Consolidation of Title of Foreclosed Properties Without Prepayment of Capital Gains Tax

September 7, 1987 BIR RULING NO. 263-87 21 (e) 178-87 263-87 Gentlemen : This refers to your letter dated July 14, 1987 requesting a certification to the effect that the Permanent Savings and Loan Bank (PSLB) is exempt from the capital gains tax under Section 21(e) of the Tax Code as amended by Executive Order No. 37 in order that title to certain foreclosed properties can be consolidated in its favor. It is represented that the PSLB is the mortgagee of two parcels of land covered by TCT Nos. B-18767 and B-18268 situated at Bagbagin, Valenzuela, Metro Manila; that PSLB foreclosed said mortgage on July 5, 1983 when the Bank was still operating; that PSLB was closed by the Monetary Board on December 18, 1984 due to insolvency; and that PSLB has been under liquidation since June 1985. In reply, I have the honor to inform you that RMO No. 33-81 as amended by RMO No. 18-82 allowed the issuance of a certification authorizing the transfer of title to real property classified as capital asset even before payment of the capital gains tax if foreclosed by a bank, finance or insurance company thru a foreclosure sale. However, RMO No. 29-86 dated September 3, 1986 which revoked RMO No. 33-81 as amended by RMO No. 19-82 provides that no certificate authorizing transfer of title to real property classified as capital asset sold by an individual thru foreclosure sale shall be issued without prepayment of the capital gains tax including the documentary stamps tax. Considering, however, that RMO No. 29-86 applies to real property purchased by a bank, finance and insurance company thru mortgage foreclosure sale on or after September 3, 1986 and since the mortgage foreclosure sale in this case was held on July 5, 1983 or prior to September 3, 1986, a certificate authorizing the transfer of title to the aforesaid property may be issued to PSLB before payment of the capital gains tax. Such being the case, while title to the aforesaid foreclosed properties can be consolidated in favor of PSLB without the prepayment of the capital gains tax prescribed by Section 21(e) of the Tax Code, as amended by Executive Order No. 37, said tax shall nevertheless be paid and collected from the debtor-mortgagor by the Revenue District Officer of the place where such debtor-mortgagor has his legal residence or principal place of business who shall, for this purpose, conduct the necessary investigation to ascertain the capital gains tax due from the debtor-mortgagor in accordance with the procedure prescribed by Revenue Memorandum Order No. 21-80 dated May 28, 1980. (RMO 33-81 as amended by RMO 19-82). Very truly yours, (SGD.) EUFRACIO D. SANTOS Deputy Commissioner