TAX EXEMPTIONS ON NON-PROFIT ORGANIZATIONS
With the recent controversy surfaced through Janet Napoles on the Pork Barrel scam, the Bureau of Internal Revenue issued Revenue Memorandum Order No. 20-2013 prescribing new policies and guidelines in the issuance of tax exemption rulings.
Tax exemptions are frown upon by the bureau and stringent scrutiny is expected. The revenue memorandum had practically revoked all tax exemption rulings and required all non-profit organizations to renew their exemptions. The revenue memorandum applies to all tax exemptions ruling given prior to June 30, 2012. Also, all tax exemption rulings are given only for a short period of three (3) years subject to renewal.
The revenue memorandum provided new requirements that add exposure to the officers of the non-profit organizations that may subject them to perjury.
The Revenue District Officer shall strictly examine the Articles of Incorporation and By-laws of the organization. The purpose of the organization must clearly state the provisions of exemptions under Section 30 of the NIRC. This is essential since the purpose of the organization must not include other items that permit activities that will run contrary to a non-tax exempt purpose. Clearly, the purpose of the organization must be limited only to those described in Section 30 of the NIRC. Any items included that do not conform to the NIRC provision will cause the denial of the application.
The officer of the organization must take an oath, under fear of perjury, that no part of the organization's income inure to the benefit of any private individual and that the trustees do not receive any compensation or remuneration. Any profit must be plowed back and must be devoted or used altogether for the furtherance of the purpose for which the corporation or association was organized.
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SEC. 30. Exemptions from Tax on Corporations.chanrobles virtual law library - The following organizations shall not be taxed under this Title in respect to income received by them as such:
(A) Labor, agricultural or horticultural organization not organized principally for profit;
(B) Mutual savings bank not having a capital stock represented by shares, and cooperative bank without capital stock organized and operated for mutual purposes and without profit;
(C) A beneficiary society, order or association, operating fort he exclusive benefit of the members such as a fraternal organization operating under the lodge system, or mutual aid association or a nonstock corporation organized by employees providing for the payment of life, sickness, accident, or other benefits exclusively to the members of such society, order, or association, or nonstock corporation or their dependents;
(D) Cemetery company owned and operated exclusively for the benefit of its members;
(E) Nonstock corporation or association organized and operated exclusively for religious, charitable, scientific, athletic, or cultural purposes, or for the rehabilitation of veterans, no part of its net income or asset shall belong to or inures to the benefit of any member, organizer, officer or any specific person;
(F) Business league chamber of commerce, or board of trade, not organized for profit and no part of the net income of which inures to the benefit of any private stock-holder, or individual;
(G) Civic league or organization not organized for profit but operated exclusively for the promotion of social welfare;
(H) A nonstock and nonprofit educational institution;
(I) Government educational institution;
(J) Farmers' or other mutual typhoon or fire insurance company, mutual ditch or irrigation company, mutual or cooperative telephone company, or like organization of a purely local character, the income of which consists solely of assessments, dues, and fees collected from members for the sole purpose of meeting its expenses; and
(K) Farmers', fruit growers', or like association organized and operated as a sales agent for the purpose of marketing the products of its members and turning back to them the proceeds of sales, less the necessary selling expenses on the basis of the quantity of produce finished by them;
Notwithstanding the provisions in the preceding paragraphs, the income of whatever kind and character of the foregoing organizations from any of their properties, real or personal, or from any of their activities conducted for profit regardless of the disposition made of such income, shall be subject to tax imposed under this Code.
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