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CIR Vs FABELA

The CIR disallowed deductible expenses claimed by Isabela Cultural Corp. for services rendered in 1984-1985 but billed, paid, and deducted in 1986. The Court of Tax Appeals found the deductions were properly claimed in 1986. However, the Supreme Court ruled against Isabela, finding they failed to prove the validity of accrual through the all-events test, which requires the fixing of liability and reasonable determination of the amount. Isabela did not provide enough information to accurately calculate the expenses in the years they were incurred.

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69 views1 page

CIR Vs FABELA

The CIR disallowed deductible expenses claimed by Isabela Cultural Corp. for services rendered in 1984-1985 but billed, paid, and deducted in 1986. The Court of Tax Appeals found the deductions were properly claimed in 1986. However, the Supreme Court ruled against Isabela, finding they failed to prove the validity of accrual through the all-events test, which requires the fixing of liability and reasonable determination of the amount. Isabela did not provide enough information to accurately calculate the expenses in the years they were incurred.

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KateBarrionEspinosa
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CIR vs. Isabela Cultural Corporation, GR. No.

172231 Feb 12, 2007


FACTS:
BIR disallowed Isabela Cultural Corp.’s deductible expenses for services, which were rendered in 1984 and
1985 but only billed, paid and claimed as a deduction on 1986.
After the Court of Appeals sent its demand letters, Isabela protested. The Court of Tax Appeals found it proper
to be claimed in 1986 and affirmed by CA.
ISSUE: W/n Isabela who uses accrual method can claim deductions on its expenses.
HELD: No. Isabela failed to prove the validity of accrual thru the all-events test.
The accrual of income and expense is permitted when the all-events test has been met. This test requires: (1)
fixing of a right to income or liability to pay; and (2) the availability of the reasonable accurate determination
of such income or liability.
The all-events test requires the right to income or liability be fixed, and the amount of such income or liability
be determined with reasonable accuracy. However, the test does not demand that the amount of income or
liability be known absolutely, only that a taxpayer has at his disposal the information necessary to compute the
amount with reasonable accuracy. The all-events test is satisfied where computation remains uncertain, if its
basis is unchangeable; the test is satisfied where a computation may be unknown, but is not as much as
unknowable, within the taxable year. The amount of liability does not have to be determined exactly; it must
be determined with "reasonable accuracy."
Accordingly, the term "reasonable accuracy" implies something less than an exact or completely accurate
amount.
The propriety of an accrual must be judged by the facts that a taxpayer knew, or could reasonably be expected
to have known, at the closing of its books for the taxable year.
Accrual method of accounting presents largely a question of fact; such that the taxpayer bears the burden of
proof of establishing the accrual of an item of income or deduction.
In the instant case, the expenses for professional fees consist of expenses for legal and auditing services. The
expenses for legal services pertain to the 1984 and 1985 legal and retainer fees of the law firm Bengzon Zarraga
Narciso Cudala Pecson Azcuna & Bengson, and for reimbursement of the expenses of said firm in connection
with ICC’s tax problems for the year 1984. As testified by the Treasurer of ICC, the firm has been its counsel
since the 1960’s. Thus, the respondent failed to prove the burden.

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