Module 6 GROSS INCOME

CENTRAL PHILIPPINE UNIVERSITY

College of Business and Accountancy

Tax 43 – Income Taxation and Business Taxes

First Semester
Module # 6

GROSS INCOME

EXCLUSIONS FROM GROSS INCOME

What are Exclusions?

Exclusions are income or receipts which are excluded from gross income, i.e. these are not included in the
determination of a taxpayer's gross income.

Hence, these incomes or receipts are hot subject to income tax. However, despite their non-inclusion from gross
income, such income items may be subject to taxes other than the income tax.

Exclusions Under the Tax Code

The following items shall not be included in gross income and shall be exempt from income tax:

A. Proceeds of Life Insurance Upon Death of the Insured

The proceeds of life insurance policies paid to the heirs or beneficiaries upon death of the insured shall be
exempt from income tax. The proceeds of life insurance are treated more as an indemnity for the life lost
instead of as gain, profit, or income.

Note: Interest payments made by the insurer constitutes income to the recipient.

B. Amount Received by Insured as Return of Premium

The amount received by the insured, as a return of premiums paid by him under life insurance, endowment, or
annuity contracts, either during the term, or at the maturity of the term mentioned in the contract, or upon
surrender of the contract.

Notes:
a) The excess of the proceeds received over the premiums paid is included in gross income

b) Participating dividends distributed to life insurance policy holders are actually a return of overpaid
premiums. They are therefore excluded from gross income of the insured.

C. Gifts, Bequests, and Devices

The value of property acquired by gift, bequest, devise or descent are exempt from income taxation.

Note: The income from the lease, sale, exchange, investment, or other disposition of such property shall be
subject to income tax.

D. Compensation for Injury or Sickness

a) Amounts received, through accident or health insurance, or under Workmen’s Compensation Acts, as
compensation for personal injuries or sickness; Plus

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b) The amounts of any damages received, whether by suit or agreement, on account of such injuries or
sickness.

c) Damages representing compensation for personal injuries arising from libel, defamation, slander, breach
of promise to marry, or alienation of affection.

- Includes moral damages. Moral damages include physical suffering, mental anguish, fright,
serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and
similar injury.

- Includes exemplary or corrective damages. These are imposed by way of example or

correction for the public good.

E. Income Exempt Under Treaties

Income of any kind, to the extent required by any treaty obligation or international agreement to be exempt
from taxation by the Republic of the Philippines.

F. Retirement Benefits, Pensions, Gratuities, Separation Pay Which Are Exempt From Income Tax

As a general rule, retirement benefits, pensions, separation pay are all taxable.

As exceptions, the following benefits and payments are EXEMPT from income tax:

a) Retirement benefits and/or pensions which are exempt from income tax:

Under RA No. 7641 (Retirement Pay Law). In the Under the Tax Code, retirement benefits and/or
absence of a retirement plan for employees, pension amounts received by officials and
employers are required to pay a retirement benefit employees of private firms, whether individual or
equal to at least ½ month salary for every year of corporate, shall be exempt from income tax when
service. the requisites for exemption in the Tax Code are
complied with.

Requisites for exemption: Requisites for exemption:

i. The employee has reached the age of 60 or i. There must be a reasonable private benefit
more, but not beyond 65; and plan maintained by the employer;
ii. The employee has served for at least 5 ii. The retiring official or employee has been
years in the same establishment. in the service of the same employer for at
least 10 years;
iii. The retiring official or employee is not less
than 50 years of age at the time of his
retirement;
iv. The benefits of exemption granted shall be
availed of by an official or employee only
once.

b) Separation pay due to a cause beyond the control of the employee

Any amount received by an official or employee, or his heirs, from the employer as a consequence of
separation of such official or employee from the service of the employer due to:

(1) Death;
(2) Sickness;
(3) Other physical disability; or
(4) For any cause beyond the control of the said official or employee.

Note: Separation pay due to the above-mentioned causes are exempt from income tax regardless of the
age or length of service of the employee.

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The exemption does not cover salaries, 13th month pay and other benefits in excess of P90,000, and
other payments which are properly taxable to the employee.

c) Social security benefits, retirement gratuities, pensions and other similar benefits received by resident
or non-resident citizens of the Philippines, or aliens who come to reside in the Philippines, from foreign
agencies and other institutions private or public.

d) Payment of benefits due or to become due to any person residing in the Philippines under the laws of the
United States administered by the United States Veteran Administration.

e) Benefits received from or enjoyed under the Social Security System (SSS) in accordance with the
provisions of Republic Act 8282.

f) Benefits received from the GSIS under Republic Act No. 8291, including retirement gratuity received by
government officials and employees.

g) Maternity benefits advanced by the employer to the employee are excluded from gross income, and are
therefore exempt from withholding tax.

G. Miscellaneous Items

a) Income derived by foreign governments, financing institutions owned or controlled by foreign

governments, and international or regional financial institutions established by foreign
governments from investments or deposits in the Philippines.

b) Income derived by the Philippine Government or its Political Subdivisions from the exercise of any
governmental function.

c) Prizes and awards primarily in recognition of religious, charitable, scientific, educational, artistic,
literary, or civic achievement but only if:
(1) The recipient was selected without any action on his part to enter the contest or proceeding; and
(2) The recipient is not required to render substantial future services as a condition to receiving the
prize or award.

d) Prizes and awards granted to athletes in local and international sports competitions and tournaments
whether in the Philippines or abroad and sanctioned by their national sports association.

e) 13th Month Pay and Other Benefits received by officials and employees of public and private entities as
“13th month pay and other benefits” which shall include:

(1) The 13th month pay, and other incentives such as productivity incentives and Christmas bonus; and
(2) The excess of the de minimis fringe benefits over their respective ceilings.

Provided, however, that the total exclusion shall not exceed Ninety Thousand (P90,000) Pesos
(P82,000 before the TRAIN law).

f) Compulsory or mandatory contributions of employees to GSIS, SSS, Medicare (PHIC), and PAG-
IBIG, and union dues of individuals.

Note: Contributions in excess of the mandatory contributions are not deductible from gross income.
Moreover, GSIS Educational Plan, GSIS Optional Insurance, GSIS Unlimited Optional Insurance, and
GSIS Memorial Plan premiums shall not be deductible.

g) Gains from the sale, exchange or retirement of bonds, debentures, or other certificates of
indebtedness with a maturity of more that 5 years.

h) Gains from Redemption of Shares in Mutual Fund

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i) Income of non-residents from transaction with Domestic Depository Banks and OBUs Under the
Expanded Foreign Currency Deposit System

j) Personal Equity and Retirement Account (“PERA”)

PERA refers to the voluntary retirement account of an individual (called a “Contributor”) established
from his own Qualified PERA Contributions and/or Qualified Employer Contributions, for the purpose of
being invested solely in qualified or eligible PERA investment products.

k) Representation and transportation allowances (“RATA”) granted under Section 34 of the General
Appropriation Act to certain officials and employees of the government from the rank of Department
Secretaries to Division Chiefs are not subject to income tax and to the withholding tax.

l) Personnel Economic Relief Allowance (“PERA”) granted to all employees of the National
Government, Local Government Units, including government owned or controlled corporations, is
considered remuneration/compensation for services performed by the employees in the performance of
official duties, hence, not taxable income.

m) Capital contributions to corporations/partnerships are not income of the corporation/partnership, and

hence not subject to income tax.

n) Project-related income from the development of socialized housing sites. The private sector (ex.
contractors) shall be exempt from payment of project-related income taxes (including CGT) on a per
project basis on income realized from the development of socialized housing sites.

Yield or income from any low-cost or socialized housing-related asset-backed security.

o) Income from the commercialization of technologies developed by local inventors or researchers

under R. A. No. 7459 during the first ten (10) years from the date of the first sale.

p) Proceeds which constitute a fund held in trust by the taxpayer, and which do not redound to the
benefit of the taxpayer.

GROSS INCOME

Concept of Gross Income

Gross income means the total income of a taxpayer subject to tax. It includes the gains, profits, and income
DERIVED FROM WHATEVER SOURCE, whether legal or illegal.

It does not include income excluded by law, or which are exempt from income tax.

Gross Income Defined

Gross income means all income derived from whatever source, including, but not limited to the following
items:
(1) Compensation for services;
- Including pensions and retiring allowances (except those exempt by law)
(2) Gross income derived from the conduct of trade or business or the exercise of profession;
(3) Partner’s distributive share from the net income of a general professional partnership;
(4) Rents
(5) Annuities (excess over premium paid);
(6) Gains derived from dealings in property;
(7) Interest income;
(8) Royalties;
(9) Dividends;
(10) Prizes and winnings;

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Note: The above enumeration is not exclusive. Gross income may also include other forms of income which
are not even mentioned in the list above. An example of this would be income from illegal sources.

Items of Gross Income

1. Compensation For Services

Compensation for services, of whatever kind and in whatever form paid, forms part of gross income. The
name by which the remuneration for services is designated is immaterial. Thus, salaries, wages, emoluments
and honoraria, allowances, commissions (e g. transportation, representation, entertainment, and the like); fees,
including director’s fees, if the director is, at the same time, an employee of the employer/corporation; taxable
bonuses and fringe benefits, except those which are subject to the fringe benefits tax under Section 33 of the
Tax Code; taxable pensions and retirement pay; and other income of a similar nature constitute compensation
income.

(A) Compensation Income which may be in the following forms:

a) Cash
b) Allowances
c) Property – the FMV of the thing taken in payment is the amount of compensation
d) Employer’s stock – the FMV of the shares at the time the services were rendered.
e) Promissory notes – the fair discounted value of the note as of the time of receipt. The employee
shall also record additional income upon the recovery of the discount.
f) Forgiveness of debt for services rendered to ta creditor
Note: Where the debtor is a stockholder of the corporation condoning the debt, the condonation of
the debt amounts to an indirect payment of dividend.
g) Income tax of the employee assumed or paid by the employer, in consideration of the latter’s
services.
h) Pensions and retiring allowances – except those exempt by law
i) Stock options – the FMV of the stock option at the time the services were rendered by the
employee.

(B) Stock Options

1) The amount of compensation shall be the FMV of the stock options at the time the services were
rendered.

2) When the employee exercises the option by paying the exercise price (equity-settlement option), it
results in additional income. Such additional income shall equal the higher of the book value or
FMV of the shares, less the exercise price.
(a) If the employee is a rank-and-file employee, the additional income shall be recognized by
the employee as taxable compensation and shall be subject to the CWT on compensation.
(b) If the employee is a supervisory or managerial employee the additional income shall be
treated as a fringe benefit subject to the final FBT
3) When the grantor (the corporation) simply pays the difference between the FMV of the shares and
the exercise price (cash-settlement option), the same rules in (2) above apply.

(C) Fringe Benefits which may be in the form of (1) meals furnished or subsidized by the employer; (2)
living quarters; (3) life insurance premiums paid by the employer where the insured employee is the
beneficiary; (4) facilities or privileges provided by the employer; or allowances.

Fringe benefits are classified under the following categories, namely:

Those subject to the fringe benefits tax (“FBT”)

- Fringe benefits given to employees holding managerial or supervisory positions, and which
are listed in RR No. 3-98, as amended

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Those included in gross income in the ITR

- Fringe benefits given to rank and file employees

- Fringe benefits given to employees holding managerial or supervisory employees and which
are not listed in RR No. 3-98, as amended

Those which are not taxable

- Fringe benefits given to employees for the convenience of the employee, or if incurred by the
employee in the pursuit of the trade, business, or profession of the employer and is liquidated
and accounted for by the employee.
- “De minimis” fringe benefits

(D) Salaries and Allowances During Leaves of Absence

(E) Separation Pay NOT Due to a Cause Beyond the Control of the Employee

General Rule: Separation pay is included in gross income of separated employee

Exception: If separation is caused by something not of the employee’s making. For example, if
separation is due to cessation of the business, or as a consequence of death, sickness, other
physical disability, or for any cause beyond his control, the separation shall be exempt from
tax.

(F) Fees

Fees received by an employee for the performance of a service for the employer, including director’s
fees (including per diems and allowances), are regarded as compensation income.

Marriage fees, baptismal offerings, sums paid for saying masses for the dead, and other contributions
received by a clergyman, evangelist, or religious worker for services rendered are considered
compensation.

Exception: Authorized fees paid to public officials, such as notaries public, clerks of court, sheriffs, etc.,
for services rendered in the performance of their official duties, are not considered wages.

(G) Dismissal Payment

Any payment made by an employer to an employee on account of dismissal, that is, involuntary
separation from the service of the employer, constitutes wages, regardless of whether the employer is
legally bound by contract statute, or otherwise to make such payment

(H) Tips and Gratuities

Tips or gratuities paid directly to an employee (by a customer of the employer) which are not accounted
for by the employee to the employer are considered taxable income, but not subject to withholding
tax.

2. Gross Income From Business

1) In general, “gross income” means total sales less COGS, plus any income from investments and from
any incidental or outside operations or sources.

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Formula:

Gross Sales P xxx

Less: Cost of good sold xx)
Gross profit from sales P xxx
Add: Other Income P xxx
(a) Income from investment P xxx
(b) Income from incidental or outside
operations or sources xxx xxx
Gross Income P xxx

2) Income from Long-Term Contracts

The term “long-term contracts” refers to construction, installation, or building contracts requiring a
period longer than one (1) year for completion.

Income therefrom is reported under the percentage of completion basis.

3) Gross Income From Farming

The income tax regulations prescribe three (3) methods of reporting the gross income from farming,
namely:

(a) Cash basis, or receipts and disbursements basis. Under this method, no inventory is used to
determine profits.

Formula –

Cash from sales of livestock and other products raised in the farm
+ Value of property received from sales
+ Profits/Gains from the sale of livestock or other items purchased
+ Gross income from all other sources
TOTAL gross income

(b) Accrual basis. Under this method, inventory is used to determine profits

Formula –

Sales xxx
Ending Inventory xxx
Less beginning inventory (xx)
Less purchases (xx) (xx)
Gross Income xxx

(c) Crop basis. This method of reporting income may be used by a farmer engaged in producing
crops which take more than (1) year from the time of planting to the time of gathering and
disposing of the crop.

In such cases, the entire cost of producing the crop must be taken as a deduction in the year in
which the gross income from the crop is realized.

4) Gross Income From Petroleum Operations

Gross income from petroleum operations means its total entitlement of the gross proceeds from the sale
at market price, during the taxable year, of petroleum produced under the service contract, and such

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other income incidental to and arising from any one or more of the petroleum operations of the
contractor.

Provided, the amount of Filipino participation incentive allowance received by a Philippine corporation
pursuant to an operating agreement under a petroleum service contract between a service contractor and
the Government under P.D. No. 87 shall not be included in the gross income of the Philippine
corporation.

3. Payments Made by a GPP to a Partner, and the Distributive Share of Partners in the Net Income of a GPP

4. Rent or Lease Income

Reporting of Income by a Lessor

Rent paid by the lessee for the use or lease of property is taxable income to the lessor.

Rent income may be in the following forms:

(1) Cash, at the stipulated price;

(2) Obligations of the lessor to third persons paid or assumed by the lessee in consideration of the
contract of lease. An example is the real estate tax on the property leased assumed by the lessee.

(3) Advance payment which must be pre-paid rentals and not (a) a loan to the lessor, or (b) option
money for the property, or (c) security deposit for the faithful performance of the lessee’s obligations

However, a security deposit that is applied to rentals is taxable income to the lessor.

Pre-paid rent must be reported in full in the year of receipt, regardless of the accounting method
used by the lessor.

(4) Leasehold improvement

The contract of lease may provide that the lessee may make permanent improvements on the lease
property and said improvements will belong to the lessor upon termination of the lease.

Income and Deduction from Leasehold Improvement

(a) Income of Lessor

The lessor, in such a case, may, at his option, report income under any of the following methods:

1) Outright method – lessor reports as income the FMV of the improvement in the year of
completion.

2) Spread-out method –

The lessor shall spread over the remaining term of the lease the estimated depreciated (book)
value of such buildings or improvements at the termination of the lease, and report as income
for each remaining term of the lease an aliquot part thereof

Formula:

Cost of leasehold improvements P xxx

Less: Depreciation for remaining term of lease (xx)
Book value, end of lease P xxx

Book value end of lease = Income per year P xxx

Remaining term of lease

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(b) Deduction of Lessee (Depreciation expense)

The lessee may claim depreciation of the improvements over the remaining term of the lease or
the life of the improvements, whichever is shorter.

(c) Computation of Income from Leasehold Improvement Arising from the Pre-termination of
Lease Contract

The lessor receives additional income for the year in which the lease is so terminated to the
extent that the value of such building when he became entitled to such possession exceeds the
amount already reported as income on account of the erection of such building.

Formula –

BV of Leasehold Improvement at termination of Lease P xxx

Less: Amounts of income previously recognized (xx)
Additional income in year of termination P xxx

(d) Loss of Lessor if Leasehold Improvement is Destroyed Before Termination of Lease

If the building or other leasehold improvement is destroyed before the expiration of the lease,
the lessor is entitled to deduct as a loss for the year when such destruction takes place the
amount previously reported as income because of the erection of the improvement, less any
salvage value, to the extent that such loss was not compensated by insurance.

5. Annuities and Life Insurance Policies

(a) Annuities – Annuities paid under an annuity contract in excess of the consideration paid are includible in
gross income

(b) Life Insurance Policies – Where insured outlives the term of the policy, amounts received by an insured
in excess of the premiums paid are included in gross income.

Note: Distributions on paid-up policies, which are made out of earnings of the insurance company
subject to tax, are in the nature of corporate dividends and should be taxed accordingly.

6. Gains Derived From Dealings in Property

Sale of 3 types of property which may give rise to taxable events:

Ordinary asset – 100% of the gain or loss shall be recognized in the ITR
Capital asset – subject to final taxes (capital gains tax)
Other capital asset – holding period of the asset shall be taken into consideration if the seller is an
individual, and only the net capital gain shall be included in the ITR.

(1) Sale of Tangible Assets

(2) Sale of Intangible Assets (ex. patents, copyrights, and goodwill)
(3) Corporate Sinking Fund
(4) Sale of Real Property

Gain from the sale of real properties classified as ordinary assets shall be included in gross income in the
ITR of the taxpayer.

Note: Real properties acquired by banks through foreclosure sales are considered as their ordinary
assets. However, banks shall not be considered as habitually engaged in the real estate business
for purposes of determining the applicable rate of creditable withholding tax imposed under Sec.
2.57.2 of Rev. Reg. No. 2-98, as amended (Rev. Reg. No. 7-2003).

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7. Interest Income

Interest income, as a rule is taxable income included in the ITR.

EXC. (1) Interest income from bank deposits or deposit substitutes in the Philippines subject to FT
(passive income);
(2) Interest income which are exempt from tax:
i. Interest income from long-term deposit or investment in the form of savings, trust funds,
deposit substitutes, investment management accounts;
ii. Interest income earned from passive investments of foreign governments, financing
institutions owned by foreign governments, and international financial institutions
established by foreign governments.

Note: Interest income on Government securities is subject to final tax on passive income as such securities
are considered deposit substitutes.

8. Royalties

Royalties derived from sources within the Philippines are subject to a final tax of 20%, except royalties on
books, other literary works, and musical compositions which shall be subject to a final tax of 10%.

Royalties received by resident citizens and domestic corporations from sources without the Philippines
shall be included in the ITR.

9. Dividends

Dividends subject to FT: Cash or property dividends received by individuals and NRFCs from domestic
corporations.

Dividends included in gross income in the ITR:

1) Generally, cash and/or property dividends received by a resident citizen or domestic corporation from
a foreign corporation.

2) Liquidating Dividend

Liquidating dividends represent distribution of all the property or assets of a corporation in complete
liquidation or dissolution.

The difference between the cost or other basis of the stock and the amount received in liquidation of
the stock is a capital gain or a capital loss. Where property is distributed in liquidation, the amount
received is the fair market value of such property.

Liquidating dividend P xxx

Less: Cost of stock investment or other basis (xx)
Capital gain or (Capital loss) P xxx

If the shareholder is a corporation, the capital gain is taxable in full.

If the shareholder is an individual and the stocks were held for more than 12 moths, the capital gain is
taxable only to the extent of 50% thereof (Sec. 39 (B), NIRC)

Dividends not subject to income tax

1) Intercorporate dividends from a domestic corporation to another domestic corporation or a RFC.

2) Generally, stock dividends.

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10. Prizes and Winnings

Subject to FT: (a) Prizes over P10,000 and winnings1 derived within the Philippines.
(b) Prizes received by a NRANETB and by a NRFC within the Philippines.

Included in the ITR:

1) Prizes amounting to P10,000 or less received by a citizen, resident alien, or NRAETB
2) Prizes received by domestic corporations
3) Prized received by RFCs within the Philippines
4) Prizes and winnings received by resident citizens from sources without the Philippines

11. Income From Other Sources

(1) Recovery of damages representing compensation for loss of profits or income are includible in
gross income
Note: Recoveries that are to compensate for damage to property, injury to person, or loss of life are
not taxable.

Included in Gross Income Not Taxable

1) Damages for loss profits 1) Damages to compensate for damage or
2) Damages for lost income injury to the person or his property
2) Damages for lost capital
3) Moral damages
4) Exemplary damages
5) Punitive damages

(2) Recovery of Bad Debts Previously Deducted

The “Tax Benefit Rule” is the doctrine observed in the Philippines in bad debt recoveries.

Rules on Bad Debt Recovery:

(a) Taxable – if the deduction of the bad debt in prior year resulted in an income tax benefit to the
taxpayer, the bed debt recovered is taxable income in the year of recovery.

(b) Not Taxable – if the deduction of the bad debt did not result in an income tax benefit to the
taxpayer (i.e., where the result of the business operation was net loss even without the bad debt
deduction), the bad debt recovered is not taxable income but is treated as a mere recovery or
return or capital.

(c) Income From Bad Debt Recovery – the recovered amount of the previously deducted bad debt
which resulted in an income tax benefit.

(3) Refund of Deductible Tax

The tax benefit doctrine also applies with respect to refund or credit of taxes which were claimed
and deducted in a previous year.

Rules on Refund of Taxes Previously Deducted:

(a) Taxable – if the tax paid is a deductible tax. The refund or credit thereof is taxable in the year of
receipt.

(b) Not Taxable – if the tax paid is not a deductible tax. The refund or credit thereof is not taxable.

1Except PCSO and Lotto winnings of P10,000 or less of an individual citizen or resident alien, and PCSO and Lotto winnings of a NRAETB regardless of
amount, which is EXEMPT.

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(c) Income From Tax Refund – The refunded amount of the tax which was previously deducted and
which resulted to an income tax benefit.

Examples of deductible taxes are: percentage taxes (except VAT and stock transaction tax under
Sec. 127 the Tax Code), excise taxes, occupation or professional taxes, real property taxes.

Examples of non-deductible taxes are income tax, donor’s tax, estate tax, VAT, stock transaction tax
under Section 127 of the Tax Code)

(4) Tournament Prizes

Included in the ITR: Cash prizes won by local players/participants in tournaments are not passive
income inasmuch as participating in such tournaments is their profession and/or occupation.

Subject to FT: Cash prizes of foreign players/participants, shall be subject to a final tax of 25%.

Exempt from income tax: Prizes and awards granted to athletes in local and international sports
competitions and tournaments whether held in the Philippines or abroad, and sanctioned by their
national sports associations.

(5) Forgiveness of Indebtedness

Included in the ITR: When a creditor cancels the debt as part of a business transaction, or in
consideration of personal services of the debtor, the condoned debt is taxable income to the debtor.

Taxed as a dividend: But where the debtor is a stockholder of the corporation which condoned the
debt, the condonation is considered an indirect payment of dividend.

Subject to donor’s tax: If a creditor merely desires to benefit a debtor, and without any
consideration therefor cancels the debt, the amount of the debt is a gift from the creditor to the
debtor.

(6) Income from Illegal Sources

All unlawful gains are taxable and includible in the ITR. However, actual repayment of such illegal
gains will give rise to a deduction. (James vs. United States, 366 US 213)

(7) Unutilized/Excess Campaign Funds

Unutilized/excess campaign funds, that is, campaign contributions net of the candidate’s
campaign expenditures, shall be considered as subject to income tax. As such, the same must be
included in the candidate’s gross income as stated in his Income Tax Return (“ITR”) for the subject
taxable year.

Any candidate who fails to file with the COMELEC the appropriate Statement of Expenditures
required under the Omnibus Election Code, shall be automatically precluded from claiming such
expenditures as deductions from his campaign contributions. As such, the entire amount of his
campaign contributions shall be considered as directly subject to income tax.

(8) Early Withdrawals from a Personal Equity and Retirement Account (“PERA”) which do not
qualify for exclusion from taxable gross income

(9) Gain in the Sale or Retirement by a Corporation of Its Own Bonds

- Where the corporation is able to buy back its own bonds for less than the value of such bonds
as reflected in the corporation’s books.

(10) Stock options granted to a supplier of goods or services

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