A loss actually sustained in a taxable year and not compensated for by insurance or other forms of indemnity is specifically mentioned in the Tax Code as one of the categories of deductions allowed for purposes of computing taxable income. This loss may pertain to property connected with trade, business or profession and such loss may arise from casualty (e.g., fire, storm, shipwreck), robbery, theft or embezzlement.

The occurrence of these types of losses, however, does not automatically entitle the taxpayer to claim the losses sustained in computing taxable income. Certain procedures and documentations must have to be accomplished before a loss may be claimed as deduction.

In fact, the Tax Code authorizes the secretary of finance to promulgate rules prescribing the time and manner by which the taxpayer shall submit a declaration of loss sustained from casualty or from robbery, theft or embezzlement. Pursuant to such authority, an old revenue regulation was issued governing the substantiation requirements for losses arising from casualty and other causes of loss. While this was promulgated in 1977, this is still the prevailing rule to date.

The regulations place the burden of proving and substantiating claim for deduction upon the taxpayer, who should comply with the following requirements:

a. A declaration of loss which must be filed with the Commissioner of Internal Revenue or his deputies within a certain period after the occurrence of the casualty, robbery, theft or embezzlement.

b. Proof of the elements of the loss claimed, such as the actual nature and occurrence of the event and the amount of the loss.

The sworn declaration of loss must be filed by the taxpayer within 45 days after the occurrence of casualty or robbery, theft or embezzlement, and shall contain, among other things, the following information:

a. The nature of the event giving rise to the loss and the time of its occurrence;

b. A description of the damaged property and its location;

c. The items needed to compute the loss, such as cost or other basis of the property; depreciation allowed or allowable if any; value of property before and after the event; cost of repair;

d. Amount of insurance or other compensation received or receivable.

With the damages caused by the recent typhoons, some affected taxpayers lost properties used in their trade, profession or business. Questions are often asked regarding the deductibility of these losses. Do the rules described above apply and need to be complied with before these losses can be claimed as deductions in the computation of taxable income?

With specific reference to the destructions wrought by the recent typhoons, the Bureau of Internal Revenue issued Revenue Memorandum Order 31-2009. This memorandum-order essentially reiterates the policies and guidelines described above with additional guidelines.

The issuance of the revenue memorandum order is very helpful considering that a significant number of taxpayers may be claiming deductions for casualty losses sustained as a result of the damages brought by the recent typhoons. Because the regulations are very old, many taxpayers may not be aware of the requirements for filing declaration of loss before the casualty loss can be considered for deduction. With the new memorandum-order, taxpayers are made aware of their respective obligations, before any deduction is made for casualty losses.

The reissuance by BIR of its policies regarding casualty losses, though,  is a manifestation that it is strictly enforcing its requirements even in times of calamities. While other government agencies had relaxed their rules to accommodate victims of calamities, the BIR is determined to enforce its established policies. Perhaps, the general requirement for the submission of the declaration of loss is to notify the tax authority that a casualty has occurred and thereby alert the latter to make its own verification of such occurrence. The recent calamities are of public knowledge and, therefore, a verification of their occurrence is not necessary. It would have been a more fitting gesture if the BIR suspended its policies during these extraordinary circumstances—and if not, at least extend the full benefit or the minimum requirements provided in the law. For instance, the Tax Code allows not more than 90 days within which taxpayers could submit the declaration of loss. Thus, the tax authority could have extended this longer period, instead of sticking to the 45 days as provided in the old regulations, to allow the taxpayers more time to assess their losses.

Having said that, considering that the BIR is determined to enforce its requirements, taxpayers are enjoined to comply with the submission of the declaration of loss. The declaration of loss does not constitute sufficient proof of the loss which will justify its deductibility. Nonetheless, the failure to submit the declaration will result in the disallowance of the casualty loss. Thus, to avoid any surprises for possible disallowances of losses, taxpayers need to submit sworn declaration of losses within 45 days and maintain other proofs of losses.

The author is a senior partner of Du-Baladad and Associates Law Offices (BDB Law). If you have any comments or questions concerning the article, you can e-mail the author at This e-mail address is being protected from spambots. You need JavaScript enabled to view it or call 856-2952.