BIR Ruling No. 121-65

November 2, 1965 BIR RULING NO. 121-65 Philippine Association of Real Estate Boards, Inc. 201 Quisumbing Bldg. Dasmarias, Manila Attention : Mr . Teodoro Kalaw , Jr . (President) Gentlemen : This refers to your letter requesting clarification of BIR Ruling No. 62-0087 dated July 27, 1962 to the effect that amounts set aside as reserves for future development of subdivided lots sold on installment basis are not deductible as ordinary and necessary expenses for purposes of the income tax. In reply thereto, I have the honor to inform you that the aforesaid BIR Ruling applies only to the taxpayer to whom addressed. The deduction of unexpended provisions for future developments of subdivided lots sold on installment had always been recognized. However, before the same may be allowed as a deduction, the following circumstances must concur: 1. There must be a specific provision in the contract of sale that the seller agrees to provide for certain specific improvements on the lots sold at his or its own expense, and 2. The obligation of the seller to provide for said improvements must be enforceable at law. In other words, should the owner or seller fail to comply with his obligation, the purchaser can compel him to put up the said improvements (Milton A. Mackay, 11 B.T.A. 569; Cambria Development Co., 34 B.T.A. 1155). Consequently, the allowance or disallowance on reserves for estimated expenses involves a question of fact to be properly established. The provisions of the contract of sale entered into between the vendor and the vendees and the circumstances under which they were made should be considered. Very truly yours, (SGD.) MISAEL P. VERA Acting Commissioner of Internal Revenue