Compensation for Services Taxable

July 8, 1993 BIR RULING NO. 296-93 COMPENSATION FOR SERVICES TAXABLE 28 (a) (1) 00-00 96-93 Medical Center Manila 1122 General Luna St. Ermita, D-406 Manila Attention: Ms . Ma . Cristina S . Lectura, C . P . A . Chief Accountant This refers to your letter dated November 16, 1992 inquiring whether salaries of priests and nuns, which you have reclassified as donations and contributions, are deductible from your income tax return. It is represented that you have reclassified the salaries of priests and nuns, who are doing pastoral services in your hospital, such as celebration of mass and novenas, spiritual guidance to patients, blessing for the dead, and the likes, as donations and contributions because according to you, the employer-employee relationship does not exist; and that you did this because salaries are subject to withholding tax on compensation. In reply thereto, please be informed that every form of compensation for personal services is taxable, regardless of how it is earned, by whom it is paid, the label by which it is designated, the basis upon which it is determined, or the form to which it is received ( Michie, Federal Tax Handbook , p. 112). Furthermore, Section 40 of Revenue Regulations No. 2 specifically provides, among others, that marriage fees, baptismal offerings, sums paid for saying masses for the dead, and other contributions received by a clergyman, evangelist or religious worker for services rendered are taxable income. In view thereof, it is our opinion that the salaries of priests and nuns, who are doing pastoral services in your hospital, should not be classified as donations and contributions, but as compensation income, which is subject to withholding tax. LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue