiv.CTA,213SCRA83- CIR v.BOAC, 149 SCRA 395

- Madrigal v. Rafferty, 38 Phil 414- International Freighting v. CIR, 1354 F 2d 310- Anderson v. Posadas, 66 Phil 205

B. Income TaxC. When is Income Taxable?

- Sees. 43-44, NIRC- Sees. 51-53, Revenue Regulations No. 2- Umpanv.CIR,17SCRA703- Republic v.Dela Rama, 18 SCRA 861- Eisner v. Macomber, 252 US 89- Raytheon Production v. CIR, 144 F2d 110- BIR Ruling 91-99, July 8,1999- CIR v. Tours Specialist, 183 SCRA 402- CIR v. Javier, 199 SCRA 824- BIR Ruling Nos. 123-97, Nov. 10,1997 and 029-98, Mar. 19,1998

D. Capital Gain; Ordinary Gain; Presumed Gain- Capital Gain- Ordinary Gain

- Business Income- Income from Trade/Practice of Profession- Passive Income- Other Forms

- Presumed Gain- Sec. 24(D), NIRC

E. Income Tax Systems- Global Tax System- Schedular Tax System

- Sison v. Ancheta, GR L-59431. July 25,1984- Semi-schedular or Semi-global Tax System

F. Criteria in Imposing Philippine Income Tax- Nationality/Citizenship- Residence- Source- Sec. 23, NIRC

G. Tax Treaties

II. TAXPAYERS

A. General Principles- Sec. 23, NIRC

B. Individuals- Sec. 23(A-D), NIRCResident Citizens- Sec. 23(E), NIRCNon-Resident Citizens- Sees. 22(E), 23(B), NIRCOverseas Filipino Workers- Sec. 23(C), NIRCResident Alien-Sees. 22(F), 24(B), NIRC- Sec. 5, Revenue Regulations No. 2Non-Resident Alien Engaged in Trade or Business- Sees. 22(G), 25(A), NIRC

Non-Resident Alien Not Engaged in Trade or Business- Sees. 25(B), NIRCSpecial Aliens- Sees. 25(C-E), NIRC

C Corporations-Sec. 22(B), NIRC- CIR v. Batangas Tayabas Bus Co., 102 Phil 822- BIR Ruling No. 317-92, Oct. 28,1992Large Taxpayers- Revenue Regulations No. 1-98Partnership; Co-ownership; GPP- Sees. 22(B), 26,73p), NIRC- Art. 484, Civil Code- BIR Ruling 254-91, Nov. 26,1991- Revenue Regulations No. 1-89- Onav.CIR,45SCRA78- Obilles v. CIR, L-681185, Oct. 20,1985- Reyes v. Commissioner, 24 SCRA 198- Gatchalian v. Collector, 67 Phil 666- Evangelista v. Collector, 102 Phil 140- Collector v. Batangas Transport, 102 Phil 822- Tan v. CIR, GR L-109289, Oct. 3,1994- Pascual v. CIR, 166 SCRA 560- Afisco v. CIR, 302 SCRA 1- Solidbank v. CIR, CTA Case No. 4868, June 19,1997- BIR Ruling 294-88, July 5,1988Joint Venture; Exempt v. Taxable- BIR Ruling 254-91Domestic Corporations-Sec. 22(C), 27, NIRC- Revenue Memorandum Circular 16-2006Resident Foreign Corporations- Branch v. Subsidiary- Winship v. Philippine Trust Co., 90 Phil 744- Marubeni v. CIR, 177 SCRA 500Non-Resident Foreign Corporations- Sees. 22(D), 28, NIRC- CIR v. BOAC149 SCRA 395- Marubeni v. CIR, 177 SCRA 500- CIR v. Procter and Gamble, 204 SCRA 277

D. Estates and Trusts-Sees. 22Q). 60-64, NIRC- Sees. 207-213, Revenue Regulations No. 2- CIR v. Visayas Electric, 23 SCRA 715- CIR v. CA, 207 SCRA 487

E. Registration of Taxpayers- Sees. 236(A, J), NIRC- Revenue Memorandum Circular 63-91- DOF-BLGF Memorandum Circular 009-02

July 16 & 23,2011 Sessions(Note: UPCAT is scheduled on August 6,2011]

IIL Exempt Taxpayers

A. Exempt IndividualsMinimum Wage Earners- RA9504Senior Citizens-Sec. 4. RA 9257• Revenue Regulations No. 4-2006Under Tax Treaty- Reagan v. CIR, 30 SCRA 968- CIR v. Robertson, 143 SCRA 796

B. Exempt Corporations- Sees. 27(C), 30, NIRC- Omnibus Investments Code; RA 7916; RA 8502; RA 6983- Revenue Regulation No. 20-2001; Revenue Memorandum Circular No. 33-2004,May 27,2004- Collector v. Sinco, 100 Phil 127- Jesus Sacred Heart College v. Collector, 100 Phil 127- CIR v. CA, GR 124043, Oct. 14,1998- CIR v. CA, GR 115349, Apr. 18,1997- Xavier School v. CIR, CTA Case 1682, Oct. 8,1969

IV.Gross Income and Exclusions

A. Income from Whatever Source- Sees. 31-32, NIRC- Sec. 61, Revenue Regulations No. 2- Gutierrez v. Collector, 101 Phil 713- CIR v. BO AC, supra- Eisner v. Macomber, 252 US 189- Helvering v. Bruun, 309 US 461- CIR v. Javier, 199 SCRA 824Situs of Income- Sec. 42, NIRC- Sees. 152-165, Revenue Regulations No. 2

From Sources Within the Philippines- Sec. 42 (A,B), NIRC- Revenue Audit Memorandum Order Nos. 1-86,4-86 and 1-95- Revenue Regulations No. 16-86- CIR v. Japan Airlines, 202 SCRA 450- CIR v. BOAC, 149 SCRA 395- NDC v. CIR, 151 SCRA 472- Air Canada v. CIR, CTA EB No. 86. Aug. 26,2005- CIR v. CTA, 127 SCRA 9- CIR v. Marubeni, GR 137377, Dec. 18,2001- Alexander Howden v. Collector, GR L-19392, Apr. 14,1965- Manila Electric v. Yatao, 69 Phil 89- Phil. Guaranty v. CIR, GR L-22074, Apr. 30,1965From Sources Without the Philippines- Sec. 42(C), NIRCPartly Within/Without the Philippines

V

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- Sec. 42(E), NIRCB. Compensation Income

- Sec. 32(A), NIRC- Sec. 2.78.1(A), Revenue Regulations No. 2-98- Revenue Regulations No. 3-98- RAMOl-87- Sec. 7, Revenue Regulations No. 1-82- Henderson v. Collector, 1 SCRA 649; Convenience of the Employer Rule- CIR v. Castaneda, 203 SCRA 72- Polo v. CIR, GR L-78780, July 23,1987- Endencia v. David, 93 Phil 696Fringe Benefits- Revenue Regulations Nos. 3-98,8-2000,10-2000, and RR 005-08Exclusions:Compensation for Injuries or Sickness- Sec. 32(b)(4), NIRC13* Month Pay and Other benefits-Sec.32(7)(b,e),NIRC- RA 7833 and its IRR (see RA 8424, Sec. 32(B)(7)(e)- Revenue Regulations No. 2-95- Sec. 2.78.1, Revenue Regulations No. 2-98, as amended by RR 8-00,10-2000,

and RR 005-08- Revenue Regulations No. 8-00- Revenue Memorandum Circular No. 36-94 (see RA 8424)- BIR Ruling 219-93, May 17,1993- CIR v. Castaneda, 203 SCRA 72Income Exempt Under Treaty-Sec. 28(b)(4), NIRC- Reagan v. CIR, 30 SCRA 968- BIR Ruling 031-91, February 1991- BIR Ruling 042-91, March 13,1991

C. Pensions/Retirement Benefits/Separation Pay- Sec. 32(A)(10), NIRCExclusions:- Sec. 32(6)(a-f), NIRC- Sec. 2.78.1 (B)(l-12), Revenue Regulations No. 2-98- RA 4917; RA 7641- CIR v. CA, 203 SCRA 72- CIR v. GCI Retirement, 207 SCRA 487- In re Zialcita, AM No. 90-6-015-SC, Oct. 18,1990

D. Passive Income1. Interest Income

-Sec. 32(A)(4), NIRC- Revenue Regulations No. 10-98- Revenue Memorandum Order 63-99 (see BIR Ruling DA 701-07, Dec.

28,2007)Exclusions:-Sec. 32(B)(7)(a), NIRC- CIR v. Mitsubishi Metal, 181 SCRA 214- NDC v. CIR, GR L-53961, June 30,1987Rentals/Leases- Sec. 32(A5), NIRC- Sees. 74,49 and 58, Revenue Regulations No. 2

11

- Revenue Regulations 19-86- Limpan v. CIR, 17 SCRA 70

3. Royalties- Sec. 32(A)(6), NIRC-ClRv.SC Johnson, GR 127105, June 25,1999- Philippine American Life v. OR, GR SP No. 31283, Apr. 25,1995

4. Dividends- Sec. 32(A)(70, NIRC- Sees. 58 and 71,250-253, Revenue Regulations No. 2- Revenue Memorandum No. 31-90- Sec. 73(C,D), NIRC- Republic v. Dela Rama, 18 SCRA 861- CIR v. Manning, 66 SCRA 14- Fisher v. Trinidad, 43 Phil 973- CM Hoskins v. CIR, 30 SCRA 434- Kuenzle v. CIR, 28 SCRA 365- Wise & Co. v. Meer, GR L-48231, June 30,1947- OR v. CA, GR 108576, Jan. 20,1999- Yuchengco v. CIR, CTA Case No. 3429, Jan. 6,1988- Philippine Telephone v. Collector, 58 Phil 639- BIR Ruling No. 322-87, Oct. 19,1987 (see RR 6-2008, Sec. 8 & 9)

Exclusions:- Income Exempt Under Tax Treaty- Passive Income of Foreign Government

5. Annuities and Insurance Proceeds-Sec. 32(A)(8), NIRC- Sec. 48, Revenue Regulations No. 2Exclusions:Proceeds from Life Insurance- Sec. 32(B)(1), NIRC- Sec. 62, Revenue Regulations No. 2- El Oriente Fabrica v. Posadas, 56 Phil 147Return of Premium Paid- Sec. 32(B)(2), NIRC- Sec. 48, Revenue Regulations No. 2Compensation for Injuries or Sickness- Sec. 32(B)(4), NIRC- Sec. 63, Revenue Regulations No. 2

6. Prizes and Winnings/Awards/Rewards- Sec. 32(A)(9), NIRC- Sec. 282, NIRC- Revenue Memorandum Order No. 12-93- BIR Ruling DA-013-04- CIR v. COA, GR 101976, Jan. 29,1993Exclusions:PCSO and Lotto Winnings- Sec. 24(B)(1), NIRCSports Competition Prizes-Sec. 32(B)(7)(d), NIRC

7. Other Types of Passive Income- Found Treasure- Tax Refund; Revenue Memorandum Circular 13-80

r~

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- Recovery of Bad Debt Previously Deducted; Sec. 50, RevenueRegulations No. 2- Damages

- Ramnani v. CIR, CTA Case No. 5108, Sept. 13,1996E. Gains Derived from Dealings in Property

- Sees. 32(A)(3), 39-40, NIRC- Revenue Regulations No. 14-80- Revenue Regulations No. 2-82

(Note: For shares held as capital assets, rules consolidated under RR 6-2008,April 22,2008)- Revenue Regulations No. 7-2003

Exclusions:Shares of Stocks Classified as Capital Asset and Traded in PSE- Sec. 127, NIRC

F. Business Income/ Income from Exercise of Profession- Sees. 32(A)(2), 27(E), NIRC- Sees. 36-38, 43-47, Revenue Regulations No. 2Exclusions:- Income Exempt Under a Treaty- Income Derived by Governmental/Political Subdivision from Exercise ofEssential Government Function

G. Partner's Distributive Share of the Gross Income of General ProfessionalPartnerships- Sec. 32(A)(11), NIRC

H. Exclusions under Special Laws- RA 9040

July 30,2011 Session

V. Deductions and Exemptions

A. Deductions in General-Sec. 34, NIRC- Sees. 119-120, Revenue Regulations No. 2- Revenue Memorandum Order 38-83- Zamora v. Collector, 8 SCRA 163- Esso Standard v. CIR, 176 SCRA 149- QR v. General Foods, GR 143672, April 24,2003- CM Hoskins v. QR, 30 SCRA 434- Gancayco v. Collector, 1 SCRA 980- Western Minolco v. CIR, 124 SCRA 121- Commissioner v. Philippine Acetylene, 39 SCRA 70- QR v. Arnoldus Carpentry, GR L-71122, Mar. 25,1988- BPI v.Trinidad, 45 Phil 384- BIR Ruling No. 12-2004, Sept. 13,2004Kinds of Deductions- Itemized• Optional Standard- Special DeductionsLimitations and Substantiation- Sec. 34, NIRCAllocation- Sec. 50, NIRC

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- Yutivo Sons v. CIR, 1 SCRA 160Allowable Deductions- Sees. 24(A), 25(A), 26,27(A,B,C), 28(A)(1), NIRCOrdinary/Necessary Business Expenses- Revenue Regulations Nos. 6-82,12-86,19-86,3-98 and 10-02 (see RA 9504and Revenue Regulations 10-08, July 8,2008)- Atlas Consolidated v. CIR, 102 SCRA 246- Visayan Cebu Terminal v. Collector, 108 Phil 320- Kuenzle v. CIR, GR L-12010, Oct. 20,1959- Alhambra Cigar v. Collector, GR L-12026, May 29,2009- Aguinaldo Industries v. Collector, 112 SCRA 136- Goodrich v. Collector, CTA Case No. 468, June 8,1965- Jamir v. Collector, 4 SCRA 718- Hospital de San Juan De Dios v. CIR, 185 SCRA 273- Felix Montenegro v. QR, CTA Case No. 695, Apr. 30,1969- Collector v. Philippine Education Co., 99 Phil 319- Sec. 34(2), NIRC- Sees. 67-70,74-75, Revenue Regulations No. 2Interest Expense- Sec. 34(B), NIRC- Revenue Regulations No. 13-00- CIR v. Palanca, 18 SCRA 496- CIR v. Vda. de Prieto, 109 Phil 592- Paper Industries v. CA, 250 SCRA 434- CIR v. Itogon-Suyoc Mines, GR L-25399, July 29,1969- Castro v. Collector, 6 SCRA 886- Collector v. Fisher, 1 SCRA 93Taxes- Sees. 34(3,4), NIRC; Tax Benefit Rule- Sees. 80-83, Revenue Regulations No. 2- CIR v. Lednicky, GR L-18169, July 31,1964- Gutierrez v. Collector, 14 SCRA 33Losses-Sec.34(D), NIRC- Revenue Regulations No. 14-01- Sees. 93-101, Revenue Regulations No. 2- Revenue Regulations No. 12-77- BIR Rulings No. 144-85, Aug. 26,1985- Revenue Memorandum Circular 26-85- Fernandez Hermanos v. CIR, 29 SCRA 552- Plaridel Security v. CIR, 21 SCRA 1187- China Bank v. CA, 336 SCRA 178- The City Lumber v. Domingo, GR L-18611, Jan. 30,1964- Marcelo Steel v. Collector, 109 Phil 921- Phil. Sugar Estate v. Collector, 60 Phil 565Bad Debts- Sec. 30(b), NIRC- Revenue Regulations Nos. 5-99 and 25-02; Tax Benefit Rule- Sees. 102-104, Revenue Regulations No. 2- Phil. Refining v. CA, 256 SCRA 667- Collector v. Goodrich, 21 SCRA 1336Depreciation- Sec. 34(F), NIRC

14

- Sees. 105-115, Revenue Regulations No. 2- Revenue Regulations 19-86- Basilan Estates v. CIR, 21 SCRA 17- Zamora v. Collector, 8 SCRA 163Depletion- Sec. 34(G), NIRC- Revenue Regulations No. 5-76- Consolidated Mines v. CTA, 58 SCRA 618R&D Expenses- Sec. 34(1), NIRCCharitable and Other Contributions- Sec. 34(H), NIRC- Revenue Regulations No. 13-98- BIR-NEDA Regulations Nos. 1-81 and 1-82- Roxas v. CTA, 23 SCRA 276Contribution to a Pension Trust- Sec. 340), NIRC- Sec. 118, Revenue Regulations No. 2

C. Non-Deductible Expenses- Sec. 26, NIRC- Sees. 119-122, Revenue Regulations No. 2- Collector v.Jamir, 4 SCRA 716- Adas Consolidated v. CIR, GR L-26911, Jan. 27,1981- Gancayco v. Collector, 1 SCRA 980Losses between Related Taxpayers- Sec. 36(B), NIRCLosses on Wash Sales- Sec. 38, NIRCIllegal Expenses- Sec. 34(1), NIRC- Callanocv. Collector, 3 SCRA 517- 3M Philippines v. CIR, GR 82833, Sept. 26,1988

D. Special Deductions- Sec. 37, NIRC

E. Deductions for IndividualsOptional Standard Deductions- Sec. 340-), NIRCPremium Payments- Sec. 34(M), NIRC

F. Personal Exemptions- Sec. 35, NIRC- RA9504- Collector v. Calsado, GR L-10293, Feb. 27,1959- Resaba v. Republic, GR L-6294, June 28,1954Basic Personal Exemption- Sec. 2.79(I)(l)(a), Revenue Regulations No. 2-98OMote: amended by RA 9504 and RR 10-08)- Revenue Regulations Nos. 1-79 and 9-99Additional Exemption for Dependents- Sec. 2.79(l)(l)(b), Revenue Regulations No. 2-98Reciprocity

15

MID-TERM EXAMINATION - AUGUST 13,2010

August 6 & 20,2011 Sessions

vltaxon Individuals: Bases and Rates

A. Resident Gtizens and Resident AliensTaxable Income- Sec. 24(A)(l)(a-c), NIRCPassive Income:InteOrest, Royalties, Prizes and Other Winnings- Sees. 24(B)(1), 24(FF), NIRC- Revenue Regulations No. 10-98Dividends- Sec. 24(B)(2), NIRCCapital Gains on Shares of Stocks-Sec. 24(C), NIRCCapital Gains on Real Property-Sec. 24(D), NIRC- Revenue Regulations Nos. 8-98,13-99, as amended by 14-2000 and 6-01

B. Non-Resident Aliens Engaged in Trade or BusinessTaxable Income-Sec. 25(A)(1), NIRCPassive Income-Sec. 25(A)(2), NIRCCapital Gains- Sec. 25(3)

C. Non-Resident Aliens Not Engaged in Trade or Business-Sec. 25(B)

D. Special Aliens- Sec. 25(C-E), NIRC

E. Members of GPP- Sec. 26, NIRC

VII. Tax on Corporations: Bases and Rates

A. Domestic CorporationsTaxable Income- Sec. 27(A), NIRCPassive Income:Interest, Royalties-Sec.27(D)(l,3),NIRCDividends- Sec. 27(4), NIRCCapital Gains- Sec. 27(D)(2,5), NIRC

B. Resident Foreign CorporationsTaxable Income-Sec. 28(A), NIRC- NV Reederit v. CIR, 162 SCRA 487

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Branch Profit Remittance Tax- Sec. 28(A)(5), NIRC- Revenue Memorandum Circular 55-80- Bank of America v. CIR, GR 10392, July 21,1994,234 SCRA 302- Marubeni v. CIR, 177 SCRA 500- Campania General de Tabacos, CTA 4451, Aug 23,1993Passive Income:Interest- Sec. 28(A)(7)(a-b), NIRCDividends- Sec. 28(A)(7)(d), NIRCCapital Gains-Sec. 28(A)(7)(c), NIRC

C. Non-resident Foreign CorporationsTaxable Income- Sec. 28(B)(1)Passive Income:Interest- Sec. 28(B)(5)(a), NIRCDividends-Sec. 28(B)(5)(b), NIRC- CIR v. Procter and Gamble, 160 SCRA 650; 204 SCRA 377- CIR v. Wander Philippines, 160 SCRA 573- Marubeni v. Commissioner, 177 SCRA 500Capital Gains-Sec.28(B)(5)(c), NIRC

D. Special Corporations- Sec. 27(B-C), NIRCPrivate Educational Institutions and Non-profit Hospitals- Sec. 4(3), Art. XIV, 1987 Constitution-DOF Order No. 137-87Non-profit-non-stock Educational Institution- DOF Order No. 149-95, November 24,1995Non-resident Cinematographic Film Owner, Lessor or DistributorInternational Carriers- Sec. 28(3), NIRC- BOAC v. CIR, GR L-65773-4, April 30,1987- Revenue Regulations No. 15-2002Non-resident Owner of VesselsNon-resident Lessor of Aircraft, Machineries and Other EquipmentForeign Currency Deposit Units/Offshore Banking Units- Sec. 28(4), NIRC- RA9294- Revenue Regulations Nos. 10-76,14-77 (note: see RA 8424) and 10-98Regional or Area Headquarters and Regional Operating Headquarters- Sees. 22(D-E), 28(A)(6), NIRCPetroleum Service Contractor and Subcontractor- PD1354- PD87- Zapata Marine Services v. CTA, GR 80046, Apr. 18,1988BCD A, PEZA and BOI Registered Enterprises- Revenue Regulations No. 20-2002- Omnibus Investments Code

17

E. Minimum Corporate Income Tax- Sees. 27(E), 28(A)(2), NIRC- Revenue Regulations Nos. 9-98, as amended by 12-2007- Revenue Memorandum Circular 4-2003

F. Improperly Accumulated Earnings Tax- Sec. 29, NIRC- Revenue Regulations No. 2-01- Cyanamid Phils, v. CA, GR 1008067, Jan. 20,2000- CIR v. Antonio Tuason, GR 85749, May 15,1989- Manila Wine Merchants v. CIR, GR L-26145, Feb. 25,1984

G. Fringe Benefits Tax; De Minimis Benefits; ACA; RATA; PERA- Sec. 33, NIRC- Revenue Regulations No. 3-98, as amended by 8-2000,10-2000, and 005-08

August 27 & September 3,2011 Sessions

VUL Ordinary Assets and Capital assets

A. Capital Asset v. Ordinary Asset-Sees. 24(D), 39, NIRC- Sees. 132-135, Revenue Regulations No. 2- Revenue Regulations No. 7-2003- Tuazon vs. Lingad, 58 SCRA 170- Calasanz vs. CIR, G.R. No. L-26284, Oct. 9,1986- Ferrer vs. Collector, 5 SCRA 1022- Roxas vs. CIR, G.R. No. L-25043, Apr. 26,1968

B. Treatment of Sale or Exchange of Ordinary AssetsC. Treatment of Sale or Exchange of Capital Assets which are not Real Property

- Sees. 39(A), 40, NIRC- Calasanz vs. CIR, 144 SCRA 664Net Capital Gain and Net Capital LossHolding Period

D. Treatment of Sale or Exchange of Capital Assets which are Real PropertyCapital Tax on Presumed Gain- Sees. 6(E), 24(A), 24(D)(1), NIRC

E. Foreclosure Sales of Real Property- Revenue Memorandum Order Nos. 29-86,16-88,27-89 and 6-92- Revenue Regulations No. 4-99Redemption period

DC. Tax-Free Exchanges and Other Tax-Exempt Transactions

A. In General- W.C. Ogan and Bohol Land Transportation Co., G.R. No. 49102, May 30,

1949- Revenue Regulations No. 18-2001, Nov. 13,2001- Revenue Memorandum Order 32-2001, Nov. 28,2001

B. Merger or Consolidation- Sec. 40(C)(2) and (6)(b), NIRC- CIR vs. Rufino, 148 SCRA 42- BIR Ruling No. 383-87, Nov. 25,1987De Facto Merger

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- Revenue Memorandum Ruling 1-2002, Apr. 25,2002C. Exchange of Property for Shares of Stock

-Sec. 40(C)(2), NIRC- Liddell & Co., Inc. vs. Collector, 2 SCRA 632- Revenue Memorandum Ruling No. 1-2001, Nov. 29,2001

D. Other Tax-Exempt TransactionsSale of Principal Residence- Sec. 24(D)(2), NIRC- Revenue Regulations Nos. 13-99 and 14-2000Community Mortgage ProgramSocialized Housing- Sees. 19,20,32, RA 7279- Sees. 93,188, NIRCDeeds of TrustsTransfers by Mistakes- Sec. 196, NIRCTransfers of RightsRescinded ContractsEquitable MortgageCondominium CorporationsMiscellaneous Exempt Transactions- Sec. 24(D), NIRC- RA6657

E. Administrative Requirements- Revenue Memorandum Order No. 32-2001, Nov. 29,2001.

September 10 & 27,2011 Sessions

X. Accounting Periods and Methods

Calendar Year v. Fiscal Year- Sees. 22,43-47, NIRC- Sees. 51-53,166-172, Revenue Regulations No. 2

Recognition of IncomeLong Term Contracts- Sec. 48, NIRCInstallment Sales

- Sees. 49-50, NIRCTermination of Leasehold

- Sec. 49, NIRC- Consolidated Mines v. CTA, GR L-18844, Aug. 29,1974- Perez v. CTA, GR L-10507, May 30,1958- Collector v. Reyes, GR L-11534, Nov. 25,1958- Filipinas Synthetic v.CA, 316 SCRA 480

Recording of Income and Expenses/ Keeping of Books- Sees. 175-179, Revenue Regulations No. 2- CLR v. Wyeth Suaco, 202 SCRA 135- Consolidated Mines v. CTA, 58 SCRA 618

XI. Withholding of Taxes

-Sees. 57-59, NIRC- RA 9504

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- Revenue Regulations Nos. 2-98,12-98,6-01,12-01,14-02,17-03,30-03,1-2004,3-2004 and 1-2006

- Revenue Memorandum Circular Nos. 46-2002 and 72-2004- OR v. Procter and Gamble, GR 66838, Dec. 2,1991- CIR v. Wander Philippines, GR L-68375, Apr. 15,1988- Filsyn v. CA, GR 118498, Oct. 12,1999- CIR v. Procter and Gamble, 160 SCRA 560- QR v. Procter and Gamble, 204 SCRA 377- Marubeni v. QR, 177 SCRA 501- QR v. CA, GR 127105, June 25,1999 and Aug. 30,1999- Republic v. Lim Tian, 16 SCRA 584

September 24,2011 Session

XII. Returns and Payment of Taxes

A. In General- Revenue Regulations Nos. 7-93,14-93,3-02 and 16-02- Garrison v. CA, 187 SCRA 525

B. Individuals- Sees. 51,55-56, NIRC

C. Corporations- Sees. 52-54,75-77,47, NIRC- Sec. 244, Revenue Regulations No. 2.- CIR v. TMX Sales, 205 SCRA 18- ACCRA Investment v. CA, 204 SCRA 957- San Carlos Milling v. CIR, 228 SCRA 135

September 24,2012 Session

Integration Session

Final Examination - October 15,2010

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