BIR Ruling

February 18, 1997 Oreta, Suarez and Narvasa 5/F Prudentialife Bldg. 843 Pasay Road Makati City, Phils. Attention: Reynald R . Suarez Vivian T . Dabu Gentlemen/Madam : This refers to your request for reconsideration dated June 2, 1996, on the assessments made by the Assessment Division, of Revenue Region No. 6, Manila, against your clients for taxable year 1992, to wit: LexLib Assessment No. Name of Taxpayer Kind of Tax Amount 23-1-000002-92 Gilbert Yu Income P591,094.12 23-1-000002-92 Willie Yu Income P398,062.77 23-1-000002-92 G. Yu, W. Yu & Associates EWT P 756.86 During the investigation, there were discrepancies found and some adjustments were made on the net income of G & W. The net income increased as there were additional disallowances on non-deductible expenses under the Simplified Net Income Taxation System (SNITS). Increase in partnership income in itself will surely increase the distributive share of the respective partner. Your clients were assessed based on these findings as their distributive share were also affected. It is your contention that Revenue Regulation 2-93, implementing R.A. 7496 (SNITS), does not apply to general professional partnerships considering that it is not one of those enumerated therein. Hence, the same should not be applied to your clients. After a careful study of the facts as well as the law and jurisprudence applicable thereto, this Office finds your contention to be untenable. Deficiency Income Tax Contrary to your allegation, general professional partnership is enumerated as one of the subjects covered by Revenue Regulation No. 2-93. Section 1 of the said regulation, specifically defines the scope of the same, thus: SEC. 1. Scope . . . These regulation shall govern income taxation . . . general professional partnerships as defined under Section 20 (b) of the NIRC, as amended, and their individual partners. Obviously, in computing the net income for income tax purposes, deductions on expenses incurred by general professional partnership, in the course of their operation, should be limited to the direct costs enumerated in Section 3 (b) of the same regulation. Granting, for the sake of argument, that G & W is not covered by RR 2-93, said assessment for deficiency income taxes can still stand. It was ascertained by the investigating officer that there were discrepancies in the working paper of G & W as against the information per return filed in the name of the partnership (Annex "A" of letter to taxpayer dated April 15, 1996). Withholding Tax The deficiency withholding tax assessment was based on the professional fee paid to Marilyn Kong in the amount of P2,700.00. This professional fee was intended as legal and audit fee of Marilyn Kong herself. It was shown, however, that said payment was subjected to withholding tax (p. 23). In the schedule of expenses, a separate item of legal and audit fee appears, bearing this amount. Yet this amount was included in the total sum of professional fees. Stated differently, this amount was treated as expense twice. There is no evidence on record to prove that these expenses claimed (professional fee and legal and audit fee, both in the amount of P2,700.00) were all subjected to withholding taxes as to warrant the cancellation of the assessment. Conclusion and Recommendation Premises considered, your request for reconsideration is hereby denied. Consequently, Assessment No. 23-1-000002-92 against the following taxpayers, to wit: Name of Taxpayer Kind of Tax Amount Gilbert Yu Income P591,094.12 Willie Yu Income P398,062.77 G. Yu, W. Yu & Associates EWT P 756.86 are hereby reiterated and your clients are requested to pay the same to the Revenue District Office No. 30, Binondo, Manila, within fifteen (15) days from receipt hereof, otherwise collection will be enforced by means of the summary remedies prescribed by laws. This constitutes the FINAL decision of this Office on the matter. cdpr Very truly yours, (SGD.) LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue February 18, 1997 MEMORANDUM FOR: Assistant Commissioner (Collection Service) There is forwarded herewith the entire docket bearing the internal revenue case of GILBERT C. YU and WILLIE YU & ASSOCIATE, involving the amounts of P591,094.12 and P398,062.77 respectively, representing deficiency income taxes and P756.87 representing deficiency expanded withholding tax, all for taxable year 1992. If they fail to pay the said tax assessment pursuant to our letter of even date, collection thereof should be effected through the summary remedies provided by law. cdt (SGD.) LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue