PART B: INCOME TAXATION

I. BASIC STRUCTURAL AND DEFINITIONAL CONCEPTS

A. Income

Meaning of Income
- Sec. 32(A), NIRC
- Sec. 36, Revenue Regulations No. 2
- Conwi v. CTA, 213 SCRA 83
- CIR v. Manila Jockey Club, Inc., G.R. Nos. L-13887 & L-13890, June 30, 1960
- Association of Non-Profit Clubs, Inc. v. Bureau of Internal Revenue, G.R. No.
228539 (2019)
- Madrigal v. Rafferty, 38 Phil. 414
- Fisher v. Trinidad, 43 Phil. 973
- CIR v. Tours Specialist, 183 SCRA 402
- Eisner v. Macomber, 252 U.S. 189 (1920)
- James v. U.S., 366 U.S. 213 (1961)
- CIR v. BOAC, 149 SCRA 395
- International Freighting v. CIR, 1354 F 2d 310
- Anderson v. Posadas, 66 Phil 205

Severance or Realization
- Sec. 38, Revenue Regulations No. 2
- Eisner v. Macomber, 252 U.S. 189 (1920)
- Bachrach v. Seifert, 87 Phil. 483
- CIR v. CA, CTA & Anscor, 301 SCRA 152 (1999)

Command or Control of Income

- Helvering v. Horst, 311 U.S. 112 (1940)

Imputed Income
- Section 41, Rev. Regs. No. 2

Recovery of Capital Investment

- Sec. 40(A), NIRC
- Section 36, Rev. Regs. No. 2

Windfall Receipts

- Commissioner v. Glenshaw Glass, 348 U.S. 426 (1955)

- Javier v. Ancheta, CTA Case No. 3393, July 27, 1983

Recovery of Deducted Items: Tax Benefit Principles

- Section 34(E)(1), NIRC

Indirect Receipts – Cancellation of Indebtedness and Discharge by Third Parties

- Section 50, Rev. Regs. No. 2
- Old Colony Trust Co. v. CIR, 279 U.S. 716 (1929)
- United States v. Kirby Lumber Co., 284 U.S. 1 (1931)
- Bowers v. Kerbaugh-Empire Co., 271 U.S. 170 (1926)
 2

Income from Unlawful Activities

- United States v. Sullivan, 275 U.S. 259 (1927)

- CIR v. Wilcox, 327 U.S. 404 (1946)
- James v. U.S., supra

Amounts Received Under Claim of Right

- North American Oil Consolidated v. Burnet, 286 U.S. 417 (1932)

- CIR v. Manila Electric Company, CTA EB No. 773, November 13, 2012
- Commissioner v. Wilcox, 327 U.S. 404 (1946)

B. Income Tax
C. When is Income Taxable?
- Secs. 43-44, NIRC
- Secs. 51-53, Revenue Regulations No. 2
- Limpan v. CIR, 17 SCRA 703
- Republic v. Dela Rama, 18 SCRA 861
- Eisner v. Macomber, 252 US 89
- Raytheon Production v. CIR, 144 F2d 110
- BIR Ruling 91-99, July 8, 1999
- CIR v. Tours Specialist, 183 SCRA 402
- RMC 39-07
- CIR v. Javier, 199 SCRA 824
- BIR Ruling Nos. 123-97, Nov. 10, 1997 and 029-98, Mar. 19, 1998
D. Capital Gain; Ordinary Gain; Presumed Gain
- Capital Gain
- Ordinary Gain
- Business Income
- Income from Trade/Practice of Profession
- Passive Income
- Other Forms
- Presumed Gain
- Sec. 24(D), NIRC
E. Income Tax Systems
- Global Tax System
- Schedular Tax System
- Sison v. Ancheta, GR L-59431, July 25, 1984
- Semi-schedular or Semi-global Tax System
F. Criteria in Imposing Philippine Income Tax
- Nationality/Citizenship
- Residence
- Source
- Sec. 23, NIRC
G. Tax Treaties

II. GROSS INCOME: INCLUSIONS AND EXCLUSIONS

A. Income from Whatever Source

- Secs. 31-32, NIRC
 3

- Sec. 61, Revenue Regulations No. 2

- Gutierrez v. Collector, G.R. Nos. L-9738 & L-9771, May 31, 1957 101 Phil 713
Situs of Income
- Sec. 42, NIRC
- Secs. 152-165, Revenue Regulations No. 2
From Sources Within the Philippines
- Sec. 42 (A,B), NIRC
- Revenue Audit Memorandum Order Nos. 1-86, 4-86 and 1-95
- Revenue Regulation No. 2-2013, January 2, 2013
- Revenue Regulations No. 16-86
- CIR v. Japan Airlines, G.R. No. 60714, October 4, 1991, 202 SCRA 450
- CIR v. BOAC, G.R. No. L-65773-74, April 30, 1987, 149 SCRA 395
- NDC v. CIR, G.R. No. L-53961, June 30, 1987, 151 SCRA 472
- Air Canada v. CIR, CTA EB No. 86. Aug. 26, 2005
- CIR v. CTA, G.R. No. 81446, August 18, 1988, 127 SCRA 9
- CIR v. Marubeni, G.R. No. 137377, December 18, 2001
- Alexander Howden v. Collector, G.R. No. L-19392, Apr. 14, 1965
- CIR v. Baier-Nickel, G.R. No. 165793, August 29, 2006
- Aces Philippines Cellular Satellite Corporation v. CIR, CTA EB Case No.
1242, June 8, 2016
- Manila Electric v. Yatco, G.R. No. 45697, November 1, 1939 69 Phil 89
- Phil. Guaranty v. CIR, G.R. No. L-22074, Apr. 30, 1965
From Sources Without the Philippines
- Sec. 42(C), NIRC
Partly Within/Without the Philippines
- Sec. 42(E), NIRC

B. Compensation Income
- Sec. 32(A), NIRC
- Rep. Act No. 10963 (TRAIN Law), Dec. 19, 2017
- Revenue Regulations No. 11-2018, Jan. 31, 2018, as amended by RR 14-18
- Revenue Memorandum Circular No. 050-18, May 11, 2018
- Sec. 2.78.1(A), Revenue Regulations No. 2-98
- Sec. 2.78.1(A), Revenue Regulations No. 2-98
- Sec. 2.83.5, Revenue Regulations No. 10-2008
- Sec. 2.83.6, Revenue Regulations No. 2-98
- Revenue Regulations No. 3-98
- Revenue Memorandum Circular No. 34-2008
- Henderson v. Collector, 1 SCRA 649; Convenience of the Employer Rule
- CIR v. Castaneda, G.R. No. 96016, October 17, 1991, 203 SCRA 72
- Polo v. CIR, G.R. No. L-78780, July 23, 1987
- Endencia v. David, G.R. No. L-6355-56, July 23, 1987, 93 Phil 696
Fringe Benefits
- Revenue Regulations Nos. 3-98, 8-2000, 10-2000, 05-2008, 05-2011
- Revenue Regulations No. 10-2002
- Revenue Memorandum Circular No. 88-2012, December 27, 2012
Exclusions:
Compensation for Injuries or Sickness
- Sec. 32(b)(4), NIRC
13th Month Pay and Other benefits
- Sec. 32 (7)(b,e), NIRC
- CIR v. Castaneda, G.R. No. 96016, October 17, 1991, 203 SCRA 72
Income Exempt Under Treaty
 4

- Sec. 28(b)(4), NIRC

- Reagan v. CIR, G.R. No. L-26379, December 27, 1969, 30 SCRA 968
C. Pensions/Retirement Benefits/Separation Pay
- Sec. 32(A)(10), NIRC
Exclusions:
- Sec. 32(6)(a-f), NIRC
- Sec. 2.78.1(B)(1-12), Revenue Regulations No. 2-98
- RA 4917; RA 7641
- CIR v. CA, G.R. No. 96016, October 17, 1991, 203 SCRA 72
- CIR v. GCI Retirement, G.R. No. 95022, March 23, 1992, 207 SCRA 487
- In re Zialcita, AM No. 90-6-015-SC, Oct. 18, 1990
D. Passive Income
1. Interest Income
- Sec. 32(A)(4), NIRC
- Revenue Regulations No. 10-98
- Revenue Memorandum Order 63-99 (see BIR Ruling DA 701-07, Dec.
28, 2007)
- RR 14-201; RMC 77-2012; RMC 81-2012
- CIR v. Filinvest Development Corporation, G.R. No. 163653, July 19,
2011
Exclusions:
- Sec. 32(B)(7)(a), NIRC
- CIR v. Mitsubishi Metal, G.R. No. L-54908, January 22, 1990, 181
SCRA 214
- NDC v. CIR, G.R. No. L-53961, June 30, 1987
2. Rentals/Leases
- Sec. 32(A5), NIRC
- Secs. 74, 49 and 58, Revenue Regulations No. 2
- Revenue Regulations 19-86
- Limpan v. CIR, G.R. No. L-21570, July 26, 1966, 17 SCRA 70
3. Royalties
- Sec. 32(A)(6), NIRC
- CIR v. SC Johnson, G.R. No. 127105, June 25, 1999
- Philippine American Life v. CIR, GR SP No. 31283, Apr. 25, 1995
4. Dividends
- Sec. 32(A)(70, NIRC
- Secs. 58 and 71, 250-253, Revenue Regulations No. 2
- Revenue Memorandum No. 31-90
- Sec. 73(C,D), NIRC
- Republic v. Dela Rama, G.R. No. L-21108, November 29, 1966, 18 S
SCRA 861
- CIR v. Manning, G.R. No. L-28398, August 6, 1975, 66 SCRA 14
- Fisher v. Trinidad, G.R. No. 21186, February 27, 1924, 43 Phil 973
- CM Hoskins v. CIR, G.R. NO. L-24059, November 28, 1969, 30 SCRA
434
- Kuenzle v. CIR, G.R. No. L-18840, May 29, 1969, 28 SCRA 365
- Wise & Co. v. Meer, G.R. No. L-48231, June 30, 1947
- CIR v. CA, G.R. No. 108576, Jan. 20, 1999
- Yuchengco v. CIR, CTA Case No. 3429, Jan. 6, 1988
- Philippine Telephone v. Collector, G.R. No. 35667, October 30, 1933,
58 Phil 639
- BIR Ruling No. 322-87, Oct. 19, 1987 (see RR 6-2008, Sec. 8 & 9)
Exclusions:
 5

- Income Exempt Under Tax Treaty

- Passive Income of Foreign Government
- BIR Ruling 103-2012, February 21, 2012
5. Annuities and Insurance Proceeds
- Sec. 32(A)(8), NIRC
- Sec. 48, Revenue Regulations No. 2
Exclusions:
Proceeds from Life Insurance
- Sec. 32(B)(1), NIRC
- Sec. 62, Revenue Regulations No. 2
- El Oriente Fabrica v. Posadas, G.R. No. 34774, September 21, 1931 56
Phil 147
Return of Premium Paid
- Sec. 32(B)(2), NIRC
- Sec. 48, Revenue Regulations No. 2
Compensation for Injuries or Sickness
- Sec. 32(B)(4), NIRC
- Sec. 63, Revenue Regulations No. 2
6. Prizes and Winnings/Awards/Rewards
- Sec. 32(A)(9), NIRC
- Sec. 282, NIRC
- Revenue Memorandum Order No. 12-93
- Revenue Regulations No. 016-10; Revenue Memorandum Order No.
046-11
- BIR Ruling DA-013-04
- CIR v. COA, G.R. No. 101976, Jan. 29, 1993
Exclusions:
- Sec. 24(B)(1), NIRC
Sports Competition Prizes
- Sec. 32(B)(7)(d), NIRC
7. Other Types of Passive Income
- Found Treasure
- Tax Refund; Revenue Memorandum Circular 13-80; Revenue
Regulations No. 014-11
- Recovery of Bad Debt Previously Deducted; Sec. 50, Revenue
Regulations No. 2
- Damages
- Ramnani v. CTA, CA-GR SP No. 42873, January 8, 1998
E. Gains Derived from Dealings in Property
- Secs. 32(A)(3), 39-40, NIRC
- RR 6-2008, April 22, 2008, as amended by RR 16-2012 and RR 6-2013
- Revenue Regulations No. 7-2003
- Revenue Memorandum Circular No. 035-17
Exclusions:
Shares of Stocks Traded in PSE
- Sec. 127, NIRC
F. Business Income/ Income from Exercise of Profession
- Secs. 32(A)(2), 27(E), NIRC
- Secs. 36-38, 43-47, Revenue Regulations No. 2
Exclusions:
- Income Exempt Under a Treaty
- Income Derived by Governmental/Political Subdivision from Exercise of
Essential Government Function
 6

G. Partner’s Distributive Share of the Gross Income of General Professional

Partnerships
- Sec. 32(A)(11), NIRC
H. Exclusions under Special Laws
- RA 9040