Tax Implication of a Donation

January 12, 1989 BIR RULING NO. 002-89 29 (h) 103-88 002-89 Gentlemen : This refers to your letter dated September 8, 1988 requesting a ruling on the tax implication of a donation by your client to a non-stock, non-profit charitable/religious foundation; more particularly, as to whether your client's intended donation is deductible from your client's taxable gross income. It is represented that your client entered into an out-of-court settlement concerning an action to recover a long standing debt from a private person; that this settlement agreement was duly approved by the court; that your client will receive more or less P24 million pesos under the settlement agreement; that after deducting the loan principal and legal expenses in connection with the court's suit and settlement your client will realize a net income of about P7.3 million; and that your client intends to donate this residual income to the Franciscan Renewal Foundation, Inc., a non-stock, non-profit charitable/religious foundation incorporated in 1985 and registered as a donee institution in accordance with the provisions of BIR-NEDA regulations; and that not more than 30% of said donations shall be used by the donee for administration purposes. The records also show that the primary purpose of the donee institution, the Franciscan Renewal Foundation, Incorporated, is to provide assistance in the form of money, goods or services to persons, natural or juridical , who spend all or a portion of their time, energy, skills and material resources to spread the word of God in the Philippines and in Asia; to provide the same or similar assistance to persons, natural or juridical, who, on a full or part-time basis, directly or indirectly help improve or alleviate the personal condition, family or community life of the economically disadvantaged and poverty stricken of the people, the physically, handicapped among the poor, the malnourished and starving, the forgotten poor languishing in our prisons, the uneducated and unlettered children and young adults, the sick and diseased poor, the rejected and abandoned infants, the stray and homeless children and neglected aged persons, the unfortunate victims of natural disasters and calamities among the poor, and other persons in our society who, being in a deprived disadvantaged position, are not adequately assisted by any Government agency or charitable institutions; and to perform such other acts of charity, mercy or philanthropy addressed to and favoring the marginalized segment of our society. (Emphasis supplied). In reply, please be informed that based on the foregoing facts, the activity of the Franciscan Renewal Foundation Incorporated (the donee institution) falls primarily within the purview of charitable activity, which means extending relief to the poor, the distressed and underprivileged; and fighting against juvenile delinquency and community deterioration; rather than a religious activity, which means the promotion, propagation and accomplishment of any form of religion, creed or belief recognized by the Government of the Philippines (Sec. 2, G and H, BIR-NEDA Regulations No. 1-81) Accordingly, your client's intended donation to said donee institution shall be exempt from the donor's tax, provided that not more than 30% of such donation shall be used by the donee for administration purposes. Moreover said donation shall be fully deductible from your client's gross income under the following conditions: 1. That the intended donee, Franciscan Renewal Foundation, Inc., in addition to being registered with the SEC, shall be governed by a Board of Trustees who receive no compensation nor any type of remuneration in cash or in kind. 2. That not later than the 15th day of the third month after the close of the foundation's taxable year in which contributions are received, the foundation directly utilizes the donation for the active conduct of the activities constituting the purposes or function for which it is organized and operated, unless an extended period is extended by the Minister of Finance not exceeding thirty days. 3. That the level of the foundation's administrative expenses does not exceed 30% of its total utilization during the taxable year. 4. That the foundation's assets, in the event of dissolution, would be distributed to another domestic corporation or Association or to the Government for a public purpose or as a competent court of justice would distribute to accomplish the general purpose for which the dissolved organization was organized. [Sec. 3(c), BIR-NEDA Regulations; SEC. 29(h)(C), Tax Code] If the foregoing conditions are not observed, the intended donations to the Franciscan Renewal Foundation, Inc. shall be allowed as deduction for income tax purposes only to an amount not exceeding 6% in the case of an individual donor or 3% in the case of a corporate donor as computed without the benefit of this deduction pursuant to Section 29(h)(1) of the Tax Code, in relation to Sec. 3(A), of the BIR-NEDA Regulations. cdt Very truly yours, (SGD.) JOSE U. ONG Commissioner