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REPUBLIC OF THE PHILIPPINES DEPARTMENT OF FINANCE BUREAU OF INTERNAL REVENUE Quezon City

Bureau of Internal Revenue Ruling

204, 248 & 249

007-2002

#019-2003

Person to Contact: Chief, Law Division Tel. Nos. 926-55-36 / 927-09-63 November 28, 2003

Date: ___________________

Sitio Tiaong Antipolo Mayamot Neighborhood Association Inc. Sitio Tiaong, Barangay Mayamot Antipolo City Attention: Mr. Pablo T. Oldan Chairman Gentlemen`: This refers to your letter dated October 12, 2001 indorsed to this Office by Revenue District Officer Frederick P. Capitan of Revenue District No. 45, Marikina City, requesting in behalf of your Association for waiver/abatement of surcharge, interest and compromise penalties for late payment of capital gains tax for reasons of financial incapacity. Documents show that your neighborhood association of around fifty (50) members is duly registered with the SEC, BIR, and recognized by the Urban Settlement and Development Office, Office of the City Mayor, Antipolo City; that your association is composed of landless and homeless urban residents who are squatters occupying a piece of land owned by Miss Gloria Erestain located at Interior Sumulong Highway, Barangay Mayamot, Antipolo City, consisting of 2,998 sq.m. and covered by TCT No. 107676; that your association has been negotiating to buy the said land for the past two (2) or more years; that on September 20, 2001, the owner agreed to sell the abovedescribed land on the condition that the association will shoulder the expenses including the capital gains tax and other transfer taxes; that the zonal value of the land is P3,297,800.00; that since the members of the association belong to the urban poor sector, they offered to pay One Million (P1,000,000.00) Pesos only; that the amount of P1,000,000.00 was collected by the association from

#019-2003
Letter for : Sitio Tiaong Antipolo Mayamot Neighborhood Ass., Inc. Subject : waiver of penalties Page 2 ----------------------------------------------------------

November 28, 2003


204; 248 & 249 - 121-97 -

its members for the last two (2) years through unity and perseverance; that the association's request for tax exemption was rejected by the BIR on the ground that it is not registered under the Community Mortgage Program and with the HLURB; that the association is liable for capital gains and documentary stamp taxes in the amount of P304,117.57 and P80,808.32, respectively, inclusive of penalties. In reply, please be informed that Section 204 of the 1997 Tax Code states: "SEC. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes. - The Commissioner may (A) Compromise the payment of any internal revenue tax, when: (1) A reasonable doubt as to the validity of the claim against the taxpayer exists; or (2) The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax. xxx xxx xxx

(B) Abate or cancel a tax liability, when: (1) The tax or any portion thereof appears to be unjustly or excessively assessed; or (2) The administration and collection costs involved do not justify the collection of the amount due. x x x" In relation to the above provision, Section 24(D)(1) of the same Code, as implemented by Section 2 of Revenue Regulations No. 13-85, provides that the person liable to pay the capital gains tax is the seller or the person who is presumed to have realized an income or gain from the transaction. This Office recognizes the validity of the agreement between the seller and the buyers, where the latter assumed the payment of all transfer taxes as having the force of law between the parties. However, Section 204(A)(2) of the 1997 Tax Code is for the benefit of the person liable under the law to pay the tax. Under the law, it is the seller who is liable to pay the capital gains tax. Since it appears that the financial position of the seller does not demonstrate a clear inability to pay the assessed tax, there is no basis for compromise insofar as the seller is concerned. To rule otherwise would provide an opportunity for circumventing the law. (BIR Ruling No. 007-02 dated February 14, 2002)

#019-2003
Letter for : Sitio Tiaong Antipolo Mayamot Neighborhood Ass., Inc. Subject : waiver of penalties Page 3 ----------------------------------------------------------

November 28, 2003


204; 248 & 249 - 121-97 -

Moreover, pursuant to Section 249 of the 1997 Tax Code, the imposition of interest on delinquency is mandatory. (Jamora vs. Meer, 74 Phil. 22) The imposition of interest is but a just compensation to the state for the delay in the payment of the tax, and for the concomitant use by the taxpayer of funds that rightfully should be in the government's hands. [U.S. v. Goldstein, 189 F 2d 752; Rose vs. U.S. 148 Fed. Supp. 330; and U.S. vs. Joffray, 97 Fed (2d 488)] In view of the foregoing, we regret to inform you that your request for waiver of the payment of surcharge and compromise penalty and interest imposed under Sections 248 and 249 of the Tax Code of 1997 is hereby denied for lack of legal basis. Very truly yours,

(Original Signed) GUILLERMO L. PARAYNO, JR. Commissioner of Internal Revenue

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