Dizon V. Cta (april 30 2008)

April 30, 2008 G.R. No. 140944 RAFAEL ARSENIO S. DIZON, IN HIS CAPACITY AS THE JUDICIAL ADMINISTRATOR OF THE ESTATE OF THE DECEASED JOSE P. FERNANDEZ v. COURT OF TAX APPEALS AND COMMISSIONER OF INTERNAL REVENUE

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 Decision

Ponente

YES.

Justice Nachura

Ratio

Subject

Following the US Supreme Court’s 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.

Estate Taxation – Allowable Deductions, Date-of-Death Valuation Principle 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 CTA’s 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 Estate’s creditors have been condoned, such claims may no longer be deducted from the gross estate of the decedent. Issue

The Court, in adopting the date-of-death valuation principle, explained that:

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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.