BIR Ruling

August 20, 1976 MEMORANDUM FOR: Mr. Lauro D. Abrahan Assistant Commissioner In connection with your Memorandum dated August 12, 1976, stated hereunder are your queries as well as the answers thereto: 1. QUERY: "Since partnerships, in general, are now tax as corporations, will the other provisions in the Tax Code be impliedly considered as amended, such as: "a) Dividends received by an unregistered or limited partnerships from a domestic corporation be subject to 10% intercorporate dividend tax? "b) Capital gains realized by partnerships to be taxable in full, while capital losses incurred be deductible in full, irrespective of the holding period?" ANSWER : We do not simply say that the provisions of the Tax Code referred to were impliedly amended because repeals or amendments by implication are not favored. (Quinsing vs. Lachica, 2 SCRA 182) In fact, by virtue of the amendment introduced by P.D. 778, partnerships in general, except professional partnerships are now treated as corporations for income tax purposes. This tax treatment is now given full support by Section 84(b) of the Tax Code as amended by P.D. 929 which states that the term "corporation" includes partnerships no matter how created or organized. Accordingly, dividends received by an unregistered partnerships or a limited partnership from a domestic corporations are now subject to the 10% intercorporate dividend tax. Similarly, the capital gains realized by partnerships are taxable in full, and capital losses sustained during the taxable year are deductible in full, irrespective of the holding period, pursuant to 2. QUERY: "Are all assets of a corporation treated as ordinary assets for income tax purposes? If a corporation is also allowed to treat some of its assets to be capital assets, will the loss from the sale of such capital assets be deductible from its other or operating income?" ANSWER: A Corporation may have ordinary assets as well as capital assets, whether it is one or the other depends mainly on the character or nature of the property sold. If the property sold is a "capital asset" meaning an asset which is neither a part of the stock in trade of the seller, nor a part of his inventory at the end of the year, nor property held primarily for sale to customers in the ordinary course of trade or business, nor depreciable property or property used in a trade or business the gain or loss in a capital gain or loss; otherwise, the gain or loss is ordinary income or loss. (see Sec. 34(a) (1), NIRC) Pursuant to Section 34(c), losses from sales or exchanges of capital asset shall be allowed only to the extent of the gains from such sales or exchanges. If a corporation, therefore, is allowed to treat some of its assets to be capital assets, the loss from the sale of such capital assets can not be deductible from its other or operating income, but solely from and only to the extent of any capital gains that the corporation might have realized from the sale or exchange of its other capital assets. acd Respectfully submitted: PRISCILLA R. GONZALES Revenue Service Chief (Legal) TAN-1258-814-1