BIR Ruling

February 2, 1976 Mr. Emilio J. Andres Owner 906 Sto. Tomas St. Sampaloc, Manila S i r : This has reference to your letter dated October 22, 1975 stating as follows: cdtech "The undersigned is the owner of a parcel of land in Quezon City consisting of 800 sq. m. more or less and assessed in the amount of ONE HUNDRED FIFTY THOUSAND (P150,000) PESOS with 50% assessment (commercial) level. It is being rented for a monthly rental of ONE THOUSAND (P1,000.00) PESOS. "I am intending to donate three-fifth (60%) of the land to my four grown-up children and will retain forty (40%) percent of the land for myself and my wife. The required DONOR'S tax will be duly paid. Hence, sixty (60%) percent of the monthly rental will be divided among the four children. There will be no cash investment in this donation. Thus there will be co-ownership of the Land between my children and us. "Inquiry: How shall we consider our share of the income of the land for income tax purposes for the year 1976 if the donation is effected? How will the co-ownership be considered? Will it be considered as un-registered partnership and thus be subject to the corporate tax of 25% of the net income? "Does every co-owner need to get a separate privilege tax as real estate dealer or there will be needed only a single privilege tax receipt for the co-ownership? How will the expenses be apportioned (example: real estate tax on the property)?" that under the foregoing facts, the relationship between you and your children will be that of an unregistered partnership once you execute the donations. Said unregistered partnership shall be subject to corporate income tax prescribed by Section 24(a) of the Tax Code, as amended by Presidential Decree No. 778. Your distributive share and those of your children on the net profit (rental income less expenses) to be derived by the unregistered partnership should be declared in your respective income tax returns, whether distributed or not. The unregistered partnership is required to secure a privilege tax receipt (C-8) as real estate dealer (Section 182(A)(2)(aa), Tax Code). As it is the unregistered partnership which is considered engaged in the business of real estate dealer, the partners are not subject to the privilege tax imposed on real estate dealers. Very truly yours, EFREN I. PLANA Acting Commissioner of Internal Revenue TAN-1456-040-3 "TAXPAYERS SHOULD INDICATE THEIR TAN IN ALL COMMUNICATIONS TO THE BIR."