REVENUE REGULATIONS NO. 18-2001 issued November 14, 2001 prescribes the guidelines on the monitoring of the basis of property transferred and shares received, pursuant to a tax-free exchange under Section 40(C)(2) of the Tax Code, as well as the penalties for failure to comply with the said guidelines and the policies governing the imposition of fees for the monitoring thereof. The substituted basis of the stock or securities received by the transferor on a taxfree exchange shall be as follows: 1) the original basis of the property, stock or securities to be transferred; 2) less: a) money received, if any, and b) the fair market value of the property received, if any; 3) plus: a) the amount treated as dividend of the shareholder, if any, and b) the amount of any gain that was recognized on the exchange, if any. However, the property received as ‘boot’ shall have as basis its fair market value. The term “boot” refers to the money received and other property received in excess of the stock or securities received by the transferor on a tax-free exchange. If the transferee of property assumes a liability of the transferor or acquires from the latter property subject to a liability, such assumption or acquisition (in the amount of the liability) shall, for purposes of computing the substituted basis, be treated as money received by the transferor on the exchange. If the transferor receives several kinds of stock or securities, the Commissioner is authorized to allocate the basis among the several classes of stocks or securities. The substituted basis of the property transferred in the hands of the transferee, on the other hand, shall be as follows: 1) the original basis in the hands of the transferor; 2) plus: the amount of the gain recognized to the transferor on the transfer. The original basis of the property to be transferred are specified in the Regulations. The substituted basis shall be the basis for determining the gain or loss on a subsequent sale or disposition of property subject of the tax-free exchange. The Certificate Authorizing Registration/Tax Clearance for the real property or share of stock/unit of participation/interest involved in the exchange shall be issued by the Revenue District Officer/authorized Internal Revenue Officer on the basis of the certification or ruling to be issued by the Commissioner or his duly authorized representative to the effect that the transaction qualifies as a tax-free exchange. No certification/ruling issued by the Bureau of Internal Revenue (BIR) shall be valid unless the parties to the exchange submit to the BIR copies of the new Transfer Certificates of the Title, Condominium Certificates of Title, or certificates of stock/units of participation, duly certified by the Register of Deeds or the Corporate Secretary, as the case may be, within ninety (90) days from receipt by any of the parties to the exchange transaction of the certification-ruling by the Bureau. Every applicant/taxpayer who wants to avail of the tax-free exchange shall secure a form that the BIR shall provide for such purpose, and shall pay in advance a processing and certification fee of Five Thousand Pesos (P 5,000.00) for each application not involving more than ten (10) real properties and/or Certificates of Stock. An additional fee of One Hundred Pesos (P 100.00) shall be paid for every Transfer Certificate of Title/Condominium Certificate of Title/Certificate of Stock in excess of ten (10).