Taxability of William R. Odell

November 24, 1959 BIR RULING NO. 595-59 Mr. Artemio M. Lobrin Attorney-at-Law 484 Rosario St., Manila S i r : Reference is made to your letter dated September 22, 1959 requesting a ruling as to the taxability, if any, of your client under the following facts: "Mr. William R. Odell bought a parcel of land in Davao way back in 1928. He developed the property, planted abaca and coconuts principally, and some miscellaneous crops. He built buildings and houses for use in the hacienda and put machineries in the property including trucks, rails and cars of various utilities. cdtech "Year after year, he filed income tax returns covering the income from the operation of the plantation and paid income and other taxes. "He contemplates, because of advancing age, to organize a corporation and transfer all the above mentioned assets to the corporation in payment of shares of stock in the corporation. The Corporation will be owned solely by him, except the nominal four qualifying shares in the names of four other persons as required under the Corporation Law. "If in exchange for shares of stock of the corporation he transfers the above assets to the said corporation at their cost of acquisition, or at their net book values (acquisition cost less depreciation claimed and allowed in prior years) would the difference between the market value at the time of such transfer and the acquisition cost, or the net book values, whichever he may finally choose, be taxable income on the part of Mr. Odell? If not, would such difference be subject to gift tax?" In reply thereto, I have the honor to inform you that the transfer to the Corporation at their net book value (acquisition cost less depreciation claimed and allowed in prior years) of the hacienda and improvements thereon for its shares of stock of equivalent value will not give rise to any income tax liability because no gain shall have actually been realized on the transfer or exchange. Neither will the difference in the fair market value of the property at the time of transfer and the net book value thereof be considered as a gift by Mr. Odell to the corporation subject to the gift tax. It has been held that a voluntary contribution by a taxpayer to a corporation of which he is the sole owner is not subject to the gift tax (Scanlon vs. Commissioner, 42 BTA 997). In this case, the court even said that there was full and satisfactory compensation to the transferor, through the corresponding enchancement in the value of his shares, even though it be conceded that there was a transfer from one person to another. LLjur Very truly yours, (SGD.) MELECIO R. DOMINGO Commissioner of Internal Revenue