o The legal expenses incurred in court proceedings, where the taxpayer

was awarded moral damages, are not deductible from gross income,
EXCLUSIONS FROM GROSS INCOME
Tax Code in General under Section 29(a) of the Tax Code2
o Attorney's fees awarded to your client as part of the damages shall not
BIR Ruling 219-93 dated 17 May 1993
be subject to income tax, the same being merely a
SUMMARY reimbursement of his expenses/advances in the course of the
Atty. Jose Maacop wrote to the BIR on behalf of his client, Michael Lawrence requesting hearing of his case.
the BIR to rule on whether or not award of damages such as moral, exemplary and This opinion finds support in the case of Gold Green Mining
attorney's fees or reimbursement of client's advances to lawyers are subject to withholding Corporation vs. Tabios3, holding that the so-called "legal
tax. The BIR held that they are not deductible from gross income and are therefore not fees" are expenses incurred in the carrying on of a trade or
subject to income tax. business.
Award of damages, such as moral, exemplary and attorney's fees, are not
DOCTRINE subject to income tax and consequently, to the withholding tax.

Amounts received by a taxpayer as moral damages are not considered taxable
income
The legal expenses incurred in court proceedings, where the taxpayer was
awarded moral damages, are not deductible from gross income
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.
OTHER NOTES
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
Digester:

FACTS

Atty. Jose Maacop wrote to the BIR on behalf of his client, Michael Lawrence
("ML") in a letter dated August 12, 1992
In the said letter, Maacop and his client Lawrence are requesting 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.
The letter contained the following facts:
o ML 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."
o Said award has already become final and executory
o Respondent LEP International is willing to pay the award less the
withholding tax thereon
o ML believes that the unpaid salaries and commission are subject
to withholding tax
o ML also believes that the damages which consist of moral and
exemplary damages and attorney's fees are not subject to
withholding tax to which the respondent LEP International
disagrees

BIR answered said letter in its BIR Ruling No. 219-93 dated 17 May 1993:
o Amounts received by a taxpayer as moral damages are not
considered taxable income1

1 3
par. 60, 12 Vol. 1, Mertens Law of Federal Income Taxation CIR, CTA Case No. 1497, April 27, 1967 (1988 Ed.Araas Commentary, p. 190)
2
par. 1130, p. 39001, 1969 U.S. Master Tax Guide