Implementing Rules and Regulations of Foster Child Act (RA 10165)

The BIR has circularized the full text of the Implementing Rules and Regulations (IRR) of Republic Act No. (RA) 10165 (Foster Child Act of 2012), which provides the guidelines and procedures, among others, for availing of the tax incentives granted to foster parents and other participants of the foster care program under the law.

Pertinent provisions of the regulations implementing the tax incentives under the law are as follows:

On the treatment of foster child as dependent

The definition of the term “dependent”, under Section 35(B) of the National Internal Revenue Code of 1997 (NIRC), shall be amended to include a “foster child”. Hence, a foster shall be allowed to claim a foster child as qualified dependent subject to the following conditions:

a) A foster parent shall be allowed an additional exemption of P25,000 for each qualified dependent provided that the total number of dependents, including a foster child, qualified to be claimed as a dependent for which additional exemptions may be claimed shall not exceed four, as provided for by RA 9504.

b) The P25,000 additional exemption for a foster child shall be allowed only if the period of foster care is a continuous period of at least one taxable year.

c) Only one foster parent can treat the foster child as a dependent for a particular taxable year. As such, no other parent or foster parent can claim the said child as dependent for that period.

On tax incentives to accredited childcaring or child-placing institutions

Any child-caring or child-placing institution licensed and accredited by the Department of Social Welfare and Development (DSWD) to implement the foster care program shall be exempt from income tax on income derived by it as such an organization pursuant to Section 30 of the NIRC . The same agency may also apply as a qualified donee institution.

On the tax incentives to donors of accredited child-caring or child-placing institutions

Donors of child-caring or child-placing institutions that are licensed and accredited by the DSWD shall be exempt from donor’s tax under Section 101 of the Tax Code provided that not more than 30% of the amount of donations shall be spent for administrative expenses. They shall also be granted allowable deductions from their gross income to the extent of their donation in accordance with Section 34(H) of the NIRC.

Through the BIR, the Department of Finance shall issue within one month from the issuance of the IRR the appropriate regulations and circular on the tax incentives for foster care program under RA 10165.

(Revenue Memorandum Circular No. 41-2013, May 16, 2013)

Tax Brief – June 2013

Punongbayan and Araullo