[Answer/discuss the question below, or see 2017 bar exam Taxation Instructions; 2016 Taxation Questions: 1, 2, 3, 4, 5, 6, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, and 19; See also 2017 Bar Exam: Information, Discussions, Tips, Questions and Results]
Calvin Dela Pisa was a Permits and Licensing Officer (rank-and-file) of Sta. Portia Realty Corporation (SPRC). He invited the Regional Director of the Housing and Land Use Regulatory Board (HLURB) to lunch at the Sulo Hotel in Quezon City to discuss the approval of SPRC’s application for a development permit in connection with its subdivision development project in Pasig City. At breakfast the following day, Calvin met a prospective client interested to enter into a joint venture with SPRC for the construction of a residential condominium unit in Cainta, Rizal.
Calvin incurred expenses for the lunch and breakfast meetings he had with the Regional Director of HLURB and the prospective client, respectively. The expenses were duly supported by official receipts issued in his name. At month’s end, he requested the reimbursement of his expenses, and SPRC granted his request.
(a) Can SPRC claim an allowable deduction for the expenses incurred by Calvin? Explain your answer. (2.5%)
(b) Is the reimbursement received by Calvin from SPRC subject to tax? Explain your answer. (2.5%)