Taxability of a Profit Derived from the Sale

November 16, 1960 BIR RULING NO. 502-60 Messrs. F. D. Roque Jr. & Associates Certified Public Accountants Rm. 205, Alliance Bldg. Rosario St., Manila Gentlemen : In reply to the query contained in your letter dated November 10, 1960, I have the honor to inform you as follows: Where pursuant to agreement a vendee pays the vendor's income taxes on the profit resulting from the sale, the payment represents income to the vendor. (par. 7292-A, Federal Tax Service, Vol. 1, 1949) The agreement to pay, and the actual payment by the purchaser of income taxes assessable against the seller, constitutes additional income to such seller. It is a profit derived from the sale, and taxable like any other gain or profit. The total amount paid is the actual purchase price, and the adding of the tax was only a method or arriving at the amount to secure the property and formed part of the consideration. (Acme Coal Co. vs. United States, 9 AFTR 261, citing the case of Lash's Products Co. V. United States, 278 U.S. 175, 73 L. Ed. 251) In view of the foregoing, this Office is of the opinion that the amount of income tax to be paid by the vendee on the profit resulting from the sale of your client's property, forms part of the consideration of the purchase price and as such constitutes additional income to your client. As additional income realized by your client from the sale of property, the same is taxable in full if the property sold is an ordinary asset, or a capital asset which has been held for not more than 12 months. However, if the property sold is a capital asset which has been held for more than 12 months, only 50% of the aforesaid additional income is subject to tax. cdll Very truly yours, MELECIO R. DOMINGO Commissioner of Internal Revenue