BIR Ruling [DA-091-99]

February 15, 1999 BIR RULING [DA-091-99] Pineda Pineda Mastura Valencia and Associates Law Offices 4th Floor, COCOFED Building 144 Amorsolo St., Legaspi Vill., Makati Attention : Atty . Reynaldo A . Pineda Partner Gentlemen : This refers to your letter dated November 23, 1998 requesting in effect, for a ruling on whether or not the tax-exempt status of general professional partnerships is continued to be enforced under R.A. 8424, otherwise known as "The Tax Reform Act of 1997." llcd In reply, please be informed that Section 26 of the Tax Code of 1997 provides in effect, that general professional partnerships are not subject to income tax imposed under Chapter III, Title II of the Tax Code. However, we wish to point out that persons engaging in business as partners in a general professional partnership shall be liable for income tax in their separate and individual capacities. Each partner shall report as gross income his distributive share, actually or constructively received, in the net income of the partnership. For purposes of computing the distributive share of the partners, the net income of the partnership shall be computed in the same manner as a corporation. Accordingly, the tax-exempt status of general professional partnerships from the imposition of withholding tax under Revenue Registrations No. 2-98 is hereby confirmed pursuant to Section 26 of the Tax Code of 1997. (BIR Ruling No. 294-92 dated October 22, 1992). It is noteworthy to mention, however, that income payments made periodically or at the end of the taxable year by a general professional partnership to the partners, such as drawings, advances, sharings, allowances, stipends, etc. are subject to the 10% creditable withholding tax pursuant to Sec. 2.57.2 (H) of Rev. Regs. No. 2-98. prll Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)