Tax Liability of a Farmer and a Practicing Attorney by Profession

May 11, 1960 BIR RULING NO. 188-60 Mr. Antonio Villasis 912-G, Int. 3, Remedies Street Malate, Manila S i r : Reference is made to your letter dated April 21, 1960 requesting for a ruling on the following query: lexlib "He is a farmer and a practicing attorney by profession. His net annual income does not exceed P6,000.00 derived from the annual production of his lands and earnings from his profession. Under sec. 6 of Revenue Regulation V-1, as amended by sec. 4 of Revenue Regulations V-13, is he required to attach to his return the required statements of net worth and operation of his business and, incidentally, to keep yearly a book of accounts? "In the event that for failure to comply with the said regulations of the Bureau of Internal Revenue, is it legal to impose upon him a compromise extra-judicial agreement in the light of the decision of the Supreme Court on the subject?" In reply thereto, we quote hereunder Section 334 of the Tax Code: "SEC. 334. Corporations, companies, partnerships, or persons required to keep books of accounts . All corporations, companies, partnerships, or persons required by law to pay internal revenue taxes shall keep a journal and a ledger, or their equivalents: Provided, however , That those whose gross quarterly sales, earnings, receipts, or output do not exceed five thousand pesos shall kept and use a simplified set of Bookkeeping Records duly authorized by the Secretary of Finance wherein all transactions and results of operations are shown and from which all taxes due the government may readily and accurately be ascertained and determined anytime of the year: And provided , further, That in the case of corporation, companies, partnerships or persons whose gross quarterly sales, earnings, receipts or output exceed twenty-five thousand pesos, shall have their Books of Accounts audited and examined yearly by Independent Certified Public Accountants and their income tax returns accompanied with certified balance sheets, profit and loss statements, schedules listing income-producing properties and the corresponding incomes therefrom and other relevant statements." (As amended by R.A. No. 438 and R.A. No. 658.) casia The answer to the question of what a taxpayer has to file together with his income tax return depends on the amount of his gross receipts in any quarter. Please note that the basis is his gross receipts in any quarter or gross quarterly income and not net annual income as stated in your query. We are reproducing hereinbelow, for your information and ready reference, the requirements under the Bookkeeping Regulations: "(a) If your gross receipts is P5,000.00 or below in any quarter, attach two copies of your statement of net worth and operations. "(b) If your gross receipts is over P5,000.00 but below P25,000.00 in any quarter, attach two copies of your balance sheet and profit and loss statement. "(c) If your gross receipts in any quarter exceeds P25,000.00, attach two copies of your balance sheet and profit and loss statement duly certified by an Independent Certified Public Accountant. Attach also a comparative profit and loss statement for the previous year and the current year for which the return is being filed and a schedule of income producing properties. "(d) If your source of income is purely from salary, dividends, interest or share in partnership profits, no statements need be attached to your return. If your salary, however, was subjected to withholding tax by your employer, attach the original of Form W-2, the form given to you by your employer. "(e) If you receive B.I.R. Form 17.01 B from any person or entity from whom you receive salary, rents, interests or dividends, the said form should also be attached to the return." (Rev. Reg. V-13 and Rev. Reg. V-58). Persons whose only source of income is their salary need not file the statement of networth and operations. However professionals engaged in the practice of their profession or any taxable business are required to file the said statement. They should also keep and use the books of accounts required by Section 334 of the Tax Code and the Bookkeeping Regulations. Therefore, inasmuch as farmers are required to accompany their income tax returns with the yearly statement of networth and operations or balance sheets and profit and loss statements, a person who derives his income or earnings from the practice of his profession as well as from the produce of his lands, shall for all intents and purposes of the law, be required to file together with his income tax return the corresponding statements. Effective February 16, 1957, taxpayers who violate any of the penal provisions of the Bookkeeping Regulations shall be liable to the compromise penalty prescribed by General Circular No. V-236. In this connection, section 309 of the Tax Code provides that the Commissioner of Internal Revenue is the only official vested with the power and discretion to enter into a compromise with the taxpayer. An offer of compromise does not however assume the category of a compromise not until it is voluntarily accepted by the other party. Section 309 merely authorizes the Commissioner to enter into compromise with a taxpayer, which of course necessitates the taxpayer's consent and consequent acceptance; otherwise, the Commissioner may resort to the Courts for the enforcement of the same. LLjur Very truly yours, (SGD.) MELECIO R. DOMINGO Commissioner of Internal Revenue