Request for Exemption from Payment of Capital Gains Tax on Reconveyance of Real Property and for Payment of Estate Tax Without Penalties

April 8, 1997 BIR RULING NO. 042-97 Sec. 83 (b);21 (e) 020-00 042-97 Atty. Restituto R. Villanueva 2370 Elias St.,Sta. Cruz Manila S i r : This refers to your letter dated February 19, 1997 requesting for exemption from the payment of capital gains tax on the reconveyance of real property and for the payment of the estate tax without penalties. cdta Documents submitted disclosed that the real properties covered by Transfer Certificates of Title Nos. 189524 and 189535 of the Registry of Deeds of Manila have been the subject matters of litigation between Pedro V. Rodriguez, Jr.,Ester Rodriguez-Villanueva, Beatriz Rodriguez-Barrera and Flora Rodriguez-Cruz, plaintiffs, and Antonio D. Corrales, defendant, in Civil Case No. 89-51326 of Branch 55 of the Regional Trial Court of Manila; that the aforementioned plaintiffs are the surviving children and heirs of the late Prisca V. Rodriguez, wife of the late Pedro Rodriguez, Sr.,who died intestate on April 8, 1989 in the City of Manila; that the said parcels of land together with the improvements thereon; situated at Malate, Manila and covered by Transfer Certificates of Title Nos. 64962 and 87167 of the Registry of Deeds of Manila issue on September 21, 1961 and February 23, 1967, respectively, were acquired by the late Prisca V. Rodriguez; that in 1946, Pedro Rodriguez, Sr.,husband of Prisca V. Rodriguez; that in 1946, Pedro Rodriguez, Sr.,husband of Prisca V. Rodriguez, has been declared to be presumptively dead by the authorities as his whereabouts could not be located since 1941; that on May, 1942, defendant, Antonio D. Corrales, sought temporary shelter in plaintiffs' residence which temporary nature lasted for weeks, months, and years until it became permanent, such that he was already regarded as a member of the household; that during his stay in plaintiffs' residence, a mutual romantic feeling developed between him and the decedent, Prisca V. Rodriguez, such that they lived together as husband and wife; that the coverture between the deceased and the defendant lasted until the demise of Prisca V. Rodriguez on April 8, 1989; that the heirs of Prisca V. Rodriguez found out that the aforementioned properties were donated by the decedent to the defendant who kept such matter from them despite their repeated demands for him to produce the titles to such properties; that said donations were authenticated on September 20, 1988 and February 9, 1989 which were covered by TCT Nos. 64962 and 87167 and registered with the Registry of Deeds of manila and in lieu thereof, TCT Nos. 189534 and 189535, respectively, were issued; that plaintiffs brought a civil action against defendant impugning the donations as spurious, illegal and void for several reasons mentioned in the complaint, with a prayer for the reconveyance of the said properties; that on April 20, 1992, RTC Branch 55 of Manila ruled in favor of plaintiffs, viz: "WHEREFORE, in view of all the foregoing, judgment is hereby rendered in favor of the plaintiffs and against the defendant: "1. Formally DECLARING the Deeds of Donation dated September 20, 1988 and February 9, 1989 (Annexes "C","C-1","D",and "D-1",respectively, of the complaint) executed by the late Prisca V. Rodriguez in favor of the defendant Antonio D. Corrales as null and void. Accordingly, the subsequent TCT Nos. 189534 and 189535 of the Registry of Deeds of Manila issued pursuant to the Deeds of Donation herein referred to, are similarly declared nullities and without any force and effect. "2. ORDERING the defendant Antonio D. Corrales to reconvey unto the plaintiffs herein the properties in controversy. xxx xxx xxx" that said judgment was affirmed by the Court of Appeals on October 21, 1996, and a writ of execution was issued by RTC Branch 55 on November 20, 1996 but was not complied with by the defendant within the prescribed period; and that for failure by the defendant to comply with the writ, the Court issued an Order on January 15, 1997, viz: "Consistent, therefore, with the mandates of said judgment and the provision of Sec. 10, Rule 39, of the Rules of Court, in relation to Sec. 80 of P.D. 1529, otherwise known as the "Property Registration Decree", the Registry of Deeds of the City of Manila is hereby ordered to register the Decision rendered by this Court dated April 20, 1992, certified true copy of which shall be provided by the plaintiff, divesting the title of the defendant Antonio D. Corrales to the properties covered by TCT Nos. 189524 and 189535 aforesaid and to issue in favor of the plaintiffs Pedro Rodriguez, Jr., Esther Rodriguez-Villanueva, Beatriz Rodriguez-Barrera and Flora Rodriguez-Cruz, share and share alike, new titles in lieu thereof, upon payment of the appropriate fees therefor, pursuant to such decision, the laws and jurisprudence (Francisco vs. National Urban Planning Commission, 100 Phil. 984). xxx xxx xxx" In reply, please be informed that the transfer and reconveyance of the real properties in question in favor of the rightful owners, heirs of the late Prisca V. Rodriguez, namely, Pedro V. Rodriguez, Jr.,Ester Rodriguez-Villanueva, Beatriz Rodriguez-Barrera and Flora Rodriguez-Cruz, pursuant to the Order of RTC Branch 55 of Manila without any monetary reconsideration is not subject to income tax and, consequently, to the capital gains tax prescribed under Section 21(e) of the Tax Code, as amended. It is, likewise, not subject to the documentary stamp tax imposed under Section 196 of the Tax Code, as amended since no taxable document was executed for the reconveyance. Failure by the heirs to pay the estate tax within the prescribed period will not give rise to the imposition of the penalties as prescribed in the National Internal Revenue Code, since the estate has not yet been determined at the time of death of the decedent, and because as represented, the heirs were without the least intention to avoid payment of the estate tax. Moreover, since it was only upon final adjudication of the Court, i.e. nullification of the donation of the properties in question in favor of Antonio D. Corrales and subsequent reconveyance of the properties to the Estate of Prisca V. Rodriguez, that the decedent's estate was determined. Thus, the filing of the estate tax return and its subsequent payment should be made within ninety (90) days from January 15, 1997, the date the Order of the Court finally adjudicating Civil Case No. 89-51326 in favor of plaintiffs-heirs, pursuant to the 2nd paragraph of then Section 83 (b) of the 1989 National Internal Revenue Code, viz: cdti "SEC. 83. Return . xxx xxx xxx (b) Time for filing. For the purpose of determining the estate tax provided for in Section 77 of this Code, the estate tax return required under the preceding subsection (a) shall be filed within ninety days from the decedent's death. (As amended by PD No. 99) A certified copy of the schedule of partition and the order of the court approving the same shall be furnished the Commissioner within thirty days after the promulgation of the such order. xxx xxx xxx The estate tax shall, however, be based on the fair market value of the properties as of the time of death of Prisca V. Rodriguez. 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. cdt Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue