UNIVERSITY OF THE PHILIPPINESCOLLEGE OF LAWDiliman, Quezon City

Syllabus onINCOME TAXATION

Prof. Carlos G. Baniqued

I. Basic Structural and Definitional Concepts• Meaning of Income

Sec. 32(A), NIRCSec. 36, Rev. Regs. No. 2Madrigal v. Rafferty, 38 Phil. 414Fisher v. Trinidad, 43 Phil. 973Conwi v. Court of Tax Appeals, 213 SCRA 83,88 (1992)CIR v. Tours Specialist, 183 SCRA 402Eisner v. Macomber, 252 U.S. 189 (1920)James v. U.S., 366 U.S. 213 (1961)

• RealizationSec. 38, Rev. Regs. No. 2Eisner v. Macomber, supraHelvering v. Horst, 311 U.S. 112 (1940)Bachrach v. Seifert, 87 Phil. 483CIR v. CA, CTA, &Anscor, 301 SCRA 152 (1999)

• Imputed Income• Recovery of Capital Investment

Sec. 40(A), NIRC• Windfall Receipts

Commissioner v. Glenshaw Glass, 348 U.S. 426 (1955)• Recovery of Deducted Items: Tax Benefit Principles• Indirect Payments

Old Colony Trust Co. v. CIR, 279 U.S. 716 (1929)• Discharge of Indebtedness Income

United States v. Kirby Lumber Co., 284 U.S. 1 (1931)Bowers v. Kerbaugh-Empire Co., 271 U.S. 170 (1926)

• Income from Unlawful ActivitiesUnited States v. Sullivan, 274 U.S. 259 (1927)CIR v. Wilcox, 327 U.S. 404 (1946)James v. U.S., supra

J. Amounts Received Under Claim of RightNorth American Oil Consolidated v. Burnet, 286 U.S. 417 (1932)

K. Reimbursement for Wrongful Death or injuryL. Fringe Benefits

Sec. 33, NIRCRev. Regs. No. 3-98

M. "Convenience of the Employer" TestSec. 2.78.1(A)(2), Rev. Regs. No. 2-98 (April 17,1998)Sec. 2, Rev. Audit Mem. Order No. 1-87 (April 23,1987)Collector v. Henderson, 1 SCRA 649 (1961)

N. De Minimis BenefitsSec. 2.78.1(A)(3), Rev. Regs. No. 2-98 (April 17,1998)Rev. Regs. No. 5-2008, April 17, 2008Rev. Regs. No. 5-2011, March 16, 2011BIR Rul. No. DA (ECB-026) 778-2009, Dec. 15, 2009

II. Definition of Gross Income• Statutory Definition

Sec. 32(A), NIRC• Compensation for Services

Sec. 32(A)(1), NIRC• Income from Business or Exercise of Profession

Sec. 32(A)(2), NIRC• Gains from Dealings in Property

Sec. 32(A)(3), NIRC• Passive Income - Interest, Rent, Royalty and Dividend

Sec. 32(A)(4)-(7), NIRCRev. Regs. No. 10-98 (Aug. 25,1998)

• Prizes and WinningsSec. 32(A)(9), NIRC

• Pensions and AnnuitiesSec. 32(A)(10), NIRC

• Partner's Distributive Share in Net Income of a GPPSec. 32(A)(11), NIRC

III. Exclusions from Gross Income• Life Insurance Proceeds and Return of Premiums

Sec. 32(B)(1), NIRCElOhente v. Posadas, 56 Phil. 147

B. Annuities• Gifts, Bequests, and Devises

Sec. 32(B)(3), NIRCPirovano v. CIR, 14 SCRA 832 (1965)

Commissioner v. Duberscein, 363 U.S. 278 (1960)Stanton v. United States. 268 F. 2d 727 (2d Cir. 1959), vacated andremanded, 363 U.S. 278 (1960)

• Compensation for Personal Injuries or SicknessSec. 32(B)(4), NIRC

• Income Exempt Pursuant to a TreatySec. 32(B)(5), NIRC

• Retirement Benefits, Pensions, Gratuities, etc.Sec. 32(B)(6), NIRCCIR v. Court of Appeals & Castaneda, 203 SCRA 72 (1991)Far East Bank and Trust Company v. CIR, 438 SCRA 473, 487-488(2006)IBC v. Amarilla, 505 SCRA 687, 700-703 (2006)

• Separation Benefits• GSIS, SSS, etc. Benefits• Prizes, Awards, Scholarships and Fellowships

Sec. 32(B)(7)(c), NIRC• Employees' 13th Month Pay, De Minimis Benefits, Fringe Benefits, etc.

Sec. 32(B)(7)(e), NIRC• Gain from Sale of Long-Term Bonds, Debentures and other Certificates of

IndebtednessSec. 32(B)(7)(g), NIRCGain from Redemption of Shares in Mutual FundSec. 32(B)(7)(h), NIRC

• Income Derived by Foreign GovernmentsSec. 32(B)(7)(a), NIRC

• Income Derived by Philippine Government or its Political SubdivisionsSec. 32(B)(7)(b), NIRC

N. Income Already Subjected to Final TaxCIR v. Philippine Airlines, Inc., 504 SCRA 90,99 (2006)

0. Earnings of Overseas Filipino WorkersSec. 23(B) and (C), NIRCSec. 24(A)(1)(b) NIRCRev. Regs. No. 1-2011, Feb. 24,2011

IV. Cost of Goods SoldSec. 27(A), NIRC

V. Deductions from Gross IncomeSec. 34, NIRCSec. 36, NIRC

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Sec. 34(F), NIRCConsolidated Mines, Inc. v. CTA, 58 SCRA 618, 644-645 (1974)Esso Standard Eastern v. CIR, supraBasilan Estates, Inc. v. CIR, 21 SCRA 17 (1967)Limpan Investment Corp. v. CIR, 17 SCRA 703,709 (1966)

• DepletionSec. 34(G), NIRCFernandez Hermanos, Inc. v. CIR, supraConsolidated Mines, Inc. v. CTA, supra, at 632-644

• Charitable and Other ContributionsSec. 34(H), NIRCRev. Regs. No. 13-98Roxas v. Court of Tax Appeals, 23 SCRA 276 (1968)

• Research and Development ExpendituresSec. 34(1), NIRC

o Contributions to Employees' Pension TrustsSec. 34(J), NIRC

• Premium Payments on Health and/or Hospitalization InsuranceSec. 34(M), NIRC

• Substantiation of DeductionsSec. 34(A)(1)(b), NIRCM.E. Holding Corporation v. Court of Appeals, 547 SCRA 389 (2008)Consolidated Mines, Inc. v. CTA, supra, at 645-647Zamora v. Collector, 8 SCRA 163,168 (1963)Basilan Estates, Inc. v. Commissioner of Internal Revenue, supra, at 24

• Optional Standard DeductionSec. 34(L), NIRCRev. Regs. No. 16-2008, Nov. 26,2008Rev. Regs. No. 2-2010, Feb. 18, 2010Rev. Mem. Circular No. 16-2010, Feb. 26,2010

• Personal Exemptions for IndividualsSec. 35, NIRCPansacola v. CIR, 507 SCRA 81 (2006)

VI. Recognition of Gains and Losses from Sales of Property• Requirement of Realization

Sec. 38, Rev. Regs. No. 2BIR Rul. No. DA (1-033) 584-2009, Oct. 8,2009

• Computation of Gain or LossSec. 40(A), NIRCSec. 136 to 143, Rev. Regs. No. 2

• Meaning of "Basis"

Sec. 40(B), NIRCo Meaning of "Amount Realized"

Sec. 40(A), NIRC• Non-Recognition of Gain or Loss on Certain Dispositions

Sec. 40(C), NIRCDelpher Trades Corp. v. I AC, 157 SCRA 349,356 (1988)Commissioner v. Rufino, 148 SCRA 42 (1987)CIR v. CA, et ah, supra

• Preferential Treatment for Capital GainsSec. 39(B), NIRCSec. 39(C), NIRCSec. 39(D), NIRC

• Definition of Capital Gains and Losses: Requirement of Capital AssetSec. 39(A), NIRCSec. 132, Rev. Regs. No. 2Corn Products Refining Co. v. CIR, 350 U.S. 46 (1955)Arkansas Best Corp. v. CIR, 485 U.S. 212 (1988)Roxas v. Court of Tax Appeals, supra, at 281-282Calasanz v. CIR, 144 SCRA 664 (1986)Tuason v. Lingad, 58 SCRA 170,178 (1974)Collector v. Bautista, 105 Phil. 1326,1327 (1959)China Banking Corporation v. CA, 336 SCRA 178 (2000)

• Limitation on Capital LossesSec. 39(C), NIRCJardine Davies, Inc. v. CIR, CTA Case No. 5738, Aug. 1,2000China Banking Corporation v. CA, supra

• Special Treatment of Sale of Real Property and Shares of StockSec. 24(C), NIRCSec. 25(A)(3), NIRCSec. 24(D), NIRCSec. 27(D)(2), NIRCSec. 27(D)(5), NIRCSec. 28(A)(7)(c), NIRCSec. 28(B)(5)(c), NIRCRev. Regs. No. 6-2008, April 22,2008Sec. 256, Rev. Regs. No. 2Wise and Co. v. Meer, 78 Phil. 667 (1947)

VII. Definition of "Corporation"Sec. 22(B), (C), NIRCAfisco Insurance Corp. v. CA, 302 SCRA 1,9-15 (1999)Evangelista v. Collector, 102 Phil. 140

Pascual v. CiR, 166 SCRA 560 (1988)Obiliosjr. v. CIR, 139 SCRA 436 (1985)Ona v. CIR, 45 SCRA 74 (1972)Reyes v. CIR, 24 SCRA 198 (1968)Rev. Mem. Circular No. 20-2010

VIII. Reallocation of Income and DeductionsSec. 50, NIRCCommissioner of Internal Revenue v. Menguito, 565 SCRA 461, 468-575(2008)

Commissioner v. Filinvest Development Corp., G.R. No. 167689, July 19,2011,654 SCRA 56 (2011)Rev. Regs. No. 4-2011, March 15,2011• Tax Avoidance vs. Tax Evasion

Gala v. Ellice-Agro-lndustrial Corporation, 418 SCRA 431,443 (2003)CIR v. Lincoln Phil. Life Ins.. Co., Inc., 379 SCRA 423,431 (2002)International Exchange Bank v. CIR, 520 SCRA 688 (2007)[NOT PERTAINING TO RELATED PARTY TRANSACTIONS]

• Meaning of "Transfer Pricing"• Prima Facie Case of "Substantial Underdeclaration"

Sec. 248(B), NIRC

IX. Accounting Periods and Methods of AccountingSec. 43 to 50, NIRCSec. 166 to 177, Rev. Regs. No. 2Sec. 51-53, Rev. Regs. No. 2• Fiscal Year vs. Calendar Year

Sec. 43, NIRC• Cash Method vs. Accrual Method

Sec. 43 to 45, NIRCCIR v. Isabela Cultural Corporation, 515 SCRA 556 (2007)Consolidated Mines, Inc. v. CTA, supra, at 626-632BIR Rul. No. 174-94, Dec. 12,1994BIR Rul. No. 259-91, Dec. 3,1991

• Change of Accounting PeriodSec. 46, NIRCRev. Regs. No. 3-2011, March 7,2011Rev. Regs. No. 9-2011, June 28, 2011

• Accounting for Long-Term ContractsSec. 48, NIRCSec. 44, Rev. Regs. No. 2

• Installment Sale vs. Deferred Payment Sale

Sec. 49. NiRCBanasjr. v. Court of Appeals, 325 SCRA 259 (2000)

• Indirect Methods of Computing IncomePerez v. Court of Tax Appeals, 103 Phil. 1167Aznar v. CTA, 58 SCRA 519 (1974)Collector v. jamir, supra, at 720.

Income Taxation of Foreign Persons• Operative Taxing Provisions of the NIRC

Sec. 24(A)(1)(c), NIRCSec. 25(A)(1), NIRCSec. 25(B), NIRCSec. 28(A)(1), NIRCSec. 28(B)(1), NIRC

• Resident Alien vs. Non-Resident AlienSec. 22(F), NIRCSec. 22(G), NIRCSec. 24(A)(1)(c), NIRCSec. 25(A)(1), NIRCSec. 25(B), NIRCSec. 5, Rev. Regs. No. 2

Non-Resident Alien Engaged in Trade or Business vs. Non-Resident AlienNot Engaged in Trade or BusinessSec. 25(A)(1), NIRCSec. 25(B), NIRCSec. 5 to 6, Rev. Regs. No. 2Sec. 8, Rev. Regs. No. 2

Resident Foreign Corporation vs. Non-Resident Foreign CorporationSec. 22(H) - (I), NIRCSec. 28(A)(1), NIRCSec. 28(B)(1), NIRCSec. 28(A)(5), NIRC re. BPRTSec. 3(d), Rep. Act No. 7042 (Foreign Investments Act of 1991)Sec. 1(f), IRR of Rep. Act No. 7042Rev. Mem. Circular No. 55-80 (Dec. 3,1980) re. BPRTMarubeni Corp. v. CIR, 177 SCRA 500 (1989)CIR v. CTA and Smith Kline and French Overseas Co., 127 SCRA 9 (1984)B. Van Zuiden Bros., Ltd. v. GTVL Manufacturing Industries, Inc., 523SCRA 233 (2007)

Source Rules for Various Items of IncomeSec. 42, NIRC

CIR v. British Overseas Airways Corporation, 149 SCRA 395 (1987)CIR v. Baier-Nickel, 500 SCRA 87,100-102 (2006)Alexander Howden & Co., Ltd. v. Collector, 13 SCRA 601 (1965)Karrerv. U.S., 152 F. Supp. 66 (1957)CIR v. CTA and Smith Kline & French Overseas, 127 SCRA 9 (1984)

• Special Treatment of Certain Foreign Persons or Some Items of IncomeSec. 25(C) to (E), NIRCSec. 28(A)(3) to (4), NIRCSec. 28(A)(6) to (7), NIRCSec. 28(B)(2) to (4), NIRCRev. Regs. No. 11-2010, Oct. 26, 2010South African Airways v. CIR, 612 SCRA 665 (2010)

XI. Income Taxation of Estates and TrustsSees. 60-66, NIRCSees. 207-213, NIRCCIR v. CA, 207 SCRA 487 (1992)Miguel J. Osorio Pension Foundation, Inc. v. CA and CIR, 621 SCRA 606 (2010)A. General Rules on Taxability: Fiduciary or BeneficiaryB. Personal Exemption AllowedC. Decedent's Estate AdministrationD. Revocable TrustsE. Income for Benefit of Grantor

XII. Tax Returns, Rates and Payments• Individual Returns

Sec. 51, NIRCRev. Mem. Circular No. 40-2011, Sept. 2011

• Corporation ReturnsSec. 52, NIRCSec. 73(D), NIRCRev. Mem. Circular No. 40-2011, Sept. 2011

• Regular and Preferential Tax RatesSec. 24 to 25, NIRCSec. 27 to 28, NIRC

• Venue and Date of Filing and PaymentSec. 51(B) to (C), NIRCSec. 52, NIRCSec. 74 to 77, NIRCRev. Regs. No. 13-2010, Nov. 25,2010Rev. Mem. Order No. 77-2010, Oct. 12, 2010

• Creditable and Final Withholding Taxes

Sec. 57 to 58, NIRCSec. 78 to 83, NIRCRev. Regs. No. 2-98 (April 17,1998)Rev. Mem. Circular No. 58-2008, Aug. 15, 2008CIR v. Mirant (Phil.s) Operations Corp., 652 SCRA 80 (2011)Philam Asset Management, Inc. v. CIR, 477 SCRA 761,772 (2005)CIR v. UCPB, G.R. No. 179063, Oct. 23, 2009CIR v. PL Management Int'l Phil, Inc. , G.R. No. 160949, April 4, 2011,647 SCRA 72 (2011)Asiaworld Properties Philippine Corporation v. CIR, G.R. No. 171766,July 29, 2010CIR v. Philippine Airlines, Inc., 504 SCRA 90,99 (2006)Benguet Corporation v. CIR, 492 SCRA 133 (2006)CIR v. CA, et. al, G.R. No. 108576, Jan. 20,1999CIR v. BPI, G.R. No. 178490, July 7, 2009BIR Rul. No. 029-2000, July 31,2000BIR Rul. No. 020-95, Feb. 13,1995BIR Rul. No. 164-99, Oct. 20,1999BIR Rul. No. 164-94, Dec. 5,1994BIR Rul. No. 322-88BIR Rul. No. 271-88BIR Rul. No. 265-88BIR Rul. No. 178-98, Dec. 24,1998

• Fringe Benefits TaxSec. 33, NIRC

• Returns of General Professional PartnershipsSec. 26, NIRCSec. 55, NIRC

XIII. Minimum Corporate Income TaxSec. 27(E), NIRCManila Banking Corporation v. CIR, 499 SCRA 782,788-790 (2006)CIR v. Philippine Airlines, Inc., G.R No. 180066, July 8, 2009

XIV. Improperly Accumulated Earnings TaxSec. 29, NIRCRev. Regs. No. 2-01 (Feb. 12, 2001)Rev. Mem. Circular No. 35-2011, March 14,2011BIR Rul. No. DA (C-005) 038-2010, March 4,2010BIR Rul. No. DA (C-328) 801-2009, Dec. 21, 2009The Manila Wine Merchants, Inc. v. CIR, 127 SCRA 483 (1984)Basilan Estates, Inc. v. CIR, supra, at 25-28

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CIR v. Tuason (May IS, 1989)Cyanamid Philippines, Inc. v. CA, et al, G.R. No. 108067, Jan. 20,2000

XV. Exempt Corporations and Others Taxed at Preferential RatesSec. 30, NIRCSees 27(B), (C),NIRCCIR v. CA, CTA and YMCA of the Phils., Oct. 14,1998PAGCOR v. The Bureau of Internal Revenue, et. al, G.R. No. 172087, March 15,2011

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