Tax Base to be Used in Computing the Capital Gains Tax Due on the Assignment of the Heirs of Their Inherited Properties

May 21, 1998 BIR RULING NO. 054-98 21 (e)-000-00-054-98 Mr. Salvador S. Laguda No. 10 F. Collantes Street Xavierville, Loyola Heights Quezon City S i r : This refers to your letter dated October 22, 1997 requesting, in effect, for a ruling that the tax base to be used in computing the capital gains tax due on the assignment of the heirs of Angel and Sarah de la Paz of their inherited properties in favor of A.G. Paz Enterprises, Inc. shall be the fair market value of the properties in 1984 when the Project of Partition and Assignment of Shares was executed by the heirs. prcd It is represented that you are the administrator of the Estates of Angel and Sarah T. de la Paz; that the heirs of Angel and Sarah T. de la Paz executed a Project of Partition in 1984, which was subsequently approved on August 16, 1996 by the Regional Trial Court, Branch 100, Quezon City; that under the Project of Partition, all properties belonging to Angel and Sarah de la Paz and subsequently inherited by their heirs, were assigned to A.G. Paz Enterprises, Inc.; that the corporation is a holding company incorporated by the late Angel de la Paz and his children; that assignment of the properties was made in order to fully pay the subscription made by the children of Angel and Sarah de la Paz in the capital stock of the said corporation; that the corresponding estate taxes have already been paid as evidenced by the certification issued by then Commissioner Ruben Ancheta; that however, you understand that the estates are still liable for the payment of capital gains taxes covering the transfer of ownership of the properties covered by OCT 0-6181 to the corporation; that you are of the opinion that inasmuch as the Project of Partition assigning the said properties was signed by the heirs in 1984, the basis of property valuation for capital gains tax purposes is the 1984 market value as determined by the Provincial Assessor's Office of Zambales where the properties are located; and that however, the Assessor's Office can no longer provide the 1984 Tax Declaration and that in lieu thereof, said Office had given you the 1985 Tax Declaration which reflects a higher market valuation. In reply, please be informed that since all the heirs of the late Angel and Sarah de la Paz signed the Project of Partition in 1984, they are therefore liable to pay the final capital gains tax imposed under then Section 34(h) [now Section 24(D) of the Tax Code of 1997] based on the "net capital gains" in 1984 which for this purpose shall mean the capital gain from the sale or other disposition of real property which is equal to the excess of the amount realized over the adjusted basis of the property, undiminished by any capital loss sustained from other capital asset transaction. [Sec. 4(a)(i) Revenue Regulations No. 8-79 implementing then Section 34(h) of the Tax Code, as amended by Batas Pambansa Blg. 37] 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.) LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue