Tax-2-notes.doc

TAXATION II

ATTY. DEBORAH S. ACOSTA-CAJUSTIN decedent at the time of his death;

ESTATE TAX Sec 84-97, Sec. 104, NIRC Republic Act No. 8424

December 11, 1997

AN ACT AMENDING THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED, AND FOR OTHER PURPOSES TITLE III ESTATE AND DONOR'S TAXES CHAPTER I - ESTATE TAX 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

But Over

Not

The Tax shall be

Plus

Of the Over

Excess

P 200,000

Exempt

P 200,000

550,000

0

5%

P 200,000

500,000

2,000,000

P 15,000

8%

500,000

2,000,000

5,000,000

135,000

11%

2,000,000

5,000,000

10,000,000

465,000

15%

5,000,000

10,000,000

And Over

1,215,000

20%

10,000,000

Section 85. Gross Estate. - the value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated: Provided, however, that in the case of a nonresident decedent who at the time of his death was not a citizen of the Philippines, only that part of the entire gross estate which is situated in the Philippines shall be included in his taxable estate. (A) Decedent's Interest. - To the extent of the interest therein of the

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(B) Transfer in Contemplation of Death. - To the extent of any interest therein of which the decedent has at any time made a transfer, by trust or otherwise, in contemplation of or intended to take effect in possession or enjoyment at or after death, or of which he has at any time made a transfer, by trust or otherwise, under which he has retained for his life or for any period which does not in fact end before his death (1) the possession or enjoyment of, or the right to the income from the property, or (2) the right, either alone or in conjunction with any person, to designate the person 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. (C) 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), t o 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 his death, such notice shall be considered to have been given, or

TAXATION II the power exercised, on the date of his death. (D) 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. (E) 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. (F) 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. (G) 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. (H) Capital of the Surviving Spouse. - The capital of the surviving spouse of a decedent shall not, for the purpose of this Chapter, be

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ATTY. DEBORAH S. ACOSTA-CAJUSTIN deemed a part of his or her gross estate. Section 86. Computation of Net Estate. - For the purpose of the tax imposed in this Chapter, the value of the net estate shall be determined: (A) Deductions Allowed to the Estate of Citizen or a Resident. - In the case of a citizen or resident of the Philippines, by deducting from the value of the gross estate (1) Expenses, Losses, Indebtedness, and taxes. - Such amounts (a) 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); (b) For judicial expenses of the testamentary or intestate proceedings; (c) For claims against the estate: Provided, That at the time the indebtedness was incurred the debt instrument was duly notarized and, if the loan was contracted within three (3) years before the death of the decedent, the administrator or executor shall submit a statement showing the disposition of the proceeds of the loan; (d) 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; and (e) 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

TAXATION II

ATTY. DEBORAH S. ACOSTA-CAJUSTIN 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.

(2) 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

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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. (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. (4) The Family Home. - An amount equivalent to the current fair market value of the decedent's family home: Provided,

TAXATION II

ATTY. DEBORAH S. ACOSTA-CAJUSTIN

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. (5) Standard Deduction. - An amount equivalent to One million pesos (P1,000,000).

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;

(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).

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;

(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 decedentemployee in accordance with Republic Act No. 4917: Provided, That such amount is included in the gross estate of the decedent.

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

(B) 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:

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.

(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; (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

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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

TAXATION II

ATTY. DEBORAH S. ACOSTA-CAJUSTIN 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.

(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. (C) 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. (D) 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. (E) Tax Credit for Estate Taxes paid to a 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

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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. Section 87. Exemption of Certain Acquisitions and Transmissions. - The following shall not be taxed: (A) The merger of usufruct in the owner of the naked title; (B) The transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the fideicommissary; (C) The transmission from the first heir, legatee or donee in favor of another beneficiary, in accordance with the desire of the predecessor; and (D) All bequests, devises, legacies or transfers to social welfare, cultural and charitable institutions, no part of the net income of which insures to the benefit of any individual: 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 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 Commissioner, or

value as determined by the

(2) The fair market value as shown in the schedule of values fixed by the Provincial and City Assessors.

TAXATION II

ATTY. DEBORAH S. ACOSTA-CAJUSTIN

Section 89. Notice of Death to be Filed. - In all cases of transfers subject to tax, or where, though exempt from tax, the gross value of the estate exceeds Twenty thousand pesos (P20,000), the executor, administrator or any of the legal heirs, as the case may be, within two (2) months after the decedent's death, or within a like period after qualifying as such executor or administrator, shall give a written notice thereof to the Commissioner. Section 90. Estate Tax Returns. (A) Requirements. - In all cases of transfers subject to the tax imposed herein, or where, though exempt from tax, the gross value of the estate exceeds Two hundred thousand pesos (P200,000), or regardless of the gross value of the estate, where the said estate consists of registered or registrable property such as real property, motor vehicle, shares of stock or other similar property for which a clearance from the Bureau of Internal Revenue is required as a condition precedent for the transfer of ownership thereof in the name of the transferee, the executor, or the administrator, or any of the legal heirs, as the case may be, shall file a return under oath in duplicate, setting forth: (1) The value of the gross estate of the decedent at the time of his death, or in case of a nonresident, not a citizen of the Philippines, of that part of his gross estate situated in the Philippines; (2) The deductions allowed from gross estate in determining the estate as defined in Section 86; and (3) Such part of such information as may at the time be ascertainable and such supplemental data as may be necessary to establish the correct taxes. Provided, however, That estate tax returns showing a gross value exceeding Two million pesos (P2,000,000) shall be supported with a statement duly certified to by a Certified Public Accountant containing the following: (a) Itemized assets of the decedent with their corresponding gross value at the time of his death, or in the case of a nonresident, not a citizen of the Philippines, of that part of his gross estate situated in the Philippines; (b) Itemized deductions from gross estate allowed in Section 86; and (c) The amount of tax due whether paid or still due

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and outstanding. (B) Time for filing. - For the purpose of determining the estate tax provided for in Section 84 of this Code, the estate tax return required under the preceding Subsection (A) shall be filed within six (6) months from the decedent's death. A certified copy of the schedule of partition and the order of the court approving the same shall be furnished the Commissioner within thirty (30) after the promulgation of such order. (C) Extension of Time. - The Commissioner shall have authority to grant, in meritorious cases, a reasonable extension not exceeding thirty (30) days for filing the return. (D) 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. Section 91. Payment of Tax. (A) Time of Payment. - The estate tax imposed by Section 84 shall be paid at the time the return is filed by the executor, administrator or the heirs. (B) Extension of Time. - When the Commissioner finds that the payment on the due date of the estate tax or of any part thereof would impose undue hardship upon the estate or any of the heirs, he may extend the time for payment of such tax or any part thereof not to exceed five (5) years, in case the estate is settled through the courts, or two (2) years in case the estate is settled extrajudicially. In such case, the amount in respect of which the extension is granted shall be paid on or before the date of the expiration of the period of the extension, and the running of the Statute of Limitations for assessment as provided in Section 203 of this Code shall be suspended for the period of any such extension. Where the taxes are assessed by reason of negligence, intentional disregard of rules and regulations, or fraud on the part of the taxpayer, no extension will be granted by the Commissioner. If an extension is granted, the Commissioner may require the executor, or administrator, or beneficiary, as the case may be, to furnish a bond in such amount, not exceeding double the amount of

TAXATION II the tax and with such sureties as the Commissioner deems necessary, conditioned upon the payment of the said tax in accordance with the terms of the extension. (C) Liability for Payment - The estate tax imposed by Section 84 shall be paid by the executor or administrator before delivery to any beneficiary of his distributive share of the estate. Such beneficiary shall to the extent of his distributive share of the estate, be subsidiarily liable for the payment of such portion of the estate tax as his distributive share bears to the value of the total net estate. For the purpose of this Chapter, the term 'executor' or 'administrator' means the executor or administrator of the decedent, or if there is no executor or administrator appointed, qualified, and acting within the Philippines, then any person in actual or constructive possession of any property of the decedent. Section 92. Discharge of Executor or Administrator from Personal Liability. - If the executor or administrator makes a written application to the Commissioner for determination of the amount of the estate tax and discharge from personal liability therefore, the Commissioner (as soon as possible, and in any event within one (1) year after the making of such application, or if the application is made before the return is filed, then within one (1) year after the return is filed, but not after the expiration of the period prescribed for the assessment of the tax in Section 203 shall not notify the executor or administrator of the amount of the tax. The executor or administrator, upon payment of the amount of which he is notified, shall be discharged from personal liability for any deficiency in the tax thereafter found to be due and shall be entitled to a receipt or writing showing such discharge. Section 93. Definition of Deficiency. - As used in this Chapter, the term 'deficiency' means: (a) The amount by which the tax imposed by this Chapter exceeds the amount shown as the tax by the executor, administrator or any of the heirs upon his return; but the amounts so shown on the return shall first be increased by the amounts previously assessed (or collected without assessment) as a deficiency and decreased by the amount previously abated, refunded or otherwise repaid in respect of such tax; or (b) If no amount is shown as the tax by the executor, administrator or any of the heirs upon his return, or if no return is made by the executor, administrator, or any heir, then the amount by which the tax

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ATTY. DEBORAH S. ACOSTA-CAJUSTIN exceeds the amounts previously assessed (or collected without assessment) as a deficiency; but such amounts previously assessed or collected without assessment shall first be decreased by the amounts previously abated, refunded or otherwise repaid in respect of such tax. Section 94. Payment before Delivery by Executor or Administrator. - No judge shall authorize the executor or judicial administrator to deliver a distributive share to any party interested in the estate unless a certification from the Commissioner that the estate tax has been paid is shown. Section 95. Duties of Certain Officers and Debtors. - Registers of Deeds shall not register in the Registry of Property any document transferring real property or real rights therein or any chattel mortgage, by way of gifts inter vivos or mortis causa, legacy or inheritance, unless a certification from the Commissioner that the tax fixed in this Title and actually due thereon had been paid is show, and they shall immediately notify the Commissioner, Regional Director, Revenue District Officer, or Revenue Collection Officer or Treasurer of the city or municipality where their offices are located, of the non payment of the tax discovered by them. Any lawyer, notary public, or any government officer who, by reason of his official duties, intervenes in the preparation or acknowledgment of documents regarding partition or disposal of donation intervivos or mortis causa, legacy or inheritance, shall have the duty of furnishing the Commissioner, Regional Director, Revenue District Officer or Revenue Collection Officer of the place where he may have his principal office, with copies of such documents and any information whatsoever which may facilitate the collection of the aforementioned tax. Neither shall a debtor of the deceased pay his debts to the heirs, legatee, executor or administrator of his creditor, unless the certification of the Commissioner that the tax fixed in this Chapter had been paid is shown; but he may pay the executor or judicial administrator without said certification if the credit is included in the inventory of the estate of the deceased. Section 96. Restitution of Tax Upon Satisfaction of Outstanding Obligations. - If after the payment of the estate tax, new obligations of the decedent shall appear, and the persons interested shall have satisfied them by order of the court, they shall have a right to the restitution of the proportional part of the tax paid. Section 97. Payment of Tax Antecedent to the Transfer of Shares, Bonds or Rights. - There shall not be transferred to any new owner in the books of any corporation, sociedad anonima, partnership, business, or industry organized or established in the Philippines any share, obligation, bond or right by way of gift inter vivos or mortis causa, legacy or inheritance, unless a certification

TAXATION II from the Commissioner that the taxes fixed in this Title and due thereon have been paid is shown. If a bank has knowledge of the death of a person, who maintained a bank deposit account alone, or jointly with another, it shall not allow any withdrawal from the said deposit account, unless the Commissioner has certified that the taxes imposed thereon by this Title have been paid: Provided, however, That the administrator of the estate or any one (1) of the heirs of the decedent may, upon 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. Section 104. Definitions. - For purposes of this Title, the terms 'gross estate' and 'gifts' include real and personal property, whether tangible or intangible, or mixed, wherever situated: Provided, however, That where the decedent or donor was a nonresident alien at the time of his death or donation, as the case may be, his real and personal property so transferred but which are situated outside the Philippines shall not be included as part of his 'gross estate' or 'gross gift': Provided, further, That franchise which must be exercised in the Philippines; shares, obligations or bonds issued by any corporation or sociedad anonima organized or constituted in the Philippines in accordance with its laws; shares, obligations or bonds by any foreign corporation eightyfive percent (85%) of the business of which is located in the Philippines; shares, obligations or bonds issued by any foreign corporation if such shares, obligations or bonds have acquired a business situs in the Philippines; shares or rights in any partnership, business or industry established in the Philippines, shall be considered as situated in the Philippines: Provided, still further, 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 or the donor at the time of the donation was a citizen and resident of a foreign country which at the time of his death or donation did not impose a transfer 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 or donor was a citizen and resident at the time of his death or donation allows a similar exemption from transfer or death taxes of every character or description in respect of intangible personal property owned by citizens of the Philippines not residing in that foreign country. The term 'deficiency' means: (a) the amount by which tax imposed by this

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ATTY. DEBORAH S. ACOSTA-CAJUSTIN Chapter exceeds the amount shown as the tax by the donor upon his return; but the amount so shown on the return shall first be increased by the amount previously assessed (or Collected without assessment) as a deficiency, and decreased by the amounts previously abated, refunded or otherwise repaid in respect of such tax, or (b) if no amount is shown as the tax by the donor, then the amount by which the tax exceeds the amounts previously assessed, (or collected without assessment) as a deficiency, but such amounts previously assessed, or collected without assessment, shall first be decreased by the amount previously abated, refunded or otherwise repaid in respect of such tax. RR 17-93, Estates Tax Regulation as amended by RR 2-2003, dated December 16, 2002 (see attached filed)

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ATTY. DEBORAH S. ACOSTA-CAJUSTIN

appointed trustee. Moore acted as trustee until he resigned and the plaintiff Lorenzo herein was appointed in his stead. During the incumbency of the plaintiff as trustee, the defendant Collector of Internal Revenue (Posadas) assessed against the estate an inheritance tax, together with the penalties for deliquency in payment. Lorenzo paid said amount under protest, notifying Posadas at the same time that unless the amount was promptly refunded suit would be brought for its recovery. Posadas overruled Lorenzo’s protest and refused to refund the said amount. Plaintiff went to court. The CFI dismissed Lorenzo’s complaint and Posadas’ counterclaim. Both parties appealed to this court. ISSUE: (e) Has there been delinquency in the payment of the inheritance tax?

CASES 1.

Lorenzo v. Posadas, GR 43082, June 18, 1937

G.R. No. L-43082 June 18, 1937 PABLO LORENZO, as trustee of the estate of Thomas Hanley, deceased, vs. JUAN POSADAS, JR., Collector of Internal Revenue FACTS: Thomas Hanley died, leaving a will and a considerable amount of real and personal properties. Proceedings for the probate of his will and the settlement and distribution of his estate were begun in the CFI of Zamboanga. The will was admitted to probate. The CFI considered it proper for the best interests of the estate to appoint a trustee to administer the real properties which, under the will, were to pass to nephew Matthew ten years after the two executors named in the will was

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HELD: The judgment of the lower court is accordingly modified, with costs against the plaintiff in both instances YES The defendant maintains that it was the duty of the executor to pay the inheritance tax before the delivery of the decedent’s property to the trustee. Stated otherwise, the defendant contends that delivery to the trustee was delivery to the cestui que trust, the beneficiary in this case, within the meaning of the first paragraph of subsection (b) of section 1544 of the Revised Administrative Code. This contention is well taken and is sustained. A trustee is but an instrument or agent for the cestui que trust The appointment of Moore as trustee was made by the trial court in conformity with the wishes of the testator as expressed in his will. It is true that the word “trust” is not mentioned or used in the will but the intention to create one is clear. No particular or technical words are required to create a testamentary trust. The words “trust” and “trustee”, though apt for the purpose, are not necessary. In fact, the use of these two words is not conclusive on the question that a trust is created. ” To constitute a valid testamentary trust there must be a concurrence of three circumstances: (1) Sufficient words to raise a trust; (2) a definite subject; (3) a certain or ascertain object; statutes in some jurisdictions expressly or in effect so providing.” There is no doubt that the testator intended to create a trust. He ordered in his will that certain of his properties be kept together undisposed during a

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fixed period, for a stated purpose. The probate court certainly exercised sound judgment in appointmening a trustee to carry into effect the provisions of the will As the existence of the trust was already proven, it results that the estate which plaintiff represents has been delinquent in the payment of inheritance tax and, therefore, liable for the payment of interest and surcharge provided by law in such cases. The delinquency in payment occurred on March 10, 1924, the date when Moore became trustee. On that date trust estate vested in him. The interest due should be computed from that date. NOTES: Other issues: (a) When does the inheritance tax accrue and when must it be satisfied? The accrual of the inheritance tax is distinct from the obligation to pay the same. Acording to article 657 of the Civil Code, “the rights to the succession of a person are transmitted from the moment of his death.” “In other words”, said Arellano, C. J., “. . . the heirs succeed immediately to all of the property of the deceased ancestor. The property belongs to the heirs at the moment of the death of the ancestor as completely as if the ancestor had executed and delivered to them a deed for the same before his death.” Whatever may be the time when actual transmission of the inheritance takes place, succession takes place in any event at the moment of the decedent’s death. The time when the heirs legally succeed to the inheritance may differ from the time when the heirs actually receive such inheritance. ” Thomas Hanley having died on May 27, 1922, the inheritance tax accrued as of the date. From the fact, however, that Thomas Hanley died on May 27, 1922, 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 clearly fixed by section 1544 of the Revised Administrative Code as amended by Act No. 3031, in relation to section 1543 of the same Code. The two sections follow: SEC. 1543. Exemption of certain acquisitions and transmissions. — The following shall not be taxed: (a) The merger of the usufruct in the owner of the naked title. (b) The transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the trustees. (c) The transmission from the first heir, legatee, or donee in favor of another beneficiary, in accordance with the desire of the predecessor. xx SEC. 1544. When tax to be paid. — The tax fixed in this article shall be paid: (a) In the second and third cases of the next preceding section, before entrance into possession of the property.

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ATTY. DEBORAH S. ACOSTA-CAJUSTIN

(b) In other cases, within the six months subsequent to the death of the predecessor; but if judicial testamentary or intestate proceedings shall be instituted prior to the expiration of said period, the payment shall be made by the executor or administrator before delivering to each beneficiary his share. The instant case does[not] fall under subsection (a), but under subsection (b), of section 1544 above-quoted, as there is here no fiduciary heirs, first heirs, legatee or donee. Under the subsection, the tax should have been paid before the delivery of the properties in question to Moore as trustee. (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? If death is the generating source from which the power of the estate to impose inheritance taxes takes its being and if, 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 (c) In determining the net value of the estate subject to tax, is it proper to deduct the compensation due to trustees? A trustee, no doubt, is entitled to receive a fair compensation for his services. But from this 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. There is no statute in the Philippines which requires trustees’ commissions to be deducted in determining the net value of the estate subject to inheritance tax (d) What law governs the case at bar? Should the provisions of Act No. 3606 favorable to the tax-payer be given retroactive effect? 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, . . . .” Act No. 3606 itself contains no provisions indicating legislative intent to give it retroactive effect. No such effect can be given the statute by this court. Facts: On 27 May 1922, Thomas Hanley died in Zamboanga, leaving a will and considerable amount of real and personal properties. Hanley’s will provides the following: his money will be given to his nephew, Matthew Hanley, as

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well as the real estate owned by him. It further provided that the property will only be given ten years after Thomas Hanley’s death. Thus, in the testamentary proceedings, the Court of First Instance of Zamboanga appointed P.J.M. Moore as trustee of the estate. Moore took oath of office on March 10, 1924, and resigned on Feb. 29, 1932. Pablo Lorenzo was appointed in his stead. Juan Posadas, Collector of Internal Revenue, assessed inheritance tax against the estate amounting to P2,057.74 which includes penalty and surcharge. He filed a motion in the testamentary proceedings so that Lorenzo will be ordered to pay the amount due. Lorenzo paid the amount in protest after CFI granted Posadas’ motion. He claimed that the inheritance tax should have been assessed after 10 years. He asked for a refund but Posadas declined to do so. The latter counterclaimed for the additional amount of P1,191.27 which represents interest due on the tax and which was not included in the original assessment. However, CFI dismissed this counterclaim. It also denied Lorenzo’s claim for refund against Posadas. Hence, both appealed. Issue: Whether the estate was delinquent in paying the inheritance tax and therefore liable for the P1,191.27 that Posadas is asking for? Held: Yes. It was delinquent because according to Sec. 1544 (b) of the Revised Administrative Code, payment of the inheritance tax shall be made before delivering to each beneficiary his share. This payment should have been made before March 10, 1924, the date when P.J.M. Moore formally assumed the function of trustee. Although the property was only to be given after 10 years from the death of Hanley, the court considered that delivery to the trustee is delivery to cestui que trust, the beneficiary within the meaning of Sec. 1544 (b). Even though there was no express mention of the word “trust” in the will, the court of first instance was correct in appointing a trustee because no particular or technical words are required to create a testamentary trust (69 C.J.,p. 711). The requisites of a valid testamentary trust are: 1) sufficient words to raise a trust, 2) a definite subject, 3) a certain or ascertained object. There is no doubt that Hanley intended to create a trust since he ordered in his will that certain of his properties be kept together undisposed during a fixed period or for a stated purpose. 2.

Elegado v. CTA, GR L-68385, May 12, 1989

G.R. No. L-68385 May 12, 1989 ILDEFONSO O. ELEGADO, as Ancillary Administrator of the Testate Estate of the late WARREN TAYLOR GRAHAM, petitioner vs. CTA and COMMISSIONER OF INTERNAL REVENUE

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ATTY. DEBORAH S. ACOSTA-CAJUSTIN

On March 14, 1976, Warren Taylor Graham, an American national, formerly resident of the Philippines, died in Oregon, USA. As certain shares of stock are left in the Philippines, his son Ward Graham filed an estate tax return. [Meanwhile, W. Graham designated executor, appointed Ildefonso Elegado as his attorney-in-fact for the allowance of the will in the Philippines.] On the basis of such return, the Commission of Internal Revenue (CIR) assessed the descendant’s estate in the amount of P96,509.35. The assessment was protested by the law firm of Bump, Yang, and Walker on behalf of the estate which was denied by the CIR. Elegado as an ancillary administrator filed a second estate tax return. The Commissioner imposed an assessment on the estate in the amount of P72,948.87 based on the SEC return, which was protested by the Agrava Law Office on behalf of the estate. While the protest was pending, the petitioner filed a motion for the allowance of the basic estate tax of P96,509.35. He said that this liability had not yet been paid although the assessment had long become final and executory. Petitioner was denied contending that the first assessment is not binding on him because it was based on a return filed for by lawyers. ISSUE: Whether or not the first assessment is binding being filed for by lawyers. HELD: The Supreme Court held that Elegado’s contention is flimsy. Elegado cannot be serious when he argues that the first assessment was invalid because the foreign lawyers who filed the return on which it was based were not familiar with our tax laws and procedure. If our own lawyers and taxpayers cannot claim similar preferences, it follows that foreigners cannot be any less bound by laws in our country.

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3.

Dizon v. CTA, GR140944, April 30, 2008

GR 140944 April 30, 2008 RAFAEL ARSENIO S. DIZON, in his capacity as the Judicial Administrator of the Estate of the deceased JOSE P. FERNANDEZ, VS COURT OF TAX APPEALS and COMMISSIONER OF INTERNAL REVENUE FACTS: On November 7, 1987, Jose P. Fernandez (Jose) died. Thereafter, a petition for the probate of his will was filed with Branch 51 of the Regional Trial Court (RTC) of Manila (probate court). The probate court then appointed retired Supreme Court Justice Arsenio P. Dizon (Justice Dizon) and petitioner, Atty. Rafael Arsenio P. Dizon (petitioner) as Special and Assistant Special Administrator, respectively, of the Estate of Jose (Estate). Petitioner alleged that several requests for extension of the period to file the required estate tax return were granted by the BIR since the assets of the estate, as well as the claims against it, had yet to be collated, determined and identified. ISSUES: 1. Whether or not the CTA and the CA gravely erred in allowing the admission of the pieces of evidence which were not formally offered by the BIR; and 2. Whether the actual claims of the aforementioned creditors may be fully

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ATTY. DEBORAH S. ACOSTA-CAJUSTIN

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 Or Whether or not the CA erred in affirming the CTA in the latter's determination of the deficiency estate tax imposed against the Estate. RULING: 1. Yes. While the CTA is not governed strictly by technical rules of evidence, as rules of procedure are not ends in themselves and are primarily intended as tools in the administration of justice, the presentation of the BIR's evidence is not a mere procedural technicality which may be disregarded considering that it is the only means by which the CTA may ascertain and verify the truth of BIR's claims against the Estate. The BIR's failure to formally offer these pieces of evidence, despite CTA's directives, is fatal to its cause 2. Yes. The claims existing at the time of death are significant to, and should be made the basis of, the determination of allowable deductions. Also, as held in Propstra v. U.S., where a lien claimed against the estate was certain and enforceable on the date of the decedent's death, the fact that the claimant subsequently settled for lesser amount did not preclude the estate from deducting the entire amount of the claim for estate tax purposes. This is called the date-of-death valuation rule. 4. Aznar v. CTA, GR L-20569, August 23, 1974 G.R. No. L-20569 August 23, 1974 JOSE B. AZNAR, in his capacity as Administrator of the Estate of the deceased, Matias H. Aznar, petitioner, vs. CTA and COLLECTOR OF INTERNAL REVENUE, respondents Facts: Petitioner, as administrator of the estate of the deceased, Matias H. Aznar, seeks a review and nullification of the decision of the Court of Tax Appeals ordering the petitioner to pay the government the sum of P227,691.77 representing deficiency income taxes for the years 1946 to 1951. An investigation by the Commissioner of Internal Revenue (CIR) ascertained the assets and liabilities of the taxpayer and it was discovered that from 1946 to 1951, his net worth had increased every year, which increases in net worth was very much more than the income reported during said years. The findings clearly indicated that the taxpayer did not declare correctly the income reported in his income tax returns for the aforesaid years. Petitioner avers that according to the NIRC, the right of the CIR to assess deficiency income taxes of the late Aznar for the years 1946, 1947, and 1948 had already prescribed at the time the assessment was made on November 28, 1952; there being a five year limitation upon assessment and collection

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from the filing of the returns. Meanwhile, respondents believe that the prescription period in the case at bar that is applicable is under Sec. 332 of the NIRC which provides that: "(a) In the case of a false or fraudulent return with intent to evade tax or of a failure to file a return, the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time within ten years after the discovery of the falsity, fraud or omission". Petitioner argues said provision does not apply because the taxpayer did not file false and fraudulent returns with intent to evade tax. Issue: Whether or not the deceased Aznar filed false or fraudulent income tax returns and subsequently, whether the action has not prescribed. Held: The petition is without merit. The respondent CTA concluded that the very "substantial under declarations of income for six consecutive years eloquently demonstrate the falsity or fraudulence of the income tax returns with an intent to evade the payment of tax." The ordinary period of prescription of 5 years within which to assess tax liabilities under Sec. 331 of the NIRC should be applicable to normal circumstances, but whenever the government is placed at a disadvantage so as to prevent its lawful agents from proper assessment of tax liabilities due to false returns, fraudulent return intended to evade payment of tax, or failure to file returns, the period of ten years from the time of the discovery of the falsity, fraud or omission even seems to be inadequate. There being undoubtedly false tax returns in this case, We affirm the conclusion of the respondent Court of Tax Appeals that Sec. 332 (a) of the NIRC should apply and that the period of ten years within which to assess petitioner's tax liability had not expired at the time said assessment was made. [email protected] Copyright 2014. ACCRALAW. All Rights Reserved. What constitutes “falsity of returns”? In the landmark case of Aznar vs. Court of Tax Appeals, the Supreme Court defined a false return as a deviation from the truth or fact, whether intentional or not. There being substantial under-declaration of income ranging from 170% to 4,370% of the reported income for six years, Aznar was found to have filed false returns.

13

ATTY. DEBORAH S. ACOSTA-CAJUSTIN The definition of false returns becomes vital and relevant in determining the application of the 10-year prescriptive period to assess under Section 222 of the Tax Code, and the 50% surcharge under Section 248 of the same law. In general, the Commissioner of Internal Revenue is given three years to assess deficiency taxes. However, when the assessment involves false returns, the assessment period is extended to 10 years from its discovery. Also, the normal surcharge imposed under the Tax Code is 25%. The higher rate of 50% is applied only when there is willful neglect to file returns or when false or fraudulent returns are filed. Clearly, the filing of false returns is heavily penalized under the law. Jurisprudence is not replete with cases concerning falsity of returns. Other than the Aznar case, the issue of false returns was only discussed by the Supreme Court in Samar-I Electric Cooperative vs Commissioner of Internal Revenue. Here, there was substantial under-declaration of withholding tax on compensation for three years, which was considered by the Supreme Court to constitute falsity in returns. With the factual milieu of these cases and given the grave penalties imposed by law, one would think that a return is false only when the deviation is highly inordinate or when the return falsified pertains to several years. The Court of Tax Appeals (CTA), however, has differing views. In the most recent case of Next Mobile, Inc. vs. Commissioner of Internal Revenue, the CTA, applying the Aznar ruling, interpreted that any deviation from the truth, even a 5% under-declaration of the reported gross revenues, already constitutes a false return and warrants the application of the 10-year prescriptive period to assess. However, in Commissioner of Internal Revenue vs. Ayala Hotels, Inc., the CTA ruled against the sweeping application of the Aznar ruling. The CTA reasoned that otherwise, any mistake, however slight in a return filed by a taxpayer in good faith, would justify the application of the 10-year prescriptive period for assessment. The CTA held that only false returns which are filed by a taxpayer with intent to evade tax should warrant an application of the 10-year prescriptive period. Also, in San Miguel Corporation vs. Commissioner of Internal Revenue, the CTA acknowledged that there is nothing in the Aznar case which establishes

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a hard and fast rule that every deviation from the truth necessarily brings a particular return under the coverage of Section 222. Thus, there appears to be no concrete and consistent rule as to what constitutes false returns. A strict interpretation of the definition in the Aznar case would make a mere deviation from the truth, such as a P1 difference, a “false return.” If that were the case, the three-year prescriptive period will be rendered nugatory, as every deviation from the truth, which is always present in a deficiency tax assessment, will result in a falsity in the return. Effectively, the exception under Section 222 of the Tax Code becomes the general rule, and the general rule of three years the exception. This interpretation clearly runs counter to what Congress intended when these provisions were drafted. Section 248 (b) of the Tax Code even provides that substantial underdeclaration of taxable sales, receipts or income is required to constitute a prima facie evidence of false returns, wherein under-declared receipts must be in an amount exceeding 30% of the receipts declared per return to constitute substantial under-declaration. Moreover, the issue of whether a design to mislead or deceive on the part of the taxpayer, or at least culpable negligence, comes to fore in interpreting what renders a return “false.” In Section 222 of the Tax Code, the phrase “with intent to evade tax” qualifies both the “false” and “fraudulent” as it is grouped under one category. As pronounced by the CTA in the Ayala Hotels case, following the rules of statutory construction as well as the rules on grammatical construction, the qualifying words “with intent to evade tax” should refer to both the words “false” and “fraudulent” since these words are not separated by a comma. If it was the intent of the lawmakers to qualify only the word “fraudulent,” then this should have been treated separately or, at the very least, the words “false” and “fraudulent” should have been separated by a comma to show separate treatment of the two.

It appears, therefore, that applying the rules of statutory construction contradicts the definition of false returns laid by the Supreme Court in the Aznar case, wherein intent is not relevant to constitute false returns. However, since the latest case of Samar-I Electric adopts the same definition held in Aznar, the question as to the conclusiveness of the meaning of false returns still stays.

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ATTY. DEBORAH S. ACOSTA-CAJUSTIN

When the law has not specified and the Supreme Court has not extensively discussed or clarified the parameters of the meaning of false returns, more than ever, the taxpayer should ensure that each and every item stated in a return is correct. Any discrepancy or deviation from the truth may already render a return false and subject the taxpayer to the heavy penalties provided by law. To prevent inconsistent interpretation, which may open the floodgates of assessments issued beyond the normal three-year period and unduly prejudice the taxpayer, Congress should revise the law and clearly define what constitutes false returns. 5.

San Agustin v. CIR, GR 138485, September 10, 2011

G.R. No. 138485. September 10, 2001 DR . FELISA L. VDA. DE SAN AGUSTIN, in substitution of JOSE Y. FERIA, in his capacity as Executor of the Estate of JOSE SAN AGUSTIN, petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, respondent. Taxation; Actions; Tax Refunds; To hold that the taxpayer has lost the right to appeal from the ruling on the disputed assessment but must prosecute his appeal under Section 306 of the Tax Code, which requires a taxpayer to file a claim for refund of the taxes paid as a condition precedent to his right to appeal, would in effect require of him to go through a useless and needless ceremony that would only delay the disposition of the case—the law should not be interpreted as to result in absurdities.—The case has a striking resemblance to the controversy in Roman Catholic Archbishop of Cebu vs. Collector of Internal Revenue. The petitioner in that case paid under protest the sum of P5,201.52 by way of income tax, surcharge and interest and, forthwith, filed a petition for review before the Court of Tax Appeals. Then respondent Collector (now Commissioner) of Internal Revenue set up several defenses, one of which was that petitioner had failed to first file a written claim for refund, pursuant to Section 306 of the Tax Code, of the amounts paid. Convinced that the lack of a written claim for refund was fatal to petitioner’s recourse to it, the Court of Tax Appeal Facts: “Atty. Jose San died on June 27, 1990 leaving his wife Dra. Felisa L. San Agustin as sole heir. He left a holographic will executed on April 21, 1980 giving all his estate to his widow, and naming retired Justice Jose Y. Feria as Executor thereof. On September 1990, an estate tax return reporting an estate tax due of P1,676,432.00 was filed on behalf of the estate, with a request for an extension of two years for the payment of the tax, inasmuch as the decedent’s widow (did) not personally have sufficient funds, and that the payment (would) have to come from the estate. BIR Deputy Commissioner Victor A. Deoferio, Jr., granted the heirs an extension of only six (6) months, subject to the imposition of penalties and interests under

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Sections 248 and 249 of the National Internal Revenue Code, as amended. In the probate proceedings, the RTC allowed the will and appointed Jose Feria as Executor of the estate. On December 5, 1990, the executor submitted to the probate court an inventory of the estate with a motion for authority to withdraw funds for the payment of the estate tax. Such authority was granted by the probate court on March 5, 1991. Thereafter, the executor paid the estate tax in the amount of P1,676,432 as reported in the Tax Return filed with the BIR. This was well within the six (6) months extension period granted by the BIR. On September 23, 1991, the widow of the deceased, Felisa L. San Agustin, received a Pre-Assessment Notice from the BIR, dated August 29, 1991, showing a deficiency estate tax of P538,509.50, which, including surcharge, interest and penalties, amounted to P976,540.00. On October 1, 1991, within the ten-day period given in the pre-assessment notice, the executor filed a letter with the petitioner Commissioner expressing readiness to pay the basic deficiency estate tax of P538,509.50 as soon as the Regional Trial Court approves withdrawal thereof, but, requesting that the surcharge, interest, and other penalties, amounting to P438,040.38 be waived, considering that the assessed deficiency arose only on account of the difference in zonal valuation used by the Estate and the BIR, and that the estate tax due per return of P1,676,432.00 was already paid in due time within the extension period. “In a letter, dated October 31, 1991, the executor requested the Commissioner a reconsideration of the assessment of P976,549.00 and waiver of the surcharge, interest, etc. “On December 18, 1991, the Commissioner accepted payment of the basic deficiency tax in the amount of P538,509.50. “The request for reconsideration was not acted upon until January 21, 1993, when the executor received a letter, dated September 21, 1992, signed by the Commissioner, stating that there is no legal justification for the waiver of the interests, surcharge and compromise penalty in this case, and requiring full payment of P438,040.38 representing such charges within ten (10) days from receipt thereof. In view thereof, the respondent estate paid the amount of P438,040.38 under protest on January 25, 1993. On February 18, 1993, a Petition for Review was filed by the executor with the CTA with the prayer that the Commissioner’s letter/decision, dated September 21, 1992 be reversed and that a refund of the amount of P438,040.38 be ordered. The Commissioner opposed the said petition, alleging that the CTA’s jurisdiction was not properly invoked inasmuch as no claim for a tax refund of the deficiency tax collected was filed with the Bureau of Internal Revenue before the petition was filed, in violation of Sections 204 and 230 of the National Internal Revenue Code. 6. CIR v. Reyes, GR 159694, January 27, 2006

ATTY. DEBORAH S. ACOSTA-CAJUSTIN G.R. No. 159694 January 27, 2006 COMMISSIONER OF INTERNAL REVENUE, Petitioner, vs. AZUCENA T. REYES, Respondent. x -- -- -- -- -- -- -- -- -- -- -- -- -- x G.R. No. 163581 January 27, 2006 AZUCENA T. REYES, Petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, Respondent. [G.R. No. 120880. June 5, 1997] In 1993, Maria Tancino died leaving behind an estate worth P32 million. In 1997, a tax audit was conducted on the estate. Meanwhile, the National Internal Revenue Code (NIRC) of 1997 was passed. Eventually in 1998, the estate was issued a final assessment notice (FAN) demanding the estate to pay P14.9 million in taxes inclusive of surcharge and interest; the estate’s liability was based on Section 229 of the [old] Tax Code. Azucena Reyes, one of the heirs, protested the FAN. The Commissioner of Internal Revenue (CIR) nevertheless issued a warrant of distraint and/or levy. Reyes again protested the warrant but in March 1999, she offered a compromise and was willing to pay P1 million in taxes. Her offer was denied. She continued to work on another compromise but was eventually denied. The case reached the Court of Tax Appeals where Reyes was also denied. In the Court of Appeals, Reyes received a favorable judgment. ISSUE: Whether or not the formal assessment notice is valid. HELD: No. The NIRC of 1997 was already in effect when the FAN was issued. Under Section 228 of the NIRC, taxpayers shall be informed in writing of the law and the facts on which the assessment is made: otherwise, the assessment shall be void. In the case at bar, the FAN merely stated the amount of liability to be shouldered by the estate and the law upon which such liability is based. However, the estate was not informed in writing of the facts on which the assessment of estate taxes had been made. The estate was merely informed of the findings of the CIR. Section 228 of the NIRC being remedial in nature can be applied retroactively even though the tax investigation was conducted prior to the law’s passage. Consequently, the invalid FAN cannot be a basis of a compromise, any proceeding emanating from the invalid FAN is void including the issuance of the warrant of distraint and/or levy. 7. 8.

15

Marcos v. CA, GR 120880, June 5, 1997

TAXATION II GR 120880 June 5, 1997 FERDINAND R. MARCOS II, petitioner, vs. COURT OF APPEALS, THE COMMISSIONER OF THE BUREAU OF INTERNAL REVENUE and HERMINIA D. DE GUZMAN, respondents. Facts: following the death of former Pres. Marcos in 1989, a Special Tax Audit Team was created on june 27, 1990 to conduct investigations and examination of tax liabilities of the late president, his family, associates and cronies. The investigation disclosed that the Marcoses failed to file a written of death of the decedent, estate tax return and income tax returns for the years 1982 to 1986, all in violation of the Tax Code. Criminal charges were filed against Mrs. Marcos for the violation of Secs. 82, 83 and 84, NIRC. The commissioner of Internal Revenue thereby caused the preparation of the estate tax return for the late president, the income returns of the Marcos spouses for the 1985 and 1986, and the income tax returns of the petitioner Marcos II for the 1982 10 1985. on July 26,1991, the BIR issued deficiency estate tax assessment and the corresponding deficiency income tax assessments. Copies of said deficiency estate and income tax assessments were served personally and constructively on august 26.1991 and September 12, 1991 upon Mrs. Marcos at her last known address through her caretaker. Likewise, copies of the deficiency income tax assessments against petitioner Marcos II were personally and constructively served at his last known address. Formal assessment notices were served upon Mrs. Marcos c/o petitioner at his office in the house of representatives on Oct. 20, 1992, as well as a notice of tax payer to attend a conference furnished through her counsel. The deficiency tax assessments were not administratively protested by the Marcoses w/ in 30 days from service thereof. subsequently., a commissioner issued a total of 30 notices to levy on real property against certain parcels of land and other real property owned by the Marcoses, pursuant to Secs. 205 and 213, NIRC. In response to a letter dated March 12, 1993 of the marcoses new counsel, copies of the afore said notices were serve on April 7, 1993 and June 10.1993 upon the Marcoses on their counsel of record. Ferdinand R. Marcos II assailed the decision of the Court of Appeals declaring the deficiency income tax assessments and estate tax assessments upon the estate and properties of his late father despite the pendency of the probate proceedings of the will of the late President. On the other hand, the BIR argued that the State’s authority to collect internal revenue taxes is paramount.

16

ATTY. DEBORAH S. ACOSTA-CAJUSTIN Petitioner further argues that "the numerous pending court cases questioning the late president's ownership or interests in several properties (both real and personal) make the total value of his estate, and the consequent estate tax due, incapable of exact pecuniary determination at this time. Thus, respondents' assessment of the estate tax and their issuance of the Notices of Levy and sale are premature and oppressive." He points out the pendency of Sandiganbayan Civil Case Nos. 0001-0034 and 0141, which were filed by the government to question the ownership and interests of the late President in real and personal properties located within and outside the Philippines. Petitioner, however, omits to allege whether the properties levied upon by the BIR in the collection of estate taxes upon the decedent's estate were among those involved in the said cases pending in the Sandiganbayan. Indeed, the court is at a loss as to how these cases are relevant to the matter at issue. The mere fact that the decedent has pending cases involving ill-gotten wealth does not affect the enforcement of tax assessments over the properties indubitably included in his estate. Issue: Is the contention of Marcos correct? Held: No. The approval of the court, sitting in probate or as a settlement tribunal over the deceased’s estate, is not a mandatory requirement in the collection of estate taxes. There is nothing in the Tax Code, and in the pertinent remedial laws that implies the necessity of the probate or estate settlement court's approval of the state's claim for estate taxes, before the same can be enforced and collected. The enforcement of tax laws and the collection of taxes are of paramount importance for the sustenance of government. Taxes are the lifeblood of government and should be collected without unnecessary hindrance. However, such collection should be made in accordance with law as any arbitrariness will negate the existence of government itself. It is not the Department of Justice which is the government agency tasked to determine the amount of taxes due upon the subject estate, but the Bureau of Internal Revenue whose determinations and assessments are presumed correct and made in good faith. The taxpayer has the duty of proving otherwise. In the absence of proof of any irregularities in the performance of official duties, an assessment will not be disturbed. Even an assessment

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based on estimates is prima facie valid and lawful where it does not appear to have been arrived at arbitrarily or capriciously. The burden of proof is upon the complaining party to show clearly that the assessment is erroneous. Failure to present proof of error in the assessment will justify the judicial affirmance of said assessment. In this instance, petitioner has not pointed out one single provision in the Memorandum of the Special Audit Team which gave rise to the questioned assessment, which bears a trace of falsity. Indeed, the petitioner's attack on the assessment bears mainly on the alleged improbable and unconscionable amount of the taxes charged. But mere rhetoric cannot supply the basis for the charge of impropriety of the assessments made. 9.

PNB v. Santos, GR 208293, December 10, 2014

G.R. No. 208293, December 10, 2014 PHILIPPINE NATIONAL BANK, PETITIONER, VS. CARMELITA S. SANTOS, REYME L. SANTOS, ANGEL L. SANTOS, NONENG S. DIANCO, ET AL., RESPONDENTS. Respondents, heirs of Angel C. Santos, who died on March 21, 1991, discovered that their father had a premium savings account (P1,759,082.634), and a time deposit (P1,000,000.00) with the Philippine National Bank Sta. Elena,-Marikina City branch. They tried to withdraw the deposits but were required to submit the necessary documents. It was only after two years that they were able to complete the required documents, but were shocked to discover that the money was released to a certain Bernardito Manimbo, who submitted the following documents: (a) an affidavit of self-adjudication purportedly executed by one of the respondents, Reyme L. Santos; (b) a certificate of time deposit dated December 14, 1989 amounting to P1,000,000.00; and (c) the death certificate of Angel C. Santos, among others, and a special power of attorney purportedly executed by Reyme L. Santos in favor of Manimbo and a certain Angel P. Santos for purposes of withdrawing and receiving the proceeds of the certificate of time deposit. Thus, the respondents filed a complaint for sum of money against PNB, Lina Aguilar, and a certain John Doe, to compel them to pay the premium deposit amount; the certificate of time deposit, and moral and exemplary damages. In their answer, PNB denied liability, maintaing that Santos only had one deposit with the bank, a time deposit that was converted into a premium savings account upon maturity; that they did not know of Angel’s death in 1991; and Manimbo was able to submit documents which appeared to be regular. They also filed third-party complaints against Manimbo, Angel Santos and Capital Insurance and Surety Co; Angel denied knowing about the SPA; Capital Insurance on the other hand denied liability for PNB’s negligence, as its

17

ATTY. DEBORAH S. ACOSTA-CAJUSTIN

undertaking was only to persons who were unduly deprived of their participation in the estate. The RTC after trial held PNM and Aguilar jointly and severally liable; it ruled that Santos only had one account with PNB, a time deposit which was converted into a premium savings account. Further, it found PNB and Aguilar negligent in releasing the proceeds of the deposit, and its failure to notify the depositor about the maturity of the time deposit and its conversion into a savings deposit. It also failed to require the production of birth certificates to prove the claimant relationship to the depositor, and its reliance on the affidavit of selfadjudication when several claimants had already approached them beforehand. Both PNB and Aguilar appealed to the Court of Appeals, which also affirmed the decision of the RTC. PNB was negligent when it did not require all the documents from Manimbo, particularly the BIR certification that estate taxes had been paid. On the other hand, Aguilar cannot point her finger at the Legal Department of the PNB to whom she should have provided all the necessary documents as Branch Manager. Dissatisfied with the CA ruling, both PNB and Aguilar appealed to the Supreme Court. The Issue: Whether or not PNB and Aguilar were negligent is releasing the proceeds of the savings deposit to a person other than the heirs of the depositor The Ruling: We rule for the respondents. The trial court and the Court of Appeals correctly found that petitioners PNB and Aguilar were negligent in handling the deposit of Angel C. Santos. The contractual relationship between banks and their depositors is governed by the Civil Code provisions on simple loan.1 Once a person makes a deposit of his or her money to the bank, he or she is considered to have lent the bank that money.2 The bank becomes his or her debtor, and he or she becomes the creditor of the bank, which is obligated to pay him or her on demand.3 The default standard of diligence in the performance of obligations is “diligence of a good father of a family.” Thus, the Civil Code provides: ART. 1163. Every person obliged to give something is also obliged to take care of it with the proper diligence of a good father of a family, unless the law or the stipulation of the parties requires another standard of care. ART. 1173. The fault or negligence of the obligor consists in the omission of that diligence which is required by the nature of the obligation and corresponds with

TAXATION II

the circumstances of the persons, of the time and of the place. When negligence shows bad faith, the provisions of articles 1171 and 2201, paragraph 2, shall apply. If the law or contract does not state the diligence which is to be observed in the performance, that which is expected of a good father of a family shall be required. (Emphasis supplied) “Diligence of a good father of a family” is the standard of diligence expected of, among others, usufructuaries,4 passengers of common carriers,5 agents,6 depositaries,7 pledgees,8 officious managers,9 and persons deemed by law as responsible for the acts of others.10 “The diligence of a good father of a family requires only that diligence which an ordinary prudent man would exercise with regard to his own property.”11 Other industries, because of their nature, are bound by law to observe higher standards of diligence. Common carriers, for example, must observe “extraordinary diligence in the vigilance over the goods and for the safety of [their] passengers”12 because it is considered a business affected with public interest. “Extraordinary diligence” with respect to passenger safety is further qualified as “carrying the passengers safely as far as human care and foresight can provide, using the utmost diligence of very cautious persons, with a due regard for all the circumstances.”13 Similar to common carriers, banking is a business that is impressed with public interest. It affects economies and plays a significant role in businesses and commerce.14 The public reposes its faith and confidence upon banks, such that “even the humble wage-earner has not hesitated to entrust his life’s savings to the bank of his choice, knowing that they will be safe in its custody and will even earn some interest for him.”15 This is why we have recognized the fiduciary nature of the banks’ functions, and attached a special standard of diligence for the exercise of their functions.

18

ATTY. DEBORAH S. ACOSTA-CAJUSTIN

In Simex International (Manila), Inc. v. Court of Appeals,16 this court described the nature of banks’ functions and the attitude expected of banks in handling their depositors’ accounts, thus: In every case, the depositor expects the bank to treat his account with the utmost fidelity, whether such account consists only of a few hundred pesos or of millions. . . . The point is that as a business affected with public interest and because of the nature of its functions, the bank is under obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship.17 (Emphasis supplied) The fiduciary nature of banking is affirmed in Republic Act No. 8791 or The General Banking Law, thus: SEC. 2. Declaration of Policy. — The State recognizes the vital role of banks in providing an environment conducive to the sustained development of the national economy and the fiduciary nature of banking that requires high standards of integrity and performance. In furtherance thereof, the State shall promote and maintain a stable and efficient banking and financial system that is globally competitive, dynamic and responsive to the demands of a developing economy. (Emphasis supplied) In The Consolidated Bank and Trust Corporation v. Court of Appeals,18 this court explained the meaning of fiduciary relationship and the standard of diligence assumed by banks: This fiduciary relationship means that the bank’s obligation to observe “high standards of integrity and performance” is deemed written into every deposit agreement between a bank and its depositor. The fiduciary nature of banking requires banks to assume a degree of diligence higher than that of a good father of a family. Article 1172 of the Civil Code states that the degree of diligence required of an obligor is that prescribed by law or contract, and absent such stipulation then the diligence of a good father of a family. 19 (Emphasis supplied, citation omitted) Petitioners PNB and Aguilar’s treatment of Angel C. Santos’ account is inconsistent with the high standard of diligence required of banks. They accepted Manimbo’s representations despite knowledge of the existence of circumstances that should have raised doubts on such representations. As a result, Angel C. Santos’ deposit was given to a person stranger to him.

TAXATION II

Petitioner PNB pointed out that since petitioner Aguilar assumed office as PNBSta. Elena-Marikina City Branch Manager only five (5) years from Angel C. Santos’ death, she was not in the position to know that respondents were the heirs of Angel C. Santos. 20 She could not have accepted the unsigned and unnotarized extrajudicial settlement deed that respondents had first showed her. She was not competent to make a conclusion whether that deed was genuine. 22 Neither could petitioners PNB and Aguilar pass judgment on a letter from respondents’ lawyer stating that respondents were the nine heirs of Angel C. Santos.23 Petitioners PNB and Aguilar’s negligence is not based on their failure to accept respondents’ documents as evidence of their right to claim Angel C. Santos’ deposit. Rather, it is based on their failure to exercise the diligence required of banks when they accepted the fraudulent representations of Manimbo. Petitioners PNB and Aguilar disregarded their own requirements for the release of the deposit to persons claiming to be heirs of a deceased depositor. When respondents asked for the release of Angel C. Santos’ deposit, they were required to present the following: “(1) original or certified true copy of the Death Certificate of Angel C. Santos; (2) certificate of payment of, or exemption from, estate tax issued by the Bureau of Internal Revenue (BIR); (3) Deed of Extrajudicial Settlement; (4) Publisher’s Affidavit of publication of the Deed of Extrajudicial Settlement; and (5) Surety bond effective for two (2) years and in an amount equal to the balance of the deposit to be withdrawn.”24 Petitioners PNB and Aguilar, however, accepted Manimbo’s representations, and they released Angel C. Santos’ deposit based on only the following documents: Death certificate of Angel C. Santos; Birth certificate of Reyme L. Santos; Affidavit of self-adjudication of Reyme L. Santos; Affidavit of publication; Special power of attorney that Reyme L. Santos executed in favor of Bernardito Manimbo and Angel P. Santos; Personal items of Angel C. Santos, such as photocopies or originals of passport, residence certificate for year 1990, SSS I.D., etc.; Surety good for two (2) years; and Certificate of Time Deposit No. 341306

19

ATTY. DEBORAH S. ACOSTA-CAJUSTIN

Based on these enumerations, petitioners PNB and Aguilar either have no fixed standards for the release of their deceased clients’ deposits or they have standards that they disregard for convenience, favor, or upon exercise of discretion. Both are inconsistent with the required diligence of banks. These threaten the safety of the depositors’ accounts as they provide avenues for fraudulent practices by third persons or by bank officers themselves. In this case, petitioners PNB and Aguilar released Angel C. Santos’ deposit to Manimbo without having been presented the BIR-issued certificate of payment of, or exception from, estate tax. This is a legal requirement before the deposit of a decedent is released. Presidential Decree No. 1158,26 the tax code applicable when Angel C. Santos died in 1991, provides: SEC. 118. Payment of tax antecedent to the transfer of shares, bonds, or rights. — There shall not be transferred to any new owner in the books of any corporation, sociedad anonima, partnership, business, or industry organized or established in the Philippines, any shares, obligations, bonds or rights by way of gift inter vivos or mortis causa, legacy, or inheritance unless a certification from the Commissioner that the taxes fixed in this Title and due thereon have been paid is shown. If a bank has knowledge of the death of a person who maintained a hank deposit account alone, or jointly with another, it shall not allow any withdrawal from the said deposit account, unless the Commissioner has certified that the taxes imposed thereon by this Title have been paid; Provided, however, That the administrator of the estate or any one of the heirs of the decedent may upon authorization by the Commissioner of Internal Revenue, withdraw an amount not exceeding P10,000 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.27 (Emphasis supplied) This provision was reproduced in Section 97 of the 1997 National Internal Revenue Code, thus: SEC. 97. Payment of Tax Antecedent to the Transfer of Shares, Bonds or Rights. — There shall not be transferred to any new owner in the books of any corporation, sociedad anonima, partnership, business, or industry organized or established in the Philippines any share, obligation, bond or right by way of gift inter vivos or mortis causa, legacy or inheritance, unless a certification from the Commissioner that the taxes fixed in this Title and due thereon have been paid is shown.

TAXATION II

If a bank has knowledge of the death of a person, who maintained a bank deposit account alone, or jointly with another, it shall not allow any withdrawal from the said deposit account, unless the Commissioner has certified that the taxes imposed thereon by this Title have been paid: Provided, however, That the administrator of the estate or any one (1) of the heirs of the decedent may, upon 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. (Emphasis supplied) Taxes are created primarily to generate revenues for the maintenance of the government. However, this particular tax may also serve as guard against the release of deposits to persons who have no sufficient and valid claim over the deposits. Based on the assumption that only those with sufficient and valid claim to the deposit will pay the taxes for it, requiring the certificate from the BIR increases the chance that the deposit will be released only to them. In their compulsory counterclaim,28 petitioners PNB and Aguilar claimed that Manimbo presented a certificate of payment of estate tax. 29 During trial, however, it turned out that this certificate was instead an authority to accept payment, which is not the certificate required for the release of bank deposits.30 It appears that Manimbo was not even required to submit the BIR certificate 31. He, thus, failed to present such certificate. Petitioners PNB and Aguilar provided no satisfactory explanation why Angel C. Santos’ deposit was released without it. Petitioners PNB and Aguilar’s negligence is also clear when they accepted as bases for the release of the deposit to Manimbo: (a) a mere photocopy of Angel C. Santos’ death certificate; 32 (b) the falsified affidavit of self-adjudication and special power of attorney purportedly executed by Reyme L. Santos; 33 and (c) the certificate of time deposit.34

20

ATTY. DEBORAH S. ACOSTA-CAJUSTIN

Petitioner Aguilar was aware that there were other claimants to Angel C. Santos’ deposit. Respondents had already communicated with petitioner Aguilar regarding Angel C. Santos’ account before Manimbo appeared. Petitioner Aguilar even gave respondents the updated passbook of Angel C. Santos’ account. 35 Yet, petitioners PNB and Aguilar did not think twice before they released the deposit to Manimbo. They did not doubt why no original death certificate could be submitted. They did not doubt why Reyme L. Santos would execute an affidavit of self-adjudication when he, together with others, had previously asked for the release of Angel C. Santos’ deposit. They also relied on the certificate of time deposit and on Manimbo’s representation that the passbook was lost when the passbook had just been previously presented to Aguilar for updating.36 During the trial, petitioner PNB’s counsel only reasoned that the photocopy of the death certificate was also submitted with other documents, which led him to no other conclusion than that Angel C. Santos was already dead.37 On petitioners PNB and Aguilar’s reliance special power of attorney allegedly executed by Reyme L. Santos, Aguilar admitted that she did not contact Reyme L. Santos for verification. Her reason was that Reyme L. Santos was not their client. Therefore, they had no obligation to do so.38 Given the circumstances, “diligence of a good father of a family” would have required petitioners PNB and Aguilar to verify. A prudent man would have inquired why Reyme L. Santos would issue an affidavit of self-adjudication when others had also claimed to be heirs of Angel C. Santos. Contrary to petitioner Aguilar’s reasoning, the fact that Reyme L. Santos was not petitioner PNB’s client should have moved her to take measures to ensure the veracity of Manimbo’s documents and representations. This is because she had no previous knowledge of Reyme L. Santos his representatives, and his signature. Petitioner PNB is a bank from which a degree of diligence higher than that of a good father of a family is expected. Petitioner PNB and its manager, petitioner Aguilar, failed to meet even the standard of diligence of a good father of a family. Their actions and inactions constitute gross negligence. It is for this reason that we sustain the trial court’s and the Court of Appeals’ rulings that petitioners PNB and Aguilar are solidarity liable with each other.39

TAXATION II

For the same reason, we sustain the award for moral damages. Petitioners PNB and Aguilar’s gross negligence deprived Angel C. Santos’ heirs what is rightfully theirs. Respondents also testified that they experienced anger and embarrassment when petitioners PNB and Aguilar refused to release Angel C. Santos’ deposit. 40 “The bank’s negligence was the result of lack of due care and caution required of managers and employees of a firm engaged in so sensitive and demanding business as banking.”41 Exemplary damages should also be awarded. “The law allows the grant of exemplary damages by way of example for the public good. The public relies on the banks’ sworn profession of diligence and meticulousness in giving irreproachable service. The level of meticulousness must be maintained at all times by the banking sector.”42 Since exemplary damages are awarded and since respondents were compelled to litigate to protect their interests, 43 the award of attorney’s fees is also proper. The Court of Appeals’ award of interest should be modified to 12% from demand on April 26, 1998 until June 30, 2013, and 6% from July 1, 2013 until fully paid. In Nacar v. Gallery Frames:44 Thus, from the foregoing, in the absence of an express stipulation as to the rate of interest that would govern the parties, the rate of legal interest for loans or forbearance of any money. . . shall no longer be twelve percent (12%) per annum. . . but will now be six percent (6%) per annum effective July 1, 2013. It should be noted, nonetheless, that. . . the twelve percent (12%) per annum legal interest shall apply only until June 30, 2013. Come July 1, 2013 the new rate of six percent (6%) per annum shall be the prevailing rate of interest when applicable. …. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 6% per annum to be computed from default, i.e., from judicial or extrajudicial demand. . . …. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 6% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.

21

ATTY. DEBORAH S. ACOSTA-CAJUSTIN WHEREFORE, the Court of Appeals’ decision dated July 25, 2013 is AFFIRMED with the MODIFICATIONS in that petitioners Philippine National Bank and Lina B. Aguilar are ordered solidarity liable to pay respondents P100,000.00 as exemplary damages. Further, the interest rate for the amount of P1,882,002.05, representing the face value of PNB Manager’s Check No. AF-974686B is modified to 12% from April 26, 1998 until June 30, 2013, and 6% from July 1, 2013 until satisfaction. All monetary awards shall then earn interest at the rate of 6% per annum from finality of the decision until full satisfaction. SO ORDERED.

TAXATION II

APPLICABLE

ATTY. DEBORAH S. ACOSTA-CAJUSTIN

AS TO AMOUNT EXEMPT AS TO GRANT OF DEDUCTION AS TO REQUIREMENT OF FILING A RETURN

AS TO TIME OF FILING OF RETURN AS TO EXTENSION OF FILING RETURN GROSS ESTATE – Rule for imposition SEC. 85. Gross Estate. - the value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated: Provided, however, that in the case of a nonresident decedent who at the time of his death was not a citizen of the Philippines, only that part of the entire gross estate which is situated in the Philippines shall be included in his taxable estate. AS TO THE NATURE OF THE TRANSFER AS TO PERSON’S LIABLE AS TO TYPE OF DONATION AS TO RATES

22

ESTATE TAX Tax on privilege to transfer property upon one’s death Individuals only Imposed on donation mortis cause Tax rates are relatively

DONORS TAX Tax on privilege to transfer property during one’s lifetime Individuals and corporations Imposed on donation inter vivos Tax rates are lower

AS TO TIME OF PAYMENT

AS TO EXTENSION OF TIME FOR PAYMENT

higher (5% - 20%)

P200,000 and below

(2%-15%) or 30% (if donee is a stranger) P100,000 and below

Yes (Tax Code Sec 86)

None

 Transfer subject to estate tax  Exempt from tax but gross value of the estate exceeds P200,000  Estate consists of registrable property regardless of the value of the gross estate  (Tax code sec 90) Within 6 months from death (Tax code sec 90[b]) Not exceeding 30 days, in meritorious cases ((Tax code sec 90[c]) As the time the return is filed by the executor, administrator or the heirs, that is within 6 months from death (Tax code sec 91[a]) Allowed (Tax code sec 91[b])

All transfers by gift except those which under Sec 101 of the tax code are exempt from tax

Within 30 days after date of gift (Tax code sec 103[b]) None At the time the return is filed, that is within 30 days after the date of gift (Tax code sec 103[b]) Not allowed

SEC. 3. THE LAW THAT GOVERNS THE IMPOSITION OF ESTATE TAX. – It is a well-settled rule that estate taxation is governed by the statute in force at the time of death of the decedent. The estate tax accrues as of the death of the decedent and the accrual of the tax is distinct from the obligation to pay the same. Upon the death of the decedent, succession takes place and the right of the State to tax the privilege to transmit the estate vests instantly upon death. The application of the rates herein prescribed and the procedures in determining the estate tax due shall apply to estate taxes falling due or have accrued beginning January 1, 1998, the effectivity date of Republic Act No.

TAXATION II

ATTY. DEBORAH S. ACOSTA-CAJUSTIN

8424, otherwise known as “The Tax Reform Act of 1997”. (REVENUE REGULATIONS NO. 2-2003)



TRANSFER TAX 1. ESTATE TAX – donation mortis cause - Tax levied on the transmission of properties from a decedent to his heirs. - Estate tax is that tax on the privilege to transmit property at death and on certain transfers which are made the equivalent of testamentary dispositions by the statute 2. DONOR’S TAX – donation inter vivos - Tax levied on the transmission of properties from a living person (donor) to another living person (donee) Net Estate Refers to the value of the gross estate less the ordinary and special deductions

Gross estate Refers to the value of all the property, real or personal, tangible or intangible, of the decedent wherever situated (except for non-resident alien), to the extent of his interest at the time of his death, as well as other items includible in the gross estate (Tax Code Sec 86) If resident  All properties: real or personal, intangible or tangible (wherever situated  Plus items includible in gross estate INTANGIBLE PROPERTIES IN PH:  Franchise which must be exercised in the PH  Shares, obligations or bonds issued by corporations organized or constituted in the Philippines  Shares, obligations or bonds issued by a foreign corporation (85%) of the business of which is located

23



in the PH Shares, obligations or bonds issued by a foreign corporation if such shares, obligations or bonds have acquired a business situs in the Philippines Shares, right in any partnership, business or industry established in the Philippines

3. Resident, non-resident alien SEC. 4. COMPOSITION OF THE GROSS ESTATE. – The gross estate of a decedent shall be comprised of the following properties and interest therein at the time of his death, including revocable transfers and transfers for insufficient consideration, etc.: A) Residents and citizens – all properties, real or personal, tangible or intangible, wherever situated. B) Non-resident aliens – only properties situated in the Philippines provided, that, with respect to intangible personal property, its inclusion in the gross estate is subject to the rule of reciprocity provided for under Section 104 of the Code. -

-

RESIDENT: refers to the permanent home, the place to which whenever absent, for business or pleasure, one intents to return, and depends on facts and circumstances, in the sense that disclose intent. Not necessarily the actual place of residence Transfer of the net estate if every decedent, whether resident or non-resident of the Philippines, as determined in accordance with the Code shall be subject to the estate tax. ESTATE TAX is imposed upon the basis of the NET ESTATE considered as a unit

TAXATION II

ATTY. DEBORAH S. ACOSTA-CAJUSTIN 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." A decedent’s intangible personal property may be subject to transfer taxes both in his place of domicile or residence and in the place where such property has a situs or is located. - Prevent multiplicity of taxation? The tax code provides that the tax imposed by this title shall be credited with the amounts of any estate tax imposed by the authority of a foreign country 1. When the foreign country does not impose transfer tax of any character in respect of intangible personal property of citizens of the Philippines not residing in that foreign country or, 2. When the foreign country imposes transfer taxes but grants similar exemption from transfer taxes in respect of intangible personal property owned by citizens of the Philippines not residing in that foreign country - FOREIGN COUNTRY  may refer to federal government or to the individual states of the US (Collector vs Norton) - Reciprocity in exemption does not require the foreign country to possess international personality in the traditional sense -

DETERMINATION OF THE NET ESTATE IF THE DECEDENT IS A RESIDENT / NON-RESIDENT CITIZEN OR A RESIDENT ALIEN Net estate is equal to gross estate less:  ordinary deductions  special deductions and  exclusions allowed by law

IF THE DECEDENT IS A NON RESIDENT ALIEN Net estate is equal to gross estate less:  ordinary deductions and  exclusions allowed by law

4. Reciprocity of exemption (Collector v Fisher, 1 SCRA 93) Section 122 of our National Internal Revenue Code, in pertinent part, provides: ... And, provided, further, 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

24

5. Valuation of gross estate SEC. 5. VALUATION OF THE GROSS ESTATE. – The properties comprising the gross estate shall be valued based on their fair market value as of the time of death. If the property is a real property, the fair market value shall be the fair market value as determined by the Commissioner or the fair market value as shown in the schedule of values fixed by the provincial and city assessors, whichever is higher. For purposes of prescribing real property values, the Commissioner is authorized to divide the Philippines into different zones or areas and shall, upon consultation with competent appraisers, both from the private and public sectors, determine the fair market value of real properties located in each zone or area. In the case of shares of stocks, the fair market value shall depend on whether the shares are listed or unlisted in the stock exchanges. Unlisted common shares are valued based on their book value while unlisted preferred shares are valued at par value. In determining the

TAXATION II

book value of common shares, appraisal surplus shall not be considered as well as the value assigned to preferred shares, if there are any. For shares which are listed in the stock exchanges, the fair market value shall be the arithmetic mean between the highest and lowest quotation at a date nearest the date of death, if none is available on the date of death itself To determine the value of the right to 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.

REAL PROPERTY

PERSONAL PROPERTY

RIGHT TO USUFRUCT, USE OR HABITATION, AND ANNUITY IMPROVEMENT

25

Whichever is higher between the FMV: 1. As determined by the Commissioner / Zonal Value or 2. As shown in the schedule of values fixed by the provincial and city assessors GENERAL RULE: FMV at the time of death EXCEPTION: shares of stocks a. If listed – FMV is the arithmetic mean between the highest and lowest quotation at the date of death, or the date nearest the date of death, if none is available on the date of death itself b. If unlisted – FMV is the par value in case of preferred shares, and book value in case of common shares Common shares: following not considered a. Appraisal surplus b. The value assigned to preferred shares, if there are any The probable life of the beneficiary in accordance with the latest basic standard mortality table is to be taken into account, to be approved by the Secretary of Finance, upon recommendation of the Insurance Commissioner. The construction cost per building permit or the FMV per latest tax declaration

ATTY. DEBORAH S. ACOSTA-CAJUSTIN

6. DECEDENT’S GROSS ESTATE

- Inclusions on the gross estate: 1. Decedents interest at the time of his death 2. Transfer in contemplation of death 3. Revocable transfer 4. Property passing under a general power of appointment 5. Proceeds of a life insurance taken out by the decedent upon his own life, where the beneficiary is the estate, his executor or administrator irrespective of whether or no the insured retained the power of revocation or any beneficiary designated as revocable; and 6. Property transfers for insufficient consideration a.

Decedent’s interest Section 85. Gross Estate. (A) Decedent’s Interest. – To the extent of the interest therein of the decedent at the time of his death;

 Kinds of property embraced under decedent’s interest 1.1. Property owned – decedent possesses all the attributes of ownership 1.2. Interest in property possessed – the law contemplates any interest or right in the nature of property, but less than title having value or capable or capable of being valued, transferred by the decedent at his death. If the decedent owns only a proportionate share in property, only the value of such share has to be included in the gross estate. If he is entitled only to the use of the property, it is the value of that use that has to be included. 1.3. Property or interest transferred b. Transfer in contemplation of death Section 85. Gross Estate. (B) Transfer in Contemplation of Death. – To the extent of any interest therein of which the decedent has at any time made a transfer, by trust or otherwise, in contemplation of or intended to take effect in possession or enjoyment at or after death, or of which he has at any time made a transfer, by trust or otherwise, under which he has retained for his life or

TAXATION II

for any period which does not in fact end before his death (1) the possession or enjoyment of, or the right to the income from the property, or (2) the right, either alone or in conjunction with any person, to designate the person 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.

 o o o  

GENERAL RULE: the transfer shall be considered as transfer in contemplation of death if, during the lifetime of the decedent, he still retained in the property any of the following: Possessions or enjoyment thereof Receipt of the income or the fruits notwithstanding the transfer; or Right either alone or in conjunction with any person, to designate person who shall possess or enjoy the said property or income therefrom. EXCEPTION: bona fide sale for an adequate and full consideration in money or in money’s worth This is not mere transfer but the retention of some type off control over the property transferred. In effect, there no full transfer of all interests in the property inter vivos. c.

Revocable transfers Section 85. Gross Estate. (C) 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), t o 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

26

ATTY. DEBORAH S. ACOSTA-CAJUSTIN 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 his death, such notice shall be considered to have been given, or the power exercised, on the date of his death. - GENERAL RULE: 1. There is a transfer by trust or otherwise and 2. The enjoyment thereof was subject at the date of his death to any change through the exercise of a power (in whatever capacity): 2.1. The decedent alone 2.2. 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, terminate or 2.3. Where any such power is relinquished in contemplation of the decedent’s death - EXCEPTION: bona fide sale for an adequate and full consideration in money or money’s worth d. Property passing under general appointment Section 85. Gross Estate. (D) 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

TAXATION II

ATTY. DEBORAH S. ACOSTA-CAJUSTIN

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.

Power of appointment : the right to designate the peron or persons who shall enjoy and possess certain property from the estate of a prior decedent - Requisites for Taxability 1. Existence of a general power of appointment 2. Exercise of such power by the decedent by will or by deed in certain cases 3. The passing of the property by virtue of such exercise - GENERAL RULE: Property over which the decedent held a power of appointment is not includible in his gross estate unless such power is general 1. GENERAL POWER : when it authorizes the donee to appoint any person he pleases, including himself, thus having full dominion over the property as though he owned it 2. SPECIFIC : when the donee can appoint only among a restricted or designated class of persons other than himself - EXCEPTION: bona fide sale for an adequate and full consideration in money or money’s worth - HOW EXERCISED? 1. By will 2. Deed executed in contemplation of, or intended to take effect in possession or enjoyment at, or after his death 3. By deed under which he has retained for his life or any person not ascertainable without reference to his death or for any period which does in fact end before his death: 3.1. The possession or enjoyment or the right to the income from the property 3.2. The right, either alone or in conjunction with any person, to designate the persons who shall possess or enjoy the property or the income

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.

-

e.

Proceeds of life insurance Section 85. Gross Estate. (E) Proceeds of Life Insurance. – To the extent of the amount

27

- Requisites to be included in the gross estate: 1. The decedent takes an insurance policy on his life 2. The amounts are receivable by: 2.1. The estate, his executor, or administrator irrespective of whether or not insured retained the power of revocation 2.2. Any beneficiary designated as revocable - Life insurance are not included in decedent’s gross estate thus not subject to tax when: 1. Beneficiary is other than the estate, his executor or administrator 2. Designation is irrevocable f.

Prior interest Section 85. Gross Estate. (F) 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.

-

-

Transfer, trusts, interest, rights or powers (denominated as transfer in contemplation of death, revocable transfer and property passing under general power of appointment) made, created, exercised or relinquished for a consideration in money or money’s worth. EXCEPTION: a bona fide sale for an adequate and full consideration in money or money’s worth FMV of the property at the date of decedent’s death LESS: actual consideration received by the decedent

TAXATION II

ATTY. DEBORAH S. ACOSTA-CAJUSTIN

= Amount includible in decedents gross estate g.

Transfer for insufficient consideration Section 85. Gross Estate. (G) 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.

7. Exclusion from gross estate: capital of surviving spouse Section 85. Gross Estate. (E) Proceeds of Life Insurance. – (H) 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 pjart of his or her gross estate. Deduction from gross estate for ORDINARY DEDUCTIONS Expenses, losses, indebtedness and taxes  Funeral expenses  Judicial expenses  Claims against the estate  Claims against insolvent persons  Unpaid mortgages  Unpaid taxes  Losses Vanishing deduction (property previously taxed) Transfer of Public Use

SPECIAL DEDUCTIONS  Family Home  Standard Deduction  Medical Expenses  Amount received by heirs under RA 4916

Net share of the Spouse in the Community Property

Surviving Conjugal

Deduction from gross estate for Citizens and Resident Aliens - Expenses, losses, indebtedness and taxes  Funeral expenses  Judicial expenses  Claims against the estate  Claims against insolvent persons  Unpaid mortgages  Unpaid taxes  Losses - Vanishing deduction (property previously taxed) - Transfer of Public Use - Family home - Standard deduction - Medical expenses - Amounts received by heirs under RA 4917 - Net share of the Surviving Spouse in the Conjugal Community Property Deductions for Non Resident Aliens - Expenses, Losses, Indebtedness and taxes 1. Allowable deduction = (Philippine gross estate / world gross estate) X (Expenses, Losses, Indebtedness and taxes - Vanishing Deductions for property in the Philippines - Transfer for public used and - Net share of the surviving spouse in the conjugal property - NOT ALLOWED DEDUCTIONS: 1. Family home 2. Standard deduction 3. Medical expenses 4. Amounts received by heirs under RA 4917 SEC. 6. COMPUTATION OF THE NET ESTATE OF A DECEDENT WHO IS EITHER A CITIZEN OR RESIDENT OF THE PHILIPPINES. - The value of the net estate of a citizen or resident alien of the Philippines shall be determined by deducting from the value of the gross estate the following items of deduction : (A) Expenses, losses, indebtedness, and taxes- Such amounts

28

TAXATION II

ATTY. DEBORAH S. ACOSTA-CAJUSTIN

for:

(1) Actual funeral expenses (whether paid or unpaid) up to the time of interment, or an amount equal to five percent (5%) of the gross estate, whichever is lower, but in no case to exceed P200,000. Any amount of funeral expenses in excess of the P200,000 threshold, whether the same had actually been paid or still payable, shall not be allowed as a deduction under this Subsection. Neither shall the unpaid portion of the funeral expenses incurred which is in excess of the P200,000 threshold be allowed to be claimed as a deduction under “claims against the estate” provided under Subsection (C) hereof. The term "FUNERAL EXPENSES" is not confined to its ordinary or usual meaning. They include: (a) The mourning apparel of the surviving spouse and unmarried minor children of the deceased bought and used on the occasion of the burial; (b) Expenses for the deceased’s wake, including food and drinks; (c) Publication charges for death notices; (d) Telecommunication expenses incurred in informing relatives of the deceased; (e) Cost of burial plot, tombstones, monument or mausoleum but not their upkeep. In case the deceased owns a family estate or several burial lots, only the value corresponding to the plot where he is buried is deductible; (f) Interment and/or cremation fees and charges; and (g) All other expenses incurred for the performance of the rites and ceremonies incident to interment. Expenses incurred after the interment, such as for prayers, masses, entertainment, or the like are not deductible. Any portion of the funeral and burial

29

expenses borne or defrayed by relatives and friends of the deceased are not deductible. Medical expenses as of the last illness will not form part of funeral expenses but should be claimed under subsection (F) of this section. Actual funeral expenses shall mean those which are actually incurred in connection with the interment or burial of the deceased. The expenses must be duly supported by receipts or invoices or other evidence to show that they were actually incurred. Illustrations on how to determine the amount of allowable funeral expenses – (a) If five percent (5%) of the gross estate is P70,000 and the amount actually incurred is P50,000, only P50,000 will be allowed as deduction; (b) If the expenses actually incurred amount to P90,000 and five percent (5%) of the gross estate is P70,000, only P70,000 will be allowed as deduction;. (c) If five percent (5%) of the gross estate is P220,000 and the amount actually incurred is P215,000, the maximum amount that may be deducted is only P200,000; (d) If five percent (5%) of the gross estate is P 100,000 and the total amount incurred is P150,000 where P20,000 thereof is still unpaid, the only amount that can be claimed as deduction for funeral expenses is P100,000. The entire P50,000 excess amount consisting of P30,000 paid amount and P20,000 unpaid amount can no longer be claimed as FUNERAL EXPENSES. Neither can the P20,000 unpaid portion be deducted from the gross estate as CLAIMS AGAINST THE ESTATE under Subsection (C) hereof. (2) Judicial expenses of the testamentary or intestate proceedings. - Expenses allowed as deduction

TAXATION II

30

under this category are those incurred in the inventorytaking of assets comprising the gross estate, their administration, the payment of debts of the estate, as well as the distribution of the estate among the heirs. In short, these deductible items are expenses incurred during the settlement of the estate but not beyond the last day prescribed by law, or the extension thereof, for the filing of the estate tax return. Judicial expenses may include: (a) Fees of executor or administrator; (b) Attorney’s fees; (c) Court fees; (d) Accountant’s fees; (e) Appraiser’s fees; (f) Clerk hire; (g) Costs of preserving and distributing the estate; (h) Costs of storing or maintaining property of the estate; and (i) Brokerage fees for selling property of the estate.

ATTY. DEBORAH S. ACOSTA-CAJUSTIN

of deductions pursuant to these Regulations; (b) The liability was contracted in good faith and for adequate and full consideration in money or money’s worth; (c) The claim must be a debt or claim which is valid in law and enforceable in court; (d) The indebtedness must not have been condoned by the creditor or the action to collect from the decedent must not have prescribed.

Any unpaid amount for the aforementioned cost and expenses claimed under “Judicial Expenses” should be supported by a sworn statement of account issued and signed by the creditor.

(ii) Substantiation Requirements. - All unpaid obligations and liabilities of the decedent at the time of his death (except unpaid funeral or medical expenses which are deductible under a different category) are allowed as deductions from gross estate. Provided, however, that the following requirements/documents are complied with/submitted : (a) In case of simple loan (including advances): (1) The debt instrument must be duly notarized at the time the indebtedness was incurred, such as promissory note or contract of loan, except for loans granted by financial institutions where notarization is not part of the business practice/policy of the financial institution-lender;

(3) Claims against the estate. – The word “claims” is generally construed to mean debts or demands of a pecuniary nature which could have been enforced against the deceased in his lifetime and could have been reduced to simple money judgements. Claims against the estate or indebtedness in respect of property may arise out of : (1) Contract; (2) Tort; or (3) Operation of Law. (i) Requisites for Deductibility of Claims Against the Estate – (a) The liability represents a personal obligation of the deceased existing at the time of his death except unpaid obligations incurred incident to his death such as unpaid funeral expenses (i.e., expenses incurred up to the time of interment) and unpaid medical expenses which are classified under a different category

(2) Duly notarized Certification from the creditor as to the unpaid balance of the debt, including interest as of the time of death. If the creditor is a corporation, the sworn certification should be signed by the President, or Vice-President, or other principal officer of the corporation. If the creditor is a partnership, the sworn certification should be signed by any of the general partners. In case the creditor is a bank or other financial institutions, the Certification shall be executed by the branch manager of the bank/financial institution which monitors and manages the loan of the

TAXATION II

decedent-debtor. If the creditor is an individual, the sworn certification should be signed by him. In any of these cases, the one who should certify must not be a relative of the borrower within the fourth civil degree, either by consanguinity or affinity, except when the requirement below is complied with. When the lender, or the President/Vicepresident /principal officer of the creditor-corporation, or the general partner of the creditor-partnership is a relative of the debtor in the degree mentioned above, a copy of the promissory note or other evidence of the indebtedness must be filed with the RDO having jurisdiction over the borrower within fifteen days from the execution thereof. (3) In accordance with the requirements as prescribed in existing or prevailing internal revenue issuances, proof of financial capacity of the creditor to lend the amount at the time the loan was granted, as well as its latest audited balance sheet with a detailed schedule of its receivable showing the unpaid balance of the decedent-debtor. In case the creditor is an individual who is no longer required to file income tax returns with the Bureau, a duly notarized Declaration by the creditor of his capacity to lend at the time when the loan was granted without prejudice to verification that may be made by the BIR to substantiate such declaration of the creditor. If the creditor is a non-resident, the executor/ administrator or any of the

31

ATTY. DEBORAH S. ACOSTA-CAJUSTIN

legal heirs must submit a duly notarized declaration by the creditor of his capacity to lend at the time when the loan was granted, authenticated or certified to as such by the tax authority of the country where the non-resident creditor is a resident; (4) A statement under oath executed by the administrator or executor of the estate reflecting the disposition of the proceeds of the loan if said loan was contracted within three (3) years prior to the death of the decedent;

(b) If the unpaid obligation arose from purchase of goods or services: (1) Pertinent documents evidencing the purchase of goods or service, such as sales invoice/delivery receipt (for sale of goods), or contract for the services agreed to be rendered (for sale of service), as duly acknowledged, executed and signed by decedentdebtor and creditor, and statement of account given by the creditor as duly received by the decedentdebtor; (2) Duly notarized Certification from the creditor as to the unpaid balance of the debt, including interest as of the time of death. If the creditor is a corporation, the sworn Certification should be signed by the President, or Vice-President, or other principal officer of the corporation. If the creditor is a partnership, the sworn certification should be signed by any of the general partners. If the creditor is a sole proprietorship, the sworn certification should be signed by the owner of the business. In any of these

TAXATION II

cases, the one who issues the certification must not be a relative of the decedent-debtor within the fourth civil degree, either by consanguinity or affinity, except when the requirement below is complied with. When the lender, or the President/VicePresident/principal officer of the creditor-corporation, or the general partner of the creditorpartnership is a relative of the debtor in the degree mentioned above, a copy of the promissory note or other evidence of the indebtedness must be filed with the RDO having jurisdiction over the borrower within fifteen days from the execution thereof. (3) Certified true copy of the latest audited balance sheet of the creditor with a detailed schedule of its receivable showing the unpaid balance of the decedent-debtor. Moreover, a certified true copy of the updated latest subsidiary ledger/records of the debt of the debtor-decedent, (certified by the creditor, i.e., the officers mentioned in the preceding paragraphs) should likewise be submitted. (4) Claims of the deceased against insolvent persons where the value of the decedent’s interest therein is included in the value of the gross estate; and, (5) Unpaid mortgages, taxes and casualty losses – (a) Unpaid mortgages upon, or any indebtedness in respect to, property where the value of the decedent’s interest therein, undiminished by such mortgage or indebtedness, is included in the value of the gross estate. The deduction herein allowed in the case of claims against the estate, unpaid mortgages or any indebtedness shall, when

32

ATTY. DEBORAH S. ACOSTA-CAJUSTIN

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. (b) Taxes which have accrued as of the death of the decedent which were unpaid as of the time of death. This deduction will not include income tax upon income received after death, or property taxes not accrued before his death, or the estate tax due from the transmission of his estate. (c) 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 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 Subsections (A) and (B) of Section 91.

In case unpaid mortgage payable is being claimed by the estate, verification must be made as to who was the beneficiary of the loan proceeds. If the loan is found to be merely an accommodation loan where the loan proceeds went to another person, the value of the unpaid loan must be included as a receivable of the estate. If there is a legal impediment to recognize the same as receivable of the estate, said unpaid obligation/mortgage payable shall not be allowed as a deduction from the gross estate. In all instances, the mortgaged property, TO THE EXTENT OF THE DECEDENT’S INTEREST THEREIN, should always form part of the gross taxable estate “(B) Property previously taxed xxx “(C) Transfers for public use - xxx

xxx xxx

xxx xxx

TAXATION II

“(D) 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. a) Definition of terms Family home – The dwelling house, including the land on which it is situated, where the husband and wife, or a head of the family, and members of their family reside, as certified to by the Barangay Captain of the locality. The family home is deemed constituted on the house and lot from the time it is actually occupied as a family residence and is considered as such for as long as any of its beneficiaries actually resides therein. (Arts. 152 and 153, Family Code) For purposes of these regulations, however, actual occupancy of the house or house and lot as the family residence shall not be considered interrupted or abandoned in such cases as the temporary absence from the constituted family home due to travel or studies or work abroad, etc. In other words, the family home is generally characterized by permanency, that is, the place to which, whenever absent for business or pleasure, one still intends to return. The family home must be part of the properties of the absolute community or of the conjugal partnership, or of the

33

ATTY. DEBORAH S. ACOSTA-CAJUSTIN

exclusive properties of either spouse depending upon the classification of the property (family home) and the property relations prevailing on the properties of the husband and wife. It may also be constituted by an unmarried head of a family on his or her own property. (Art. 156, Ibid) For purposes of availing of a family home deduction to the extent allowable, a person may constitute only one family home. (Art. 161, Ibid) Husband and Wife – Legally married man and woman Unmarried Head of a Family – An unmarried or legally separated man or woman with one or both parents, or with one or more brothers or sisters, or with one or more legitimate, recognized natural or legally adopted children living with and dependent upon him or her for their chief support, where such brothers or sisters or children are not more than twenty one (21) years of age, unmarried and not gainfully employed or where such children, brothers or sisters, regardless of age are incapable of self-support because of mental or physical defect, or any of the beneficiaries mentioned in Article 154 of the Family Code who is living in the family home and dependent upon the head of the family for legal

TAXATION II

support. The beneficiaries of a family home are: (1) The husband and wife, or the head of a family; and (2) Their parents, ascendants, descendants including legally adopted children, brothers and sisters, whether the relationship be legitimate or illegitimate, who are living in the family home and who depend upon the head of the family for legal support. (Art. 154, Ibid) b) Conditions for the allowance of FAMILY HOME as deduction from the gross estate1. The family home must be the actual residential home of the decedent and his family at the time of his death, as certified by the Barangay Captain of the locality where the family home is situated; 2. The total value of the family home must be included as part of the gross estate of the decedent; and 3. Allowable deduction must be in an amount equivalent to the current fair market value of the family home as declared or included in the gross estate, or the extent of the decedent’s interest (whether conjugal/community or exclusive property), whichever is lower, but not exceeding P1,000,000. (E) Standard deduction. - A deduction in the amount of One Million Pesos (P1,000,000) shall be allowed as an additional deduction without need of substantiation. The full amount of P1,000,000 shall be allowed as deduction for the benefit of the decedent. The presentation of such deduction in the computation of the net taxable estate of the decedent is properly

34

ATTY. DEBORAH S. ACOSTA-CAJUSTIN

illustrated in these Regulations.

(F) Medical expenses. - All medical expenses (cost of medicines, hospital bills, doctors’ fees, etc.) incurred (whether paid or unpaid) within one (1) year before the death of the decedent shall be allowed as a deduction provided that the same are duly substantiated with official receipts for services rendered by the decedent’s attending physicians, invoices, statements of account duly certified by the hospital, and such other documents in support thereof and provided, further, that the total amount thereof, whether paid or unpaid, does not exceed Five Hundred Thousand Pesos (P500,000). Any amount of medical expenses incurred within one year from death in excess of Five Hundred Thousand Pesos (P500,000) shall no longer be allowed as a deduction under this subsection. Neither can any unpaid amount thereof in excess of the P500,000 threshold nor any unpaid amount for medical expenses incurred prior to the one-year period from date of death be allowed to be deducted from the gross estate as claim against the estate. Illustrations on how to determine the amount of allowable medical expenses given the P500,000 threshold amount a. If the actual amount of medical expenses incurred is P250,000, then only P250,000 shall be allowed as deduction and not to the extent of the P500,000 threshold amount; b. If the actual amount of medical expenses incurred within the year prior to decedent’s death is P600,000, only the maximum amount of P500,000 shall be allowed as deduction. If in case the excess of P100,000 (P600,000500,000) is still unpaid, such amount shall not be allowed to be deducted from the gross estate as “claims against the estate”. (G) Amount received by heirs under Republic Act No. 4917. - Any amount received by the heirs from the decedent’s employer as a consequence of the death of

TAXATION II

the decedent-employee in accordance with Republic Act No. 4917 is allowed as a deduction provided that the amount of the separation benefit is included as part of the gross estate of the decedent. (8) Net share of the surviving spouse in the conjugal partnership or community property. - After deducting the allowable deductions appertaining to the conjugal or community properties included in the gross estate, the share of the surviving spouse must be removed to ensure that only the decedent’s interest in the estate is taxed.

a.

b.  o o o

35

Funeral expenses  Whichever is lower of : actual funeral expense or 5% of the gross estate (not exceeding P200,000)  Actual Funeral Expenses – actually incurred in connection with the interment or burial of the deceased o Mourning apparel of surviving spouse o Wake expenses o Publication charges for death notices o Telecommunication expenses – relatives o Cost of burial plot, tombstones, monument or mausoleum but not their upkeep o Interment and/or cremation fees and charges o Other expenses incurred for the performance of the rites and ceremonies incident to the interment  Non deductible o Expenses after interment o Those expenses defrayed by relatives or friends of deceased o Medical expenses as of the last illness

Judicial expenses Nature of expenses that may be deducted Incurred in payment of debts of the estate Incurred in the administration of the estate Incurred in inventory- taking of assets comprising the gross estate

ATTY. DEBORAH S. ACOSTA-CAJUSTIN

o   o o o o o o o o o   o o o

o

Incurred in the distribution of the estate among the heirs Must be incurred during the settlement of the estate Deductible Expenses Fees of executor / administrator Attorneys fees Court fees Accountants fees Appraisers fees Clerk hire Cost of preserving and distributing the estate Costs of storing or maintaining property of the estate and Brokerage fees for selling property of the estate Extrajudicial expenses : not under the law, but based on the US law which we copied from, it is considered as a deduction provided this is in relation to settlement of the estate Non deductible Expenditures incurred for the individual benefit of the heirs, devisees or legatees Compensation paid to a trustee of the decedent’s estate when it appeared that such trustee was appointed for the purpose of managing the decedent’s real property for the benefit of the testamentary heir; Premiums paid on the bond filed by the administrator as an expense of administration since the giving of the bon is in the nature of a qualification for the office and not necessary for the settlement of the estate Attorney’s fees incident to litigation incurred by the heirs in asserting their respective rights c.



 o o o

Claims v. the estate

This refers to debts or demands of a pecuniary nature which could have been enforced against the deceased in his lifetime and could have been reduced to simple money judgments. It may arise out of contract, tort or under operation of law. Requisites for deductibility Must be personal obligation of the deceased existing at the time of death, except unpaid obligations incurred incident to his death. Must be valid in law and enforceable in the court Must be incurred in good faith and for an adequate consideration in money or money’s worth

TAXATION II o

Must have been condoned by the creditor or the action must not have prescribed. d. Claims v. insolvent persons

 o o

Requisites for deductibility The amount thereof has been initially included as part of his gross estate Incapacity of the debtors to pay their obligations is proved e.

 o o 

 o o o

Property previously taxed – vanishing deductions

Requisites Taxes which have accrued as of or before the death of the decedent and Unpaid as of the time of his death, regardless of whether or not it was incurred in connection with trade or business Not include: Income tax upon income received after death Property taxes not accrued before his death estate tax due from the transmission of his estate g.

Transfer for public purpose 



36

(1) Expenses, losses, indebtedness, and taxes – That proportion of the total expenses, losses, indebtedness, and taxes which the value of such part bears to the value of his entire gross estate wherever situated. The allowable deduction under this subsection shall be computed using the following formula:

Requisites for deductibility Value of the decedents interest therein, undiminished by such mortgage or indebtedness, is included in the value of the gross estate Mortgages were contracted bona fide and for an adequate and full consideration in money or money’s worth Payable is claimed by the estate. f.

 o o

Unpaid mortgages and losses

ATTY. DEBORAH S. ACOSTA-CAJUSTIN

SEC. 7. COMPUTATION OF THE NET ESTATE OF A DECEDENT WHO IS A NON-RESIDENT ALIEN OF THE PHILIPPINES. - The value of the net estate of a decedent who is a non-resident alien in the Philippines shall be determined by deducting from the value of that part of his gross estate which at the time of his death is situated in the Philippines the following items of deductions:

The amount deductible shall be the entire amount of all bequest, legacies, devises or transfers to or for the use of the government or any political subdivision thereof, exclusively for public purpose Requisites o Disposition is in his last will o Take effect after death o In favor of the government o Exclusively for public purpose

No deduction shall be allowed in the case of a non-resident decedent 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 of the Code the value at the time of the decedent’s death of that part of his gross estate not situated in the Philippines 8. Family home “(D) 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. a) Definition of terms Family home – The dwelling house, including the land on which it is situated, where the husband

TAXATION II

and wife, or a head of the family, and members of their family reside, as certified to by the Barangay Captain of the locality. The family home is deemed constituted on the house and lot from the time it is actually occupied as a family residence and is considered as such for as long as any of its beneficiaries actually resides therein. (Arts. 152 and 153, Family Code) For purposes of these regulations, however, actual occupancy of the house or house and lot as the family residence shall not be considered interrupted or abandoned in such cases as the temporary absence from the constituted family home due to travel or studies or work abroad, etc. In other words, the family home is generally characterized by permanency, that is, the place to which, whenever absent for business or pleasure, one still intends to return. The family home must be part of the properties of the absolute community or of the conjugal partnership, or of the exclusive properties of either spouse depending upon the classification of the property (family home) and the property relations prevailing on the properties of the husband and wife. It may also be constituted by an unmarried head of a family

37

ATTY. DEBORAH S. ACOSTA-CAJUSTIN

on his or her own property. (Art. 156, Ibid) For purposes of availing of a family home deduction to the extent allowable, a person may constitute only one family home. (Art. 161, Ibid) Husband and Wife – Legally married man and woman Unmarried Head of a Family – An unmarried or legally separated man or woman with one or both parents, or with one or more brothers or sisters, or with one or more legitimate, recognized natural or legally adopted children living with and dependent upon him or her for their chief support, where such brothers or sisters or children are not more than twenty one (21) years of age, unmarried and not gainfully employed or where such children, brothers or sisters, regardless of age are incapable of selfsupport because of mental or physical defect, or any of the beneficiaries mentioned in Article 154 of the Family Code who is living in the family home and dependent upon the head of the family for legal

TAXATION II

The beneficiaries of a family home are: (1) The husband and wife, or the head of a family; and (2) Their parents, ascendants, descendants including legally adopted children, brothers and sisters, whether the relationship be legitimate or illegitimate, who are living in the family home and who depend upon the head of the family for legal support. (Art. 154, Ibid) b) Conditions for the allowance of FAMILY HOME as deduction from the gross estate1. The family home must be the actual residential home of the decedent and his family at the time of his death, as certified by the Barangay Captain of the locality where the family home is situated; 2. The total value of the family home must be included as part of the gross estate of the decedent; and 3. Allowable deduction must be in an amount equivalent to the current fair market value of the family home as declared or included in the gross estate, or the extent of the decedent’s interest (whether conjugal/community or exclusive property), whichever is lower, but not exceeding P1,000,000.

Requisites

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ATTY. DEBORAH S. ACOSTA-CAJUSTIN

support.

Family home must be an actual residence and his family, certified by the barangay captain  Total value of the family home must be included as part of the gross estate of the decedent  Allowable deduction must be in an amount equivalent to: o The current FMV of the decedents family home o Extent of the decedent’s interest o Deduction must be exceed P1M Share in the conjugal property Conjugal or Community Property – deducted is equivalent to ½ of the FMV but shall not exceed P1M after deducting the allowable deductions appertaining to the conjugal or community properties included in the gross estate  share of the surviing spouse must be removed to ensure that only the decedent’s share is taxed 

a.  

9. Standard deduction (E) Standard deduction. - A deduction in the amount of One Million Pesos (P1,000,000) shall be allowed as an additional deduction without need of substantiation. The full amount of P1,000,000 shall be allowed as deduction for the benefit of the decedent. The presentation of such deduction in the computation of the net taxable estate of the decedent is properly illustrated in these Regulations -

A deduction in the amount of P1M shall be allowed as an additional deduction without any need of substantiation. The full amount of P1M shall be allowed as deduction for the benefit of the decedent.

10. Tax credit for estate taxes (E) Tax Credit for Estate Taxes paid to a 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

TAXATION II

ATTY. DEBORAH S. ACOSTA-CAJUSTIN

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. 11. Exemption of certain acquisitions Section 87. Exemption of Certain Acquisitions and Transmissions. The following shall not be taxed: (A) The merger of usufruct in the owner of the naked title; (B) The transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the fideicommissary; (C) The transmission from the first heir, legatee or donee in favor of another beneficiary, in accordance with the desire of the predecessor; and (D) All bequests, devises, legacies or transfers to social welfare, cultural and charitable institutions, no part of the net income of which insures to the benefit of any individual: Provided, however, That not more than thirty percent (30%) of the said bequests, devises, legacies or 12. Tax returns a.

Time to file and notice REVENUE REGULATIONS NO. 2-2003 (A) Time for filing estate tax return. – For purposes of determining the estate tax, the estate tax return shall be filed within six (6) months from the decedent’s death. The Court approving the project of partition shall furnish the Commissioner with a certified copy thereof and its order within thirty (30) days after promulgation of such order. (B) Extension of time to file estate tax return. - The Commissioner or any Revenue Officer authorized by him pursuant to the Code shall have authority to grant, in

39

meritorious cases, a reasonable extension, not exceeding thirty (30) days, for filing the return. The application for the extension of time to file the estate tax return must be filed with the Revenue District Office (RDO) where the estate is required to secure its Taxpayer Identification Number (TIN) and file the tax returns of the estate, which RDO, likewise, has jurisdiction over the donor’s tax return required to be filed by any party as a result of the distribution of the assets and liabilities of the decedent. b. Payment of tax REVENUE REGULATIONS NO. 2-2003 (C) Place of filing the return and payment of the tax. – In case of a resident decedent, the administrator or executor shall register the estate of the decedent and secure a new TIN therefor from the Revenue District Office where the decedent was domiciled at the time of his death and shall file the estate tax return and pay the corresponding estate tax with the Accredited Agent Bank (AAB), Revenue District Officer, Collection Officer or duly authorized Treasurer of the city or municipality where the decedent was domiciled at the time of his death, whichever is applicable, following prevailing collection rules and procedures. In case of a non-resident decedent, whether non-resident citizen or non-resident alien, with executor or administrator in the Philippines, the estate tax return shall be filed with and the TIN for the estate shall be secured from the Revenue District Office where such executor or administrator is registered: Provided, however, that in case the executor or administrator is not registered, the estate tax return shall be filed with and the TIN of the estate shall be secured from the Revenue District Office having jurisdiction over the executor or administrator’s legal residence. Nonetheless, in case the non-resident decedent does not have an executor or administrator in the Philippines, the estate tax return shall be filed with and the TIN for the estate shall be secured from the Office of the Commissioner through RDO No. 39 – South Quezon City. The

foregoing

provisions

notwithstanding,

the

TAXATION II

Commissioner of Internal Revenue may continue to exercise his power to allow a different venue/place in the filing of tax returns (D) Time for payment of the estate tax. – As a general rule, the estate tax imposed under the Code shall be paid at the time the return is filed by the executor, administrator or the heirs. (E) Extension of time to pay estate tax. – When the Commissioner finds that the payment of the estate tax or of any part thereof would impose undue hardship upon the estate or any of the heirs, he may extend the time for payment of such tax or any part thereof not to exceed five (5) years in case the estate is settled through the courts, or two (2) years in case the estate is settled extrajudicially. In such case, the amount in respect of which the extension is granted shall be paid on or before the date of the expiration of the period of the extension, and the running of the statute of limitations for deficiency assessment shall be suspended for the period of any such extension. For purposes of these Regulations, the application for extension of time to file the return and extension of time to pay estate tax shall be filed with the Revenue District Officer (RDO) where the estate is required to secure its TIN and file the estate tax return. This application shall be approved by the Commissioner or his duly authorized representative. Where the request for extension is by reason of negligence, intentional disregard of rules and regulations, or fraud on the part of the taxpayer, no extension will be granted by the Commissioner. If an extension is granted, the Commissioner or his duly authorized representative may require the executor, or administrator, or beneficiary, as the case may be, to furnish a bond in such amount, not exceeding double the amount of the tax and with such sureties as the Commissioner deems necessary, conditioned upon the payment of the said tax in accordance with the terms of the extension. Any amount paid after the statutory due date of the tax, but

40

ATTY. DEBORAH S. ACOSTA-CAJUSTIN

within the extension period, shall be subject to interest but not to surcharge. (F) Payment of the estate tax by installment. – In case the available cash of the estate is not sufficient to pay its total estate tax liability, the estate may be allowed to pay the tax by installment and a clearance shall be released only with respect to the property the corresponding/computed tax on which has been paid. There shall, therefore, be as many clearances (Certificates Authorizing Registration) as there are as many properties released because they have been paid for by the installment payments of the estate tax. The computation of the estate tax, however, shall always be on the cumulative amount of the net taxable estate. Any amount paid after the statutory due date of the tax shall be imposed the corresponding applicable penalty thereto. However, if the payment of the tax after the due date is approved by the Commissioner or his duly authorized representative, the imposable penalty thereon shall only be the interest. Nothing in this paragraph, however, prevents the Commissioner from executing enforcement action against the estate after the due date of the estate tax provided that all the applicable laws and required procedures are followed/observed. (G) Liability for payment – The estate tax imposed under the Code shall be paid by the executor or administrator before the delivery of the distributive share in the inheritance to any heir or beneficiary. Where there are two or more executors or administrators, all of them are severally liable for the payment of the tax. The estate tax clearance issued by the Commissioner or the Revenue District Officer (RDO) having jurisdiction over the estate, will serve as the authority to distribute the remaining/distributable properties/share in the inheritance to the heir or beneficiary. The executor or administrator of an estate has the primary obligation to pay the estate tax but the heir or beneficiary has subsidiary liability for the payment of that portion of the estate which his distributive share bears to the value of the total net estate. The extent of his liability, however, shall in no case exceed the value of his share in the inheritance.

TAXATION II c.

Obligations of executor, administrator, officers, others

Section 92. Discharge of Executor or Administrator from Personal Liability. – If the executor or administrator makes a written application to the Commissioner for determination of the amount of the estate tax and discharge from personal liability therefore, the Commissioner (as soon as possible, and in any event within one (1) year after the making of such application, or if the application is made before the return is filed, then within one (1) year after the return is filed, but not after the expiration of the period prescribed for the assessment of the tax in Section 203 shall not notify the executor or administrator of the amount of the tax. The executor or administrator, upon payment of the amount of which he is notified, shall be discharged from personal liability for any deficiency in the tax thereafter found to be due and shall be entitled to a receipt or writing showing such discharge. Section 93. Definition of Deficiency. – As used in this Chapter, the term ‘deficiency’ means: (a) The amount by which the tax imposed by this Chapter exceeds the amount shown as the tax by the executor, administrator or any of the heirs upon his return; but the amounts so shown on the return shall first be increased by the amounts previously assessed (or collected without assessment) as a deficiency and decreased by the amount previously abated, refunded or otherwise repaid in respect of such tax; or (b) If no amount is shown as the tax by the executor, administrator or any of the heirs upon his return, or if no return is made by the executor, administrator, or any heir, then the amount by which the tax exceeds the amounts previously assessed (or collected without assessment) as a deficiency; but such amounts previously assessed or collected without assessment shall first be decreased by the amounts previously abated, refunded or otherwise repaid in respect of such tax.

41

ATTY. DEBORAH S. ACOSTA-CAJUSTIN Section 94. Payment before Delivery by Executor or Administrator. – No judge shall authorize the executor or judicial administrator to deliver a distributive share to any party interested in the estate unless a certification from the Commissioner that the estate tax has been paid is shown. Section 95. Duties of Certain Officers and Debtors. – Registers of Deeds shall not register in the Registry of Property any document transferring real property or real rights therein or any chattel mortgage, by way of gifts inter vivos or mortis causa, legacy or inheritance, unless a certification from the Commissioner that the tax fixed in this Title and actually due thereon had been paid is show, and they shall immediately notify the Commissioner, Regional Director, Revenue District Officer, or Revenue Collection Officer or Treasurer of the city or municipality where their offices are located, of the non payment of the tax discovered by them. Any lawyer, notary public, or any government officer who, by reason of his official duties, intervenes in the preparation or acknowledgment of documents regarding partition or disposal of donation intervivos or mortis causa, legacy or inheritance, shall have the duty of furnishing the Commissioner, Regional Director, Revenue District Officer or Revenue Collection Officer of the place where he may have his principal office, with copies of such documents and any information whatsoever which may facilitate the collection of the aforementioned tax. Neither shall a debtor of the deceased pay his debts to the heirs, legatee, executor or administrator of his creditor, unless the certification of the Commissioner that the tax fixed in this Chapter had been paid is shown; but he may pay the executor or judicial administrator without said certification if the credit is included in the inventory of the estate of the deceased. Section 96. Restitution of Tax Upon Satisfaction of Outstanding Obligations. – If after the payment of the estate tax, new obligations of the decedent shall appear, and the persons interested shall have satisfied them by order of the court, they shall have a right to the restitution of the proportional part of the tax paid. DUTIES OF CERTAIN OFFICERS / DEBTORS

TAXATION II

EXECUTOR OR ADMINISTRATOR JUDGE REGISTER OF DEEDS

LAWYER, NOTARY PUBLIC OR ANY GOVERNMENT OFFICER

DEBTOR

CORPORATION

BANK

42

Must ensure that payment shall be made of the amount of which he is notified before he shall be discharged from personal liablity Will not issue authorization to deliver distributive share until certification of payment is shown Shall not register in the registry of property any document transferring real property or real rights therein without certification from the Commissioner that the tax actually due thereon had been paid intervenes in the preparation or acknowledgment of documents regarding partition or disposal of donation intervivos or mortis causa, legacy or inheritance, shall have the duty of furnishing the Commissioner, Regional Director, Revenue District Officer or Revenue Collection Officer of the place where he may have his principal office, with copies of such documents of the deceased pay his debts to the heirs, legatee, executor or administrator of his creditor, unless the certification of the Commissioner that the tax fixed in this Chapter had been paid is shown; but he may pay the executor or judicial administrator without said certification if the credit is included in the inventory of the estate of the deceased. Will not transfer to new owners of shares, bonds, obligations or rights wihout certification from the Commissioner that the tax actually due thereon had been paid Has knowledge of the death of a person who maintained a joint account, it shall not allow any withdrawal by the surviving depositor without the above certification

ATTY. DEBORAH S. ACOSTA-CAJUSTIN