Contributions to the Memorial (A Trust Fund for the Education of Poor Filipinos)

October 12, 1959 BIR RULING NO. 554-59 Mr. Karl Kreutz c/o L. L. Vincent Memorial Fund P. O. Box 2042, Manila S i r : This is in reply to your letter dated September 12, 1959, wherein you requested this Office to issue a ruling on the following queries: prcd "1. Whether or not such contributions to the Memorial (A Trust Fund for the education of poor Filipinos) are deductible contributions from the income of the taxpayer; "2. Whether such contributions and income received are exempt from taxation on the part of the L. L. Vincent Memorial Fund." It appears that the late Mr. Vincent left an interest in the Mivinto Investment Corporation. Pursuant to his will, this particular portion of his estate shall be held in trust to be administered by the Directors of the Mivinto Investment Corporation, composing a Board of Trustees for that purpose. According to the preamble of the Rules and Regulations adopted by the said Board or Trustees, one-half () of the income of said trust shall accrue to the general funds of the Mivinto Investment Corporation and the other half shall be used for exclusively charitable purposes in favor of certain beneficiaries enumerated therein. We answer the first query in the light of the provision of section 30 (h) of the Tax Code, which is quoted hereunder: " Section 30(h) . Charitable and other contributions . Contributions or gifts actually paid or made within the taxable year to or for the use of the Government of the Philippines or any political subdivision thereof for exclusively public purposes, or to domestic corporations or associations organized and operated exclusively for religious, charitable, scientific, athletic, cultural or educational purposes or for the rehabilitation of veterans, or to societies for the prevention of cruelty to children or animals , no part of the net income of which inures to the benefit of any private stockholder or individual to an amount not in excess of six per centum in the case of an individual, and three per centum in the case of a corporation, of the taxpayer's taxable net income as computed without the benefits of this paragraph. Such contributions or gift shall be allowable as deductions only if verified under rules and regulations prescribed by the Secretary of Finance. (As amended by sec. 7, Republic Act No. 82.) (Emphasis supplied) By final analysis, the L. L. Vincent Memorial Fund is originally a trust fund consisting of only one-half () of the income earned specifically from the "modest fortune" left by the deceased in the hands of the Mivinto Investment Corporation. As in the case of the late Mr. Vincent's bequest, the contributions to the Memorial Fund by his friends and former associates shall remain in tact as they will also be invested in safe and conservative securities and only the income realized therefrom shall be made available to the beneficiaries. The recipient of these contributions for investment which is actually the trust fund does not fall within the category of hose contemplated by section 30(h) of the Tax Code. Hence, assuming arguendo that such contributions are motivated by a benevolent and laudable purpose for worthy cause, yet, the above-quoted provision of law is explicit on what contributions are considered charitable as to be properly deductible from a taxpayer's gross income. Evidently, a contribution to the Memorial Fund as originally conceived in accordance with the will of the late Mr. Vincent is not included within the purview of section 30(h) of the Tax Code. The contributions to the Memorial Fund and the income from such contributions as invested shall be treated separately, in determining the taxability of the L. L. Vincent Memorial Fund. Under section 29(a) of the Tax Code, contributions to the Memorial Fund do not constitute income. This Office is of the opinion, however, that these contributions constitute more or less gifts, the value of which is excluded from income tax under section 29(b) (3). Insofar as the Memorial Fund is concerned, such gifts or contributions to it, would be treated under section 108 et seq . of the Tax Code, although, probably not taxable depending upon whether or not they exceed the limitations of section 112 (a) (2). In this connection, the contributors may be liable for Donor's taxes and the beneficiaries who are the ultimate object of such bounty may be liable for Donee's taxes. For income tax purposes, the income derived from the investment of such contributions as well as all income derived by the trust from its other properties will be taxable under section 56 in relation to section 21 and 29 of the Tax Code. Very truly yours, (SGD.) MELECIO R. DOMINGO Commissioner of Internal Revenue