BIR Ruling [DA-486-99]

August 25, 1999 BIR RULING [DA-486-99] Ms. Wilhelmina S. Montemayor 46 Magdalena St., Magallanes Village Makati City M a d a m : This refers to your letter dated July 30, 1999 stating that there is a need to explain or clarify further our BIR Ruling No. DA-536-98 issued to you on December 1, 1998 because it failed to directly address your problem; that in your letter dated October 21, 1998, you were requesting from this Office a certificate of exemption from additional taxes on one of the properties which had been already subjected to estate tax; that the said property is now to be partitioned by the co-heirs of the Estate of Mamerto R. Montemayor to two (2) specific heirs, namely, Mamerto S. Montemayor, Jr. and Paul Jesus S. Montemayor consisting of one (1) lot with improvements situated in Makati City; that this allotment of the aforesaid heirs will serve as part of their legitime in said Estate; that the Register of Deeds of Makati City requested for a certificate of exemption to avoid double taxation since no donation nor an accretion is involved, but just a mere partition of co-ownership to satisfy the rightful legitime of the compulsory heirs to the said Estate; and that, hence the co-heirs, who in their own rights have already received their own shares, do waive their rights to the subject property. Based on the foregoing representations and documents submitted, you are now requesting exemption from the payment of donor's tax and other taxes on the partition of the above realty by the co-heirs/co-owners, Mamerto S. Montemayor, Jr. and Paul Jesus S. Montemayor. In reply, please be informed that the juridical condition of co-ownership of things or right is terminated, among others, by the partition which converts into certain and definite parts the respective undivided shares of the co-owners. (Art. 494, Civil Code) cdll Moreover, under Article 496 of the Civil Code, partition may be made by agreement between the parties or by judicial proceedings. Partition shall be governed by the Rules of Court insofar as they are consistent with the Civil Code. "Partition by Agreement. An agreement of partition may be made orally or in writing. An oral agreement for the partition of the property owned in common is valid and enforceable upon the parties. The Statute of Frauds has no operation in this kind of agreements, for partition is not a conveyance of property but simply a segregation and designation of that part of the property which belong to the co-owners." In the instant case, the property to be partitioned between the co-owners Mamerto S. Montemayor, Jr. and Paul Jesus S. Montemayor is their respective legitime and included in the inventory of properties of the decedent, which had already been subjected to estate tax on March 8, 1978. Thus, the eventual partition of the said real property will not render the same subject to the donor's tax imposed under Section 98 (A) and (B) of the Tax Code of 1997, since there is no donative intent on the part of the other heirs to donate the said realty considering that the renunciation was made merely to exclude themselves from sharing on the said realty, and they have already received their respective legitime from the said estate. Moreover, the said partition is not likewise subject to the capital gains tax since the same is not a sale, exchange or other disposition of realty within the contemplation of Section 24(D)(1) of the Tax Code of 1997. Furthermore, the Deed of Partition to be executed for purposes of terminating the co-ownership over the aforesaid real property by and between the co-owners, Mamerto S. Montemayor, Jr. and Paul Jesus S. Montemayor, is not subject to the documentary stamp tax prescribed under Section 196 of the Tax Code of 1997 because the allocation is made without monetary consideration and not in connection with a sale. Instead, the partition is made merely to distribute among the co-heirs their respective legitime. (BIR Ruling No. DA-065-97 dated February 10, 1997) 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 null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)