CAPITAL GAINS TAX
Capital Gains Taxation, In General
When may a capital gain be exempt from tax? (1976)
a. Sale, exchange or other disposition of real property.
1. Presumed capital gains realized from the disposition of their principal residnce by natural persons, the proceeds of which are fully utilized in acquiring or constructing a new principal residence subject to certain conditions. (sec. 24 (D) (2), NIRC of 1997). This exemption is availbe only to resident individuals, whether citizens or aliens.
2. Sales under the Community Mortgage Program (1st par. Sec. 3, Rev. Regs. No. 17-2001)
3. Foreclosure sale
4. Consolidation of more than one title owned by the same owner into one mother title.
5. Sale by a trustee of land owned by the tax-exempt pension plan. (BIR Ruling, June 9, 1998)
6. Transfer of land from one government agency to another for development into a social housing community to be disposed of to bonafide residents. (BIR Ruling, November 14, 1989)
7. Conveyance of common areas by developer-owner to the condominium corporation without consideration after uits therein have been sold. (BIR Ruling, September 10, 1991)
8. Adjudication of real property to an heir in a partition not being sale, exchange or disposition thereof. (BIR Ruling, December 3, 1991)
9. Transfer of real property to trustee under a revocable trust. (BIR Ruling, March 19, 1992)
10. Sale by a religious organization of a land and its improvements used for religious purposes, if the proceeds thereof shall be used to purchase a new church site and construction of a church building thereon. (BIR Ruling, April 2, 1992)
b. Certain types of exchanges solely in kind
1. Exchange in pursuance of a consolidation or merger subject to certain conditions (Sec.40 (B) (2), NIRC of 1997)
2. The exchange results to control of the corporation together with others not exceeding four (4) persons. (last par., Sec.40 (B) (2), NIRC of 1997)
What is capital asset? Illustrate with an example? (1988)
The term “capital assets” means property held by the taxpayer (whether or not connected with his trade or business), but does not include:
a. Stock in trade, or
b. Other property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year, or
c. Property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business, or
d. Property used in the trade or business, of a character which is subject to the allowance for depreciation; or real property used in the trade or business of the taxpayer. (Sec. 39 (A) (1), NIRC OF 1997)
Examples of capital assets are:
a. Stock and securities held by taxpayers other than dealers in securities.
b. Jewelry not used for trade and business
c. Residential houses and lands owned and used as such
d. Automobiles not used in trade or business
e. Paintings, sculptures, stamp collections, objects of arts which are not used in trade or business
In 1993, Mr. Naval bought a lot for P1,000,000 in a subdivision with the intention of building his residence on it. In 2002, he abandoned his plan to build his residence on it because the surrounding area became a depressed area and land values in the subdivision went down; instead he sold it for P800,000. Is the land a capital asset or an ordinary asset? (1994)
The land is a capital asset. It is not used for trade and business because it was intended for Mr. Naval’s residence. (Sec. 39 (A). NIRC of 1997)
An individual taxpayer who own a ten (10) door apartment with a monthly rental of P10,000 each residential unit, sold this property to another individual taxpayer. Is the seller liable to pay the capital gains tax? (1998)
No. The seller is not liable to pay the capital gains tax. The tax is imposed only upon the disposition of a capital asset, which is one not used in trade or business. (Sec. 24 (D) (1), NIRC of 1997)
Since the (ten) 10-door apartment is being rented out on a regular basis, it is used in trade or business. Thus, it is an ordinary asset and any gains derived there from the disposition shall not be subject to capital gains taxation but to ordinary income taxation.
Perlas inherited from his parents large parcels of undeveloped land acquired by them years ago at the total cost of P500,000. Perlas now sells all of these parcels for P2,000,000. How much of the gains should he report for income tax purposes? (1974)
None. He need not report any gains in his income tax return. The sale is subject to the final tax of 6% on the presumed capital gains derived from the sale because the property is a capital asset not used in trade or business.
Supposed that when Perlas inherited these parcels, they were already fully developed real estate subdivisions, with small lots being sold on installment basis. He now sells all these parcels for P4,000,000. How much of the gain should he report for income tax purposes? (1974)
The gain Perlas should report for income tax purposes should be his taxable ordinary income which results after deducting deductions and/or personal and additional exemptions allowed under the law from his gross income of P4,000,000.
Since the properties are fully developed real estate subdivisions, these are ordinary assets being properly held by Perlas, the taxpayer, primarily for sale to customers in the ordinary course of his trade or business (Sec. 39 (A) (1), NIRC of 1997). The properties being ordinary assets, the gains should not be subject to the final tax imposed on the disposition of capital assets.
What is ordinary gains? Give examples. (1989)
What does the term “ordinary income” include? (1998)
Ordinary gain is any gain from the sale or exchange of property which is not a capital asset or property. (Sec. 22 (Z), NIRC of 1997)
Examples or ordinary gains include, among others, the gains derived from the sale of real property used in trade or business such as a building being rented out on a regular basis; sale or items held for sale in the ordinary course of business, such as the gains from the sale of automobiles by a car dealer; sale of equipment subject to depreciation, such as the sale by a pharmaceutical firm of its medicine manufacturing equipment.
Differentiate capital gains from ordinary gains. (1974)
How would you differentiate capital gains from ordinary gains? (1989)
What is the difference between capital gains and ordinary gains? (1998)
a. The source of capital gain is property not used in trade or business while the source of ordinary gain is property used in trade or business.
b. Some types of capital gains are adjusted by the holding period while the holding period does not find application to ordinary gains.
c. From certain types of capital gains may be deducted ordinary losses while only ordinary loss may be deducted from ordinary gains.
d. The concept of net loss carryover applies to capital gains taxation, while the concept of net operating loss carryover applies to ordinary gains taxation
e. Generally no deductions are allowed from capital gains while deductions are usually allowed for ordinary gains.
Aristarchus is engaged in business as an art dealer. His inventory of paintings includes several masterpieces which he acquired ten years ago. Aristarchus invests part of his savings in private corporations belonging to his friends. The shares of these corporations are not traded in the stock market. Among his existing investments are shares of stock of Crescent Corporastion and Ethereal Corporation. Consider the following transactions of Aristarchus during the taxable year 2002.
1. In May 2002, Aristarchus sold his shares in Ethereal Corporation which he held since 1999. His original purchase price for these shares was P100,000. He sold them for P200,000.
2. In September 2002, Aristarchus sold one of his Manansala masterpieces for P2,000,000. The buyer gave him a manager’s check which Aristarchus can deposit anytime. However, Aristarchus foresaw that his income for 2002 will be substantially higher than he wanted it to be. He therefore plans to wait until 2003 before depositing the manager’/s check. Aristarchus acquired the painting in 1992 for P100,000.
3. In addition to the above transactions, Aristarchus has also been thinking of disposing of his Crescent Corporation shares. He bought the said shares in 1995 for P400,000. They are presently worth only P200,000. The son of Aristarchus is getting married in 2002 and Aristarchus is thinking of selling the Crescent shares for P200,000 and donating the proceeds of the sale to his son. After mulling this over, Aristarchus decided to sell the Crescent shares and donate the cash proceeds to his son.
What types of gains or losses will Aristarchus realize in transactions 1, 2 and 3 above for the taxable years 2002 and 2003, if any? Explain your answer. (1986)
1. In the taxable year 2002, Aristarchus realized a capital gain from the disposition of the shares of Ethereal Corporation because his selling price is higher that his acquisition price. Aristarchus is not engaged in the business of buying and selling shares of stock, neither is there showing in the problem that the shares are listed and traded in the local stock exchange, hence the Ethereal shares are capital assets. He realized the gain in 2002 because it was at that time the shares were sold.
2. Aristarchus had an ordinary gain in 2002. Aristarcus is an art dealer engaged in the business of buying and selling paintings. There is a gain because the selling price was higher than the acquisition price.When the manager’s check was given to Aristarchus in 2002, he had full disposition of the same, hence it was in 2002 that he realized the income. The date of the deposit in 2003, has no effect on the realization of the income.
3. In taxable year 2002, Aristarchus incurred a capital loss froom the disposition of the shares in Crescent Corporation because his selling price is lower than is acquisition price. Aristarchus is not engaged in the business of buying and selling of shares of stock, neither is there any showing in the problem that the shares are listed and traded in the stock exchange, hence the Crescent shares are capital assets. He incurred the loss in 2002 because it was at that time the shares were sold.
Tax Treatment of Disposition of Real Property Deemed Capital Assets
X-land Condominium Corporation was organized by the owners of units in X-land Building in accordance with the Master Deed with Declaration of Restrictions. The X-land Building Corporation, the developer of the building, conveyed the common areas in favor of the X-Land Condominium. Is the conveyance subject to any tax? (1994)
No. There was no separate sale, exchange or other disposition that is taxable. When the owners purchased their units, the common areas were already included in the sales prices that were already subject to income taxes.
A corporation engaged in real state development, executed deeds of sale on various subdivided lots. One buyer, after going around the subdivision, bought a corner lot with a good view of the surrounding terrain. He paid P1.2 million, and the title to the property was issued. A year later, the value of the lot appreciated to a market value of P1.6 million, and the buyer decided to build his house thereon. Upon inspection, however, he discovered that a huge tower antennae had been erected on the lot frontage totally blocking his view. When he complained, the realty company exchanged his lot with another corner lot with an equal area but affording a better view. Is the buyer liable for capital gains tax on the exchange of the lots? (1997)
Yes. The buyer who exchanged his lot is subject to the presumed capital gains tax as he is considered the seller in the exchange. The transaction subject to the 6% presumed capital gains taxes includes not only sales but exchanges of property [Sec. 24 (D) (1), NIRC]
The rea property of Mr. Pedro Cruz was expropriated yt he government in 2002. He acquired said property in 1985 for only P50,000, but the government paid him P1,000,000 which was the market value at the time of the appropriation. How shall Mr. Cruz be taxed on the expropriation proceeds? Explain. (1973)
The tax liability, if any, on the gains from sales or other dispositions of real property, classified as capital assets, to the government or any of its political subdivisions or agencies or to government owned or controlled corporations shall be determined, at the option of the taxpayer, in either of the following:
a. Included as part of gross income to be subject to the allowable deductions and/or personal and additional exemptions, then subject to the schedular rate [Sec. 24 (D) (1), in relation to Sec 24 (A) (1), NIRC]
b. The final tax of six (6) percent imposed on the presumed capital gain whichever is higher of the gross selling price, or the current fair market value as determined below:
1. the fair market of real properties located in each zone or area as determined by the Commissioner after consultation with competent appraisers both from the private and public sectors; or
2. the fair market value as shown in the schedule of values of the Provincial and City Assessors. [Sec. 24 (D) (1) in relation to Sec 6 (E), NIRC]
Juan Panalo won a damage suit for P500,000 agaist Juan Talo. Panalo got a writ of execution and made a levy on the lot of Talo. The lot was sold at public auction where Panalo was the highest for P500,000. Panalo refused to pay any capital gains tax on his purchase of said lot. Your opinion. (1993)
Panalo is correct in refusing to pay the capital gains tax. The tax is to be paid by the seller, in this case Talo, not the buyer Panalo. [Sec. (D) (1), NIRC]
X bought a house and lot on March 19, 1993 for P900,000. He sold the same property on April 10, 2002 for P2,000,000. How much is the taxable income on his capital asset transaction that should be reported by X? Reason (1976)
There is no taxable income to be reported in the annual income tax because the transaction is subject to the 6% presumed capital gains tax. There is no showing that the house and lot is used in X’s trade or business or that he is engaged in the realty business.The property is thus classified as capital asset.
X purchased a house and lot in 1995 for P1,000,000. Five years later, X fenced the whole premises, constructed an annex to the house and put up a swimming pool, which cost him a total of P1,000,000. X sold the property in 2002 for P3,000,000. Assessment was issued against X for a capital gain based on P1,000,000. Is the assessment correct? Explain briefly. (1981)
No. It appears that the house and lot is a capital asset because it is bot used in trade or business. Thus, it is subject to the 6% presumed capital gains tax which does not consider the actual gain realized.
CD purchased a parcel of land in 1963 for P10,000. He died in 1981. In his will, he devised the aforesaid parcel to a fried of his, MN, obtained title thereto in 1983 after CD’s estate has been settles. On August 30, 20002, MN received a P1,000,000 cash offer for the said lot. He now would like your advice as to the taxes he will have to pay should he actually sell. State your opinion on the matter with legal support. (1985)
The parcel of land is a capital asset since there is no showing that it is used in trade or business. As such if sold, the seller shall be subject to the 6% presumed capital gains tax based on whichever is the higher of the gross selling price, the fair market value determined by the Commissioner, or the valuation of the provincial or city assessor.
In 1993, Mr. Naval bought a lot for P1,000,000 in a subdivision with the intention of building his residence on it. In 2002, he abandoned is plan to build his residence on it because the surrounding area became a depressed area and land values in the subdivision went down. Instead he sold it for P800,000. At the time of the sale, the zonal value was P500,000. is there any income tax due on the sale? (1994)
Yes. The income tax due on the sale is the presumed capital gains tax. [Sec. 24 (D) (1), NIRC]. This is so because the property is a capital asset not used in trade or business.
A, a doctor by profession, sold in the year 2002 a parcel of land which he bought as a form of investment in 1992 for P1million. The land was sold to B, his colleague, at a time when the real estate prices had gone down and so the land was sold for P800,000 which was then the fair market value of the land. He used the proceeds to finance his trip to the United States. He claims that he should not be made to pay the 6% final tax because he did not have any actual gain on the sale. Is his contention correct? Why? (2001)
No. Dr. A’s contention is not correct. The 6% final tax is a “presumed capital gains tax” which is based on whichever is higher of the gross selling price, the current fair market value as determined by the BIRT Commissioner, or the valuation of the city/provincial assessor. It is imposed irrespective of whether there is a gain or a loss from the sale. [Sec. 24 (d) (1), NIRC]
XYZ, a corporation not engaged in the realty business, bought a piece of land in 2001 which it sold to another corporation one year later. It realized a net profit of P1,000,000. What income tax rate would it be subject to and why? (1988)
Assuming that XYZ is a domestic corporation, it shall be subject to the 6% presumed capital gains tax. There is no showing in the problem that the piece of land is used in its trade or business, hence it is classified as a capital asset.
ABC, s domestic corporation, sold in 2002 two (2) condominium units of Legaspi Toower in Roxas Blvd. For P8,158,142. Taxpayer corporation declared in its income tax return for taxable year 2002 its gains derived from the sale of the two (20)condominium units as follows:
UNIT A UNIT B
(316.5 sq. ft.) (322 sq. ft)
Proceeds from sale P3,933,679 P4,224,463 = P8, 158,142
Less:
a. Acquisition cost 1,501,295 1, 529,755 = 3,031,050
(Deed of sale, 9/9/97)
b. Payment of realty tax 49,248 53,412 = 104,661
Total (a) and (b) P1,550,543 P1,565,168 = P3,135,711
Gains P2,383,136 P2,639,295 = P5,022,431
Without going into computations, answer the following question:
Since ABC derived gains from the sale of the condominium units, should it pay the 6% capital gains tax because the corporation is not a real estate dealer? Discuss. (1992)
Yes. ABC should pay the 6% capital gains tax because there is no showing in the problem that the properties are used in its trade or business.
X sold a piece of land to the United Church of Christ of Quezon City, Inc. the land is to be devoted strictly for religious purposes by the Church. When the Church tried to register the title of the land, the Register of Deeds refused claiming that the capital gains tax was not paid. Is the transaction exempt from the capital gains tax? Reason. (1993)
No. The capital gains tax is due from X, the seller. Neither X nor the united church of Christ of Quezon City, is exempt from the capital gains tax. The tax exemption of a religious institution applies only to real property taxes, and on certain kinds of income.
Mar and Joy got married in 1993. A week before their marriage, Joy received, by way of donation, a condominium worth P750,000 from her parents. After marriage, some renovations were made at a cost of P150,000. In 2002, they sold the condominium unit and bought a new unit. What is the income tax implications of the sale? (1997)
The sale is subject to the 6% presumed capital gains tax. There is no showing that the condominium is used in trade or business. The sale is not exempted from capital gains taxes because the problem does not show that the condominium unit is the principal residence of Mar and Joy.
Tax Treatment of Sale, Exchange or Other Disposition of Shares of Stock Not Listed and Traded in the Stock Exchange that are Considered as Capital Assets
In June, 2002, A, a Filipino, sold for P5,000,000 a 500 sq. m. lot that he bought in 1990 for P50,000. His brother B sold in the same year at P1.00 per share 500,000 shares of stock of Black Gold Corporation whose shares were being traded at the Makati Stock Exchange. B bought the shares two years before at P0.10 each. What would be the respective income tax liabilities of the two brothers?
A would be subject to the 6% presumed capital gains tax because the property is considered as a capital asset not used in trade or business.
B would be subject to the transfer tax of ½ of 1% on the gross selling price since the shares were traded in the stock exchange. Whether the shares are capital assets or not, as well as the holding period does not apply to sales of shares of stock in the stock exchange.
Romulus, 48 years of age and a retired employee had the following properties and transactions at the end of the 2002 taxable year:
a) Shares of stock in Sabinian Corporation which he bought in 1998 for P50,000.00 and which were worth P70,000.00 as of the end of 2002.
b) Shares of Visigoth Corporation which he bought for P40,000.00 in 1990 and which he sold for P100,000.00 in 2002.
Are the above items subject to the regular tax rates found in the schedule under Section 24 (A) of the NIRC which states the tax rates on citizen and residents? Explain your answer. (1986)
a. No. There is no income yet that has been realized which could be subject to taxation. Mere increments in value without realization are not taxable.
b. No. If Visigoth Corporation is a domestic corporation and the shares are traded through the local stock exchange, they shall be subject to a final tax, hence not to the regular tax rates. If traded, the sale shall be subject to the transaction tax of ½ of 1%, which is also a final tax. If Visigoth Corporation is not a domestic corporation, then the proceeds of the sale shall be included in the annual income tax return subject to the rates on ordinary income.
Three brothers inherited in 1997 a parcel of land valued for real estate purposes at P3.0 million which they held in co-ownership. In 2000, they transferred the property to a newly organized corporation as their equity which was placed at a zonal value of P6.0 million. In exchange for the property, the three brothers thus each received shares of stock in the corporation with a total par value of P2.0 million or, altogether, a total of P6.0 million. No business was done by the corporation, and the property remained idle. In the early part of 2002, one of the brothers, who was in dire need of funds, sold his shares to the two brothers for P2.0 million. Is the transaction subject to any internal revenue tax other than the documentary stamp tax? (1997)
The transaction shall be subject to the capital gains tax on the sale of shares of stock in domestic corporation outside of the stock exchange, if there is a taxable gain.
Tax Treatment of Other Capital Assets that are Not Real Property or Shares of Stock Not Listed and Traded in the Stock Exchange
Mrs. G received as gift from her mother several pieces of jewelry purchased ten years ago for P100,000. At the time of the gift, the jewelry had a fair market value of P2.0 million. After possessing the jewelry for 18 months. Mrs. G sold them for P2.5 million.
1) What are the tax consequences? Discuss without need of making computations.
2) Suppose Mrs. G received a piece of land as a gift from her mother. Under the same set of facts described above, what are the tax consequences of the sale of the land? Explain. (1987)
1. Mrs. G shall determine her capital gain after applying the holding period. The capital gain is then included in the annual income tax return, subject to the schedular rate.
2. Mrs. G shall be subject to the 6% presumed capital gains tax without regard to the holding period. This is so because the property is classified asset, there being no showing that it is used in trade or business.
Taxation of Exchanges of Property
When may capital gains be exempt (1976)
No capital gains or loss shall be recognized if in the pursuance of a plan of merger or consolidation—
a. A corporation which is a party to a merger or consolidation exchanges property solely for stock in a corporation which is a party to the merger or consolidation; or
b. A shareholder exchanges stock in a corporation which is a party to the merger or consolidation solely for the stock of another corporation, also a party to the merger or consolidation;
c. A security holder of a corporation which is a party to the merger or consolidation exchanges his securities in such corporation solely for stock or securities in another corporation, a party to the merger or consolidation; or
No gain or loss shall be recognized if property is transferred to a corporation by a person in exchange for stock or unit of participation in such a corporation of which as a result of such exchange said person, alone or together with other, not exceeding four (4) persons gain control of said corporation: Provided, that stocks issued for services shall not be considered as issued in return for property. [Section 40 (C), NIRC}
Don Juan is engaged in extensive farming activities on his 50-hectare farm in Tanauan, Batangas. He bought his farm in 1994 for only P50,000. On September 11, 2002, it has a fair market value of P5,000,000. Don Juan now intends to transfer his 50-hecatre farm to X, Inc. , an existing domestic corporation in which Don Juan already owns 95% of the stockhildings. He would like to transfer his farm to X, for P4,500,000 worth of shares of stock (of X, Inc.) and P500,000 in cash. Don Juan consults you concerning the tax consequence of his proposed transaction. Explain his tax liability. (1968)
The exchange is one that is not a tax-free exchange because it is not one solely in kind (a portion was cash), and that the exchange did not result to control as Don Juan was already in control. Don Juan has a tax liability on his realized gain.
He acquired the property for P50,000 but he was able to get in exchange P4,500,000 worth of shares and P500,000 cash. He is to be taxed on the P450,000 cash exceeding his acquisition of P50,000. He is going to be taxed on the shares of stock only when he disposes of them.
Cebu Development, Inc. (CDI) has an authorized capital stock of P5,000,000 divided into 50,000 shares with a par value of P100.00 per share. Of the authorized capital stock, 25,000 shares have been subscribed. M. Jun Legaspi is a stockholder of CDI where he has his subscription amounting to 13,000 shares. To fully pay his unpaid subscription in the amount of P950,000, Mr Legaspi transferred to the corporation a parcel of land that he owns by virtue of a Deed of Assignment. Upon investigation, the BIR discovered that Mr. Legaspi acquired said property for only P500,000. Is Mr Legaspi liable for any taxable gain? Is CDI liable for any taxable gain? (1991)
Both Mr. Legaspi and CDI are not liable for any taxable gain. The transaction is an exchange solely in kind. Thus, no gain is recognized as the property transferred to CDI by Mr. Legaspi in exchange for the shares of stock resulted in Mr. Legaspi’s gaining control of CDI because he acquired ownership of 13,000 or more than 50% of the total authorized shares of 25,000.
Dimas owns a parcel of land worth P5,000,000 which he inherited from his father in 2002 when it was worth P3,000,000. His father purchased the property in 1988 for P1,000,000.
a. If Dimas transfers this parcel of land to his wholly owned corporation, Dimasalang Corporation, in exchange for shares of stock of said corporation worth P4,500,000, Dimas will have a taxable gain of :
1. Zero
2. P500,000
3. P2,000,000
4. P3,500,000
5. P4,000,000
6. None of the above
Choose one of the above answers and explain the reason for your choice. (1986)
P3,500,000. The exchange is not one solely in kind which is subject to tax exemption. To be exempt, the exchange must be for the purpose of obtaining control which is not present in this case.
b. Dimasalang Corporation ion the above situation would have a taxable gain of:
1. Zero
2. P500,000
3. P1,500,000
4. P3,500,000
5. None of the above
Choose one of the above answers and explain the reason for your choice. (1986)
P500,000. Dimasalang parted with as asset worth of P4,500,000, with another with a value of P5,000,000. The exchange is not exempt because Dimas already controls the corporation. In a tax-free exchange the purpose must be for controlling the corporation.
c. As a result of the transaction above-mentioned, the aggregate basis of Dimas for all his Dimasalang corporation shares is:
1. P1,000,000
2. P3,000,000
3. P4,500.000
4. P5,000,000
5. None of the above
Again, choose one of the above answers and explain the reason for your choice. (1986)
P300,000. This is the fair market value price or value of the property as of the date the property was acquired through inheritance.
d. Going back to the transaction in question no. 2, if instead of inheriting the parcel of land from his father, Dimas received it as a gift, the aggregate basis of Dimas for all his Dimasalang Corporation shares would be:
1. P1,000,000
2. P3,000,000
3. P4,500.000
4. P5,000,000
5. None of the above
Again finally, choose one of the above answers and explain the reason for your choice. (1986)
P1,000,000 which was the value at the hands of his father.
In a qualified tax-free exchange of property for shares under Section 40 (C) (5) of the Tax Code, what is the tax basis for computing the capital gains on : a) the sale of the assets received by the corporation; and b) the sale of the shares received by the stockholders in exchange of the assets? (1994)
a. With respect to the asset received by the corporation, the tax basis should be the original historical cost of the property exchanged for the shares of stock increased by the amount of the gain recognized by the transferor on the transfer. [Sec. 40 (C) (5) (b), NIRC]
b. The basis of the shares received in exchange for the property, is the same as the value of the property exchanged decreased by (1) the money received, and (2) the fair market value of the other property received, and increased by (a) the amount treated as dividend, and (b) the amount of any gain that was recognized on the exchange. [Sec. 40 (C) (5) (a), NIRC]
In a qualified merger under Section 40 (C) (2) of the Tax Code, what is the tax basis for computing the capital gains on : (1) the sale of the assets received by the surviving corporation from the absorbed corporation; and (2) the sale of the shares of stock received by the stockholders from the surviving corporation? (1994)
The same answer as above.
