BIR Ruling [DA-311-06]

May 10, 2006 BIR RULING [DA-311-06] Secs. 24, 85 & 196 Malabon Education Institution Gov. Pascual Avenue, Malabon City Attention: Mr. Francisco V. Cayco President Gentlemen : This refers to your letter dated March 1, 2005 requesting a ruling that the transfer of real property by virtue of a Deed of Quitclaim or Waiver of Claim if exempt from the capital gains and documentary stamp taxes. The facts as represented are as follows: On February 2, 1968, Spouses Florentino and Elisa Cayco sold to Malabon Educational Institution (MEI for brevity) a parcel of land situated in Gen. Luna St., Bayan-bayanan, Malabon, Metro Manila, with an area of 3,452 square meters and covered by Transfer Certificate of Title (TCT) No. 185050. Spouses Cayco passed away with MEI not able to secure from them the Deed of Absolute Sale of the above transaction. Elisa Cayco died on May 2, 1970 while Florentino Cayco died on August 29, 1976. Recently, MEI discovered that the title of the above-mentioned property was already transferred to the heirs of the above spouses as it was included in their estate. Through a series of negotiations and after the presentation of several documents, including among others, the vouchers, checks and accounting records showing that MEI had indeed already paid for the subject property and had already declared it as part of MEI's asset even prior to the death of the spouses, the heirs of Spouses Cayco were fully convinced that MEI had really purchased the subject property, thus, it should not had been included in the estate of the spouses. Consequently, the heirs of Spouses Cayco executed a Deed of Quitclaim or Waiver of Claim without consideration in favor of MEI, in whose name the title to the land should have been registered. From the foregoing, you are requesting a ruling that the transfer of the land by virtue of a Deed of Quitclaim or Waiver of Claim is not subject to the capital gains and documentary stamp taxes. caHCSD In reply, please be informed that under Section 85 of the Tax Code of 1997, as amended, the value of the gross estate of the decedent shall be determined by including the value at the time of his death of all properties, real or personal, tangible or intangible, wherever situated to the extent of any interest therein. In other words, all properties to which the decedent had interest at the time of his death shall be considered as forming part of his gross estate. Stated otherwise, all properties to which the decedent had relinquished his right of ownership prior to his death shall not formed part anymore of his gross estate. In the case at hand, despite the fact that the decedent spouses and MEI had not executed the contract of sale over the subject property, it is evident, however, that the same had already been sold to MEI during the lifetime of the spouses. MEI was able to present several documents, including among others, the vouchers, checks and accounting records showing that MEI had indeed already paid for the subject property and had already declared it as part of its assets even prior to the death of the spouses. The foregoing taken into consideration, this Office therefore rules that the subject property is not part of the estate of the decedent spouses and that it rightfully belongs to MEI as a purchaser for value. Thus, the recourse taken by the heirs of Spouses Cayco in reconveying the subject property to MEI is just proper. In view of the foregoing, the Deed of Quitclaim or Waiver of Claim made by the heirs of Spouses Cayco in favor of MEI, executed for the purpose of reconveying the subject property to its rightful owner, thus, without monetary consideration, is not subject to the capital gains and documentary stamp taxes imposed under Section 24 and 196 of the 1997 Tax Code, as amended, respectively. (BIR Ruling No. 108-98 dated June 29, 1998 cited in DA-325-2004 dated June 16, 2004). Moreover, the transfer of the above-mentioned real property is exempt from the donor's tax imposed under Section 98 of the same Code due to lack of donative intent on the part of the heirs of Spouses Cayco. (BIR Ruling DA-146-2000 dated March 10, 2000) This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered as null and void. cHECAS Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service