BIR Ruling [DA-159-98]

April 22, 1998 BIR RULING [DA-159-98] Mr. Rosauro D. Macapagal 3404 San Roque Sta. Ana, Manila Gentlemen : This refers to your letter dated December 1, 1997, requesting on behalf of the Spouses Enrique and Sonia San Jose, for a ruling regarding the computation of capital gains tax and documentary stamp tax on a real property sold in October, 1988 due to the pending cancellation of a lis pendens on the subject property. cdta It is represented that a Deed of Sale was executed between Spouses Enrique and Sonia San Jose and Spouses Ellen O. San Jose and Edit Marie O. San Jose; that the delay in filing the capital gains tax return was due to the Lis Pendens on the property which you were able to secure cancellation only last July, 1997, through the decision rendered by the Regional Trial Court of Manila; and that to show good faith you already paid the documentary stamp tax and the capital gains tax thereon through Traders Royal Bank as evidenced by the Official Receipts Number 358702 and 358701. In reply, please be informed as follows : 1. Revenue Memorandum Circular No. 34-91 issued on April 8, 1991 was issued primarily to stop further losses of the Bureau due to the some malpractices of antedating Deed of Sale involving real properties in order to avoid the imposition of income tax or the creditable withholding tax or reduce their tax liabilities on these transactions. Henceforth, public instruments transferring real properties presented to the appropriate revenue officials beyond three (3) months from the date of notarization are presumed as ante-dated and the tax liabilities of the parties are determined in accordance with the rules and regulations obtaining at the time such documents are presented to the BIR. This Circular, however, was nevertheless subsequently clarified by RMC No. 43-91 dated May 27, 1991 to prevent irritations between revenue officers and taxpayers due to conflicting interpretations and to achieve uniform application of the rules prescribed in RMC 43-91, the pertinent provisions of which read as follows : "In order to remove doubts as to what rules to apply and when to impose penalties for late filing of tax return and payment of tax, the following rules are hereby prescribed : "(a) When there is only a delay in the presentation of sales document, the rules of the kind of tax, rate of tax, zonal or fair market value obtaining at the date of notarization shall be applied but the penalties for late filing of return and payment of tax shall be imposed. There is delay in the presentation of sales document when the taxpayer submits said document to the BIR after thirty (30) days from the date of notarization. The delay could be in terms of days, months or even years. For this purpose, taxpayers have the burden of proving by the submission of other documents, such as cancelled checks, official receipts, contract to sell, or certification of the archive official, to show that there is no ante-dating of public instrument. "(b) When the document is presented to the BIR after three months from date of notarization and the taxpayer cannot present additional receipts or documents to show that the same is not ante-dated, then the rules applicable at the time of the presentation of the document shall be applied but no penalty shall be imposed. It is expected that by applying the current rules, a higher tax will be collected from the taxpayer than when the old rules plus penalties had been followed. In the instant case, since you had proven that your failure to pay your taxes on time is legally justified, the rate of tax, zonal or fair market value obtaining at the date of notarization shall be applied in accordance with the provisions of RMC 34-91, as clarified by RMC 43-91. In view thereof, the computation of the capital gains tax and documentary stamp tax on a real property sold in October, 1988 should be based on the rate prevailing at the time of the sale and/or the notarization of the document evidencing such sale. Very truly yours, (SGD.) LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue