Liability of Philippine Banking Corp. Subject to Capital Gains Tax on Real Property Acquired through Foreclosure

September 17, 1985 BIR RULING NO. 161-85 34-h 120-85 161-85 Gentlemen : This refers to your letter dated June 17, 1985 requesting a ruling as to whether or not your client, Philippine Banking Corporation, is subject to the capital gains tax on a real property acquired through foreclosure. It is represented that on April 5, 1984, Philippine Banking Corporation foreclosed a real estate mortgage constituted on the property of Carolee Peggy Dillon after the latter violated the condition thereof by not paying her loan with said bank; that since the redemption period of one year expired on April 5, 1985 without the subject property having been redeemed, your client tried to consolidate the title of the property in its name; that before consolidation in its name can be affected, your client was assessed a capital gains tax in the amount of P14,036.05. In reply, I have the honor to inform you that the debtor- mortgagor, Carolee Peggy Dillon and not your client, is liable for the payment of the capital gains tax resulting from the disposition of the real property and the acquisition thereof by your client thru foreclosure proceedings. The liability, however, exists if the proceeds of the loan exceed the cost of the properties mortgaged . (See Revenue Memorandum Order No. 33-81) In this connection, your client should comply with the requirements of Revenue Memorandum Order No. 33-81 which requires banks desiring to consolidate its title to the foreclosed property to apply with the Revenue District Officer having jurisdiction over the place where the property sold or disposed of is located, for issuance of its certification required by Revenue Regulations No. 8-79, as amended. The application may be filed within 30 days after the expiration of the redemption period of one year and issuance of the certificate of final sale. Upon receipt of the application containing the required information, the Revenue District Officer shall issue the certification authorizing transfer of title to the bank in the form prescribed by Revenue Memorandum Order No. 33-81. Thereafter, the Revenue District Officer shall conduct the necessary investigation to ascertain the capital gains tax due from the debtor-mortgagor. cdti Very truly yours, (SGD.) RUBEN B. ANCHETA Acting Commissioner