BIR Ruling

March 1, 1976 Mr. Jose Tan Yaotin 8-A San Jose Ext. Cebu City 6401 S i r : This refers to your letter dated December 16, 1975 requesting clarification as to whether the net income of certain real properties, which you, together with your brothers and sisters, held in co-ownership, is subject to the payment of the corporate income tax. In reply thereto, I have the honor to inform you that pursuant to Section 24(a) of the Tax Code, as amended by Presidential Decree No. 778 and its implementing regulations (Revenue Regulations No. 8-75) registered general partnerships are now subject to the payment of corporate income tax. However, co-ownership still remains exempt from payment of tax. In the case of Longa vs. Commissioner (CTA Case No. 653, July 31, 1963), the Tax Court held that if the heirs therein did not contribute from their own pockets in order to increase or enlarge the family properties, and that the actions of the heirs were merely limited to the conservation and preservation of the inherited properties, the organizational set-up resulting from the operation of the properties involved is one of co-ownership not subject to the corporate tax imposed by law. (See also De Leon vs. Commissioner, CTA Case No. 738, September 11, 1961) However, if it will be shown that the co-owners exert efforts or maintain activities not merely to preserve the property but to realize profits therefrom, the co-ownership may be legally considered an unregistered partnership, and therefore, a taxable corporation (see Evangelista vs. Collector of Internal Revenue, L-9996, October 15, 1957; 102 Phil. 140). Very truly yours, CONRADO P. DIAZ Acting Commissioner of Internal Revenue TAN-1182-568-4