No. Section 50 of Rev. Regs. No. 2, otherwise known as Income Tax Regulations, provides that if a debtor performs services for a creditor who…

The question

No. Section 50 of Rev. Regs. No. 2, otherwise known as Income Tax Regulations, provides that if a debtor performs services for a creditor who cancels the debt in consideration for such services, the debtor realizes income to that amount as compensation for his services. In the given problem, the cancellation of Mr. Gipit’s indebtedness up to the amount of Php 75,000.00 gave rise to compensation income subject to income tax, since Mr. Maunawain condoned such amount as consideration for the general cleaning services rendered by Mr. Gipit. PRT Corp. purchased a residential house and lot with a swimming pool in an upscale subdivision and required the company president to stay there without paying rent; it reasoned out that the company president must maintain a certain image and be able to entertain guests at the house to promote the company's business. The company president declared that because they are childless, he and his wife could very well live in a smaller house. Was there a taxable fringe benefit? (2013 Bar Question)

1. A.There was no taxable fringe benefit since it was for the convenience of the employer and was necessary for its business.
2. B.There was a taxable fringe benefit since the stay at the house was for free.
3. C.There was a taxable fringe benefit because the house was very luxurious.
4. D.There was no taxable fringe benefit because the company president was only required to stay there and did not demand free housing.

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