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CM 305.11 - REDEMPTION/FINAL DEED TO PURCHASER/TRANSFER TO THE GOVERNMENT

Redemption of Property

A one-year redemption period is provided for the taxpayer from the date the Provisional Certificate of Sale of Real Property or the Declaration of Forfeiture of Real Property is registered in the Register of Deeds/Assessor’s Office where the real property is located/registered.[1] This one-year redemption rule, however, is not applicable if the forfeited assets are personal properties.

During the redemption period, the taxpayer shall not be deprived of the possession of the said property and shall be entitled to the rents and other income therefrom until the expiration of the time allowed for its redemption.[2]

The delinquent taxpayer may redeem the property within the one-year redemption period, subject to the following conditions:

  1. In case of property sold to a winning bidder, the delinquent taxpayer or his legal representative may redeem the property by paying the outstanding tax liabilities, penalties and interest thereon from the date of delinquency to the date of sale, the maintenance and preservation of the levied property, and the expenses of sale, together with the interest on the purchase price at the rate of fifteen percent (15%) per annum from the date of sale to the date of redemption, within one (1) year from the date of sale.
  2. In case of property declared forfeited by the government, the delinquent taxpayer or his legal representative may redeem the property by paying the outstanding tax liabilities, penalties and interest thereon from the date of delinquency to the date of sale, within one (1) year from the date the declaration of forfeiture was registered with the Register of Deeds/Assessor’s Office who has jurisdiction over the property.
  3. Procedures in the Redemption of Real Property Sold to a Winning Bidder at Auction Sale

The RDO/LTDO/LTCED shall:

  1. Determine the amount to be paid by the taxpayer which is equivalent to the delinquent tax, surcharges, interests, and costs of seizure and sale plus 15 percent per annum as forbearance of the amount paid at auction, as follows:

               Computation of Amount Payable by the Taxpayer in Redeeming a Property Subject of an Auction Sale in Satisfaction of Tax Liabilities

               Illustration: XYZ CORPORATION filed its final adjustment income tax return for calendar year 2007 with a net taxable income of P500,000.00. At the applicable income tax rate of 35% for the year 2007, its income tax amounted to P175,000.00. However, upon investigation, it was disclosed that its income tax return was false or fraudulent because it did not report a taxable income amounting to another P500,00.00. On its net income of P1,000,000.00 per investigation, the income tax due is P350,000.00. Deducting its payment per return filed, the deficiency, excluding penalties, amounted to P175,000,00. The taxpayer was duly informed of this finding through a Preliminary Assessment Notice. Due to failure to protest on time against the preliminary assessment notice, a formal letter of demand and assessment notice was issued on May 31, 2009 demanding for the payment of the deficiency income tax on or before June 30, 2009, as shown below:

Calendar Year 2007 Deficiency Income Tax Assessment

 

Income tax due per investigation

 

P350,000.00

Less: Income tax paid per return

 

175,000.00

Deficiency income tax

 

P175,000.00

Add:

50% surcharge for filing a fraudulent or false return (P175,000.00 x 50%)

P87,500.00

 

 

20% interest per annum from 4-15-08 to 6-30-09 (P175,000.00 x .2415524)

42,271.67

129,771.67

Total amount due

 

P304,771.67

 

Scenario 1: Computation of the total amount to be paid by the taxpayer to redeem the property if the purchase price (winning bid) is more than the tax liability including the delinquency penalties

Assuming that the aforementioned deficiency income tax assessment against XYZ CORPORATION, in the amount of P304,771.67, is not paid by June 30, 2009, the deadline for payment of the assessment, and the taxpayer failed to file a protest within the reglementary period (thirty (30) days from receipt of the assessment notice), thus, the assessment has already become final and executory. A Warrant of Distraint and/or Levy (WDL) was issued and served upon the taxpayer. Inspite of the service of the WDL, the taxpayer still failed to pay its deficiency income tax liability. A Notice of Tax Lien was filed with the Register of Deeds (NTL) and the corresponding Notice of Levy (NOL). The NTL and NOL were annotated on the title of parcel of land with an area of 200 square meters (sqm) belonging to the taxpayer. The copies of the filed NTL and NOL were furnished the taxpayer; however, the taxpayer still failed to pay its tax liabilities. The property was advertised for auction sale on June 30, 2010.

The minimum bid was set at the zonal value of P3,000.00 per sqm. (200 sqm. X P3,000.00 = P600,000.00). The property was sold to the bidder with the highest bid of P650,000.00. The BIR incurred expenses on the sale (publication, DST, miscellaneous expenses, etc.) amounting to P42,000.00 The taxpayer was given the right to redeem the property within one (1) year from the date of the auction sale plus 15% of the winning bid amount.

Below is the computation on how much the taxpayer will pay to redeem its property.

Total deficiency income tax assessed on May 31, 2009

P304,771.67

Add:

25% surcharge for late payment (P304,771.67 x 25%)

P76,192.92

P76,192.92

 

20% interest per annum from 6-30-09 to 6-30-10 (P304,771.67 x .20)

60,800.00

136,992.92

Total amount due (excluding suggested Compromise penalty for late payment) during the auction sale

 

P441,764.59

Add:

Expenses of the sale (publication, maintenance of the property, DST, miscellaneous expenses, etc.

 

42,000.00

Total Amount to be Deducted from the Purchase Price

P483,764.59

 

 

 

Purchase price (winning bid amount)

 

P650,000.00

Less:

Tax due + delinquency penalties + expenses of sale

 

483,764.59

Amount to be Returned to the Taxpayer

 

P166,235.41

 

Computation of the Redemption Amount           

Purchase price (winning bid amount)

P650,000.00

Add: 15% of the purchase price (P650,000.00 x 15%)

97,500.00

Gross Redemption Amount Payable by the taxpayer

P757,500.00

Less: Amount to be returned to the taxpayer

166,235.41

Net Redemption amount Payable by the Taxpayer

P591,264.59

 

Scenario 2: Computation of the total amount to be paid by the taxpayer to redeem the property if the purchase price (winning bid) is less than the tax liability including the delinquency penalties:

Assuming that the aforementioned deficiency income tax assessment against XYZ CORPORATION, in the amount of P304,771.67, is not paid by June 30, 2009, the deadline for payment of the assessment, and the taxpayer failed to file a protest within the reglementary period (thirty (30) days from receipt of the assessment notice, thus, the assessment has already become final and executory. A Warrant of Distraint and/or Levy (WDL) was issued and served upon the taxpayer. Inspite of the service of the WDL, the taxpayer still failed to pay its deficiency income tax liability. A Notice of Tax Lien was filed with the Register of Deeds (NTL) and the corresponding Notice of Levy (NOL). The NTL and NOL were annotated on the title of a parcel of land with an area of 200 square meter (sqm) belonging to the taxpayer. The copies of the filed NTL and NOL were furnished the taxpayer; however, it still failed to pay its tax liabilities. The property was advertised for auction sale on June 30, 2010. The minimum bid was set at the zonal value of P1,000.00 per sqm (200 sqm x P1,000.00 = P200,000.00). The property was sold to the bidder with the highest bid of P250,000.00. The BIR incurred expenses on the sale (publication, DST, miscellaneous expenses, etc.) amounting to P42,000.00. The taxpayer was given the right to redeem the property within one (1) year from the date of the auction sale plus 15% of the winning bid amount.

Below is the computation on how much the taxpayer will pay to redeem its property.

Total deficiency income tax assessed on May 31, 2009

P304,771.67

Add:

25% surcharge for late payment (P304,771.67 x 25%)

P76,192.92

P76,192.92

 

20% interest per annum from 6-30-09 to 6-30-10 (P304,771.67 x .20)

60,800.00

136,992.92

Total amount due (excluding suggested Compromise penalty for late payment) during the auction sale

 

P441,764.59

Less:

Amount to be applied to the tax liability

Purchase Price (winning bid amount)

P250,000.00

 

 

Less: Expenses of sale (publication, DST, miscellaneous expenses, etc.)

42,000.00

P208,000.00

Balance of tax liability

 

P233,764.59

 

Computation of the Redemption Amount:

Balance of tax due after the auction sale

 

P233,764.59

Add:

20% interest per annum from 6/30/2010 to 6/30/2011

(P233,764.59 x .20)

 

46,752.92

Total amount due

 

P280,517.51

Purchase price (winning bid amount)

P250,000.00

 

Add:

15% of the purchase price

(P250,000.00 x 15%)

37,500.00

287,500.00

Amount Payable by the Taxpayer

 

P568,017.51

 

Computation of the Amount to be Returned to the Winning Bidder:

Purchase price (winning bid amount)

P250,000.00

Add: 15% of the purchase price

(P250,000.00 x 15%)

37,500.00

Amount to be Returned to the Winning Bidder

P287,500.00

 

  1. Receive payment from taxpayer and/or return payment to the winning bidder, as the case may be;
  2. Prepare a Certificate of Redemption (Annex 300-1.54) for the signature of the duly authorized signatory and issue the same to the taxpayer;
  3. Record the case as closed and transmit docket to the Regional Administrative Division/NO-Records Division for safekeeping and future reference;
  4. Prepare a Report of Properties Redeemed within the Redemption Period and submit the same not later than tenth (10th) day of the following month to the Regional Director thru the Regional Collection Division/LTS thru the LTCED for consolidation and submission to the Collection Service thru the Collection Enforcement Division not later than the fifteenth (15th) day of the following month (Annex 300-1.55/56); and
  5. Prepare and submit Monthly GCL and Monthly Updates of Delinquent Accounts on the 10th day of the following month to CED copy furnished the Regional Collection Division/LTS (Refer to CM 306-Monitoring of ARs/DAs/ CM 307- Monitoring Warrant Enforcement).
  6. Procedures in the Redemption of Real Properties Declared Forfeited by the Government

The RDO/LTDO/LTCED shall:

  1. Determine the amount to be paid by the taxpayer which is equivalent to the delinquent tax, surcharges, interests and cost of seizure and sale as follows:

               Computation of Amount Payable by the Taxpayer in Redeeming the Real Property Forfeited by the Government

               Illustration: XYZ CORPORATION filed its final adjustment income tax return for calendar year 2007 with a net taxable income of P500,000.00. At the applicable income tax rate of 35% for the year 2007, its income tax liability amounted to P175,000.00. However, upon investigation, it was disclosed that its income tax return was false or fraudulent because it did not report a taxable income amounting to another P500,000.00. On its net income of P1,000,000.00 per investigation, the income tax due is P350,000.00. After deducting its income tax payment per return filed, the deficiency tax, excluding penalties, amounted to P175,000.00. The taxpayer was duly informed of this finding through a Preliminary Assessment Notice. After failure to protest on time against the preliminary assessment notice, a formal letter of demand and assessment notice was issued on May 31, 2009 demanding for the payment of the deficiency income tax on or before June 30, 2009, as shown below:

Calendar Year 2007 Deficiency Assessment

Income tax due per investigation

 

P350,000.00

Less:

Income tax paid per return

 

175,000.00

Deficiency income tax

 

P175,000.00

Add:

50% surcharge for filing a fraudulent or false return

(P175,000.00 x 50%)

P87,500.00

 

 

20% interest per annum from 4-15-08 to 6-30-09

(P175,000.00 x .2415524)

42,271,67

129,771.67

Total amount due

 

P304,771.67

              

Scenario 1- Computation of the total amount to be paid by the taxpayer to redeem the property, with a value of more than the tax liability, if there is no winning bidder and the property was forfeited in favor of the government:

Assuming that the deficiency income tax assessment against XYZ CORPORATION in the amount of P304,771.67 is not paid by June 30, 2009, the deadline for payment of the assessment; and the taxpayer failed to file a protest within the reglementary period (thirty (30) days from receipt of the assessment notice, thus, the assessment has already become final and executory. A Warrant of Distraint and/or Levy (WDL) was issued and served upon the taxpayer. In spite of the service of the WDL, the taxpayer still failed to pay its deficiency tax liability. A Notice of Tax Lien (NTL) was filed with the Register of Deeds and the corresponding Notice of Levy (NOL). The NTL and NOL were annotated on the title of a parcel of land with an area of 200 square meter (sqm) belonging to the taxpayer. The copies of the filed NTL and NOL were furnished the taxpayer but it still failed to pay its tax liabilities. The property was advertised for auction sale on June 30, 2010. The BIR incurred expenses on the sale (publication, DST, miscellaneous expenses, etc.) amounting to P42,000.00, The minimum bid was set at the zonal value of P3,000.00 per sqm (200 sqm x P3,000.00 = P600,000.00). The property was declared forfeited in favor of the government as there was a failure of bidding because all the bids are below the set minimum bid. In order to effect the forfeiture, a Declaration of Forfeiture was issued and filed with the Register of Deeds on July 2, 2010. The taxpayer was given the right to redeem the property within one (1) year from the date of forfeiture.

Computation of the amount to be paid by the taxpayer to redeem his property.- As a result of the failure of bidding, the property was declared forfeited by the government in full satisfaction of the government’s claim (amount of tax due per FAN plus the delinquency penalties at the time of the auction sale). Thus, the amount to be paid by the taxpayer in order to redeem his property is the computed amount of tax due at the time of the auction sale, inclusive of the delinquency penalties, plus the expenses of sale.

Below is the computation on how much the taxpayer will pay to redeem its property:

Total deficiency income tax assessed on May 31, 2009

 

P304,771.67

Add:

25% surcharge for late payment

(P304,771.67 x 25%)

P76,192.92

 

 

20% interest per annum

from 6-30-09 to 6-30-10

(P304,771.67 x .20)

60,800.00

 

 

Expenses of sale (publication, DST, miscellaneous expenses, etc.)

42,000.00

 

Total increments

 

178,992.92

Total amount due (excluding suggested compromise penalty for late payment) during the auction sale

 

P483,764.59

 

If the taxpayer failed to redeem the property within the prescribed period, the entire property shall be absolutely forfeited in favor of the government in satisfaction of the taxpayer’s tax liability.

Scenario 2: Computation of the total amount to be paid by the taxpayer to redeem the property, with a value of less than the tax liability, if there is no winning bidder and the property was forfeited in favor of the government:

Assuming that the aforementioned deficiency income tax assessment against XYZ CORPORATION in the amount of P304,771.67 is not paid by June 30, 2009, the deadline for payment of the assessment, and the taxpayer failed to file a protest within the reglementary period (thirty (30) days from receipt of the assessment notice); thus, the assessment has already become final and executory. A Warrant of Distraint and/or Levy (WDL) was issued and served upon the taxpayer. Inspite of the service of the WDL, the taxpayer still failed to pay its deficiency tax liability. A Notice of Tax Lien was filed with the Register of Deeds (NTL) and the corresponding Notice of Levy (NOL). The NTL and NOL were annotated on the title of a parcel of land with an area of 200 square meter (sqm) belonging to the taxpayer. The copies of the filed NTL and NOL were furnished the taxpayer, however, it still failed to pay its tax liabilities. The property was advertised for auction sale on June 30, 2010. The BIR incurred expenses on the sale (publication, DST, miscellaneous expenses, etc.) amounting to P42,000.00. The minimum bid was set at the zonal value of P1,000.00 per sqm (200 sqm x P1,000.00 = P200,000.00). The property was declared forfeited in favor of the government due to failure of bidding since all the bids are below the set minimum bid. To effect the forfeiture, a Declaration of Forfeiture was issued and filed at the Register of Deeds on July 2, 2010. The taxpayer was given the right to redeem the property within one (1) year from the date of forfeiture.

Computation of the amount to be paid by the taxpayer to redeem his property.- As a result of the failure of bidding, the property was declared forfeited by the government in partial satisfaction of the government’s claim (amount of tax due per FAN plus the delinquency penalties at the time of the auction sale).

Below is the computation on how much the taxpayer will pay to redeem its property:

Computation of the Redemption Amount:

Total deficiency income tax assessed on May 31, 2009

 

304,771.67

Add:

25% surcharge for late payment

(P304,771.67 x 25%)

P76,192.92

 

 

20% interest per annum

From 6-30-09 to 6-30-10

(P304,771.67 x .20)

60,800.00

136,992.92

Total amount due (excluding suggested compromise penalty for late payment)

 

P441,764.59

Less:

Value of the property credited to the tax liability

 

 

 

Zonal value of the property

P200,000.00

 

 

Less: Expenses of sale (publication, DST, miscellaneous expenses, etc.)

42,000.00

158,000.00

Balance of the Tax Liability

 

P283,764.59

Balance of tax due after the auction sale

 

P283,764.59

Add:

20% interest per annum

From 6/30/2010 to 6/30/2011

(P283,764.59 x .20)

 

56,752.92

 

Total amount still due

 

P340,517.51

Add:

Value of the property credited to the tax liability

P158,000.00

 

 

Expenses of sale (publication, DST, miscellaneous expenses, etc.)

42,000.00

200,000.00

Amount Payable by the Taxpayer

 

P540,517.51

 

  1. Accept the payment from the taxpayer;
  2. Prepare BIR Form No. 0605 for full payment of tax due and issue Certificate of Redemption (Annex 300-1.54) to the taxpayer;
  3. Prepare letter to the Register of Deeds/Local Assessor’s Office lifting the Declaration of Forfeiture to be signed by the authorized signatory and attach copy thereof to the docket of the case;
  4. Record the case as closed and transmit docket to the Regional Administrative Division/NO-Records Division for safekeeping and future reference;
  5. Prepare a Report of Properties Redeemed within the Redemption Period (Annex 300-1.55) and submit the same not later than the tenth (10th) day of the following month to the Regional Director thru the Regional Collection Division/LTS thru the LTCED for consolidation and submission to the Collection Service thru the Collection Enforcement Division not later than the fifteenth (15th) day of the following month (Annex 300-1.56); and
  6. Prepare and submit Monthly GCL and Monthly Updates of Delinquent Accounts on the 10th day of the following month to CED copy furnished the Regional Collection Division/LTS (Refer to CM 306-Monitoring of ARs/DAs/ CM 307- Monitoring Warrant Enforcement).

The Register of Deeds shall:

  1. Receive Certificate of Redemption from the taxpayer, in case the taxpayer redeems his property;
  2. Receive the letter from the BIR lifting the Declaration of Forfeiture on the property, in case the taxpayer redeems the property;
  3. Check whether the information reflected on the Certificate of Redemption received from the taxpayer tallies with the information on the lifting notice received from the BIR;
  4. Inform the taxpayer and/or the BIR, in case of discrepancies in the documents received so that proper corrections can be made on the documents; and
  5. Annotate the Certificate or Redemption on the property title.

Final Deed to Purchaser/Transfer in the Name of the Government

If the taxpayer does not redeem his property within the prescribed period, the transfer of ownership to the winning bidder or to the government shall be undertaken as follows:

  1. After the lapse of one-year redemption period from the date of registration of the Provisional Certificate of Sale of Real Property, a Final deed of Conveyance conveying to the purchaser so much of the property as has been sold, free from all BIR liens and encumbrances, shall be executed and to be filed with the concerned Register of Deeds for the transfer of ownership to the winning bidder.
  2. After the lapse of the one-year redemption period from the date of registration of the Declaration of Forfeiture of Real Property, an Affidavit of Consolidation of Title of Absolutely Forfeited Real Properties in favor of the Republic of the Philippines shall be executed and to be filed with the concerned Register of Deeds/Assessor’s Office for the transfer of ownership to the government (Refer to Chapter IV – Management of Absolutely Forfeited Assets of the Collection Manual).

Procedures in the Issuance of the Final Deed to the Purchaser/Transfer in the Name of the Government After the Lapse of the One-Year Redemption Period

  1. Issuance of the Final Deed to the Purchaser

The RDO/LTDO/LTCED shall:

  1. Execute a Final Deed of Conveyance (Annex 300-1.57) for the signature of the duly authorized signatory, conveying to the purchaser so much of the property as has been sold, free from all BIR liens of any kind, in case the delinquent taxpayer fails to redeem the property within the one (1) year redemption period;
  2. Issue the signed Final Deed of Conveyance to the purchaser (winning bidder); and
  3. Attach a copy of the Final Deed of Conveyance to the docket of the case for records purposes and future reference.

The Register of Deeds shall:

  1. Receive Final Deed of Conveyance from the purchaser; and
  2. Transfer the title in the name of the purchaser.
  3. Transfer in the Name of the Government
  4. The RDO/LTDO/LTCED shall initiate the transfer of the property in the name of the Government (Refer to CM 402.1 Consolidation of Acquired Real Property of Chapter IV of the Collection Manual).

 

[1] Section 214 of the NIRC of 1997, as amended.

[2] Ibid.