Implementing Presidential Decree No. 507

September 24, 1974 REVENUE REGULATIONS NO. 08-74 SUBJECT : Implementing Presidential Decree No. 507, exempting donations and bequests to social welfare, cultural and charitable institutions from donor's and estate taxes and allowing deduction thereof from gross income TO : All internal revenue officers and others concerned Pursuant to Section 1 of Presidential Decree No. 507, the following regulations denominated Revenue Regulations No. 8-74 are hereby promulgated to be known as Revenue Regulations Implementing Presidential Decree No. 507. SECTION 1. Scope . These regulations provide the procedure to be followed in establishing the qualification of the donee or legatee and the requirements to be complied with by the donor and the donee or legatee in order that the benefits provided for in Presidential Decree No. 507 may be availed of. SECTION 2. Procedure for establishing qualification of donee or legatee . In order to avail of the benefits prescribed by P.D. No. 507, the qualification of the donee or legatee as a social welfare, cultural or charitable institution must first be established. For this purpose the institution intending to establish its qualification, must file with the Commissioner of Internal Revenue an affidavit showing the character of the organization, the purpose for which it was organized, its actual activities, the sources of its income and its disposition, whether or not any of its income is credited to surplus or inures or may inure to the benefit of any private stockholder or individual and in general, all facts relating to its operations which affect its qualification. To such affidavit should be attached a copy of the charter or articles of incorporation, by-laws, and the latest financial statement showing the assets, liabilities, receipts, and disbursement of the organization. The affidavit and its attachments shall be processed on its face value, and, if the Commissioner of Internal Revenue finds that the organization qualifies, he shall inform the organization accordingly. After receipt of the statement of qualification, donations and legacies to the organization will qualify for the benefits prescribed by P.D. No. 507 subject to such conditions hereinafter provided. SECTION 3. Definition . As a guideline, the organizations covered by Presidential Decree No. 507 are defined as follows: (a) A social welfare organization is one generally engaged in promoting the welfare of mankind such as the improvement of the living conditions and standard of members of a community, no part of the net income of which inures to the benefit of any private stockholder or individual; (b) A cultural organization is one generally engaged in the cultivation, improvement or development by study, training, refining, etc. of the mind, emotions, manners, tastes, habits, concepts and arts of the people, no part of the net income of which inures to the benefit of any private stockholder or individual; (c) A charitable institution is generally one that exists to carry out a purpose recognized in law as charitable, such as the relief and comfort of the poor, the sick and the afflicted, and, in general, to promote the welfare of others in need, no part of the net income of which inures to the benefit of any private individual. cd SECTION 4. Tax Privileges under P . D . No . 507 . Exemption from the donor's tax and deduction from gross income . Donations to duly established social welfare, cultural and charitable organizations shall be exempt from the donor's tax and the donor shall be allowed to deduct in full such donation from his gross income for the year when the donation is actually received. Said donation shall not be included or added to charitable contributions allowed by Section 30(h) of the Tax Code, for purposes of computing the allowable deduction under said law. In other words, the deduction of the donation as authorized by Presidential Decree No. 507 is independent of, and separate and apart from the deduction allowed by Section 30(h) of the Tax Code. Donors claiming deduction from their gross income of donations authorized by the aforementioned decree should submit evidence showing (a) Actual receipt by the donee of the donation and the date of receipt thereof; (b) The amount of the donation, if in cash; if real property was donated, the value thereof at the time of donation, which should be based on the assessor's valuation under Presidential Decree No. 76; and if personal property was donated, the acquisition cost thereof; but if said personal property had already been used at the time of donation, the depreciated or book value thereof. SECTION 5. Donation Mortis Causa : Exemption from the estate tax . Bequests, legacies or donations mortis causa to social welfare, cultural or charitable organizations shall be exempt from the estate tax. Such bequests, legacies or donations shall be included in the decedent's gross estate but the value thereof shall be deducted from the gross estate for purposes of computing the tax on the estate. The name and address of the legatee shall be indicated in the estate tax return. SECTION 6. Limitation on disposition of donation and/or legacy . The donee or legatee should not utilize more than 30% of the donation or legacy for administration purposes. SECTION 7. Notice of donation . Donors should give a notice of every donation to the Commissioner of Internal Revenue within 30 days after the donation is made stating the amount thereof, if in cash, or the fair market value, if in property, either real or personal, the date and number of the official receipt issued by the donee, if in cash. If personal property is donated, a signed copy of the deed of donation and a letter or receipt from the donee acknowledging the donation; and if real property is donated, a signed copy of the deed of donation, duly acknowledged before a notary public and showing acceptance of the donation by the donee. A notice need not be given with respect to cash contributions in small or moderate amounts. SECTION 8. Notice of legacies . Every organization who receives a legacy should give notice thereof to the Commissioner of Internal Revenue within 30 days from the date of receipt thereof stating the kind of property bequeathed and its fair market value. SECTION 9. Returns and verification of operations . A qualified recipient, in order to maintain its status as such, should file within three months from the end of its calendar of fiscal year period an annual information return (BIR Form No. ________), to which shall be attached the following: (a) A list of the donations and bequests received during the year, which should show the name and address of the donors or testators, the amount or market value of each donation or bequest and the disposition thereof. This list should be certified to by the president or treasurer of the organization; (b) A list of the activities and/or projects undertaken by the organization and the cost of each undertaking or project, which should also be certified to by the president or treasurer of the organization; (c) A certification by the president or treasurer of the organization that not more than thirty per centum (30%) of the total gifts, bequests and donations received during the year was used for administration purposes; (d) A certification by the president or treasurer of the organization that no part of its net income inured to the benefit of any private stockholder or individual. The operations of the donees and legatees shall be verified annually for the purpose of ascertaining whether or not they are actually undertaking the activities of an organization exempt under P.D. No. 507 and complying with the terms and conditions prescribed by said Decree and implementing regulations. SECTION 10. Penalty for failure to comply with requirements . A social welfare, cultural or charitable organization is one that exists in fact and not only in name. The donations and bequests must, therefore, be utilized for the purposes for which such organization is created and only 30% thereof can be utilized for administration purposes. aisa dc Should verification show that the organization is not actively pursuing the activities for which it was organized, or that it is spending more than 30% of the total donations and/or legacies received by it during the year, the Commissioner of Internal Revenue shall revoke the statement of qualification issued to said organization and no further donation to the organization shall be approved as tax free under Presidential Decree No. 507 and Section 112 of the Tax Code, as amended. Moreover, responsible officials of the organization shall be liable to the penalties provided for in Section 352 of the Tax Code. Should verification further show that the donor participated or consented to the violation by the donee of the provisions of Presidential Decree No. 507 and implementing regulations, he shall be deprived of the benefits provided for by said decree and the corresponding tax due on the donation or donations, including increments that have accrued, shall be assessed and collected as provided for in the Tax Code. Moreover, if the value of the donation was deducted from the donor's gross income, said deduction shall be disallowed, and deficiency income tax, plus penalties due thereon, shall be assessed against the donor. SECTION 11. Effectivity . These regulations take effect immediately and shall apply to donations and legacies made beginning July 16, 1974. CESAR VIRATA Secretary of Finance Recommended by: MISAEL P. VERA Commissioner of Internal Revenue