Whether Letter of Instructions No. 1133 Limiting the Substantiation Requirements in Determining the Capital Gains on Stock Transactions is Still Valid

March 27, 1995 BIR RULING NO. 060-95 7 000-00 060-95 Quirico T. Carag, Jr. and Associates Law Office Suite 507 Equitable Bank Bldg. 262 Juan Luna Street, Binondo M a n i l a Gentlemen : This refers to your letter dated February 28, 1995 requesting a ruling for and in behalf of your client, Mr. Ben Tiu, as to whether or not Letter of Instructions No. 1133 which is effective May 21, 1981 limiting the substantiation requirements in determining the capital gains on stock transactions is still valid. cdta Letter of Instructions No. 1133 provides that for purposes of imposing the capital gains tax realized from stock transactions, only the selling price, acquisition cost and the allowable deductible expenses shall be looked into by the Bureau of Internal Revenue in the verification of tax returns; that in no case shall the Bureau inquire into the sourcing of funds used in the acquisition of stocks listed in the stock exchanges; and that the same is necessary to encourage stock transactions to generate greater economic activity. In reply thereto, please be informed that the Commissioner of Internal Revenue is authorized: (1) to examine any books, papers, records or other data which may be relevant or material to such inquiry; (2) to summon any person (which includes the taxpayer himself) having possession, custody or care of books of accounts containing appropriate entries, or of any information relating to the tax liability of any person to appear before the BIR Commissioner (or his authorized representatives) at a time and place named in the summons and to produce such books, papers, records, or other data, and to give such testimony; and (3) to take such testimony of the person concerned, under oath as may be relevant or material to such inquiry (Section 7, Tax Code, as amended). The authority of the Commissioner of Internal Revenue to obtain information, examine, summon and take testimony shall apply only to pending cases or assessments and not for purely fishing expedition for evidence. Moreover, the books, papers, records or other data to be examined must be relevant or material to the inquiry. Letter of Instructions No. 1133 which limits the substantiation requirements in determining the capital gains on stock transactions only to the selling price, acquisition cost and the allowable deductible expenses without inquiring into the sourcing of funds used in the acquisition of stocks listed in the stock exchanges is still valid for purposes of imposing the capital gains tax. cdti Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue