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Facts:

Julia Buales died leaving as heirs her surviving spouse, Lorenzo Oa and her five children. A civil
case was instituted for the settlement of her state, in which Oa was appointed administrator and
later on the guardian of the three heirs who were still minors when the project for partition was
approved. This shows that the heirs have undivided interest in !" parcels of land, # houses and
mone$ from the %ar &amage 'ommission.
Although the project of partition was approved ($ the 'ourt, no attempt was made to divide the
properties and the$ remained under the management of Oa who used said properties in (usiness ($
leasing or selling them and investing the income derived therefrom and the proceeds from the sales
thereof in real properties and securities. As a result, petitioners) properties and investments
graduall$ increased. *etitioners returned for income ta+ purposes their shares in the net income (ut
the$ did not actuall$ receive their shares (ecause this left with Oa who invested them.
Based on these facts, ',- decided that petitioners formed an unregistered partnership and therefore,
su(ject to the corporate income ta+, particularl$ for $ears !.// and !./#. *etitioners as0ed for
reconsideration, which was denied hence this petition for review from 'TA)s decision.
Issue:
%12 there was a co3ownership or an unregistered partnership
%12 the petitioners are lia(le for the deficienc$ corporate income ta+
Held:
Unregistered partnership. The Ta+ 'ourt found that instead of actuall$ distri(uting the estate of
the deceased among themselves pursuant to the project of partition, the heirs allowed their
properties to remain under the management of Oa and let him use their shares as part of the
common fund for their ventures, even as the$ paid corresponding income ta+es on their respective
shares.
Yes. 4or ta+ purposes, the co3ownership of inherited properties is automaticall$ converted into an
unregistered partnership the moment the said common properties and1or the incomes derived
therefrom are used as a common fund with intent to produce profits for the heirs in proportion to
their respective shares in the inheritance as determined in a project partition either dul$ e+ecuted in
an e+trajudicial settlement or approved ($ the court in the corresponding testate or intestate
proceeding. The reason is simple. 4rom the moment of such partition, the heirs are entitled alread$
to their respective definite shares of the estate and the incomes thereof, for each of them to manage
and dispose of as e+clusivel$ his own without the intervention of the other heirs, and, accordingl$, he
(ecomes lia(le individuall$ for all ta+es in connection therewith. ,f after such partition, he allows his
share to (e held in common with his co3heirs under a single management to (e used with the intent
of ma0ing profit there($ in proportion to his share, there can (e no dou(t that, even if no document
or instrument were e+ecuted, for the purpose, for ta+ purposes, at least, an unregistered partnership
is formed.
4or purposes of the ta+ on corporations, our 2ational ,nternal -evenue 'ode includes these
partnerships 5
The term partnership includes a syndicate, group, pool, joint venture or other
unincorporated organization, through or by means of which any business, financial
operation, or venture is carried on (8 erten!s "aw of #ederal $ncome Ta%ation, p&
'() *ote (+, emphasis ours&-
with the e+ception onl$ of dul$ registered general copartnerships 5 within the purview of the term
6corporation.7 ,t is, therefore, clear to our mind that petitioners herein constitute a partnership,
insofar as said 'ode is concerned, and are su(ject to the income ta+ for corporations.