BIR Ruling

January 16, 1975 Messrs. Meer, Meer & Meer Attorneys -at-Law 9th Floor, PLDT Bldg. Legaspi St., Makati, Rizal D-708 Attention: Atty . Alberto M . Meer Gentlemen : This refers to your letter dated December 12, 1974 requesting information on a query stated as follows: "We have an American client, who was a substantial stockholder of a pre-war corporation, which was ravaged during the War, and whose assets were mostly confiscated by the enemy or commandeered by the Allies. cdt "The records of the corporation were reconstituted after Liberation, and it was able to operate by the infusion of new capital from the pre-war stockholders, including our client, and partly from war damaged payments. The company was subsequently liquidated due to reorganization and, in ascertaining the taxable gain of our client, the cost basis that was allowed by your examiners was limited to his allocable share in the reconstituted capital after Liberation, plus such increase in capital as may have been contributed by him after Liberation. No consideration whatsoever was given to his investments prior to the War, which pertained to assets that were destroyed and which were not reimbursed from the war damaged claims and therefore, were not reflected in the reconstituted capital. "As we are unable to secure a copy of your examiners' report on our subject client, in view of the appreciable time that has elapsed since the liquidation was investigated by your Office, we would like your confirmation that the above-described basis in accordance with your law and regulations." In reply thereto, I have the honor to inform you that the above-described basis is in accordance with Section 35(b) of the Tax Code. Taxpayer's investments prior to the war, which pertained to assets that were destroyed and which were not reimbursed from the war damage claims and therefore, were not reflected in the reconstituted capital are deemed losses incurred by the corporation as a separate entity from its stockholder. Such losses, therefore, should not be taken into consideration in ascertaining the cost basis of taxpayer's allocable share in the reconstituted capital of the corporation undergoing liquidation. aisa dc Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue TAN-1601-593-5 "TAXPAYERS SHOULD INDICATE THEIR TAN IN ALL COMMUNICATION TO THE BIR."