BIR Ruling No. 084-65

August 3, 1965 BIR RULING NO. 084-65 The Regional Director Regional District No. 6 Manila (South) S i r : Returned herewith is the entire docket bearing on the 1958 and 1959 internal revenue tax case of Mrs. Sabina T. Gomez of 2357 Pennsylvania St., Malate, Manila, with the following comment: The issue in this case is whether or not the sale of the inherited property in subdivided lots is a sale of an ordinary or capital asset. On that question, the Commissioner in his letter dated October 5, 1960 (B.I.R. Ruling No. 460, s. of 1960) ruled that the property in question having been held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business as real estate dealer is an ordinary asset, hence, taxable in full pursuant to Section 34 construed in the light of Section 194(s) of the Tax Code. However, disregarding his previous ruling dated October 5, 1960, the Commissioner of Internal Revenue for reasons stated in his letter dated December 29, 1961 ruled that the disposal of the inherited property although in subdivided lots, was only for the purpose of liquidating the estate profitably. Accordingly, the sale was considered a sale of a capital asset only. Under the circumstances, it would seem that the latter ruling would prevail. In this connection, it is requested that Office ascertain whether or not the property in question had been subdivided before the same was inherited by Mrs. Gomez. If the property had already been subdivided by the decedent, then what was inherited was a business and consequently, the profits derived from the sale of the lots should be considered ordinary gains. However, if what the heirs inherited was an undivided property which she subsequently subdivided in order that she could facilitate the disposition thereof, then the profits derived from the sale of the lots should be considered capital gains, taxable only to the extent of 50% thereof. Very truly yours, (SGD.) BENJAMIN N. TABIOS Acting Commissioner of Internal Revenue