REVENUE REGULATIONS NO. 25-2002 issued on December 16, 2002 amends RR No. 5-99 relative to the requirements for deductibility of bad debts from the gross income of a corporation, including banks and insurance companies, or an individual, estate and trust that is engaged in trade or business or a professional engaged in the practice of his profession. The requisites for valid deduction of bad debts from gross income are: 1) there must be an existing indebtedness due to the taxpayer which must be valid and legally demandable; 2) indebtedness must be connected with the taxpayer’s trade, business or practice of profession; 3) indebtedness must not be sustained in a transaction entered into between related parties enumerated under Sec. 36(B) of the Tax Code of 1997; 4) indebtedness must be actually charged off the books of accounts of the taxpayer as of the end of the taxable year; and 5) indebtedness must be actually ascertained to be worthless and uncollectible as of the end of the taxable year. Before a taxpayer may charge off and deduct a debt, he must ascertain and be able to demonstrate with reasonable degree of certainty the uncollectibility of the debt. The Commissioner of Internal Revenue (CIR) will consider all pertinent evidence securing the debt and the financial condition of the debtor in determining whether a debt is worthless, or the assigning of the case for collection to an independent collection lawyer who is not under the employ of the taxpayer and who shall issue a statement under oath showing the propriety of the deductions made for alleged bad debts. In the case of banks, without prejudice to the CIR’s determination of the worthlessness and uncollectibility of debts, the taxpayer shall submit a Bangko Sentral ng Pilipinas/Monetary Board written approval of the writing off of the indebtedness from the banks’ book of accounts at the end of the taxable year. In no case may a receivable from an insurance or surety company be written-off from the taxpayer’s books and claimed as bad debts deduction unless such company has been declared closed due to insolvency or for any such similar reason by the Insurance Commissioner.