Tax Liability of Mortgagee Bank as Statutory Seller Representing the Mortgagor of the Real Property

December 24, 1998 BIR RULING NO. 177-98 RMO 6-92-000-00-177-98 Department of Agrarian Reform Elliptical Road, Diliman Quezon City Attention: Hon . Ernesto D . Garilao Secretary Gentlemen : This refers to your letter dated April 29, 1998 stating that agricultural lands covered under the Comprehensive Agrarian Reform Program (CARP) pursuant to R.A. No. 6657 and other agrarian reform related laws were foreclosed by banks and other financial institutions, and the redemption period of which had already expired; that the purchaser in the auction sale of the subject properties is also the mortgagee bank and therefore, the claimant to the land owner's compensation claim under the program; that based on Revenue Memorandum Order (RMO) No. 6-92, the mortgagee bank as statutory seller representing the owner mortgagor of the real property, shall be liable for the payment of the capital gains tax due the mortgagor; that in view of the foregoing, you would like to seek a ruling on the following: cdll "1. Whether the said RMO No. 6-92 may be applied to CARP covered by agricultural lands herein above described? "2. If the answer to the above query is in the affirmative, could DAR and/or LBP make use of RMO NO. 6-92 as a legal basis to deduct the capital gains tax obligation from the proceeds of the landowner's compensation claim and remit the same to the BIR in order to cancel the subsisting title and effect the registration thereof in the name of the Republic of the Philippines and eventual distribution to the agrarian reform beneficiaries. This action shall be resorted only if the mortgagee bank refuses to pay or failed to respond to the request for payment of capital gains tax due from them. "3. Are there other pertinent provisions of revenue laws or rulings that could be used to effect payment of the capital gains tax due from the mortgagee banks and/or mortgagors." In reply, please be informed that the answers to the above queries are as follows: 1. Your first query is answered in the affirmative, the mortgagee bank as statutory seller representing the mortgagor of the real property shall be liable for the payment of the capital gains tax due on the foreclosure sale based on the bid price. 2. The above Revenue Memorandum Order No. 6-92 could be used by DAR and/or LBP as legal basis in deducting the capital gains tax obligation on the foreclosure sale from the proceeds of the landowner compensation claim and remit the same to this Office in order to cancel the subsisting title and effect the registration thereof in the name of the Republic of the Philippines and eventual distribution to the agrarian reform beneficiaries. 3. There is no other pertinent previous revenue laws or ruling that could be used to effect payment of the capital gains tax from mortgagee bank and/or mortgagors. Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue