Transfer of Ownership of Land as Payment for Attorney's Fees Subject to Capital Gains and Documentary Stamp Taxes

November 24, 2003 BIR RULING NO. 017-03 24 (D) (91) 196 000-00 Engracio D. Alampay and Joselito B. Floro, ESQS. Counsels for Justice Hermogenes D. Concepcion, Jr. 69 Frost Street, Filinvest II Quezon City Gentlemen : This refers to your letter dated September 24, 2002, requesting the opinion of this Office regarding the tax consequences of the transfer of ownership of parcels of land to Justice Hermogenes D. Concepcion, Jr. in payment of his attorney's fees pursuant to the decision of the Regional Trial Court of Dinalupihan, Bataan in Civil Case No. DH-561-99. cHaDIA It is represented that on May 7, 2002, the Regional Trial Court Branch 5 of Dinalupihan, Bataan rendered a decision in Civil Case No. DH-561-99 entitled Hermogenes Concepcion, Jr. vs. Liberty Hizon and Eufemia Rivera in accordance with the Compromise Agreement of the parties dated April 30, 2002. Consequently, a Deed of Partition based on the Compromise Judgment was prepared for the transfer of the ownership of the parcels of land to Justice Hermogenes D. Concepcion, Jr. Accordingly, he is now prepared to implement the transfer of ownership. Hence, the instant request for the opinion of this Office on the tax consequences of the transfer. Pursuant to the Decision in Civil Case No. DH-561-99 and the duly executed Deed of Partition dated January 13, 2003, the following properties with their respective valuation as represented by the taxpayer, shall be conveyed to Justice Concepcion in payment for his services rendered in favor of Liberty Hizon and Eufemia Rivera: ORIGINAL CONVEYED TO Hermogenes D. Concepcion Jr. TCT LOT TD NO. TOTAL ZONAL FAIR TOTAL ZONAL FAIR NO. NO. AREA VALUATION MARKET AREA VALUATION MARKET SQ. M. VALUE SQ. M. VALUE Latest Tax Declaration 16272 877 13327 115,039 P690,234 1,150,390 115,039 P690,234 P1,150,390 16275 1 13337 65,439 392,634 654,390 65,439 392,634 654,390 16276 1-B 133353 514,080 3,084,480 5,140,800 514,080 3,084,480 5,140,800 1-C 57,948 347,688 579,480 57,948 347,688 579,480 7630 1206 1317 20,696 124,176 206,960 20,696 124,176 206,960 1209 13315 42,057 252,342 420,570 42,057 252,342 420,570 7631 1701 620,069 6,200,690 3,720,414 204,741 1,228,446 2,047,410 TOTAL 1,435,328 P11,092,244 P11,873,004 1,020,000 P6,120,000 P10,200,000 In reply, please be informed of the following: 1. The transfer of the properties from Liberty T. Hizon and Eufemia M. Rivera to Justice Hermogenes D. Concepcion, Jr. as provided in the Compromise Agreement of the parties dated April 30, 2002, is subject to capital gains and documentary stamp taxes based on their fair market values appearing in the Tax Declaration of Real Property considering that, as represented, the foregoing is higher than the zonal values of the properties as determined by the Commissioner of Internal Revenue pursuant to the provisions of Section 6(E) of the Tax Code of 1997, pursuant to the provisions of Section 24(D)(1) and 196 of the same Code, respectively, to wit: "SEC. 24. Income Tax Rates . xxx xxx xxx (D) Capital Gains from Sale of Real Property . (1) In General . The provisions of Section 39(B) notwithstanding, a final tax of six percent (6%) based on the gross selling price or current fair market value as determined in accordance with Section 6(E) of this Code, whichever is higher, is hereby imposed upon capital gains presumed to have been realized from the sale, exchange, or other disposition of real property located in the Philippines, classified as capital assets, including pacto de retro sales and other forms of conditional sales, by individuals, including estates and trusts: . . . ." "SEC. 196. Stamp Tax on Deeds of Sale and Conveyances of Real Property . On all conveyances, deeds, instruments, or writings, other than grants, patents or original certificates of adjudication, issued by the Government, whereby any land, tenement or other realty sold, shall be granted, assigned, transferred or otherwise conveyed to the purchaser, or purchasers or to any other person or persons designated by such purchaser or purchasers, there shall be collected a documentary stamp tax, at the rates herein below prescribed, based on the consideration contracted to be paid for such realty or on its fair market value determined in accordance with Section 6(E) of this Code, whichever is higher, . . . ." 2. The fair market values, as determined under Section 6(E) of the Tax Code of 1997, of the properties transferred from Liberty T. Hizon and Eufemia M. Rivera to Justice Hermogenes D. Concepcion, Jr. shall be declared as part of the gross income of the latter in the taxable year these were received pursuant to the provisions of the Section 32(A)(2) of the Tax Code of 1997, to wit: "SEC. 32. Gross Income . (A) General Definition . Except when otherwise provided in this Title, gross income means all income derived from whatever source, including (but not limited to) the following items: xxx xxx xxx (2) Gross income derived from the conduct of trade or business or the exercise of a profession;" 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, (SGD.) GUILLERMO L. PARAYNO, JR. Commissioner of Internal Revenue