Salient Points of REVENUE REGULATIONS NO.

02-2010 dated February 18, 2010

I.

TAXATION OF GENERAL PROFESSIONAL PARTNERSHIP (GPP)

GPP is not a taxable entity for income tax purposes since it is only acting as a "pass-through" entity
where its income is ultimately taxed to the partners comprising it. Sec. 26 of the Code provides that to
compute the distributive share of the partners, the net income of the GPP shall be computed in the same
manner as a corporation."
It is also allowed to choose a method of deduction in determining distributive share of the partners:
1. Itemized deductions under Sec.34(A) to (J) or
2. OSD of 40% of its gross income.
Based on the distributive share of the partners, the partners will then have its share based on the profitloss sharing ratio on its Articles of Partnership.
II.

TAXABLE INCOME OF PARTNERS

Since one-layer of income tax is imposed on the income of the GPP and the individual partners where
the law had placed the statutory incidence of the tax in the hands of the latter, the type of deduction
chosen by the GPP must be the same type of deduction that can be availed of by the partners.
Partners are allowed further deductions from their share in the net distributive profits depending on what
method had been adopted by the GPP in determining the distributive share as follows:

GPP availed of Itemized Deduction

Partners can claim only the itemized deductions from their gross income (net distributive
share) for such expenses, ordinary and necessary for the practice of profession, which
were not claimed by the GPP.
Partners are not allowed to claim OSD since the OSD is a proxy deductions, meaning in
lieu of the items of deductions claimed by the GPP and the items of deduction claimed by
the partners.

GPP availed of OSD

Partners are no longer allowed additional deductions from their gross income (net
distributive share) for the following reasons:
1. The partners' distributive share in the GPP is treated as his gross income not his
gross sales/receipts and the 40% OSD allowed to individuals is specifically mandated
to be deducted not from his gross income but from his gross sales/receipts; and,
2. The OSD being in lieu of the itemized deductions allowed in computing taxable
income as defined under Section 31 of the Tax Code, it will answer for both the items
of deduction allowed to the GPP and its partners.

Note : This is where we need to submit position paper on how we want partnership would determine
distributive share and how partners would determine taxable income from its share in the partnerships
distributive share.
A. On Income Other Than GPP
If the partner has sources of revenue other than his share in the GPP, his taxable income is his
revenue less deductions based on item A. However, if the method of deduction in A is OSD, he is
entitled to claim 40% OSD from revenue other than his share in GPP.
III.

OTHER IMPLICATIONS OF THE OPTIONAL STANDARD DEDUCTION (Sec.7)

1. Taxpayers, individual and corporate, shall signify by checking appropriate box in the income
tax return filed for the first quarter of the taxable year adopted by the taxpayer.
2. When the taxpayer failed to signify the method of deduction, it is deemed that he/it has
availed of the itemized deduction for the taxable year.
3. Election of method of deductions hall be irrevocable for the taxable year and must be
consistently applied for all the succeeding quarterly returns and in the final income tax return
for the taxable year.
4. An individual taxpayer who is entitled to and claimed the OSD shall not be required to
submit with his tax return such financial statements otherwise required under the Code
except when the Commissioner otherwise permits, the said individual shall keep such records
pertaining to his gross sales or gross receipts.
5. A corporation, however, is still required to submit its financial statements when it files its
annual income tax return and to keep such records pertaining to its gross

Effectivity Sometime March 2010