ABAD, ACUPAN, ANG CHOI, CO, DABAO, DE JESUS

What is an income tax?

? ??

INCOME TAX is...

A tax on ALL yearly profits arising from property A tax on a persons , income earned every yearprofessions whether gross or not , trade or offices

Simply put, income tax is a tax on ALL income earned!

What kind of tax is INCOME TAX?

Income tax is generally classified as an excise tax (privilege tax) It is not levied upon persons, properties, funds, or profits. It is levied upon the right of a person to earn income.

On the purpose of INCOME TAX...

It is the money-making venture of the government. Mainly for raising large revenues for the use of the government

On the purpose of INCOME TAX... Aside from making

revenues... Income tax can be used to mitigate the evils arising from the inequalities in the distribution of income and wealth...

It is regarded as the best measure of a persons ability to pay.

What is

INCOME ?

NCOME
The wealth which flows into the taxpayer other than as a mere return on capital .

CAPITAL
Fund or property existing at ONE distinct point of time Flow of wealth during a definite period of time

INCOME

COMMISSIONER vs. BOAC

FACTS

British Overseas Airw

it has no l

covering passengers and cargoes the

ISSUE

Is BOAC liable to pay taxes?

RULING

Yes. The source of income is the proper

LABOR CAPITAL SOURCES OF INCOME

SALE OF REAL PROPERTY

LABOR INCOME DERIVED FROM CAPITAL WHATEVER SOURCE

If the income is derived If the source of from capital then the source of income is the place ncome is derived from labor All income not SALE OF REAL where the capital is used

then the source of income expressly exempted PROPERTY isfrom the place where income tax the If the is derived labor is income performed from the sale of property then the source of income is the place where the real property is located.

REQUISITES The realization of Gain or income need not take the profit is essential FOR fo to the existence of taxable INCOME income There BE must TO be in fact No taxable income income is realized by the TAXABLE co-owne

THERE MUST BE

Gain must be realized or received

REPUBLIC OF THE PHILIPPINES VS LEONOR DE LA RAMA

FACTS

The BIR assessed

ISSUE

Whether crediting of accounts in the

books of thecompany

RULING
Ifthere were no such debts, then there was no

No. If the debts to which the dividends

co

There was no basis for the assessment of the The existence and validit income tax, th

The existence and validity of the first debt

As to the second debt, the alleged deb

There was no basis for the assessment of the

incom

Gain must be excluded by law from The realization of Gain or taxation income need not take the profit is essential Inc form o to the existence of taxable income There

THERE MUST BE

Gain must be realized or received

must be in fact No taxable income income Deductions are is realized by the co-owners by subtracted from income to arrive taxable net incom

LIMPAN ESTMENT CORPORATI vs. COMMISSIONER OF INTERNAL REVENUE

FACTS

BIR assessed deficiency taxes on Limpan C

Petitio these under declared rents are yet t

. Petitioner c

The sole witness for the petitioner, Solis (Corporate Secretary-Treasurer) admitted to some undeclared rents in 1956 and1957, and that some balances were not collected by the corporation in 1956 because the lessees refused to recognize and pay rent to the new owners and that the corps president Isabelo Lim collected some rent and reported it in his personal income statement, but did not turn over the rent to the corporation. He also cites lack of actual or constructive control over rents deposited with the court.

ISSUE

Whether or not the BIR was

RULING

Yes. Petitioner admitted

Recognition Income Tax forof Purposes

Are the following items income?

FOUND TREASURE
DAMAGES FOR BREACH OF PROMISE OR ALIENATION OF AFFECTION

YES YES YES NO

YES if the tax was previously allowed

WORTHLESS DEBTS SUBSEQUENTLY COLLECTED

TAX REFUND

as a ded

Are the following items income?

NON-CASH BENEFITS

YES YES NO YES YES NO

INCOME FROM ILLEGAL SOURCES

PSYCHOLOGICAL BENEFITS OF WORK

GIVEAWAY PRIZES

SCHOLARSHIP/ FELLOWSHIPS

STOCK DIVIDENDS

WHEN IS INCOME REALIZED?

REALIZED INCOME = TAXABLE INCOME

SEVERANCE TEST As capital or investm

SUBSTANTIAL ALTERAtion of interest TEST

Income is earned whe

Income to be

SUBSTANTIAL ALTERAtion of interest TEST

Thus, stock dividends are not income subjec

SUBSTANTIAL ALTERAtion of interest TEST

Moreover, if as a result of an exchange of

Flow of wealth TEST

The essential difference betw