April 18, 1989

REVENUE MEMORANDUM ORDER NO. 27-89

SUBJECT : Amendment of Revenue Memorandum Order No. 29-86 Dated

September 3, 1986 as Amended by Revenue Memorandum Order
No. 16-88 Dated April 18, 1988 Relative to the Payment of Capital
Gains Tax on Extra-Judicial Foreclosure Sale Initiated by Banks,
Finance and Insurance Companies

TO : All Internal Revenue Officers and Others Concerned

PURPOSE : There is an Imperative Need to Amend Section 2.2 of RMO No. 29-
86 Amended by RMO No. 16-88 in Order to Enhance our Capability
of Collecting the 5% Capital Gains Tax Imposed Under Section
21(E) of the Tax Code, as Amended, from Banks, Finance and
Insurance Companies

Section 2.2 of RMO No. 29-86 as amended by RMO No. 16-88 reads as follows: cd

"2.2 - The tax applies not only to ordinary sale transaction but also to pacto
de retro sales and other forms of conditional sales. This accordingly, includes
mortgage foreclosure sales, except extra-judicial foreclosure sale under Act No.
3135, as amended by Act No. 4118 wherein the tax shall become due only upon
the consolidation of title in the name of the nancial institution (banks, nance
and insurance company) concerned."

Reports reaching this O ce reveal that a number of unscrupulous banks,

insurance companies and other nancial institutions have been evading the payment of
the capital gains tax by disposing of foreclosed real properties classi ed as capital
assets upon the expiration of the one-year period of redemption without consolidating
ownership over said properties as envisioned by RMO No. 16-88. cd

This scheme of circumventing the law must be stopped immediately.

To prevent the continuous drain of our just revenues from this source, Section
2.2 of RMO No. 29-86 as amended by RMO No. 16-88 is therefore amended to read as
follows:
"2.2 - The tax applies not only to ordinary sale transaction but also to pacto
de retro sales and other forms of conditional sales. This accordingly, includes
mortgage foreclosure sales, except extra-judicial foreclosure sales under Act No.
3135, as amended by Act No. 4118 wherein the tax shall become due only upon
the expiration of the one-year period of redemption provided for under Act No.
3135, as amended by Act No. 4118." cda

This Revenue Memorandum Order shall take effect immediately.

(SGD.) JOSE U. ONG

Commissioner of Internal Revenue

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