UNIVERSITY OF THE PHILIPPINES COLLEGE OF LAW

Diliman, Quezon City Syllabus on INCOME TAXATION Prof. Carlos G. Baniqued I. Basic Structural and Denitional Concepts
Meaning of Income

Sec. 32(A), NIRC Sec. 36, Rev. Regs. No. 2 Madrigal v. Rafferty, 38 Phil. 414 Fisher v. Trinidad, 43 Phil. 973 Conwi v. Court of Tax Appeals, 213 SCRA 83,88 (1992) CIR v. T ours Specialist, 183 SCRA 402 Eisner v. Macomber, 252 U.S. 189 (1920) James v. U.S., 366 U.S. 213 (1961) Realization Sec. 38, Rev. Regs. No. 2 Eisner v. Macomber, supra Helvering v. Horst, 311 U.S. 112 (1940) Bachrach v. Seifert, 87 Phil. 483 CIR 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 Activities United 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 Right
North American Oil Consolidated v. Burnet, 286 U.S. 417 (1932)

K. Reimbursement for Wrongful Death or injury L. Fringe Benets Sec. 33, NIRC Rev. Regs. No. 3-98 M. "Convenience of the Employer" Test Sec. 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 Benets

Sec. 2.78.1(A)(3), Rev. Regs. No. 2-98 (April 17,1998) Rev. Regs. No. 5-2008, April 17, 2008 Rev. Regs. No. 5-2011, March 16, 2011 BIR Rul. No. DA (ECB-026) 778-2009, Dec. 15, 2009 II. Denition 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), NIRC Rev. Regs. No. 10-98 (Aug. 25,1998) Prizes and Winnings Sec. 32(A)(9), NIRC Pensions and Annuities Sec. 32(A)(10), NIRC Partner's Distributive Share in Net Income of a GPP Sec. 32(A)(11), NIRC III. Exclusions from Gross Income Life Insurance Proceeds and Return of Premiums Sec. 32(B)(1), NIRC ElOhente v. Posadas, 56 Phil. 147 B. Annuities Gifts, Bequests, and Devises Sec. 32(B)(3), NIRC Pirovano 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 and remanded, 363 U.S. 278 (1960) Compensation for Personal Injuries or Sickness Sec. 32(B)(4), NIRC Income Exempt Pursuant to a Treaty Sec. 32(B)(5), NIRC Retirement Benefits, Pensions, Gratuities, etc. Sec. 32(B)(6), NIRC CIR 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 Indebtedness Sec. 32(B)(7)(g), NIRC Gain from Redemption of Shares in Mutual Fund Sec. 32(B)(7)(h), NIRC Income Derived by Foreign Governments Sec. 32(B)(7)(a), NIRC Income Derived by Philippine Government or its Political Subdivisions Sec. 32(B)(7)(b), NIRC N. Income Already Subjected to Final Tax CIR v. Philippine Airlines, Inc., 504 SCRA 90,99 (2006) 0. Earnings of Overseas Filipino Workers Sec. 23(B) and (C), NIRC Sec. 24(A)(1)(b) NIRC Rev. Regs. No. 1-2011, Feb. 24,2011 IV. Cost of Goods Sold Sec. 27(A), NIRC V. Deductions from Gross Income Sec. 34, NIRC Sec. 36, NIRC

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Sec. 34(F), NIRC Consolidated Mines, Inc. v. CTA, 58 SCRA 618, 644-645 (1974) Esso Standard Eastern v. CIR, supra Basilan Estates, Inc. v. CIR, 21 SCRA 17 (1967) Limpan Investment Corp. v. CIR, 17 SCRA 703,709 (1966) Depletion Sec. 34(G), NIRC
Fernandez Hermanos, Inc. v. CIR, supra

Consolidated Mines, Inc. v. CTA, supra, at 632-644 Charitable and Other Contributions Sec. 34(H), NIRC Rev. Regs. No. 13-98 Roxas v. Court of Tax Appeals, 23 SCRA 276 (1968) Research and Development Expenditures Sec. 34(1), NIRC o Contributions to Employees' Pension Trusts Sec. 34(J), NIRC Premium Payments on Health and/or Hospitalization Insurance Sec. 34(M), NIRC Substantiation of Deductions Sec. 34(A)(1)(b), NIRC M.E. Holding Corporation v. Court of Appeals, 547 SCRA 389 (2008) Consolidated Mines, Inc. v. CTA, supra, at 645-647 Zamora v. Collector, 8 SCRA 163,168 (1963) Basilan Estates, Inc. v. Commissioner of Internal Revenue, supra, at 24 Optional Standard Deduction Sec. 34(L), NIRC Rev. Regs. No. 16-2008, Nov. 26,2008 Rev. Regs. No. 2-2010, Feb. 18, 2010 Rev. Mem. Circular No. 16-2010, Feb. 26,2010 Personal Exemptions for Individuals Sec. 35, NIRC Pansacola v. CIR, 507 SCRA 81 (2006) VI. Recognition of Gains and Losses from Sales of Property Requirement of Realization Sec. 38, Rev. Regs. No. 2 BIR Rul. No. DA (1-033) 584-2009, Oct. 8,2009 Computation of Gain or Loss Sec. 40(A), NIRC Sec. 136 to 143, Rev. Regs. No. 2 Meaning of "Basis"

Sec. 40(B), NIRC o Meaning of "Amount Realized" Sec. 40(A), NIRC Non-Recognition of Gain or Loss on Certain Dispositions Sec. 40(C), NIRC Delpher Trades Corp. v. I AC, 157 SCRA 349,356 (1988) Commissioner v. Runo, 148 SCRA 42 (1987) CIR v. CA, et ah, supra Preferential Treatment for Capital Gains Sec. 39(B), NIRC Sec. 39(C), NIRC Sec. 39(D), NIRC Definition of Capital Gains and Losses: Requirement of Capital Asset Sec. 39(A), NIRC Sec. 132, Rev. Regs. No. 2 Corn Products Rening 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 281-282 Calasanz 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 Losses Sec. 39(C), NIRC Jardine Davies, Inc. v. CIR, CTA Case No. 5738, Aug. 1,2000 China Banking Corporation v. CA, supra Special Treatment of Sale of Real Property and Shares of Stock Sec. 24(C), NIRC Sec. 25(A)(3), NIRC Sec. 24(D), NIRC Sec. 27(D)(2), NIRC Sec. 27(D)(5), NIRC Sec. 28(A)(7)(c), NIRC Sec. 28(B)(5)(c), NIRC Rev. Regs. No. 6-2008, April 22,2008 Sec. 256, Rev. Regs. No. 2 Wise and Co. v. Meer, 78 Phil. 667 (1947) VII. Denition of "Corporation" Sec. 22(B), (C), NIRC Asco 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 Deductions Sec. 50, NIRC Commissioner 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 Accounting Sec. 43 to 50, NIRC Sec. 166 to 177, Rev. Regs. No. 2 Sec. 51-53, Rev. Regs. No. 2 Fiscal Year vs. Calendar Year Sec. 43, NIRC Cash Method vs. Accrual Method Sec. 43 to 45, NIRC CIR v. Isabela Cultural Corporation, 515 SCRA 556 (2007) Consolidated Mines, Inc. v. CTA, supra, at 626-632 BIR Rul. No. 174-94, Dec. 12,1994 BIR Rul. No. 259-91, Dec. 3,1991 Change of Accounting Period Sec. 46, NIRC Rev. Regs. No. 3-2011, March 7,2011 Rev. Regs. No. 9-2011, June 28, 2011 Accounting for Long-Term Contracts Sec. 48, NIRC Sec. 44, Rev. Regs. No. 2 Installment Sale vs. Deferred Payment Sale

Sec. 49. NiRC Banasjr. v. Court of Appeals, 325 SCRA 259 (2000) Indirect Methods of Computing Income Perez v. Court of Tax Appeals, 103 Phil. 1167 Aznar 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), NIRC Sec. 25(A)(1), NIRC Sec. 25(B), NIRC Sec. 28(A)(1), NIRC Sec. 28(B)(1), NIRC Resident Alien vs. Non-Resident Alien Sec. 22(F), NIRC Sec. 22(G), NIRC Sec. 24(A)(1)(c), NIRC Sec. 25(A)(1), NIRC Sec. 25(B), NIRC Sec. 5, Rev. Regs. No. 2 Non-Resident Alien Engaged in Trade or Business vs. Non-Resident Alien Not Engaged in Trade or Business Sec. 25(A)(1), NIRC Sec. 25(B), NIRC Sec. 5 to 6, Rev. Regs. No. 2 Sec. 8, Rev. Regs. No. 2 Resident Foreign Corporation vs. Non-Resident Foreign Corporation Sec. 22(H) - (I), NIRC Sec. 28(A)(1), NIRC Sec. 28(B)(1), NIRC Sec. 28(A)(5), NIRC re. BPRT Sec. 3(d), Rep. Act No. 7042 (Foreign Investments Act of 1991) Sec. 1(f), IRR of Rep. Act No. 7042 Rev. Mem. Circular No. 55-80 (Dec. 3,1980) re. BPRT Marubeni 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., 523 SCRA 233 (2007) Source Rules for Various Items of Income Sec. 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 Income Sec. 25(C) to (E), NIRC Sec. 28(A)(3) to (4), NIRC Sec. 28(A)(6) to (7), NIRC Sec. 28(B)(2) to (4), NIRC Rev. Regs. No. 11-2010, Oct. 26, 2010 South African Airways v. CIR, 612 SCRA 665 (2010) XI. Income Taxation of Estates and Trusts Sees. 60-66, NIRC Sees. 207-213, NIRC CIR 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 Beneciary B. Personal Exemption Allowed C. Decedent's Estate Administration D. Revocable Trusts E. Income for Benet of Grantor XII. Tax Returns, Rates and Payments Individual Returns Sec. 51, NIRC Rev. Mem. Circular No. 40-2011, Sept. 2011 Corporation Returns Sec. 52, NIRC Sec. 73(D), NIRC Rev. Mem. Circular No. 40-2011, Sept. 2011 Regular and Preferential Tax Rates Sec. 24 to 25, NIRC Sec. 27 to 28, NIRC Venue and Date of Filing and Payment Sec. 51(B) to (C), NIRC Sec. 52, NIRC Sec. 74 to 77, NIRC Rev. Regs. No. 13-2010, Nov. 25,2010 Rev. Mem. Order No. 77-2010, Oct. 12, 2010 Creditable and Final Withholding Taxes

Sec. 57 to 58, NIRC Sec. 78 to 83, NIRC Rev. Regs. No. 2-98 (April 17,1998) Rev. Mem. Circular No. 58-2008, Aug. 15, 2008 CIR 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, 2009 CIR 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, 2010 CIR 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. 20,1999 CIR v. BPI, G.R. No. 178490, July 7, 2009 BIR Rul. No. 029-2000, July 31,2000 BIR Rul. No. 020-95, Feb. 13,1995 BIR Rul. No. 164-99, Oct. 20,1999 BIR Rul. No. 164-94, Dec. 5,1994 BIR Rul. No. 322-88 BIR Rul. No. 271-88 BIR Rul. No. 265-88 BIR Rul. No. 178-98, Dec. 24,1998 Fringe Benefits Tax Sec. 33, NIRC Returns of General Professional Partnerships Sec. 26, NIRC Sec. 55, NIRC XIII. Minimum Corporate Income Tax Sec. 27(E), NIRC Manila 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 Tax Sec. 29, NIRC Rev. Regs. No. 2-01 (Feb. 12, 2001) Rev. Mem. Circular No. 35-2011, March 14,2011 BIR Rul. No. DA (C-005) 038-2010, March 4,2010 BIR Rul. No. DA (C-328) 801-2009, Dec. 21, 2009 The Manila Wine Merchants, Inc. v. CIR, 127 SCRA 483 (1984) Basilan Estates, Inc. v. CIR, supra, at 25-28 1 0

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 Rates Sec. 30, NIRC Sees 27(B), (C),NIRC CIR v. CA, CTA and YMCA of the Phils., Oct. 14,1998 PAGCOR v. The Bureau of Internal Revenue, et. al, G.R. No. 172087, March 15, 2011

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