Dra. Emerenciana Arcellana

November 18, 2008 BIR RULING [DA-(ET-013) 434-08] RR 2-03 & BIR Ruling No. DA-184-99 Dra. Emerenciana Arcellana c/o HOA, No. 49 Champaca St. Marikina Heights, Marikina City Madam : This refers to your letter dated May 16, 2008 requesting for a ruling that the parcel of land co-owned by Spouses Francisco Arcellana, Sr. and Emerenciana Y. Arcellana and placed under the Comprehensive Mortgage Program (CMP) of the Socialized Housing Finance Corporation (SHFC) before the death of Francisco Arcellana, Sr. is not part of his estate subject to estate tax. As represented, Spouses Francisco Arcellana, Sr. and Emerenciana Y. Arcellana ("Sps. Arcellana" for brevity) are the absolute and registered owners of a parcel of land located at Champaca St., Brgy. Marikina Heights, Marikina City covered by Transfer Certificate of Title (TCT) No. 80630 with an area of 2,640 sq.m. that Arcellana Homeowners' Association, Inc.'s ("AHOA" or "the Association" for brevity) qualified member-beneficiaries occupy. On the other hand, AHOA is a legal association of underprivileged and homeless citizens registered with the Housing and Land Use Regulatory Board under Certificate of Registration No. 00957 issued on October 17, 2001. AEDCHc On May 17, 2007, a Memorandum of Agreement (MoA) was executed by Spouses Arcellana transferring the abovedescribed real property in favor of AHOA as represented by Ma. Luz M. Domaoal in the amount of PhP7,920,000.00. Section VI of the MoA provides "VI. EFFECTIVITY 6.1 This agreement shall be effective from the date signing until the payment is released to the VENDOR by National Home Mortgage Finance Corporation (now taken over by the Social Housing Finance Corporation). 6.2 This Agreement is binding between the parties, their successors and assignees." On February 19, 2003, Mayor Ma. Lourdes C. Fernando approved Sangguniang Panlungsod ng Marikina Resolution No. 018 authorizing her, representing the Marikina City Government to act as originator of the CMP loan application of the AHOA, for the acquisition of the subject real property. Per procedural requirement, Sps. Arcellana surrendered the title to the aforesaid property to NHMFC (now taken over by the SHFC) who has since been in the possession thereof. As further represented, the MoA was honored by BIR-Quezon City where you paid the estate tax of Francisco Arcellana, Sr.'s estate and BIR-Cainta which has jurisdiction over the subject property. Both offices excluded the property from their assessment. In reply, please be informed that it is a rule in estate taxation that transfers by virtue of a bona fide sale of property for an adequate and full consideration in money or money's worth are excluded from the gross estate of the decedent and, therefore, not subject to estate tax. In this case, however, there was no sale for full consideration since AHOA and/or NHMFC (now taken over by the SHFC) has only paid half of the consideration for the transfer of the aforesaid property. In fact, the title to the Marikina lot continues to be registered in the name of Spouses Arcellana. Such being the case, legal remedies are still available to revert back the property to Dra. Emerenciana Arcellana and the heirs of Francisco Arcellana, Sr. in his behalf should AHOA and/or NHMFC (now taken over by the SHFC) fails to fulfill its obligation to pay the full price of the Marikina lot under the MoA. Accordingly, the proper way to treat the Marikina lot should be to include the subject property in the gross estate of Francisco Arcellana, Sr. and include under "money claims against the decedent arising from contract" partial payment(s) made by AHOA and/or NHMFC (now taken over by the SHFC) for the aforesaid lot. This way, the BIR can monitor the proper estate tax due and ensure its collection. Moreover, no surcharge, penalty and interest shall be imposed on the estate tax to be imposed on the amount to be received by the heirs. 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. ETaSDc Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service