Findings of Facts of Revenue Regions Highly Persuasive and Will Not be Disturbed

November 23, 2004 BIR RULING NO. 022-04 000-00 Ms . Rosario U. Filart-Scott 26 Nova Scotia Street Loyola Grand Villas Quezon City M a d a m : This refers to your letter dated February 4, 2003 requesting for reconsideration of the ruling issued by the Regional Director, Revenue Region No. 7, Quezon City, dated September 23, 2002 the dispositive portion of which reads as follows: "Premises considered, it is reiterated that the said application for tax exemption should be denied. Accordingly, the sale of her property should be subject to capital gains and documentary stamp taxes, however, the imposition of surcharge, penalties and interest, if any, shall be only commence ( sic ) from the date this ruling is issued since the application for exemption was filed on March 31, 2000, simultaneous with the execution of the deed of sale subject of the tax exemption." The basis of the denial of the request for exemption was the finding of the Regional Director that the proceeds of the sale of the primary residence was not utilized to purchase a new residence within eighteen months from the sale of the former principal residence. It was the finding of the Regional Director that the lot intended for the new residence was acquired on May 1995 and the construction of the new residence began in the year 1998. Further, the old residence was sold only on March 31, 2000. It is your position that the ruling is erroneous on the ground that, contrary to the finding of the Regional Director, the proceeds of the sale of the original principal residence was utilized to purchase a new one within eighteen months from the sale of the original one, to wit: "On March 6, 2000, the above property in question, 22-D Avelino Street, Xavierville, Quezon City, was sold. The proceeds from the sale were fully used, to complete construction on my new Primary Residence located at 26 Nova Scotia Street, Loyola Grand Villas, Quezon City. aIcETS The construction at 26 Nova Scotia Street, my new Primary residence, began during the month of April 1998. I had initially intended to sell the above property in question and then build. Unfortunately, the regional financial meltdown, which infected the Philippines, made it difficult to find a buyer for my Primary Residence. At the time of the above sale, I had already signed contracts for constructing & building my new home. Construction had already consummated as I have started. I was obligated to honor those agreements. When the sale of my Primary Residence was finally completed, the new house was only 1/3 complete. The proceeds from 22-D Avelino Street were timely in that it allowed me to hire a full crew to complete the project to a point where my family could move in. My new Primary Residence was finally completed and the Municipality issued an Official Occupancy Permit on September 11, 2000. The proceeds from sale of the first Primary Residence amounted to P4,000,000. The new Primary Residence was completed at a cost of P8,323,119.00, which represented materials, labor and professional fees." It appears on the records that the same issues had already been addressed by the Regional Director, Revenue Region No. 7. Findings of facts of the Revenue Regions are highly persuasive to this Office considering that the processing of applications for exemption from capital gains tax of sale of principal residences had been delegated to that Office under Revenue Delegations Authority No. 3-2003. Accordingly, unless and until it is shown by clear and convincing evidence that the findings of facts of said Office are patently erroneous, this Office will not disturb its findings of facts. In this case, this Office finds no cogent reason to reverse or modify the subject ruling. Indeed, under Section 2.2 of Revenue Regulations No. 14-2000, the proceeds of the sale of the principal residence must be utilized to acquire a new residence within eighteen months from the sale otherwise the sale is not exempt from capital gains tax. Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group