Professional Documents
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I. Basic Concepts
A. Succession Civil Code, Article 774. Succession is a mode of acquisition by virtue of which
the property, rights and obligations to the extent of the value of the inheritance, of a person are
transmitted through his death to another or others either by his will or by operation of law.
1. Testamentary Civil Code, Article 779. Testamentary succession is that which results
from the designation of an heir, made in a will executed in the form prescribed by law.
2. Intestate Civil Code, Article 960. Legal or intestate succession takes place:
(1) If a person dies without a will, or with a void will, or one which has subsequently lost its validity;
(2) When the will does not institute an heir to, or dispose of all the property belonging to the testator.
In such case, legal succession shall take place only with respect to the property of which the
testator has not disposed;
(3) If the suspensive condition attached to the institution of heir does not happen or is not fulfilled, or
if the heir dies before the testator, or repudiates the inheritance, there being no substitution, and no
right of accretion takes place;
(4) When the heir instituted is incapable of succeeding, except in cases provided in this Code.
3. Mixed Civil Code, Article 780. Mixed succession is that effected partly by will and
partly by operation of law.
B. Decedent Civil Code, Article 775. In this Title, "decedent" is the general term applied to the
person whose property is transmitted through succession, whether or not he left a will. If he left a
will, he is also called the testator.
C. Estate Civil Code, Article 776. The inheritance includes all the property, rights and
obligations of a person which are not extinguished by his death.
D. Heir, Devisees and Legatees Civil Code, Article 782. An heir is a person called to the
succession either by the provision of a will or by operation of law.
Devisees and legatees are persons to whom gifts of real and personal property are respectively
given by virtue of a will.
who shall possess or enjoy the property or the income therefrom; except in case of a bonafide sale
for an adequate and full consideration in money or money's worth. (Sec. 85 (B), NIRC).
Held: YES.
Section 1540 of the Administrative Code states that after deductions have been made, there shall
be added to the resulting amount the value of all gifts or advances made by the predecessor to any
of those who, after his death, shall prove to be his heirs, devises, legatees, or donees mortis causa.
In this case facts conveyance was made by the donor five days before his death and accepted by
the donee one day before the donor's death. Obviously, this was fraudulently made for the purpose
of evading the inheritance tax.
As to Dizons contention that the he is not an heir because there is no property to inherit anymore
because he already received the properties of the father through a donation inter vivos, SC said
that even if they dont know w/n the father left a will, Dizon should NOT be deprived of his share of
the inheritance because the Civil Code confers upon him the status of a forced heir. Thus, an
advance made by the decedent to Dizon is subject to tax.
As to Dizons contention that Section 1540 is unconstitutional in taxing gifts or donations because
the act would then embrace two subjects, the Court states that: When the law says all gifts, it
doubtless refers to gifts inter vivos, and not mortis causa. Both the letter and the spirit of the law
leave no room for any other interpretation. Such, clearly, is the tenor of the language which refers to
donations that took effect before the donor's death, and not to mortis causa donations, which can
only be made with the formalities of a will, and can only take effect after the donor's death.
The law presumes that such gifts have been made in ancitipation of inheritance in order to EVADE
tax. Thus, to prevent this, they are added to the resulting amount."
D. Revocable Transfer. (1) To the extent of any interest therein, of which the decedent has at any time made
a transfer (except in case of a bona fide sale for an adequate and full consideration
in money or money's worth) by trust or otherwise, where the enjoyment thereof was
subject at the date of his death to any change through the exercise of a power (in
whatever capacity exerciseable) by the decedent alone or by the decedent in
conjunction with any other person (without regard to when or from what source the
decedent acquired such power), to alter, amend, revoke, or terminate, or where any
such power is relinquished in contemplation of the decedent's death.
(2) For the purpose of this Subsection, the power to alter, amend or revoke shall be
considered to exist on the date of the decedent's death even though the exercise of
the power is subject to a precedent giving of notice or even though the alteration,
amendment or revocation takes effect only on the expiration of a stated period after
the exercise of the power, whether or not on or before the date of the decedent's
death notice has been given or the power has been exercised. In such cases, proper
adjustment shall be made representing the interests which would have been
excluded from the power if the decedent had lived, and for such purpose if the notice
has not been given or the power has not been exercised on or before the date of
hisdeath, such notice shall be considered to have been given, or the power
exercised, on the date of his death. (Sec. 85 (C), NIRC).
E. Property Passing Under General Power of Appointment. - To the extent of any property
passing under a general power of appointment exercised by the decedent: (1) by will, or (2) by deed
executed in contemplation of, or intended to take effect in possession or enjoyment at, or after his
death, or (3) by deed under which he has retained for his life or any period not ascertainable without
reference to his death or for any period which does not in fact end before his death (a) the
possession or enjoyment of, or the right to the income from, the property, or (b) the right, either
alone or in conjunction with any person, to designate the persons who shall possess or enjoy the
property or the income therefrom; except in case of a bona fide sale for an adequate and full
consideration in money or money's worth (Sec. 85 (D), NIRC).
F. Proceeds of Life Insurance. - To the extent of the amount receivable by the estate of the
deceased, his executor, or administrator, as insurance under policies taken out by the decedent
upon his own life, irrespective of whether or not the insured retained the power of revocation, or to
the extent of the amount receivable by any beneficiary designated in the policy of insurance, except
when it is expressly stipulated that the designation of the beneficiary is irrevocable (Sec. 85 (E),
NIRC).
1. BPI vs. Posadas, 56 Phil 215
Facts: BPI, as administrator of the estate of deceased Adolphe Schuetze, appealed to CFI Manila
absolving defendant, Collector of Internal Revenue, from the complaint filed against him in
recovering the inheritance tax amounting to P1209 paid by the plaintiff, Rosario Gelano Vda de
Schuetze, under protest, and sum of P20,150 representing the proceeds of the insurance policy of
the deceased.
Rosario and Adolphe were married in January 1914. The wife was actually residing and living in
Germany when Adolphe died in December 1927. The latter while in Germany, executed a will in
March 1926, pursuant with its law wherein plaintiff was named his universal heir. The deceased
possessed not only real property situated in the Philippines but also personal property consisting of
shares of stocks in 19 domestic corporations. Included in the personal property is a life insurance
policy issued at Manila on January 1913 for the sum of $10,000 by the Sun Life Assurance
Company of Canada, Manila Branch. In the insurance policy, the estate of the deceased was
named the beneficiary without any qualification. Rosario is the sole and only heir of the deceased.
BPI, as administrator of the decedents estate and attorney in fact of the plaintiff, having been
demanded by Posadas to pay the inheritance tax, paid under protest. Notwithstanding various
demands made by plaintiff, Posadas refused to refund such amount.
Issue: Whether or Not the plaintiff is entitled to the proceeds of the insurance.
Held:
SC ruled that
(1)the proceeds of a life-insurance policy payable to the insured's estate, on which the premiums
were paid by the conjugal partnership, constitute community property, and belong one-half to the
husband and the other half to the wife, exclusively;
(2)if the premiums were paid partly with paraphernal and partly conjugal funds, the proceeds are
likewise in like proportion paraphernal in part and conjugal in part; and
(3)the proceeds of a life-insurance policy payable to the insured's estate as the beneficiary, if
delivered to the testamentary administrator of the former as part of the assets of said estate under
probate administration, are subject to the inheritance tax according to the law on the matter, if they
belong to the assured exclusively, and it is immaterial that the insured was domiciled in these
Islands or outside.
Hence, the defendant was ordered to return to the plaintiff one-half of the tax collected upon the
amount of P20,150, being the proceeds of the insurance policy on the life of the late Adolphe Oscar
Schuetze, after deducting the proportional part corresponding to the first premium.
G. Prior Interests. - Except as otherwise specifically provided therein, Subsections (B), (C) and
(E) of this Section shall apply to the transfers, trusts, estates, interests, rights, powers and
relinquishment of powers, as severally enumerated and described therein, whether made, created,
arising, existing, exercised or relinquished before or after the effectivity of this Code (Sec. 85 (F),
NIRC).
H. Transfers of Insufficient Consideration. - If any one of the transfers, trusts, interests, rights
or powers enumerated and described in Subsections (B), (C) and (D) of this Section is made,
created, exercised or relinquished for a consideration in money or money's worth, but is not a bona
fide sale for an adequate and full consideration in money or money's worth, there shall be included
in the gross estate only the excess of the fair market value, at the time of death, of the property
otherwise to be included on account of such transaction, over the value of the consideration
received therefor by the decedent (Sec. 85 (G), NIRC).
I. Capital of the Surviving Spouse. - The capital of the surviving spouse of a decedent shall not,
for the purpose of this Chapter, be deemed a part of his or her gross estate (Sec. 85 (H), NIRC).
1. Property Relationship between spouses (Family Code)
i. Absolute Community
Art. 91. Unless otherwise provided in this Chapter or in the marriage settlements, the
community property shall consist of all the property owned by the spouses at the time of the
celebration of the marriage or acquired thereafter.
Art. 92. The following shall be excluded from the community property:
(1) Property acquired during the marriage by gratuitous title by either spouse, and the fruits as
well as the income thereof, if any, unless it is expressly provided by the donor, testator or
grantor that they shall form part of the community property;
(2) Property for personal and exclusive use of either spouse. However, jewelry shall form part
of the community property;
(3) Property acquired before the marriage by either spouse who has legitimate descendants
by a former marriage, and the fruits as well as the income, if any, of such property.
ii. Conjugal Partnership of Gains
Art. 105. In case the future spouses agree in the marriage settlements that the regime of
conjugal partnership gains shall govern their property relations during marriage, the
provisions in this Chapter shall be of supplementary application.
The provisions of this Chapter shall also apply to conjugal partnerships of gains already
established between spouses before the effectivity of this Code, without prejudice to vested
rights already acquired in accordance with the Civil Code or other laws, as provided in Article
256.
Art. 106. Under the regime of conjugal partnership of gains, the husband and wife place in a
common fund the proceeds, products, fruits and income from their separate properties and
those acquired by either or both spouses through their efforts or by chance, and, upon
dissolution of the marriage or of the partnership, the net gains or benefits obtained by either
or both spouses shall be divided equally between them, unless otherwise agreed in the
marriage settlements.
Art. 107. The rules provided in Articles 88 and 89 shall also apply to conjugal partnership of
gains.
Art. 108. The conjugal partnership shall be governed by the rules on the contract of
partnership in all that is not in conflict with what is expressly determined in this Chapter or by
the spouses in their marriage settlements.
Art. 109. The following shall be the exclusive property of each spouse:
(1) That which is brought to the marriage as his or her own;
(2) That which each acquires during the marriage by gratuitous title;
(3) That which is acquired by right of redemption, by barter or by exchange with property
belonging to only one of the spouses; and
(4) That which is purchased with exclusive money of the wife or of the husband.
Art. 110. The spouses retain the ownership, possession, administration and enjoyment of
their exclusive properties.
Either spouse may, during the marriage, transfer the administration of his or her exclusive
property to the other by means of a public instrument, which shall be recorded in the registry
of property of the place the property is located.
Art. 111. A spouse of age may mortgage, encumber, alienate or otherwise dispose of his or
her exclusive property, without the consent of the other spouse, and appear alone in court to
litigate with regard to the same.
Art. 112. The alienation of any exclusive property of a spouse administered by the other
automatically terminates the administration over such property and the proceeds of the
alienation shall be turned over to the owner-spouse.
Art. 113. Property donated or left by will to the spouses, jointly and with designation of
determinate shares, shall pertain to the donee-spouses as his or her own exclusive property,
and in the absence of designation, share and share alike, without prejudice to the right of
accretion when proper.
Art. 114. If the donations are onerous, the amount of the charges shall be borne by the
exclusive property of the donee spouse, whenever they have been advanced by the conjugal
partnership of gains.
Art. 115. Retirement benefits, pensions, annuities, gratuities, usufructs and similar benefits
shall be governed by the rules on gratuitous or onerous acquisitions as may be proper in each
case.
Art. 116. All property acquired during the marriage, whether the acquisition appears to have
been made, contracted or registered in the name of one or both spouses, is presumed to be
conjugal unless the contrary is proved.
Art. 117. The following are conjugal partnership properties:
(1) Those acquired by onerous title during the marriage at the expense of the common fund,
whether the acquisition be for the partnership, or for only one of the spouses;
(2) Those obtained from the labor, industry, work or profession of either or both of the
spouses;
(3) The fruits, natural, industrial, or civil, due or received during the marriage from the
common property, as well as the net fruits from the exclusive property of each spouse;
(4) The share of either spouse in the hidden treasure which the law awards to the finder or
owner of the property where the treasure is found;
Art. 143. Should the future spouses agree in the marriage settlements that their property
relations during marriage shall be governed by the regime of separation of property, the
provisions of this Chapter shall be suppletory.
Art. 144. Separation of property may refer to present or future property or both. It may be total
or partial. In the latter case, the property not agreed upon as separate shall pertain to the
absolute community.
Art. 145. Each spouse shall own, dispose of, possess, administer and enjoy his or her own
separate estate, without need of the consent of the other. To each spouse shall belong all
earnings from his or her profession, business or industry and all fruits, natural, industrial or
civil, due or received during the marriage from his or her separate property.
Art. 146. Both spouses shall bear the family expenses in proportion to their income, or, in
case of insufficiency or default thereof, to the current market value of their separate
properties.chan robles virtual law library
The liabilities of the spouses to creditors for family expenses shall, however, be solidary.
vi. Collector vs Fisher, 1 SCRA 93
Facts: Walter G. Stevenson was born in the Philippines of British parents, married in Manila
to another British subject, Beatrice. He died in 1951 in California where he and his wife
moved to.
In his will, he instituted Beatrice as his sole heiress to certain real and personal properties,
among which are 210,000 shares of stocks in Mindanao Mother Lode Mines (Mines).
Ian Murray Statt (Statt), the appointed ancillary administrator of his estate filed an estate and
inheritance tax return. He made a preliminary return to secure the waiver of the CIR on the
inheritance of the Mines shares of stock.
In 1952, Beatrice assigned all her rights and interests in the estate to the spouses Fisher.
Statt filed an amended estate and inheritance tax return claiming ADDITIONAL
EXEMPTIONS, one of which is the estate and inheritance tax on the Mines shares of stock
pursuant to a reciprocity proviso in the NIRC, hence, warranting a refund from what he initially
paid. The collector denied the claim. He then filed in the CFI of Manila for the said amount.
CFI ruled that:
(a) the share of Beatrice should be deducted from the net estate of Walter,
(b) the intangible personal property belonging to the estate of Walter is exempt from
inheritance tax pursuant to the reciprocity proviso in NIRC.
Issue: Whether or Not the estate can avail itself of the reciprocity proviso in the NIRC
granting exemption from the payment of taxes for the Mines shares of stock
Held: No.
Reciprocity must be total. If any of the two states collects or imposes or does not exempt any
transfer, death, legacy or succession tax of any character, the reciprocity does not work.
In the Philippines, upon the death of any citizen or resident, or non-resident with properties,
there are imposed upon his estate, both an estate and an inheritance tax.
But, under the laws of California, only inheritance tax is imposed. Also, although the Federal
Internal Revenue Code imposes an estate tax, it does not grant exemption on the basis of
reciprocity. Thus, a Filipino citizen shall always be at a disadvantage. This is not what the
legislators intended.
SPECIFICALLY:
Section122 of the NIRC provides that No tax shall be collected under this Title in respect of
intangible personal property:
(a) if the decedent at the time of his death was a resident of a foreign country which at the
time of his death did not impose a transfer of tax or death tax of any character in respect of
intangible personal property of citizens of the Philippines not residing in that foreign country,
or
(b) if the laws of the foreign country of which the decedent was a resident at the time of his
death allow a similar exemption from transfer taxes or death taxes of every character in
respect of intangible personal property owned by citizens of the Philippines not residing in that
foreign country."
On the other hand, Section 13851 of the California Inheritance Tax Law provides that
intangible personal property is exempt from tax if the decedent at the time of his death was a
resident of a territory or another State of the United States or of a foreign state or country
which then imposed a legacy, succession, or death tax in respect to intangible personal
property of its own residents, but either:.
(a) Did not impose a legacy, succession, or death tax of any character in respect to intangible
personal property of residents of this State, or
(b) Had in its laws a reciprocal provision under which intangible personal property of a nonresident was exempt from legacy, succession, or death taxes of every character if the Territory
or other State of the United States or foreign state or country in which the non-resident
resided allowed a similar exemption in respect to intangible personal property of residents of
the Territory or State of the United States or foreign state or country of residence of the
decedent."
V. Deductions
A. Citizen or Resident - (Sec. 86), NIRC).
1. Expenses, Loses, Indebtedness and Taxes
i. Funeral Expenses - For actual funeral expenses or in an amount equal to five percent (5%)
of the gross estate, whichever is lower, but in no case to exceed Two hundred thousand
pesos (P200,000); (Sec. 86 (A)(1)(a), NIRC).
ii. Judicial Expenses
a. For judicial expenses of the testamentary or intestate proceedings; (Sec. 86 (A)(1)(b),
NIRC).
b. CIR vs CA, CTA and Pajonar, G.R. No. 140944
Facts: Pedro Pajonar, a member of the Philippine Scout during WWII was a part of the infamous
Death March by reason of which he suffered shock and became insane.
His sister Josefina became the guardian over his person, while his property was placed under the
guardianship of the PNB by the RTC of Dumaguete.
After his death, PNB filed an accounting of his property under guardianship valued at 3M in Special
Proceedings.
However, PNB did NOT file and estate tax return, instead it advised his heirs to execute an
extrajudicial settlement and to pay taxes on the estate.
Pursuant to BIRs assessment, the estate of Pedro paid taxes in the amount of 2k.
Josefina then filed a petition w/ RTC of Dumaguete for the issuance in her favor of letters of
administration of the estate of her brother.
Facts: Jose P. Fernandez died in November 7, 1987. Thereafter, a petition for the probate of his
will was filed. The probate court appointed Atty. Rafael Arsenio P. Dizon as administrator of the
Estate of Jose Fernandez.
An estate tax return was filed later on which showed ZERO estate tax liability. BIR thereafter issued
a deficiency estate tax assessment, demanding payment of Php 66.97 million as deficiency estate
tax. This was subsequently reduced by CTA to Php 37.42 million. The CA affirmed the CTAs
ruling, hence, the instant petition.
The petitioner claims that in as much as the valid claims of creditors against the Estate are in
excess of the gross estate, no estate tax was due. On the other hand, respondents argue that
since the claims of the Estates creditors have been condoned, such claims may no longer be
deducted from the gross estate of the decedent.
Issue: Whether the actual claims of creditors may be fully allowed as deductions from the gross
estate of Jose despite the fact that the said claims were reduced or condoned through compromise
agreements entered into by the Estate with its creditors
Held: YES. Following the US Supreme Courts ruling in Ithaca Trust Co. v. United States, the Court
held that post-death developments are not material in determining the amount of deduction. This is
because estate tax is a tax imposed on the act of transferring property by will or intestacy and,
because the act on which the tax is levied occurs at a discrete time, i.e., the instance of death, the
net value of the property transferred should be ascertained, as nearly as possible, as of the that
time. This is the date-of-death valuation rule.
The Court, in adopting the date-of-death valuation principle, explained that: First. There is no law,
nor do we discern any legislative intent in our tax laws, which disregards the date-of-death valuation
principle and particularly provides that post-death developments must be considered in determining
the net value of the estate. It bears emphasis that tax burdens are not to be imposed, nor presumed
to be imposed, beyond what the statute expressly and clearly imports, tax statutes being
construed strictissimi juris against the government. Second. Such construction finds relevance and
consistency in our Rules on Special Proceedings wherein the term "claims" required to be
presented against a decedent's estate is generally construed to mean debts or demands of a
pecuniary nature which could have been enforced against the deceased in his lifetime, or liability
contracted by the deceased before his death. Therefore, the claims existing at the time of death are
significant to, and should be made the basis of, the determination of allowable deductions.
iv. Claims of Deceased Against Insolvent Persons
a. For claims of the deceased against insolvent persons where the value of decedent's
interest therein is included in the value of the gross estate; (Sec. 86 (A)(1)(d), NIRC).
v. Unpaid Mortgages, taxes, casualty losses
a. For unpaid mortgages upon, or any indebtedness in respect to, property where the value
of decedent's interest therein, undiminished by such mortgage or indebtedness, is included
in the value of the gross estate, but not including any income tax upon income received
after the death of the decedent, or property taxes not accrued before his death, or any
estate tax. The deduction herein allowed in the case of claims against the estate, unpaid
mortgages or any indebtedness shall, when founded upon a promise or agreement, be
limited to the extent that they were contracted bona fide and for an adequate and full
consideration in money or money's worth. There shall also be deducted losses incurred
during the settlement of the estate arising from fires, storms, shipwreck, or other casualties,
or from robbery, theft or embezzlement, when such losses are not compensated for by
insurance or otherwise, and if at the time of the filing of the return such losses have not
been claimed as a deduction for the income tax purposes in an income tax return, and
provided that such losses were incurred not later than the last day for the payment of the
estate tax as prescribed in Subsection (A) of Section 91. (Sec. 86 (A)(1)(e), NIRC).
2. Property Previously Taxed (Vanishing Deductions)
a. Property Previously Taxed. - An amount equal to the value specified below of any
property forming a part of the gross estate situated in the Philippines of any person who died
within five (5) years prior to the death of the decedent, or transferred to the decedent by gift
within five (5) years prior to his death, where such property can be identified as having been
received by the decedent from the donor by gift, or from such prior decedent by gift, bequest,
devise or inheritance, or which can be identified as having been acquired in exchange for
property so received:
One hundred percent (100%) of the value, if the prior decedent died within one (1) year prior
to the death of the decedent, or if the property was transferred to him by gift within the same
period prior to his death;
Eighty percent (80%) of the value, if the prior decedent died more than one (1) year but not
more than two (2) years prior to the death of the decedent, or if the property was transferred
to him by gift within the same period prior to his death;
Sixty percent (60%) of the value, if the prior decedent died more than two (2) years but not
more than three (3) years prior to the death of the decedent, or if the property was transferred
to him by gift within the same period prior to his death;
Forty percent (40%) of the value, if the prior decedent died more than three (3) years but not
more than four (4) years prior to the death of the decedent, or if the property was transferred
to him by gift within the same period prior to his death;
Twenty percent (20%) of the value, if the prior decedent died more than four (4) years but not
more than five (5) years prior to the death of the decedent, or if the property was transferred
to him by gift within the same period prior to his death;
These deductions shall be allowed only where a donor's tax or estate tax imposed under this
Title was finally determined and paid by or on behalf of such donor, or the estate of such prior
decedent, as the case may be, and only in the amount finally determined as the value of such
property in determining the value of the gift, or the gross estate of such prior decedent, and
only to the extent that the value of such property is included in the decedent's gross estate,
and only if in determining the value of the estate of the prior decedent, no deduction was
allowable under paragraph (2) in respect of the property or properties given in exchange
therefor. Where a deduction was allowed of any mortgage or other lien in determining the
donor's tax, or the estate tax of the prior decedent, which was paid in whole or in part prior to
the decedent's death, then the deduction allowable under said Subsection shall be reduced
by the amount so paid. Such deduction allowable shall be reduced by an amount which bears
the same ratio to the amounts allowed as deductions under paragraphs (1) and (3) of this
Subsection as the amount otherwise deductible under said paragraph (2) bears to the value
of the decedent's estate. Where the property referred to consists of two or more items, the
aggregate value of such items shall be used for the purpose of computing the deduction.
(Sec. 86 (A)(2), NIRC).
b. Estate of Fidel Reyes and Estate of Teresita Reyes vs CIR, CTA Case no 6737
3. Transfers for Public Use. - The amount of all the bequests, legacies, devises or transfers to
or for the use of the Government of the Republic of the Philippines, or any political subdivision
thereof, for exclusively public purposes. (Sec. 86 (A)(3), NIRC).
4. The Family Home. - An amount equivalent to the current fair market value of the decedent's
family home: Provided, however, That if the said current fair market value exceeds One million
pesos (P1,000,000), the excess shall be subject to estate tax. As a sine qua non condition for the
exemption or deduction, said family home must have been the decedent's family home as
certified by the barangay captain of the locality. (Sec. 86 (A)(4), NIRC).
5. Standard Deduction. - An amount equivalent to One million pesos (P1,000,000). (Sec. 86 (A)
(5), NIRC).
6. Medical Expenses. - Medical Expenses incurred by the decedent within one (1) year prior to
his death which shall be duly substantiated with receipts: Provided, That in no case shall the
deductible medical expenses exceed Five Hundred Thousand Pesos (P500,000). (Sec. 86 (A)
(6), NIRC).
7. Amount Received by Heirs Under Republic Act No. 4917. - Any amount received by the
heirs from the decedent - employee as a consequence of the death of the decedent-employee in
accordance with Republic Act No. 4917: Provided, That such amount is included in the gross
estate of the decedent. (Sec. 86 (A)(7), NIRC).
B. Non-Resident
Deductions Allowed to Nonresident Estates. - In the case of a nonresident not a citizen
of
the Philippines, by deducting from the value of that part of his gross estate which at the
time of his death is situated in the Philippines:
(1) Expenses, Losses, Indebtedness and Taxes. - That proportion of the deductions specified
in paragraph (1) of Subsection (A) of this Section which the value of such part bears to the value
of his entire gross estate wherever situated; (Sec. 86 (B)(1), NIRC).
(2) Property Previously Taxed. - An amount equal to the value specified below of any property
forming part of the gross estate situated in the Philippines of any person who died within five (5)
years prior to the death of the decedent, or transferred to the decedent by gift within five (5)
years prior to his death, where such property can be identified as having been received by the
decedent from the donor by gift, or from such prior decedent by gift, bequest, devise or
inheritance, or which can be identified as having been acquired in exchange for property so
received:
One hundred percent (100%) of the value if the prior decedent died within one (1) year prior to
the death of the decedent, or if the property was transferred to him by gift, within the same period
prior to his death;
Eighty percent (80%) of the value, if the prior decedent died more than one (1) year but not more
than two (2) years prior to the death of the decedent, or if the property was transferred to him by
gift within the same period prior to his death;
Sixty percent (60%) of the value, if the prior decedent died more than two (2) years but not more
than three (3) years prior to the death of the decedent, or if the property was transferred to him
by gift within the same period prior to his death;
Forty percent (40%) of the value, if the prior decedent died more than three (3) years but not
more than four (4) years prior to the death of the decedent, or if the property was transferred to
him by gift within the same period prior to his death; and
Twenty percent (20%) of the value, if the prior decedent died more than four (4) years but not
more than five (5) years prior to the death of the decedent, or if the property was transferred to
him by gift within the same period prior to his death.
These deductions shall be allowed only where a donor's tax, or estate tax imposed under this
Title is finally determined and paid by or on behalf of such donor, or the estate of such prior
decedent, as the case may be, and only in the amount finally determined as the value of such
property in determining the value of the gift, or the gross estate of such prior decedent, and only
to the extent that the value of such property is included in that part of the decedent's gross estate
which at the time of his death is situated in the Philippines; and only if, in determining the value
of the net estate of the prior decedent, no deduction is allowable under paragraph (2) of
Subsection (B) of this Section, in respect of the property or properties given in exchange
therefore. Where a deduction was allowed of any mortgage or other lien in determining the
donor's tax, or the estate tax of the prior decedent, which was paid in whole or in part prior to the
decedent's death, then the deduction allowable under said paragraph shall be reduced by the
amount so paid. Such deduction allowable shall be reduced by an amount which bears the same
ratio to the amounts allowed as deductions under paragraphs (1) and (3) of this Subsection as
the amount otherwise deductible under paragraph (2) bears to the value of that part of the
decedent's gross estate which at the time of his death is situated in the Philippines. Where the
property referred to consists of two (2) or more items, the aggregate value of such items shall be
used for the purpose of computing the deduction. (Sec. 86 (B)(2), NIRC).
(3) Transfers for Public Use. - The amount of all bequests, legacies, devises or transfers to or
for the use of the Government of the Republic of the Philippines or any political subdivision
thereof, for exclusively public purposes. (Sec. 86 (B)(3), NIRC).
(4) Share in the Conjugal Property. - the net share of the surviving spouse in the conjugal
partnership property as diminished by the obligations properly chargeable to such property shall,
for the purpose of this Section, be deducted from the net estate of the decedent. (Sec. 86 (C),
NIRC).
(5) Miscellaneous Provisions. - No deduction shall be allowed in the case of a nonresident not
a citizen of the Philippines, unless the executor, administrator, or anyone of the heirs, as the
case may be, includes in the return required to be filed under Section 90 the value at the time of
his death of that part of the gross estate of the nonresident not situated in the Philippines. (Sec.
86 (D), NIRC).
C. Tax Credit for Estate Taxes Paid to Foreign Country
(1) In General. - The tax imposed by this Title shall be credited with the amounts of any estate tax
imposed by the authority of a foreign country.
(2) Limitations on Credit. - The amount of the credit taken under this Section shall be subject to
each of the following limitations:
(a) The amount of the credit in respect to the tax paid to any country shall not exceed the
same proportion of the tax against which such credit is taken, which the decedent's net estate
situated within such country taxable under this Title bears to his entir net estate; and
(b) The total amount of the credit shall not exceed the same proportion of the tax against
which such credit is taken, which the decedent's net estate situated outside the Philippines taxable
under this Title bears to his entire net estate. (Sec. 86 (E), NIRC).
VI. Valuation
A. Section 88. Determination of the Value of the Estate. (A) Usufruct. - To determine the value of the right of usufruct, use or habitation, as well as
that of annuity, there shall be taken into account the probable life of the beneficiary in
accordance with the latest Basic Standard Mortality Table, to be approved by the Secretary
of Finance, upon recommendation of the Insurance Commissioner.
(B) Properties. - The estate shall be appraised at its fair market value as of the time of
death. However, the appraised value of real property as of the time of death shall be,
whichever is higher of (1) The fair market value as determined by the Commissioner, or
(2) The fair market value as shown in the schedule of values fixed by the Provincial
and City Assessors.
B. Lorenzo vs Posadas, 64 Phil 353
Facts: Thomas Hanley died in 1922 in Zamboanga leaving a will w/c provided that:
-
Since Thomas Hanley died on May 27, 1922, the inheritance tax accrued as of the date.
However, it does not follow that the obligation to pay the tax arose as of the date. The time for the
payment on inheritance tax is fixed by the Revised Administrative Code w/c provides that the
payment must be made before entrance into possession of the property of the fideicommissary or
cestui que trust. Thus, the tax should have been paid before the delivery of the properties to Moore
as trustee in 1924.
(b) Should the inheritance tax be computed on the basis of the value of the estate at the time
of the testator's death, or on its value ten years later? AT THE TIME OF DEATH
Plaintiff contends that the estate of Thomas Hanley could not legally pass to Matthew until after the
expiration of 10 years from the death of the testator in 1922 and the inheritance tax should be
based on the value of the estate in 1932.
Upon the death of the decedent, succession takes place and the right of the estate to tax vests
instantly. The tax should be measured by the value of the estate as it stood at the time of the
decedent's death, regardless of any subsequent contingency value of any subsequent increase or
decrease in value, or the postponement of the actual possession or enjoyment of the estate by the
beneficiary.
(c) In determining the net value of the estate subject to tax, is it proper to deduct the
compensation due to trustees? NO
A trustee, no doubt, is entitled to receive a fair compensation for his services. However, it does not
follow that the compensation due him may lawfully be deducted in arriving at the net value of the
estate subject to tax. First, There is no statute requiring trustees' commissions to be deducted in
determining the net value of the estate subject to inheritance tax. Second, though a testamentary
trust has been created, the testator intended that the duties of his executors and trustees should be
separated.
(d) What law governs the case at bar? Should the provisions of Act No. 3606 favorable to the
tax-payer be given retroactive effect? NO
The law at the time was section 1544 of the Revised Administrative Code, as amended by Act No.
3031, which took effect on March 9, 1922. Inheritance taxation is governed by the statute in force
at the time of the death of the decedent . A statute should be considered as prospective in its
operation, whether it enacts, amends, or repeals an inheritance tax, unless the language of the
statute clearly demands or expresses that it shall have a retroactive effect.
Provided, however, That not more than thirty percent (30%) of the said bequests, devises,
legacies or transfers shall be used by such institutions for administration purposes.
Section 84. Rates of Estate Tax. There shall be levied, assessed, collected and paid upon the
transfer of the net estate as determined in accordance with Sections 85 and 86 of every
decedent, whether resident or nonresident of the Philippines, a tax based on the value of such
net estate, as computed in accordance with the following schedule:
If the net estate is:
Over
P 200,000
500,000
2,000,000
5,000,000
10,000,00
0
But Not
Over
P 200,000
550,000
2,000,000
5,000,000
10,000,000
And Over
The Tax
shall be
Exempt
0
P 15,000
135,000
465,000
1,215,000
Plu
s
Of the Excess
Over
5%
8%
11%
15%
20%
P 200,000
500,000
2,000,000
5,000,000
10,000,000
Place of Filing. - Except in cases where the Commissioner otherwise permits, the return required
under Subsection (A) shall be filed with an authorized agent bank, or Revenue District Officer,
Collection Officer, or duly authorized Treasurer of the city or municipality in which the decedent was
domiciled at the time of his death or if there be no legal residence in the Philippines, with the Office
of the Commissioner. (Sec. 90 (E), NIRC)
D. Liability for Payment of Tax
1. CIR vs Gonzales, 18 SCRA 757
Facts: Matias Yusay died leaving his two children as his heirs, Jose & Lilia. Jose was appointed
administrator who filed with BIR an estate and inheritance tax return declaring personal & real
properties of their father but the return did not mention any heir.
On January 25, 1955, BIR demanded payment of assessed estate and inheritance taxes
(approx P30k in total). Jose requested for an extension of time within which to pay the tax,
which the CIR denied.
During the pendency of the said proceedings in Iloilo and after reinvestigation, BIR reassessed
the estate and inheritance tax liability and issued a reassessment of taxes in a total of P69k.
Lilia disputed the legality of the 1958 assessment alleging that the right to make the same has
prescribed since more than 5 years had elapsed since the filing of estate and inheritance tax
return on May 11, 1949. CTA ruled in favor of Lilia.
CIR appealed to the SC alleging that the right to assess the taxes in question has not been lost
by prescription since the return which did not name the heirs cannot be considered true and
complete return to start the running of the period of limitations of 5 years under Sec 331 of Tax
Code and pursuant to Sec 332 he has 10 years within which to make the assessment counted
from the discovery on September 24, 1953 of the identity of the heirs.
Issue: Whether or Not the right of the CIR to assess the estate and inheritance taxes in
question has prescribed - NO
W/n the return filed by Jose sufficient to commence the running of the prescriptive period to
assess said taxes NO
Held: When tax return is considered sufficient
A return need not be complete in all particulars. It is sufficient if it complies substantially with
law. There is substantial compliance
(1) when the return is made in good faith & is not false or fraudulent;
(2) when it covers the entire period involved;
(3) when it contains information as to the various items of income, deductions and
credits with such definiteness as to permit the computation and assessment of the tax.
In this case, the estate and inheritance tax filed by Jose was substantially defective:
-It was incomplete. It declared only 93 parcels of land and leaving out 92 others. This
was a huge underdeclaration.
-Moreover, the return mentioned no heir. Thus, no inheritance tax could be assessed. As
a matter of law, on the basis of return, there would be no occasion for the imposition of
estate and inheritance taxes, When there is no heir, the estate is escheated to the State.
The state does not tax itself.
The deficient return did not start the running of the period of limitations BECAUSE the
return was made on the wrong form. The taxpayer failed to observe the law (Sec 332) w/c
grants the CIR 10 years (starting from date the fraud was discovered) within which to bring
action for tax collection, applies. He is obligated to make a return or amend one already filed
based on his own knowledge & information obtained through testimony or otherwise, &
subsequently to assess taxes due.
On MR filed by Lilia: Lilia insists that since she administers only 1/3 of the estate of her father, she
should not be liable for the whole tax. And she suggests that the intestate estate of Matias Yusay
should be liable for the said taxes, 1/3 to be paid by Lilia and 2/3 to be paid by Florencia (wife of
deceased Jose).
Ruling of the Court: Estate and inheritance taxes are satisfied from the estate and are to be paid by
the executor or administrator. Where there are 2 or more executors, all of them are severally liable
for the payment of the estate tax. The inheritance tax, although charged against the account of
each beneficiary, should be paid by the executor or administrator.
Failure to pay the estate and the inheritance taxes before distribution of the estate would subject
the executor or administrator to criminal liability. It is immaterial that Lilia administers only 1/3 of the
estate & will receive as her share only said portion, for her right to the estate comes after taxes. As
an administratrix, she is liable for the entire estate tax. As an heir, she is liable for the entire
inheritance tax although her liability would not exceed the amount of her share in the estate.
2. Commisioner vs Pineda, 21 SCRA 105
Facts: Atanasio Pineda died and was survived by his wife Felicisima (the appointed
administratrix) and 15 children. Estate proceedings were instituted in the CFI of Manila. The
estate was divided among and awarded to the heirs and the proceedings terminated on June 8,
1948.
After the estate proceedings, the BIR investigated the income tax liability of the estate for the
years 1945, 1946, 1947 and 1948 and it found that the corresponding income tax returns were
not filed. The CIR found the estate liable for Deficiency Income Tax (DIT), Additional residence
tax for 1945 (ART 45), and Real Estate dealer's tax for the 4 th qtr of 1946 and the whole year
of 1947 (REDT 46-47) .
Manuel, the eldest child, contested the assessment. Subsequently, he appealed to the CTA
alleging that he was appealing "only that proportionate part or portion pertaining to him as one
of the heirs."
CTA held that Manuel was liable for payment corresponding to his share of such taxes. On the
other hand, CIR insisted that Manuel should be liable for the payment of ALL the taxes found by
the Tax Court to be due from the estate instead of only for the amount of taxes corresponding to
his share in the estate.
Manuel opposed the proposition on the ground that as an heir he is liable for unpaid income tax
due the estate only up to the extent of and in proportion to any share he received, relying on
on Government of the Philippine Islands v. Pamintuan. 1
Issue: W/n Manuel can be required to pay the FULL amount of the tax assessed by the BIR.
Held: YES, he can be required to pay the full amount.
Pineda is liable for the assessment as (1) AN HEIR and as (2) A HOLDER-TRANSFEREE of
property belonging to the estate/taxpayer.
As an HEIR: As an heir he is individually answerable for the part of the tax proportionate
to the share he received from the inheritance. His liability, however, cannot exceed the
amount of his share.
As a HOLDER OF PROPERTY belonging to the estate: Pineda is liable for the tax up to
the amount of the property
in his possession. The reason is that the Government
has a lien on the P2,500.00 received by him from the estate as his share in the
1 The SC held that "after the partition of an estate, heirs and distributees are liable individually for the payment of all lawful outstanding
claims against the estate in proportion to the amount or value of the property they have respectively received from the estate."
inheritance, for unpaid income taxes for which said estate is liable, pursuant to the last
paragraph of Section 315 of the Tax Code.2
Therefore, the Government has TWO WAYS of collecting the tax in question:
One, by going after ALL the heirs and collecting from each one of them the amount of
the tax proportionate to the inheritance received. This remedy was adopted
in Government of the Philippine Islands v. Pamintuan. In said case, the Government filed
an action against all the heirs for the collection of the tax. This action rests on the
concept that hereditary property consists only of that part which remains after the
settlement of all lawful claims against the estate, for the settlement of which the entire
estate is first liable. The reason for filing a suit is to achieve thereby two results:
first, payment of the tax; and second, adjustment of the shares of each heir in the
distributed estate as lessened by the tax.
Another remedy is by subjecting said property of the estate which is in the hands of
an heir or transferee to the payment of the tax due, the estate. This second remedy
is the very avenue the Government took in this case to collect the tax.
The BIR should be given the necessary discretion to avail itself of the most expeditious way to
collect the tax as may be envisioned in the 315, because taxes are the lifeblood of government
and their prompt and certain availability is an imperious need.
And as afore-stated in this case the suit seeks to achieve only one objective: payment of the
tax. The adjustment of the respective shares due to the heirs from the inheritance, as lessened
by the tax, is left to await the suit for contribution by the heir from whom the Government
recovered said tax.
3. Gonzales vs CA and CIR, G.R. No. L-28821
2 If any person, corporation, partnership, joint-account (cuenta en participacion), association, or insurance company liable to pay the
income tax, neglects or refuses to pay the same after demand, the amount shall be a lien in favor of the Government of the Philippines
from the time when the assessment was made by the Commissioner of Internal Revenue until paid with interest, penalties, and costs that
may accrue in addition thereto upon all property and rights to property belonging to the taxpayer: . . .
authorization by the Commissioner, withdraw an amount not exceeding Twenty thousand pesos
(P20,000) without the said certification. For this purpose, all withdrawal slips shall contain a
statement to the effect that all of the joint depositors are still living at the time of withdrawal by any
one of the joint depositors and such statement shall be under oath by the said depositors.