Tax Consequence of the Sale by the Bank of Foreclosed Real Property

July 12, 1990 BIR RULING NO. 134-90 21 (e) 446-88 134-90 Gentlemen : This refers to your letter dated December 8, 1989 in effect requesting a ruling as to whether the rural bank should pay the capital gains tax upon consolidation of title in its favor of foreclosed real property or the BIR would issue to the bank a certificate authorizing registration without pre-payment of the capital gains tax. Furthermore, you want to know whether the bank should pay the capital gains tax in case of sale of foreclosed real property. aisadc In reply, please be informed that with respect to the real property foreclosed by the bank before September 3, 1986, title to said property can be consolidated in favor of the bank without the pre-payment of the capital gains tax prescribed by Section 21 (e) of the Tax Code as amended, as the capital gains tax may be paid and collected from the debtor-mortgagor, pursuant to RMO No. 33-81 as amended by RMO No. 18-82. However, RMO No. 33-81 as amended was revoked by RMO No. 29-86 dated September 3, 1986 which provides that no certification authorizing transfer of title to real property classified as capital asset sold by an individual thru a mortgage foreclosure sale shall be issued without pre-payment of the capital gains tax and the corresponding documentary stamp tax. Accordingly, for real property foreclosed by the bank on or after September 3, 1986, the capital gains tax and the corresponding documentary stamp tax must be paid before title to the property can be consolidated in favor of the bank. The sale by the bank of foreclosed real property consummated on or after January 1, 1990 is subject to the creditable withholding tax pursuant to Revenue Regulations No. 12-89 as amended by Revenue Regulations No. 1-90. Moreover, the date of notarization appearing on the Deed of Sale shall be considered prima facie the date of consummation of the contract of sale (RMO No. 7-90). Very truly yours, (SGD.) JOSE U. ONG Commissioner