QuestionsQuestions (BIR REVENUE REGULATIONS NO. 2-2010)
BIR Revenue Regulations (RR) No. 2-2010 was issued to further clarify how General Professional Partnerships (GPPs) and their partners determine and claim the Optional Standard Deduction (OSD), and how the election to use OSD must be shown in income tax returns. It amends specific provisions (Sections 6 and 7) of Revenue Regulations No. 16-2008.
No. A GPP is not subject to income tax as a taxable entity because it is treated as a pass-through entity. Income tax is paid by the partners in their separate and individual capacities on their respective distributive shares.
The net income of the GPP is computed in the same manner as a corporation, consistent with the rule referenced in the text (i.e., based on how net income is computed for corporate income determination).
A GPP may claim either: (1) the itemized deductions allowed under Sections 34(A) to (J) of the Tax Code, or (2) in lieu thereof, opt for the OSD allowed to corporations, in an amount not exceeding 40% of its gross income.
Partners may still claim itemized deductions, but they must be for ordinary and necessary expenses for the practice of profession that were not claimed by the GPP in computing its net/distributable income. Also, partners are precluded from claiming the same expenses already claimed by the GPP.
No. The partners are not allowed to claim OSD from their share because OSD is a proxy for all deduction items allowed in arriving at taxable income. Thus, the OSD would effectively duplicate deductions already realized through itemized deductions.
No. When the GPP opts for OSD, partners can no longer claim further deductions from their share. The text explains that the distributive share is treated as gross income, and the 40% OSD is mandated to be deducted in a manner answering for the deduction items at both the partnership and partner levels (since OSD is in lieu of itemized deductions).
For individuals, the OSD is not exceeding 40% of gross sales or gross receipts; for corporations, it is 40% of gross income. The regulation ties the partner’s treatment to the OSD election of the GPP and clarifies how the OSD operates as a substitute for itemized deductions across levels.
Because the statutory incidence of tax is effectively placed in the hands of the partners, and the partnership operates as a pass-through. Therefore, if the GPP uses itemized deductions, partners must also use itemized deductions (without double counting). If the GPP uses OSD, partners are deemed to have availed of OSD as OSD is in lieu of itemized deductions.
The deduction rules follow the same deduction type (OSD vs itemized) explained for partnership income. However, if the GPP opts for OSD, the partner may still claim 40% of gross income from their other practice/business income, but not to include their share from the GPP’s net income.
The taxpayer signifies the election in the income tax return by checking the appropriate box for OSD (40% limit depending on taxpayer type). Otherwise, the taxpayer is considered to have availed of itemized deductions allowed under Section 34.
The election must be signified by checking the appropriate box in the income tax return filed for the first quarter of the taxable year adopted by the taxpayer.
No. Once signified in the return, the election is irrevocable for the taxable year. After the election, the same type of deduction must be consistently applied in all succeeding quarterly returns and in the final income tax return for that year.
They are considered to have availed the itemized deductions option for the taxable year.
Yes. The text states that an individual taxpayer who is entitled to and claimed the OSD shall not be required to submit with the tax return the financial statements otherwise required under the Code, except when the Commissioner otherwise permits; however, the individual must still keep records pertaining to gross sales or gross receipts.
Corporations are still required to submit financial statements when filing their annual income tax return and to keep records pertaining to gross income as defined in the text/regulation.