Allowable Deduction for Income Tax Purposes

June 20, 1990 BIR RULING NO. 118-90 29 (e) 439-61 118-90 Gentlemen : This refers to your letter dated February 23, 1990 requesting a ruling as to whether a Provision for Bad Accounts which accounts are not yet actually incurred can be considered as allowable deduction for income tax purposes. It is represented that the Provision for Bad Accounts will be maintained in the books of your client, which is a domestic corporation engaged in borrowing money from various foreign sources for relending to its clients; and that by way of anticipating their inevitable loss due to your client's inability to collect loan payments resulting from financial difficulties brought about by the continuous depreciation of the peso as against the value of the U.S. dollar, your client will claim a deduction for bad debt or loss now what it expects to lose two or three years from now. In reply, please be informed that your query is answered in the negative. Pursuant to Section 29(e) of the Tax Code, all debts owing the taxpayer in connection with his/its profession, trade or business that are found to be worthless and are charged off during the taxable year shall be deductible from gross income during the said year. In other words, before these conditions are met, such as, among others, when an account or indebtedness is not yet actually incurred, your client cannot claim a deduction for bad debt from gross income. aisadc Very truly yours, (SGD.) JOSE U. ONG Commissioner