Offsetting of Losses Suffered by a Stockholder

August 4, 1981 BIR RULING NO. 146-81 83-a 000-00 146-81 Law Offices Siguion Reyna, Montecillo and Ongsiako A. Soriano Bldg., Ayala Ave. Makati, Metro Manila Attention: Atty . Hector Martinez Gentlemen : This refers to your letter dated June 26, 1981 requesting a ruling on whether losses suffered by a stockholder (individual or corporate) arising from the liquidation of a corporation can be offset against capital gains from the sale or exchange of capital assets which are not shares of stock of a corporation. In reply, please be informed that the legal provision applicable is Section 83(a) of the Tax Code which provides that "when a corporation distributes all of its assets in complete liquidation or dissolution, the gain realized or loss sustained by the stockholder, whether individual or corporate, is a taxable income or a deductible loss, as the case may be". The regulations implementing said provision of law, in case of a deductible loss, is Section 256 of Revenue Regulations No. 2 which states that "if the amount received by the stockholder in liquidation is less than the cost or other basis of the stock, the loss in the transaction is deductible to the extent allowed in Section 34(c) of the Code". Under said section 34(c), "losses from sales or exchanges of capital assets shall be allowed only to the extent of the gains from such sales or exchanges." From the foregoing provisions of the Tax Code and the regulations, it can be concluded that losses suffered by a stockholder from liquidation of a corporation are capital losses which may be offset against gains derived from the sale or exchange of capital assets which may or may not be shares of stocks. In view thereof, your query is answered in the affirmative. Very truly yours, RUBEN B. ANCHETA Acting Commissioner