BIR Ruling

September 1, 1971 Messrs. Ungson & Ungson Attorneys-at-Law 504 Magsaysay Bldg. T. M. Kalaw, Ermita, Manila Gentlemen : This refers to your letter dated August 25, 1971 substantially stating as follows: cdta The heirs of the late Ambrosio Magsaysay and Amalia Corpus Magsaysay namely, Ramona, Anita, Emma and Miguel still hold in common real properties inherited from their parents. To effect a more economical development of said properties, the heirs have decided to incorporate the same. To facilitate the act of incorporation, the heirs will first contribute cash to meet the initial capital contribution required by the corporation law. Thereafter, they will contribute the real properties in payment of the remaining unpaid subscription. You now ask information as to whether or not the above described transaction would give rise to the recognition of gain or loss. In reply, I have the honor to inform you that no gain or loss shall be recognized pursuant to Section 35(c)(2) of the Tax Code which provides that "no gain or loss shall also be recognized if a person exchanges his property for stock in a corporation of which as a result of such exchange said person, alone or together with others, not exceeding four persons, gains control of said corporation." In connection with the contemplated incorporation, however, the transferor-heirs must file with their income tax returns for the taxable year in which the exchange will be consummated a complete statement of all facts pertinent to the exchange including: (1) A description of the property transferred, or of its interest in such property, together with a statement of the original acquisition cost or other basis thereof and the adjusted cost basis at the time of transfer; (2) The kind of stock received and preferences if any; (3) The number of shares of each class received; (4) The fair market value per share of each class at the date of exchange; aisa dc On the other hand, the transferee corporation must file with its income tax return for the taxable year in which the exchange was consummated. (1) A complete description of all property received from the transferor; (2) A statement of the original acquisition cost or other basis thereof in the hands of the transferor and the adjusted cost basis at the time of transfer; (3) Information with respect to the capital stock of the corporation including: cdt (a) the total issued and outstanding capital stock immediately after the exchange, with complete description of each class of stock; (b) the classes of stock and number of shares issued to the transferor in the exchange; (c) the fair market value of the capital stock as of the date of exchange which was issued to the transferor. In addition to the foregoing requirements, permanent records in substantial form must be kept by the taxpayer participating in the exchange showing the information listed above in order to facilitate the determination of gain or loss from a subsequent disposition of stock received in the exchange. acd Very truly yours, MISAEL P. VERA Commissioner of Internal Revenue