Determination of the Valuation of a 1,000 sq.m Property for Purposes of Deduction

August 9, 1989 BIR RULING NO. 167-89 29 (h) (3) 228-88 167-89 Gentlemen : This refers to your letters dated January 6 and July 27, 1989 stating that you have pledged to donate to the Roman Catholic Archdiocese of Manila, 1,000 square meters of your property to provide a larger area for the construction of the Church for Our Lady of Peace which will serve as a landmark of the 1986 People Power Revolution; that you have engaged an independent appraiser to establish the fair market value of your entire property in the area which includes the said 1,000 square meters to be used as the site for the erection of the church for Our Lady of Peace; that, due to the rapidly changing market conditions in the area and the time lag in updating zonal values which are generally used for internal revenue tax purposes, you believe a current appraisal performed by a licensed independent appraisal company would best establish the fair market value of the said property you are donating; and that the donation is exempt from the gift tax. cdtech Based on the foregoing representations, you now request a ruling to the effect that in determining the valuation of the aforementioned 1,000 square meters property for purposes of its deduction under Section 29(h) of the Tax Code, as amended, the appraisal value conducted by an independent appraisal company nearest the time of donation can be considered as the fair market value of the property. In reply, please be informed that the fair market value of the real property as determined by the Commissioner of Internal Revenue or the fair market value as shown in the schedule of values fixed by the Provincial and City Assessors, whichever is higher, at the time of the gift, shall be considered as the amount of the gift (Section 95, in relation to Section 81 both of the Tax Code, as amended) Said amount shall be the basis for calculation of the amount of the gift to be claimed as deduction for income tax purposes. (Sec. 116, Revenue Regulations No. 2) For purposes, however, of the deduction under Section 29(h) of the Tax Code, once a zonal value has been established with respect to the property being donated, such zonal value as determined by the Commissioner of Internal Revenue pursuant to Section 16(e) of the same Code shall be considered the said property's fair market value. Moreover, it is seldom that the actual real estate values in a certain area or zone overtakes the established zonal values, which if in actual existence should be communicated to the Commissioner thru the Executive Committee, for immediate appropriate action so that new zonal values could be established under standard valuation procedure. Accordingly, such actual real values cannot be applied for internal revenue tax purposes since it would in effect be contrary to the uniformity rule in taxation. Thus, until such time that a new zonal value is established in such area or zone, the prevailing official values apply. Accordingly, your request that the appraisal value conducted by an independent appraisal company nearest the time of donation be considered as the fair market value of your aforesaid donated property for purposes of its deduction under Section 29(h) of the Tax Code, as amended, is hereby denied. However, this Office is of the opinion as it hereby holds that the aforesaid donation is exempt from the donor's gift tax. [Sec. 94(a)(3), Tax Code] cd Very truly yours, (SGD.) JOSE U. ONG Commissioner