LYCEUM OF THE PHILIPPINES UNIVERSITY

COLLEGE OF LAW
TAXATION 1 (SY 2015-2016)
References:
National Internal Revenue Code of 1997, as amended by pertinent laws
Any book with annotations on General Principles of Taxation and Income
Taxes
Assigned Supreme Court Cases
Relevant Bureau of Internal Revenue issuances
PART I
TAXATION IN GENERAL
CHAPTER I GENERAL PRINCIPLES OF TAXATION
I. TAXATION
1. Definition of Taxation
a. 71 Am Jur 2nd 342
2. Nature of Internal Revenue Laws
a. Hilado v. CIR, 100 Phil 288
3. Scope of Taxation
a. 28, Art. VI, 1987 Constitution
b. 71 Am Jur 2nd 394 395
c. 71 Am Jur 2nd 397-398
d. Chamber of Real Estate and Builders Association
(CREBA) v. Romulo, Amatong and Parayno, G.R. No.
160756, March 9, 2010
e. Sison v. Ancheta, 130 SCRA 654 (citing C.J. John Marshall
[McCulloch v. Maryland] and J. Holmes [Panhandle Oil Co.
v. Mississippi])
f. Sarasola v. Trinidad, 40 Phil. 259, G.R. No. 14595,
October 11, 1919
4. Underlying theory and basis
a. 71 Am Jur 2nd 346-347
b. CIR v. Algue, Inc. L-28896 Feb 17, 1988
5. Principles of a sound tax system
a. Abakada Guro Party List Officers v. Ermita, et. al., G.R.
No. 168056, September 1, 2005
6. Comparison with Police Power and Eminent Domain
a. Similarities and distinctions 71 Am Jur 2nd 395-397
b. Gerochi, et al. v. DOE, et al., G.R. No. 159796, July 17,
2007
c. Matalin Coconut Co., Inc. v. Mun. Council of Malabang,
143 SCRA 404
d. Lutz v. Araneta, 98 Phil 48
e. NTC v. CA, 311 SCRA 508 (1999)

II. TAXES
1. Definition
a. 71 Am Jur 2nd 343-346
b. Republic v. Philippine Rabbit Bus Lines, Inc., G.R. No. L26862, March 30, 1970
2. Essential Characteristics of Taxes
3. Taxes distinguished from:
a. Debts
i. 71 Am Jur 2nd 345-346
ii. Caltex v. COA, 208 SCRA 726
iii. Francia v. IAC, 162 SCRA 753
iv. Philex Mining Corp. v. CIR, CA, and CTA, G.R. No.
125704, August 28, 1998
b. License Fees
i. 71 Am Jur 2nd 352-353
ii. Progressive Dev. Corp. v. QC, 172 SCRA 629
c. Special Assessments (now special levies under the 1991 Local
Government Code)
i. Apostolic Prefect v. Treasurer of Baguio, 71 Phil.
547
d. Tolls
i. 71 Am Jur 2nd 351
ii. Diaz and Timbol v. The Secretary of Finance et al.,
G.R. No. 193007, July 19, 2011
e. Penalties
i. NDC v. CIR, 151 SCRA 472
f. Custom duties
III. CLASSIFICATION OF TAXES
1. As to subject matter
a. 71 Am Jur 2nd 357 361
b. Capitation or poll taxes
c. Property taxes
d. Excise or license taxes
2. As to incidence or burden
a. 71 Am Jur 2nd 354
b. Direct Taxes
c. Indirect Taxes
d. Maceda v. Macaraig 223 SCRA 217, G.R. No. 88291, June
8, 1993
3. As to determination of amount
a. 71 Am Jur 2nd 355
b. Specific taxes Sec. 129, NIRC
c. Ad valorem taxes Sec. 129, NIRC
4. As to purpose
a. 71 Am Jur 2nd 355 356
b. General or Fiscal
c. Special, Regulatory or Sumptuary
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5. As to scope
a. National taxes
b. Local taxes
6. As to graduation or rate
a. Progressive
b. Regressive
c. Mixed
d. Proportionate
IV. DOCTRINES IN TAXATION
1.
2.
3.

4.

Prospectivity of Tax Laws

a. Hydro Resources v. CA, G.R. No. 80276, December 21,
1990, 192 SCRA 604
Imprescriptibility of Taxes
a. CIR v. Ayala Securities Corporation, G.R. No. L-29485,
November 21, 1980, 101 SCRA 231
Double Taxation
a. Definition and Nature. 71 Am Jur 2nd 362-365
b. Villanueva v. City of Iloilo, G.R. No. L-26521, December
28, 1968, 26 SCRA 578
c. Sanchez v. CIR 97 Phil. 687, G.R. No. L-7521, October 18,
1955.
d. Punsalan v. Mun Board of Manila 95 Phil. 46
e. The City of Manila, et al. v. Coca-Cola Bottlers Philippines
Inc., G.R. No. 181845, August 4, 2009
Methods of avoiding the occurrence of double taxation
a. Tax Treaty CIR v. SC Johnson & Sons, Inc. 309 SCRA 87,
G.R. No. 127105, June 25, 1999
b. Tax Credit CIR v. Lednicky, G.R. Nos. L-18169, L-18286, &
L-21434, July 31, 1964
CHAPTER II LIMITATION UPON THE POWER OF TAXATION

I. INHERENT LIMITATIONS
1. Public Purpose
a. Pascual v. Sec. of Public Works, 110 Phil 331
b. Tio v. Videogram Regulatory Board et al., G.R. No. 75697,
June 19, 1987, 151 SCRA 208
2. Taxing power is inherently legislative
a. In general Delegata potestas non potest delegari
b. Exceptions:
i. Local Government Units
1. Quezon City, et al. v. Bayantel, G.R. No.
162015, March 6, 2006
ii. Delegation to President 28(2), Art. VI, 1987
Constitution
iii. Administrative Rate Fixing
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1. Phil Comm. Satellite Corp. v. Alcuaz, 180

SCRA 218

2. Smith Bell & Co. v CIR, G.R. No. L-28271, July

25, 1975
3. Territoriality or Situs of Taxation
a. Meaning and scope of limitation
b. Situs of Taxation
c. Meaning
d. Determination of Situs
e. Situs of subjects of taxation
f. Persons
157-158, 1991 LGC
i. Community Tax individuals and corporate
ii. Lex Situs or Lex Rei Sitae - Real Property 42(A)(5) and (C)
(5), NIRC
iii. Mobilia Sequuntur Personam - Personal Property 42(A)(6)
and (E), NIRC
iv. Income
1. Interests - 42(A)(1) and (C)(1), NIRC
2. Dividends - 42(A)(2) and (C)(2), NIRC
a. Manila Gas v. Collector, 62 Phil 895
(G.R. No. 42780, January 17, 1936)
3. Services - 42(A)(3) and (C)(3), NIRC
a. CIR v. Baier-Nickel, G.R. No. 153793,
August 29, 2006
b. CIR v. Marubeni Corporation, G.R. No.
137377, December 18, 2001
4. Rentals and Royalties - 42(A)(4) and (C)(4), NIRC
v. Business, Occupation, Transaction
1. Manila Electric Company v. Yatco, G.R. No.
45697, November 1, 1939, 69 Phil 89
vi. Transfer of property by death or gift
1. Wells Fargo Bank v. Col, 70 Phil. 325
vii. Multiple situs of taxation
4. International Comity (in par parem, non habet imperium An equal has
no power over an equal)
II. CONSTITUTIONAL LIMITATIONS
1. Due process Clause
a. 1, Art. III, 1987 Constitution
b. Com. of Customs v. CTA & Campos Rueda Co., 152 SCRA
641, G.R. No. 70648, July 31, 1987
2. Equal Protection Clause
a. 1, Art. III, 1987 Constitution
b. Ormoc Sugar Co. v. Treasurer of Ormoc City 22 SCRA 603,
G.R. No. L-23794. February 17, 1968
3. Rule of Taxation shall be Uniform and Equitable
a. 28(1), Art. VI, 1987 Constitution
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b. British American Tobacco v. Camacho and Parayno, G.R.

No. 163583, August 20, 2008 and April 15, 2009
4. Non-Impairment of Contracts
a. 10, Art. III & 11, Art. XII, 1987 Constitution
b. Imus Electric Co. v. CTA and CIR, G.R. No. L-22421, March
18, 1967
c. Phil. Rural Electric Cooperatives Association Inc., et al. v.
DILG and DOF, G.R. No. 143076, June 10, 2003
5. Non-imprisonment for non payment of poll tax
a. 20, Art. III, 1987 Constitution
6. Prohibition against taxation of real property of charitable institutions,
churches, parsonages or convents, mosques and non-profit cemeteries
a. 28(3), Art. VI, 1987 Constitution
b. Abra Valley Collecge, Inc. v. Aquino, G.R. No. L-39086,
June 15, 1988, 162 SCRA 106
c. Lung Center v. QC et. al. G.R. No. 144104, June 29, 2004
d. Commissioner v. St. Lukes Medical Center, G.R. No.
195909, September 26, 2012
e.
7. Prohibition against taxation of non-stock non-profit educational
institutions
a. 4(3), Art. XIV, 1987 Constitution
b. 30(H), NIRC
c. CIR v. CA & YMCA, 298 SCRA 83
d. CIR v. CA, CTA and Ateneo De Manila University, G.R. No.
115349, April 18, 1997
8. Passage of tax bills
a. 24, Art. VI, 1987 Constitution
b. Tolentino v. Secretary of Finance 249 SCRA 628
9. Granting of tax exemption
a. 28(4), Art. VI, 1987 Constitution
b. John Hay Peoples Alternative Coalition, et. al. v. Lim, et
al., G.R. No. 119775, October 24, 2003
10.Veto power of the President
a. 27(2), Art. VI, 1987 Constitution
11.Judicial Power to review legality of tax
a. 5(2)(b) AVIII, 1987 Constitution
CHAPTER III EXEMPTIONS FROM TAXATION
I. IN GENERAL
1. Definition
2. Kinds of Exemption
a. Express
b. Implied or by Omission
c. Contractual
3. Nature of power to grant tax exemption
4. Constitutional Exemption
5. Legislative grant of exemption
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a. CIR v Botelho Shipping Corp. 20 SCRA 487, G.R. No. L21633-34, June 29, 1967
b. CIR v CTA, GCL Retirement Plan, 207 SCRA 487, G.R. No.
95022. March 23, 1992
6. Exemption created by Treaty
7. Exemption of government agencies
a. 27(C), NIRC
b. 30(I), NIRC
c. 32(B)(7)(b), NIRC
d. Philippine Ports Authority v. City of Iloilo, G.R. No.
109791, July 14, 2003
e. Philippine Fisheries Development Authority v. CA, G.R.
No. 169836, July 31, 2007
II. TAX AMNESTY
1. Definition and Sample Tax Amnesty Program: RA No. 9480
a. Philippine Banking Corporation vs. CIR, G.R. No. 170574,
January 30, 2009
2. Voluntary Assessment Program/Last Priority in Audit
a. CIR v. Ariete, G.R No. 164152, January 21, 2010
b. CIR v. Gonzalez et al., G.R. No. 177279, October 13, 2010
III. TAX AVOIDANCE vs. TAX EVASION
1. Definitions
a. CIR v. The Estate of Benigno P. Toda, G.R. No. 147188,
Sept 14, 2004
CHAPTER IV SOURCES AND CONSTRUCTION OF TAX LAWS
I. SOURCES OF TAX LAW
1. Statutes
a. Existing Tax Laws
i. National National Internal Revenue Code of 1997
ii. Local Book II, 1991 Local Government Code
iii. Tariff and Customs Code
iv. BCDA Law
v. PEZA Law
vi. Omnibus Investment Law
2. Revenue Regulations
a. Authority to promulgate. 244, NIRC
b. Specific provisions to be contained in RR. 245, NIRC
c. What is the force and effect of RR? Art. 7, Civil Code
d. Asturias Sugar Central v Comm., 29 SCRA 617
e. BPI Leasing Corp v. CA and CIR, G.R. No. 127624,
November 18, 2003
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3. BIR Issuances BIR Revenue Administrative Order (RAO) No. 22001

a. BIR Rulings
i. Rulings of first impression
ii. Rulings with established precedents
iii. Power of CIR to Interpret Tax Laws. 4, NIRC
iv. Non-Retroactivity of Rulings 246, NIRC
v. CIR v. Burroughs Ltd., G.R. L-66653. June 19, 1986
vi. CIR v. Philippine Health Care Providers, Inc., G.R.
No. 168129, April 24, 2007
vii. Exceptions
viii. PBCOM vs. CIR 302 SCRA 241
b. Revenue Memorandum Rulings (RMR)
c. Revenue Travel Assignment Orders (RTAO)
d. Revenue Special Orders (RSO)
e. Revenue Memorandum Circulars (RMC)
f. Revenue Memorandum Orders (RMO)
g. Revenue Audit Memorandum Orders (RAMO)
h. Revenue Delegation of Authority Orders (RDAO)
i. Revenue Administrative Orders (RAO)
4. Opinions of the Secretary of Justice
5. Legislative Materials
6. Court Decision
II. CONSTRUCTION OF TAX LAWS, EXEMPTIONS AND REFUNDS
1. General Rules of Construction of Tax Laws
a. Luzon Stevedoring v Trinidad, 43 Phil. 803
b. Philippine Health Care Providers, Inc. v. CIR, G.R. No.
167330, September 18, 2009
2. Construction of Tax Exemptions
a. City of Iloilo v. Smart, G.R. No. 167260, February 27,
2009
b. Rodriguez, Inc. v Collector 28 SCRA 119
c. Wonder Mechanical Engineering v. CTA 64 SCRA 555
d. Republic Flour Mills v CIR, 31 SCRA 148, G.R. No. L25602, February 18, 1970
3. Construction of Tax Refunds
a. Resins, Inc. v. Auditor Gen. 25, SCRA 754, G.R. No. L17888, October 29, 1968
b. Kepco Philippines Corp. v. CIR G.R. No. 179356,
December 14, 2009
PART II
INCOME TAX
NOTE:
RA 9504 amended Secs. 22, 24, 34, 35, 51 & 79 of the Tax Code
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Revenue Regulations No. 10-2008 Implements certain provisions of RA

No. 9504 entitled "An Act Amending Sections 22, 24, 34, 35, 51 and 79 of
RA No. 8424, as Amended, Otherwise Known as the National Internal
Revenue Code" relative to the withholding of Income Tax on compensation
and other concerns (published in Philippine Star on September 25, 2008)
Revenue Regulations No. 2-40 Consolidated Income Tax Regulations
CHAPTER I GENERAL PRINCIPLES
I. OVERVIEW OF INCOME TAXATION
1. What is Income Tax?
a. Fisher v. Trinidad, 43 Phil 973
2. Philippine Income Tax Law
3. Income Tax Systems
a. Global Tax System
b. Schedular Tax System
c. Semi-schedular or semi-global Tax System
d. Progressive System
e. Regressive System
4. Features of Philippine Income Taxation
a. Direct
b. Progressive
c. Comprehensive
d. Semi-schedular or semi-global
e. American origin
5. Criteria in Imposing Income Tax
a. Citizenship
b. Residence
c. Source
II. GENERAL PRINCIPLES OF INCOME TAXATION 23, TAX CODE
1.
2.
3.
4.
5.
6.

Resident Filipino Citizen

Nonresident Filipino Citizen
Overseas Filipino contract worker or seaman
Resident or non-resident alien individual
Domestic corporation
Foreign corporation
CHAPTER II CLASSIFICATION OF INCOME TAXPAYERS

I. SCOPE OF INCOME TAXATION

1. Definition of a Taxpayer 22(N), NIRC
2. Definition of a Person 22(A), NIRC
3. Who is a Person liable to tax
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4. CIR vs. Procter & Gamble, G.R. No. 66838, December 2, 1991,
204 SCRA 378
5.
Silkair (Singapore) PTE. LTD. v. CIR, G.R. No. 184398,
February 25, 2010
II. INDIVIDUAL TAXPAYERS
1. Citizens 1 2, Art IV 1987 Constitution
a. Resident Citizens
b. Non-Resident Citizens 22(E), NIRC
2. Alien
a. Resident Alien 22(F), NIRC
b. 5 last par, Revenue Regulations No. 2
c. Non-resident Alien 22(G)
i. engaged in trade or business 25(A), NIRC
ii. not engaged in trade or business 25(B), NIRC
3. General Professional Partnership S22(B)
a. Tan vs. Del Rosario and CIR, G.R. No. 109289, October 3,
1994
III. ESTATES AND TRUSTS

1.
2.
3.
4.

Definition of Estates & Trusts, Art. 1440-1457, Civil Code

Application of Tax, 60, NIRC
CIR v Visayas Electric, 23 SCRA 715
CIR v. CA, CTA, GCL Retirement Plan, 207 SCRA 487

IV. CORPORATIONS

1. Definition of a corporation 22(B), NIRC

2.
3.
4.
5.

a. Partnerships Art. 1767 1769, Civil Code

i. Lorenzo Oa v. CIR, G.R. No. L-19342, May 25,
1972, 45 SCRA 74
ii. Evangelista vs. Collector, G.R. No. L-9996, October
15, 1957, 102 Phil 140
iii. Afisco Insurance Corp vs. CIR, G.R. No. 112675, Jan
25, 1999, 302 SCRA 1
b. Co-ownership Art. 484 Civil Code
i. Pascual v. CIR, 166 SCRA 560
Domestic Corporation 22(C), NIRC
Foreign Corporation 22(D), NIRC
Resident Foreign Corporation 22(H), NIRC
Non-Resident Corporation 22(I), NIRC
CHAPTER III TAX BASE & TAX RATES

I. INDIVIDUALS

1. Resident Citizens & Resident Aliens

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a. Taxable Income
b. Passive Income
i. Interest, Royalties, Prizes & Other Winnings
ii. Dividends
c. Capital gains on shares of stocks
d. Capital gains on real property
i. Sale of Principal Residence 24(D)
1. Requisites for exemption 24(D)
2. Non-Resident Aliens
a. Engaged in trade or business
i. Taxable Income
ii. Passive Income
iii. Capital gains
b. Not engaged in trade or business
c. Special Aliens S25(C), (D) & (E)

3. Minimum Wage Earners (MWE)

a. Definition 22(HH)
b. Taxation 24, last paragraph
c. Coverage of exemption RR No. 10-08
4. Members of General Professional Partnership 26
II. Corporations
1. Domestic Corporations
a. In general
b. Special Corporations
i. Proprietary Educational Institutions and Hospitals
ii. Government Owned and Controlled Corporations
c. Passive Income
i. Interest, Royalties
ii. Dividends
d. Capital gains
i. Real Property classified as capital asset
ii. Shares of Stock
2. Resident Foreign Corporations
a. In general
i. N.V. Reederij Armsterdam v. Commissioner, G.R. No.
L-46029, June 23, 1988 162 SCRA 487
b. Special Foreign Corporations
i. International Carriers
ii. Offshore Banking Units
iii. Regional or Area Headquarters and Regional Operating
Headquarters
c. Passive income
i. Interest
ii. Dividends
d. Capital gains
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e. Subsidiary vs. Branch of a Foreign Corporation

f. Branch Profit Remittance Tax

3.

4.

5.

6.

i. Marubeni Corp v. Commissioner, G.R. No. 76573, 14

September 1989, 177 SCRA 500
ii. Bank of America NT & SA vs. CA & CIR, G.R. No.
103092, July 21, 1994, 234 SCRA 302
Nonresident Foreign Corporation
a. In general
b. Special Non-Resident Foreign Corporations
c. Passive Income
i. Interest
ii. Dividends
1. Commissioner v. Procter & Gamble PMC, G.R.
No. 66838, December 2, 1991, 204 SCRA 377
2. Commissioner v. Wander Phils., G.R. No.
68375, April 15, 1988, 160 SCRA 573
d. Capital gains
Minimum Corporate Income Tax (MCIT)
a. Tax Rate and Base 27(E)(1)
b. Carry Forward Excess Minimum Tax 27(E)(2)
c. Gross Income 27(E)(4)
i. Chamber of Real Estate and Builders Associations,
Inc. v. Romula, et al., G.R. No. 160756, March 9,
2010
ii. The Manila Banking Corporation v. CIR, G.R. No.
168118, August 28, 2006
Improperly Accumulated Earnings Tax (IAET)
a. Definition and Tax Rate 29(A) and (B)(1)
b. Corporations subject to IAET 29(B)(1)
c. Exceptions 29(B)(2)
d. Evidence of Purpose to Avoid Income Tax 29(C)
e. Improperly Accumulated Taxable Income 29(D)
i. CIR vs. Tuason, Jr. 173 SCRA 397
ii. Cyanamid vs. CA 322 SCRA 639
Exemption from Tax on Corporation
a. Educational: Jesus Sacred Heart College v. Collector of
Internal Revenue, G.R. No. L-6807, May 24, 1954
b. Cooperatives: Dumaguete Cathedral Credit Cooperative
(DCCCO) v. CIR, G.R. No. 182722, January 22, 2010
CHAPTER IV INCOME

I.

Taxable Income

1. Definition 31, NIRC

2. Sections 36 38, Revenue Regulations (RR) No. 2
3. Difference between Capital & Income
a. Madrigal v. Rafferty 38 Phil 14
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4. Requisites for Income to be Taxable

a. Existence of income;
b. Realization of income;
i. Tests of Realization
ii. Actual vs. constructive receipt
iii. Limpan Investment Corp. v. CIR , G.R. No. L-21570,
July 26, 1966
c. Recognition of income;
d. Methods of accounting;
i. Cash method vs. accrual method
ii. Installment payment vs. deferred payment vs. percentage
of completion
e. Income is not exempt.
5. Test in determining income / Doctrines on Determination of Taxable
income
a. Realization Test
i. Eisner v. Macomber, 252 US 89
ii. Raytheon Production Corp vs. CIR, 144 F2d 110
iii. Anderson v. Posadas, G.R. No. 44100, September
22, 1938, 66 Phil 205
6. Claim of right doctrine or Doctrine of ownership, command or control
a. Commissioner v. Tours Specialist, 183 SCRA 402
b. Commissioner vs. Javier, 199 SCRA 824
7. Economic benefit test
a. Fernandez Hermanos, Inc. v. CIR, G.R. No. L-21551,
September 30, 1969
8. Income from whatever source
a. 50 Regulations No. 2
b. Gutierrez vs. Collector, G.R. Nos. L-9738 & L-9771, May
31, 1957, 101 Phil 713
c. James v. US, 366 US 213
d. Commissioner v. Glenshaw Glass, 348 US 426
e. Farmers & Merchants Bank v. CIR, 59 F2nd 912
II.

Gross Income

1. Definition 32(A), NIRC

2. Gross Income vs. Net Income vs. Taxable Income
3. Classification of Income subject to Tax
a. Compensation Income
i. Definition Sec 2.78.1 (A) RR 2-98
ii. Backwages
iii. Exception: Minimum Wage Earners 24(A)
iv. Fringe Benefits 33(A) NIRC
1. Definition and Inclusions 33(B) NIRC
2. Rate 33(A) NIRC
3. Tax Base 33(A) NIRC
4. Exceptions 33(C) NIRC
a. Exempt under special laws
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b.
c.
d.

e.

b. Retirement insurance and hospitalization

benefit plans
c. Benefits to Rank & File Employees
d. De Minimis Benefits
i. Definition of De Minimis Benefits RR
No. 3-98 as amended by RR Nos.
5-2008, 10-2008, 5-2011, 8-2012
and 1-2015
v. Collector v. Henderson, 1 SCRA 649
vi. CIR v. Castaneda, G.R. No. 96016, Oct 17, 1991, 203
SCRA 72
Income from the exercise of profession
Income from business
i. See 43 47, Revenue Regulations No. 2
Income derived from dealings in property
i. Types of Properties
1. Ordinary assets 39(A)(1)
2. Capital Assets 39(A)(1)
ii. Types of Income from dealings in property
1. Ordinary Income and Loss 22(Z)
2. Capital Gains and Loss
a. Net Capital Gain 39(A)(2)
b. Net Capital Loss 39(A)(3)
3. Holding Period 39(B)
4. Limitation on Capital Losses 39(C)
5. Net Loss Carry Over 39(D)
iii. Computation of gain or loss
1. General 40(A)
2. Basis for Determining Gain or Loss 40(B)
3. Exchange of Property
a. General Rule 40(C)(1)
b. Exceptions: No gain or loss in certain
exchanges of properties 40(C)(2)
c. Commissioner of Internal Revenue v.
Filinvest Development Corporation, G.R.
No. 163653, July 19, 2011
Passive Income
i. Interest
ii. Royalties
iii. Dividends
1. Distribution of Dividends 73
a. Liquidating Dividend
b. Cash Dividend
c. Stock Dividend
d. Property Dividend
2. CIR v. CA, CTA, & ANSCOR, G.R. No. 108576,
January 30, 1999
3. Eisner v. Macomber, 252 US 89, supra
iv. Royalties
v. Rental Income
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1. Lease of personal property

2. Lease of real property
a. Leasehold improvements by lessee
b. Advance rent
f. Annuities, proceeds from life insurance or other type of
insurance
g. Prizes and winnings
h. Pensions, retirement benefits or separation pay
i. Partners distributive share in a general professional partnership
26
j. Income from whatever source
i. Forgiveness of Debt
ii. Recovery of accounts previously written off
iii. Receipt of refund or credit
4. Exclusions from Gross Income
a. In general 32(B)
b. Sec 2.78.1 (B) RR 2-98
c. CIR v. CA & Castaneda, G.R. No. 96016, Oct 17, 1991, 203
SCRA 72, supra
d. Republic Act No. 10653 as implemented by RR No. 3-2015
dated March 13, 2015
5. Source Rules
a. Interests 42(A)(1) and (C)(1)
b. Dividends 42(A)(2) and (C)(2)
c. Services 42(A)(3) and (C)(3)
d. Rentals 42(A)(4) and (C)(4)
e. Royalties 42(A)(4) and (C)(4)
f. Sale of Real Property 42(A)(5) and (C)(5)
g. Sale of Personal Property 42(E) in relation to 42(A)(6)
h. Sale of Shares of Stock of corporation
CHAPTER V DEDUCTIONS
I. Conditions for deductibility of business expenses
1. It must be ordinary and necessary 34(A)(1)(a)
a. Test of Deductibility
i. ESSO v. CIR, G.R. Nos. L-28508-9, July 7, 1989, 175
SCRA 149
ii. Zamora v. Collector 8 SCRA 163, G.R. No. L-15290,
May 31, 1963
iii. Kuenzle & Streiff, Inc. v. CIR, G.R. No. L-18840, May
29, 1969
b. Test of Reasonableness
i. CM Hoskins & Co., Inc. v. Commissioner, G.R. No. L24059, November 28, 1969, 30 SCRA 434
ii. CIR v. General Foods (Phils), Inc., G.R. No. 143672,
April 24, 2003
2. It must be paid or incurred during the taxable year 34(A)(1)(a)
a. CIR v. Isabela Cultural Corporation, G.R. No. 172231,
February 12, 2007
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3. It must be paid or incurred in carrying on, or which are directly

attributable to the development, management, operation and/or
conduct of the trade, business or exercise of profession 34(A)(1)(a),
NIRC
a. CIR vs. CTA & Smith Kline & French Overseas Co (Phil
Branch), 127 SCRA 9, G.R. No. L-54108, January 17, 1984
b. Guitierrez v. Collector, 14 SCRA 33
4. It must be supported by adequate invoices or receipts 34(A)(1)(b),
NIRC
a. Gancayco vs. Collector, 1 SCRA 980, G.R. No. L-13325,
April 20, 1961
5. It is not contrary to law, public policy or morals; 34(A)(1)(c)
a. 3M Philippines, Inc. v. CIR, G.R. No. 82833, September
26, 1988
6. The tax required to be withheld on the expense paid or payable was
remitted to the BIR 34(K)
II. Types of Deductions
1. Itemized Deductions 34(A) to (J)
2. Optional Standard Deduction 34(L)
3. Special Deductions under the NIRC and special laws 37 and 38
III. Itemized Deductions
1. Interest
a. Requisites for Deductibility 34(B)(1)
b. Disallowed Interest on Tax Arbitrage 34(B)(1)
c. Exceptions 34(B)(2)
d. Optional Treatment of Interest Expense 34(B)(3)
i. Palanca v. CIR, G.R. No. L-16626, October 29, 1966,
18 SCRA 496
ii. Paper Industries Corp. (PICOP) v. CA, CIR & CTA,
G.R. No. 106949-50, December 1, 1995, 250 SCRA
434
2. Taxes
a. Requisites for Deductibility 34(C)(1)
b. Exceptions 34(C)(1)
c. Limitation on Deductions in case of NRAETB 34(C)(2)
i. CIR v. Lednicky, G.R. No. L-18169, July 31, 1964
d. Foreign Tax Credits
i. Persons allowed 34(C)(3)
ii. Limitations on Credit 34(C)(4)
3. Losses
a. Requisites for Deductibility 34(D)(1)
i. Marcelo Steel Corp. v. Collector, G.R. No. L-12401,
October 31, 1960, 109 Phil 921
ii. Plaridel Surety & Ins Co v. CIR, G.R. No. L-21520.
December 11, 1967, 21 SCRA 1187
iii. CIR v. Priscilla Estate, G.R. No. L-18282, May 29,
1964
b. Ordinary Loss v. Capital Loss
i. Limitation on Capital Losses 34(D)(4)(a)
ii. Securities Becoming Worthless 34(D)(4)(b)
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iii. China Bank Corp vs. CA, CIR, CTA, G.R. No. 125508,
July 19, 2000, 336 SCRA 178
c. Wash Sales 34(D)(5) & 38
d. Wagering Losses 34(D)(6)
e. Abandonment Losses 34(D)(7)
f. Net Operating Loss Carry Over (NOLCO) 34(D)(3), RR No. 142001
i. What is NOLCO?
ii. How does NOLCO work?
iii. When not allowable?
iv. PICOP v. CA, CIR & CTA, G.R. No. 106949-50,
December 1, 1995, 250 SCRA 434, supra
4. Bad Debts
a. Requisites for Deductibility 34(E)(1)
i. Transactions between related parties 36(B) in relation
to 34(E)(1)
ii. Recovery of bad debt previously written off
1. Tax Benefit Rule 34(E)(1)
b. Collector v. Goodrich International Rubber Co., G.R. No.
L-22265, December 22, 1967, 21 SCRA 1336
c. Phil Refining Company v. CA, CTA and Commissioner, G.R.
No. 118794, May 8, 1996, 326 Phil 680
5. Depreciation
a. Requisites for Deductibility 34(F)(1)
b. Methods of Depreciation
i. Straight Line Method
ii. Declining Balance Method
iii. Sum of the Years Digit Method
c. Special Rules on Depreciation
i. Private Educational Institutions S34(A)(2)
ii. Petroleum Operations S34(F)(4)
iii. Mining Operations S34(F)(5)
iv. For Nonresident Aliens Engaged in Trade or Business or
Resident Foreign Corporation S34(F)(6)
d. Basilan Estate, Inc. v. Commissioner, 21 SCRA 17
e. Zamora v. Collector, 8 SCRA 163
f. US v. Ludley, 247 US 295
6. Depletion
a. In general 34(G)(1)
b. US v. Ludley, 247 US 295, supra
7. Charitable & other Contributions
8. Requisites for Deductibility 34(H)(1)
a. Limited Deductibility 34(H)(1)
b. Deductible in Full 34(H)(2)
c. Roxas v. CTA, 23 SCRA 276
9. Research & Development 34(I)
10.Contribution to Pension Trust
a. Requisites for Deductibility 34(J)
IV. Optional Standard Deduction (OSD) 34(L), RR No. 16-08
1. Requisites for OSD
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2. OSD for Individuals

3. OSD for Corporations
V. Premium Payments on Health/Hospitalization Insurance 34(M)
VI. Allowance for Personal & Additional Exemption
1. Personal Exemption 35(A)
a. Single
b. Married
c. Head of Family
d. Estates and Trusts 62
2. Additional Exemption for dependents 35(B)
3. Definition of Dependent 35(B)
4. In case of married individuals 35(B)
5. In case of legally separated spouses 35(B)
6. Change of Status 35(C)
7. Personal Exemption Allowable to Nonresident Alien Individual 35(D)
VII. Items not Deductible
1. General Rule 36(A)
a. Atlas Consolidated Mining Co. v. CIR, G.R. No. L-26911,
January 27, 1981, 102 SCRA 246
b. Gancayco v. Collector, 1 SCRA 980, G.R. No. L-13325,
April 20, 1961
2. Losses from sales or exchanges of property between related parties
36(B)
CHAPTER VI PARTNERSHIP
I. Taxation of General Partnership 22(B)
II. Taxation of General Professional Partnership 26
CHAPTER VII ESTATES & TRUSTS
I. Application of Tax 60(A)
II. Exception 60(B)
III. Computation and Payment 60(C)
1. In general 60(C)(1)
2. Consolidation of income of two or more trusts 60(C)(2)
3. Taxable Income 61
4. Exemption allowed to Estates and Trusts 62
5. Revocable trusts 63
6. Income for benefit of grantor 64(A)
7. Meaning of in the discretion of the grantor 64(B)
CHAPTER VIII ACCOUNTING PERIODS AND METHODS OF
ACCOUNTING
I.

Accounting Periods
1. Taxable year 22(P)
a. Calendar year
b. Fiscal year 22(Q)
2. General Rule on computation of taxable income 43
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3. Period in which items of Gross Income Included 44

4. Period in which Deductions and Credits taken 45
5. Change of Accounting Period 46
II. Accounting Methods
1. Cash receipts and disbursements method
a. CIR v. Isabela Cultural Corp, G.R. No. 172231, February
12, 2007
2. Accrual Method
a. Filipinas Synthetic Fiber Corp vs. CA, 316 SCRA 480
3. Long-term Contracts 48
4. Sec 44, Regulations No. 2
5. Installment Basis 49
6. Sec 51, Regulations No. 2
CHAPTER IX WITHHOLDING TAXES
I.

Concept of Withholding Tax

1. CIR v. Solidbank Corporation, G.R. No. 148191, November 25,
2003
II. Types of Withholding Tax
1. Withholding on Wages
a. Requirement for withholding 79(A)
b. Tax paid by recipient 79(B)
c. Refunds or credits 79(C)
d. Year-end adjustment 79(H)
e. Liability for tax 80
2. Withholding Tax at Source
a. Final Withholding Taxes 57(A)
i. RCBC v. CIR, G.R. No. 170257, September 7, 2011
b. Creditable Withholding Taxes or Expanded Withholding Tax
57(B)
i. Chamber of Real Estate and Builders Associations,
Inc. v. Romulo, et al., G.R. No. 160756, March 9,
2010
3. Withholding VAT 114(C)
4. Fringe Benefits Tax (FBT) 33
CHAPTER X RETURNS AND PAYMENT OF TAX
I. Individuals
1. Income Tax Return
a. Who are required to file an Income Tax Return (ITR) 51(A)(1)
i. Married Individuals 51(D)
ii. Income of minor children 51(E)
iii. Individuals deriving purely compensation income
iv. Professionals and Self-employed individuals
1. In General 74(A)
2. Quarterly ITR 74(B)
b. Who are not required to file an ITR 51(A)(2)
c. Venue of Filing of ITR 51(B)
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d. Time of Filing of ITR 51(C)

e. Payment of income tax 56(A)
f. Installment payment 56(B)
2. Capital Gains Returns
a. For sale or exchange of shares of stock not traded in a local stock
exchange 51(C)(2)(a)
b. For sale of real property 51(C)(2)(b)
II. Corporations
1. Income Tax Return 52(A)
a. Quarterly Corporate Income Tax Return 75
b. Final Adjustment Return 76
i. Place of Filing 77(A)
ii. Time of Filing 77(B)
iii. Time of Payment 77(C)
1. United International Pictures, AB v. Commissioner
of Internal Revenue, G.R. No. 168331, October 11,
2012
2. Capital Gains Tax Return
3. Capital Gains Returns
a. For sale or exchange of shares of stock not traded in a local stock
exchange 52(D)
b. For sale of real property
III. Estates and Trusts 65
IV. General Professional Partnerships 55
V. Withholding Tax Returns
1. Quarterly Returns and Payments of Tax Withheld 58(A)
2. Certificate of Tax Withheld 58(B)
3. Annual Information Return (Alpha List) 58(B)
4. Income of Recipient 58(D)

GRADING SYSTEM:
Attendance
Recitation
Midterms
Finals
TOTAL

10%
30%
25%
35%
100
%

Prepared By:

Noted by:

TAXATION I (SAT 3-6 PM)

Atty. Charito R. Villena

Faculty

COURSE OUTLINE SY 2015-2016

Ma. Soledad
Deriquito-Mawis
ATTY. C.R. VILLENA
Dean
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