BUYERS and sellers of real property may be subjected to an investigation by the Bureau of Internal Revenue (BIR), particularly on their financial capacity to buy and hold properties, a recently published order reads.

A memorandum order issued by Commissioner Kim Henares last June 8 instructed its revenue district officers to trace the sources of funds of both the buyer and seller in acquiring the properties before issuing a certificate authorizing registration (CAR) and tax clearance (TCL).

Covered by the regulations are payment of capital gains tax (CGT) on the sale of real properties considered as capital assets (not used in business), CGT on the sale and transfer of stocks not traded in the stock exchange, expanded withholding tax on the sale of real properties considered as ordinary assets (used in business), donor’s estate tax and documentary stamp taxes.

The parties involved may have to present documents like income tax return, certificate of creditable tax withheld at source, certificate of final tax withheld at source or loan documents to attest to their financial capacity to buy the property.

If it is determined that the seller or the buyer has no capacity to acquire the property, district officers should request to the regional director to issue a letter of authority to investigate the parties involved or refer cases to the National Investigation Division for tax fraud audit.

Further, if it has been proven that the buyer has no financial capacity to purchase the property, BIR said the transaction should not be treated as a sale, but a donation.

“Donor’s tax should be imposed and not CGT (capital gains tax) and a duly executed deed of donation shall be required,” Henares said.