Unrealized Increase in the Value of Livestock Not Income but Increase in Inventory is Considered Income

April 26, 1967 BIR RULING NO. 018-67 Mr. A. R. Torres Philippine Free Press, Inc. P.O. Box 457 M a n i l a S i r : This refers to the query of Mr. Hector A. Bajar, Office of the Auditor, Masbate Engineering District, Masbate, Masbate, dated February 24, 1965 which was the subject matter of your letter to this Office dated March 2, 1965. Information is requested as to whether or not the net increase of the value of livestock or increase of its inventory are considered income or unrealized profits which should be reported for income tax purposes. In reply thereto, I have the honor to inform you that a mere increase in the value of property is not income but merely an unrealized increase in capital prior to the realization of such increase in value through sale or conversion of the property. (par. 5.05 Vol. 1 Law of Federal Income Taxation) Accordingly, unrealized increase in the value of livestock are not considered income that should be reported for income tax purposes. The increase in its inventory however, are considered income. It is a realization of gain derived from capital for the use, benefit and disposal of the taxpayer. (par. 5.04 Vol. Law of Federal Income Taxation). prcd Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue