Unregistered Partnership Within the Meaning of Sec. 84(b) of the Tax Code

September 2, 1960 BIR RULING NO. 404-60 The Assistant Chief Investigation Branch (Thru the Regional Director) Regional District No. 2 San Fernando, Pampanga S i r : Reference is made to your letter dated October 14, 1958, requesting among others, opinion on whether or not, pursuant to the doctrine laid down by the Supreme Court in the case of Eufemia Evangelista, et al . vs. Collector of Internal Revenue, et al . (G.R. No. L-9996, October 15, 1957), the following facts constitute as unregistered partnership within the meaning of section 84(b) of the Tax Code, subject to the corporate income tax: cdt "1. The late Teodoro J. Tinio, Angeles, Pampanga, died intestate of September 9, 1954; survived by his widow and six (6) legitimate children and leaving behind a conjugal estate valued at P152,902.00, gross value, both personal and real properties; "2. For the decendent, an estate and inheritance tax return EA-28448-54 was filed on time; accordingly examined and taxes due thereon already paid and the case now considered closed; "3. Under Special Proceedings No. 1036-CFI Pampanga, entitled "Intestate Estate of Teodoro Tinio, Nicolas J. Tinio, Judicial Administrator', filed sometime in 1954 and finally closed on November 29, 1956 by Order of the Court upon agreement of the heirs, the estate was adjudicated on the basis of the Project of Partition submitted on November 1, 1956; "4. During the pendency of the special proceedings, the administrator filed the estate income tax returns for 1954, 1955 and 1956 on incomes derived from farming, rentals, sales of sub-divided lots, etc. and paid all taxes due per returns as well as the deficiency taxes arrived at per investigation; and "5. In 1957, although the special proceedings was already terminated and the corresponding shares of each heir was determined, the inherited properties still remained un-divided and the income derived therefrom distributed amongst the heirs as agreed upon and reflected in their 1957 individual income tax return." In answer thereto, you are informed that, on the basis merely of the aforequoted facts, this Office cannot determine whether or not an unregistered partnership exists in this case. In determining this and cases of similar nature, you should be guided by the following: 1. Whether the properties are held by the co-heirs without attempting to divide the same; 2. Whether the properties are held not merely for conservation and preservation but also for profit; 3. Whether the profits are actually distributed among the co-heirs or co-owners or jointly reinvested by them in business or acquisition of additional assets; 4. Whether the management of the properties is entrusted in one person; 5. Whether the properties can be divided without causing damage thereto. Steps are now being undertaken for the modification of Field Circular No. V-109 along the aforestated lines. With respect to the other queries posed in your said letter, you are informed that, as in the first query, we cannot rule categorically thereon. However, with regard to your query on whether the sale of a communal agricultural land should be treated as a sale of ordinary or capital asset, you are informed that the answer thereto depends upon the question of whether or not the owner of said land is engaged in agriculture as a business. In determining this question, the principle enunciated in the case of Domingo Imperial vs. The Collector of Internal Revenue (G.R. No. L-7924, September 30, 1955) on the question of whether or not Mr. Imperial was engaged in business as real estate dealer should be used as a guide (See BIR Ruling No. 223, s. 1960). casia Very truly yours, (SGD.) MELECIO R. DOMINGO Commissioner of Internal Revenue