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29 (a) 04-92 19-93
Mañacop Law Office
Unit 102, Mission Garden Condominium
59 Sct. Ibardolaza St.
Quezon City
Attention: Atty. Jose F . Mañacop
This refers to your letter dated August 12, 1992 stating that your client, Mr. Michael Lawrence, was awarded
unpaid salaries and commission, plus moral and exemplary damages and attorney's fees in NLRC Case No. 00-
11-043031-87, entitled "Michael Lawrence vs. LEP International Phil., Inc."; that said award has already
become final and executory, and the respondent is willing to pay the award less the withholding tax thereon;
and that it is the belief of your client that the unpaid salaries and commission are subject to withholding tax but
the damages which consist of moral and exemplary damages and attorney's fees are not subject to withholding
tax to which the respondent disagrees.
Based on the foregoing, you now request for a ruling as to whether or not award of damages such as moral,
exemplary and attorney's fees or reimbursement of your client's advances to his lawyers, are subject to
withholding tax.
In reply, I have the honor to inform you that amounts received by a taxpayer as moral damages are not
considered taxable income (par. 60, 12 Vol. 1, Mertens Law of Federal Income Taxation). The legal expenses
incurred in court proceedings, where the taxpayer was awarded moral damages, are not deductible from gross
income, under Section 29(a) of the Tax Code (par. 1130, p. 39001, 1969 U.S. Master Tax Guide). On the other
hand, attorney's fees awarded to your client as part of the damages shall not be subject to income tax, the same
being merely a reimbursement of his expenses/advances in the course of the hearing of his case. This opinion
finds support in the case of Gold Green Mining Corporation vs. Tabios, CIR, CTA Case No. 1497, April 27,
1967 (1988 Ed. Arañas Commentary, p. 190), holding that the so-called "legal fees" are expenses incurred in the
carrying on of a trade or business.
In view thereof, this Office is of the opinion as it hereby holds that award of damages, such as moral, exemplary
and attorney's fees, are not subject to income tax and consequently, to the withholding tax.
This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it
will be disclosed that the facts are different, then this ruling shall be considered null and void.
Deputy Commissioner of Internal Revenue