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TAXATION II ESTATE AND DONORS TAX READ: Pages 209 to 226 of Tax Law and Jurisprudence, 2 nd Ed.

by Vitug and Acosta and the syllabi below. The book stated above is not mandatory but will be used for reference purposes only. ESTATE TAX Overview The Estate Tax is an excise tax on the right of transmitting property at the time of death and on the privilege that a person is given controlling to a certain extent the disposition of his property to take effect upon death. The estate tax applies to: a) citizens of the Philippines; b) residents of the Philippines; and c) non-resident aliens with properties in the Philippines. Right to transmit accrues at the time of death (Article 777 NCC) (Lorenzo v. Posadas)

Article 777 NCC The rights to the succession are transmitted from the moment of the death of the decedent. Lorenzo v. Posadas Facts: Lorenzo, the trustee of the estate of Hanley, wants a refund for what he paid as inheritance tax. Hanley left property for his nephew. Hanley stated that his nephew can only get the property 10 years after Hanleys death. BIR taxed the estate at the time of Hanleys death. Nephew argues that he should be assessed only 10 years after Hanleys death. Issue: 1. When does inheritance tax accrue? 2. What date should the inheritance tax be computed on? Held: 1. The accrual of inheritance tax is distinct from the obligation to pay the same. Whatever may be the time when actual transmission of the inheritance takes place, succession takes place in any event at the moment of the decedents death. The time when the heirs legally succeed to the inheritance may differ from the time when the heirs actually receive such inheritance. Inheritance tax accrued at the time of Hanleys death but the obligation to pay it is not yet due. 2. If death is the generating source from which the power of the state to impose inheritance taxes takes its being and if, upon the death of the decedent, succession takes place and the right of the state to tax vests instantly, the tax should be measured by the value of the estate as it stood at the time of the decedents death, regardless of any subsequent contingency affecting value or any subsequent increase or decrease in value. A transmission by inheritance is taxable at the time of the predecessors death, notwithstanding the postponement of the actual possession or enjoyment of the estate by the beneficiary, and the tax measured by the value of the property transmitted at that time regardless of its appreciation or depreciation.

Where to file domicile rule (see 90 (D)) (BIR Ruling 100-96)

Section 90(D) NIRC (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. BIR Ruling 100-96 Facts: Juan and Domingo are co-owners of a parcel of land in Cavite. Juan died as a resident of Cavite while Domingo died as a resident of Davao. Raymundo, an heir of Juan, paid the estate tax liability of both in Cavite. Raymundo requests for a tax clearance. Issue: Whether payment of estate tax other than where the decedent was domiciled at the time of his death was proper? Held: Estate Tax Clearance has to be issued by the Revenue District Officer of Davao City as there might still be some property registered in the name of the decedent in Davao City where he was domiciled at the time of his death which were not included in the estate tax return filed in the Province of Cavite. In this connection, the RDO of Trece Martirez shall issue a letter to the RDO of Davao confirming that the tax due on the transmission of the estate of the deceased Domingo Salud corresponding to his undivided share in the real property co-owned with Juan Reyes,

and located in Barangay Kaong, Silang Cavite, has been paid.

I.

For future review (Marcos v. CA) BIR Revenue Regulation 2-2003 Gross Estate (Sec. 84 and Sec. 85 NIRC) (Revenue Regulation 17-93)

Section 84 NIRC 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 non-resident 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 tax is: Over But not over The Tax Shall Be Plus Of the Excess Over 200,000 Exempt 200,000 500,000 0 5% 200,000 500,000 2,000,000 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 NIRC 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 non-resident 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) Decedents Interest. xxx (B) Transfer in Contemplation of Death. xxx (C) Revocable Transfer. xxx (D) Property Passing Under General Power of Appointment. xxx (E) Proceeds of Life Insurance. xxx (F) Prior Interests. xxx (G) Transfers for Insufficient Consideration. xxx (H) Capital of the Surviving Spouse. xxx

CITIZENS AND RESIDENTS OF THE PHILIPPINES Real properties within and without Philippines Personal properties within and without Philippines NON-RESIDENT ALIENS Real properties within Philippines Personal properties within Philippines The following properties are considered as personal properties within the Philippines (Sec. 104)
Section 104 NIRC Definitions. xxx 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 xxx

Franchise held in the Philippines Shares, obligations, or bonds of domestic corporations Shares, obligations, or bonds by foreign corporation where 85% of business is in the Philippines or has situs in the Philippines

Intangibles owned by resident

a. Decedents Interest actual or beneficial (BIR Ruling 130-98) (BIR Ruling 103-96) (BIR Ruling 186-81)
BIR Ruling 130-98 Facts: Ricardo gave a lot to Luz, his sister, who was married to Perfecto. The lot was issued to Luz, married to Perfecto. The lot was deemed to be the exclusive property of Luz. Perfecto died. Issue: Whether the lot in question is included in the estate of Perfecto? Held: Since the lot was acquired by Mrs. Luz S. Espiritu during her marriage with Perfecto Espiritu by gratuitous title, the same, having been donated to her alone by her brother, Ricardo C. Samano, in consideration of his love and affection for being the youngest and only sister, shall be considered as the exclusive property of Luz S. Espiritu. Such being the case, the same shall not be deemed a part of the gross estate of the deceased Perfecto Espiritu for estate tax purposes. BIR Ruling 103-96 Facts: Jocson owned a subdivision. He died leaving several lots in the subdivision which are intended for sale to the public. The gross estate included the value of the open spaces and roads in the subdivision for the purpose of computing the estate tax. Issue: Whether open spaces are roads are included in the taxable gross estate? Held: Roads and open spaces which are required by law to be reserved/set aside by the subdivision owners for the common use of the buyers of the subdivision lots and the public in general do not form part of the transmissible properties/interest of the decedent; hence, the value thereof are excluded in determining the taxable properties of the decedent subject to estate tax. Considering that roads and open spaces are for public use they are, in fact, government properties which cannot be transmitted to the heirs by way of succession. Moreover, as represented the value of such roads and open spaces was already factored, or included in the selling price of the lots; hence, all the present and future buyers are considered the common owners thereof. Thus, roads and open spaces in the subdivision area should be excluded from the taxable gross estate of the decedent for estate tax purposes. BIR Ruling 186-81 Facts: Arellano, an architect, who practised his profession with associates and consultants under a single proprietorship, died. During his lifetime, he used the cash basis of accounting in recording his income, so that income already earned but not yet received were not reflected in his income tax returns. In the inventory of the property comprising his estate, these receivables are being considered as part of the gross estate. Arellano is also expecting a tax refund. Issue: 1. Whether the receivables should be part of his gross estate? 2. Whether the expected tax refunds should be part of his gross estate? Held: 1. The receivables shall form part of his gross estate and will not be subject to the 10% withholding tax. 2. The tax refundable for the taxable year prior to his death forms part of his gross estate. The value of a tax refund claim is includible in the decedent's gross estate whether filed by the decedent during his lifetime and unresolved at his death or by the executor after his death. Overwithholding or overpayment of estimated tax in the taxable year ending with decedent's death may also result in a right of recovery which is part of the decedent's gross estate.

b. Transfer in contemplation of death (Vidal de Roces v. Posadas) (Dizon v. Posadas)


Vidal de Roces v. Posadas Facts: Tuazon donated parcels of land to de Roces. The donation was accepted. They took possession, received fruits, and got the TCTs. Tuazon died and she gave P5,000 to each donee. BIR imposed an inheritance tax on the donation and legacy. De Roces argues that donations inter vivos are not included in the additional inheritance tax to be imposed on them. Issue: Whether inter vivos donations are included under all gifts subject to inheritance tax? Held: In tunewithearlier rulingson the sameissue, allgiftsrefers togifts intervivos inasmauchas thelawconsidersthemas advances on inheritance, in the sense that they are gifts inter vivosmadeincontemplationofdeath. In this case, the transmissionswere effected andthen afterless than ayear, the donordied, leavingthe appellantsas legateesin the donors will. It is in this allegationthat there is presumption juris tantum that saiddonationsweremade mortiscausaand as such, are subjectto thepaymentof inheritancetax. Dison v. Posadas Facts:

Don Dison made a donation inter vivos to Luis, his only son, of all his property. Luis did not receive anything upon the death of Don Dison. BIR included the donated properties in the assessment of inheritance tax against Luis. Issue: Whether the gift was subject to an inheritance tax? Held: The transfer of property to Luis was an advancement upon the inheritance which Luis, as the sole and forced heir of Don Dison, would be entitled to receive upon the death of Don Dison. The gift is taxable. When the law says all gifts, it doubtless refers to gifts inter vivos, and not mortis causa. The law presumes that such gifts have been made in anticipation of inheritance, devise, bequest, or gift mortis causa, when the donee, after the death of the donor proves to be his heir, devisee or donee mortis causa, for the purpose of evading the tax, and it is to prevent this that it provides that they shall be added to the resulting amount.

c. Revocable transfers (BIR Ruling 21-98) (Unnumbered BIR Ruling UN-041-1-20-95)


BIR Ruling 21-98 Facts: Mariano and Roy are registered owners of 5 lots. Before the acquisition, both agreed that they would buy the properties in equal shares and Roy will be the trustee. Roy withdrew as a trustee because he never contributed anything to the purchase of the lots. Roy died and Mariano claimed to be the sole owner of the lots. A deed of transfer was made to convey the share of Roy to Mariano without any consideration. The court ordered the exclusion of the subject lots to the estate of Roy. Issue: Whether the deed of transfer is subject to tax? Held: Since the transfer of the portion of 5 lots is without any consideration pursuant to the Deed of Transfer, and that the execution of the Deed of Transfer was approved by the Regional Trial Court, the transfer of the properties to Mariano is not subject to capital gains tax. The transfer is also exempt from the donor's tax due to lack of donative intent on the part of Roy. Unnumbered BIR Ruling UN-041-1-20-95 Facts: Leonora Pascual has established a revocable inter vivos trust and would like to change the manner of holding title to her real properties and securities from LEONORAPASCUALtoLEONORAPASCUAL, trustee (and subsequent trustees), L. F. PASCUAL TRUST. Issue: Whether the change is subject to tax? Held: Considering that there is no actual transfer of ownership over the properties as a result of the transfer thereof to LEONORA F. PASCUAL, Trustee (and subsequent trustees), L.F. PASCUAL TRUST, the said transfer is not subject to the 5% capital gains tax and consequently, not also subject to the expanded creditable withholding tax. It shall be understood in this connection, that property placed in revocable trust is includible in the trustor's gross estate for estate tax purposes. Even if the trustor is incompetent and cannot legally exercise the power of revocation, mere possession at death of the power to revoke shall cause the inclusion of the properties held in trust in the trustor's estate. Accordingly, the creation of a revocable living trust does not directly affect the amount of estate tax payable at the trustor's death.

d. Property under general power of appointment (BIR Ruling 086-95)


BIR Ruling 086-95 Facts: Mendezona entered into a Trust Agreement with FEBTCo involving an amount of 5 million which under the Trust Agreement would be transferred and given to the heirs of Ozamiz upon the death of Ozamiz. Ozamiz died. Issue: Whether the amount under the trust agreement is subject to estate tax. Held: Mendezona is not the decedent and the money subject of the Trust Agreement between Mendezona and FEBTC belongs to him with the condition that the said money will be transferred to the heirs of Ozamiz (the decedent) upon the death of the latter, the same is not part of the gross estate of the decedent; hence, not subject to the estate tax. However, Mendezona is subject to the donor's tax on the transfer of the money he placed in trust to the said heirs upon the death of Ozamiz.

e. Life Insurance (BIR Ruling 87-423) (BIR Ruling 314-87)


BIR Ruling 87-423 Facts: Rolando met an accident and died while working as an x-ray helper. His mother asked if the proceeds of Rolandos life insurance will be included in the valuation in his gross estate. Issue: Whether proceeds of a life insurance are included in the valuation of a decedents gross estate? Held: Proceeds of life insurance form part of the gross estate of the decedent 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. Accordingly, the taxability of insurance proceeds will depend on whether or not the designation of the beneficiary thereof is revocable or irrevocable. Where the designation of the beneficiary is revocable, the proceeds of a life insurance policy form part of the gross estate of the insured upon his death, even if he failed to exercise his right or option to revoke that designation. As part of the estate, said proceeds are subject to the estate tax. On the other hand, if the beneficiary is irrevocably designated, the right to the proceeds of the life insurance policy, upon the death of the insured immediately vests on the beneficiary in which case, said proceeds no longer form part of the gross estate of the deceased. Such being the case, they are not subject to estate tax. BIR Ruling 314-87 Facts: The Knights of Columbus Council is a catholic, family and fraternal organization committed to, among others, the promotion of social and intellectual intercourse among its members and conducts, educational, charitable, religious, social welfare and public relief works in the community. It needs to construct a church in Moonwalk village. It wants to grant donors tax exemption. Issue: Whether voluntary contributions coursed through the council for the construction, completion and maintenance of the church in Moonwalk village be allowed as a deduction from the gross income of the donor? Held: Since the council is organized for religious, charitable, and civic purposes, donations and/or contributions made to or coursed through the council is deductible from the gross income of the donors or contributors to the extent of 6% in the case of individual donors, or 3% in the case of corporate donors of the taxpayer's taxable income as computed without the benefit of this deduction. For this purpose, the receipt issued by the council evidencing the donation shall be sufficient. Moreover, the aforesaid donations/contributions are exempt from gift tax provided not more than 30% of said donations/contributions shall be used for administration purposes, pursuant to Section 104(3) of the same Code.

f. Prior Interest g. Transfer for insufficient consideration h. Capital of surviving spouse Valuation of properties (Sec. 88 NIRC)
Section 88 NIRC 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 the higher of (1) The fair market value as determined by the Commissioner, or (2) The fair market value as shown in the schedule of values fixed by the Provincial and City Assessors.

Real Properties (BIR Ruling 95-98) (Sec. 6 (E) NIRC) (BIR Ruling 103-96)
BIR Ruling 95-98 Facts: Sto. Domingo left several properties. Issue: Whether at what date should the value of the properties be based for computation of estate tax? Held: The estate shall be appraised at its fair market value as of the time of death, or as of six (6) months thereafter, at the election of the executor or administrator. However, the appraised value of real property as of the time of death, or at the election of the executor or administrator, as of six (6) months after death shall either be (a) the current and fair market value as shown in the schedule of values fixed by the Provincial and City Assessor or (b) the fair market value as determined by the Commissioner of Internal Revenue, whichever is higher, and shall be binding upon all concerned for purposes of computing any internal revenue tax based on the value of the property. Sec. 6 (E) NIRC Authority of the Commissioner to Prescribe Real Property Values. The Commissioner is hereby authorized to divide the Philippines into different zones or areas and shall, upon consultation with competent appraiser both from the private and public sectors, determine the fair market value of real properties located in each zone or area. For purposes of computing any internal revenue tax, the value of the property shall be, whichever is the higher of: (1) the fair market value as determined by the Commissioner; or (2) the fair market value as shown in the schedule of values of the Provincial and City Assessors. BIR Ruling 103-96

Facts: Jocson owned a subdivision. He died leaving several lots in the subdivision which are intended for sale to the public. The gross estate included the value of the open spaces and roads in the subdivision for the purpose of computing the estate tax. Issue: Whether open spaces and roads are included in the taxable gross estate? Held: Roads and open spaces which are required by law to be reserved/set aside by the subdivision owners for the common use of the buyers of the subdivision lots and the public in general do not form part of the transmissible properties/interest of the decedent; hence, the value thereof are excluded in determining the taxable properties of the decedent subject to estate tax. Considering that roads and open spaces are for public use they are, in fact, government properties which cannot be transmitted to the heirs by way of succession. Moreover, as represented the value of such roads and open spaces was already factored, or included in the selling price of the lots; hence, all the present and future buyers are considered the common owners thereof. Thus, roads and open spaces in the subdivision area should be excluded from the taxable gross estate of the decedent for estate tax purposes.

Shares of stock (BIR Ruling 11-86)


BIR Ruling 11-86 Facts: Lim Boon Hai left several shares of stock. These shares of stock consisted of 2 suspended, 1 delisted, and 1 with no transaction. Issue: What is the valuation of these shares of stock? Held: For estate tax purposes, the value of every item of property includible in the gross estate is the fair market value thereof at the time of the decedent's death. However, shares of stock which had been either suspended, delisted or where no transactions involving them have been made, shall be valued at their book value nearest the valuation date which in this case, is the date of decedent's death. Said book value shall be prima facie considered as their fair market value. If there have been previous bona fide sales/exchanges of such shares, the price at which such shares exchanged hands should be taken or considered as their fair market value. With respect to the shares which have been insolvent, it shall have zero valuation for estate tax purposes. Should the shares later on appreciate in value and are subsequently sold or disposed, for tax purposes, their cost basis shall be zero.

Receivables (BIR Ruling 186-81)


BIR Ruling 186-81 Facts: Arellano, an architect, who practised his profession with associates and consultants under a single proprietorship, died. During his lifetime, he used the cash basis of accounting in recording his income, so that income already earned but not yet received were not reflected in his income tax returns. In the inventory of the property comprising his estate, these receivables are being considered as part of the gross estate. Arellano is also expecting a tax refund. Issue: 1. Whether the receivables should be part of his gross estate? 2. Whether the expected tax refunds should be part of his gross estate? Held: 1. The receivables shall form part of his gross estate and will not be subject to the 10% withholding tax. 2. The tax refundable for the taxable year prior to his death forms part of his gross estate. The value of a tax refund claim is includible in the decedent's gross estate whether filed by the decedent during his lifetime and unresolved at his death or by the executor after his death. Overwithholding or overpayment of estimated tax in the taxable year ending with decedent's death may also result in a right of recovery which is part of the decedent's gross estate.

Bank deposits (BIR Ruling 60-81)


BIR Ruling 60-81 A letter was sent asking on what is meant by the taxes imposed on joint account deposit under Section 118 of the Tax Code, and what should be reported thereon for estate tax purposes. Issue: What should be reported on a joint account deposit for estate tax purposes? Held: Interest on a deposit account maintained by two persons shall be deemed to be equally owned by them for income tax purposes. The same presumption may likewise apply for estate tax purposes. Accordingly, only half of the balance of the deposit should be reported for estate tax purposes.

II.

Net Estate A. Deduction allowed for Citizens and Residents (BIR Ruling 009-99)

BIR Ruling 009-99 Facts:

A letter was sent requesting for a ruling to the effect that all items enumerated in Section 86(A) of the Tax Code be allowed as deductions from the value of the gross estate of a resident decedent in computing the net estate. Issue: Whether all items enumerated in Section 86(A) are deductible from the gross estate? Held: When the provisions of a law contain an enumeration of things, the enumeration shall be construed in the sense of "mentioned," "indicated," "referred to," or "authorized." The items in Section 86(A) are separate and distinct items, independent of each other. As such, the items in Section 86 (A) are properly authorized by law to be deducted as independent, separate and distinct items of deduction, which may properly be deducted from the gross estate of a resident decedent, subject to the limitations or conditions that are provided for under each said item above.

1. Expenses, Losses, Indebtedness and taxes a. Funeral 5% of gross or 200,000 (De Guzman v. R C Guzman)
De Guzman v. R C Guzman Facts: One of the lots left by the deceased testator was a house and lot granted in favour of 8 children. One of the children was deemed the administrator of the estate. The probate court ordered the administrator to refrain from spending the assets of the estate for reconstructing and remodelling the house of the deceased and to stop spending any asset of the estate without prior authority of the court. However, in the accounting report submitted by the administrator, several expenses were made aside from the remodelling of the house which includes expenses for the 1st death anniversary of the deceased testator. Issue: Whether the expenses are proper? Held: An executor or administrator is allowed the necessary expenses in the care, management, and settlement of the estate. Administration expenses should be those which are necessary for the management of the estate, for protecting it against destruction and deterioration, and possibly, for the production of fruits. They are expenses entailed for the preservation and productivity of the estate and its management for purposes of liquidation, payment of debts, and distribution of the residue among the persons entitled thereto. The probate court erred in allowing as expenses of administration the sum of P268.65 which was incurred during the celebration of the first death anniversary of the deceased. Those expenses are disallowed because they have no connection with the care, management and settlement of the decedents estate. GONZALEZ Read Section 6(A)(1) of RR 2-2003 There are three variations and the value to be chosen must be the lowest of the 3 values. Why? The lower the deduction, the higher the taxable base. The higher the taxable base, the higher the tax rate.

b. Judicial (Vera v. Navarro)


Vera v. Navarro Facts: Judge Tan was appointed as the executor of the estate of Gaches. He moved for an advance payment of allowances, inheritance etc. pending probate of the will. It was eventually granted by the Court. The BIR opposed. Issue: 1. Whether the shares in the assets can be advanced? 2. Who would shoulder the attorneys fees? Held: 1. The distribution of a decedents assets may only be ordered under the following circumstances (1) when the inheritance tax, among others, is paid (2) When a sufficient bond is given to meet the payment of the inheritance tax and all other obligations of the nature enumerated (3) When the payment of the said tax and all the other obligations mentioned in the Rule has been provided for. None of these were present when the questioned orders were issued at the case at bar. 2. With reference to the attorneys fees, the payment thereof is the personal liability of the heirs and not by the estate. The attorneys fees payable were not for the benefit of the estate and this need not be paid by the estate.

c. Claims (De La Vina v. Collector)


De La Vina v. Collector Facts: After the death of Diego, Jose was appointed as an administrator of his estate. Afterwards, the court approved the accounting of administration expenses Jose made as an outgoing administrator. The court allowed the disbursement of expenses paid by Jose. However, the government made a supervening claim for unpaid taxes on the estate. With the present assets held by the estate, it would be insufficient to pay off the unpaid taxes and administration expenses sought by Jose to be disbursed to him. The government tried to get the upper hand but Jose continuously maintained that he is preferred to be paid first than the government. Issue: 1. Whether taxes due to the government considered administration expenses?

2. Whether taxes due to the government have preference over necessary administrative expenses? Held: 1. Income tax on the profits derived by the properties of the estate cannot be considered as administration expenses. the necessary expenses of administration are those which the administrator may have incurred in the care, administration and liquidation of the properties of the estate and the commissions due to him for collections and disbursements which he may have made, and not those which he could or might have wished to make out of his own pocket or out of the funds of the estate. Costs incurred by the administrator in defense of claims against the estate, or in prosecuting claims in favor of it, pertain to the administration, and are to be allowed in full; but costs incurred by claimants in establishing their claims stand on the same footing with the claims themselves. The mere fact, therefore, that the income tax claimed by the BIR had been imposed upon the profits obtained by the administrator of the estate in the sale of certain properties of the deceased Diego, after his death, does not make the said tax a necessary expense of administration, unless the administrator had paid it either from his own pocket or out of the funds of the estate: in the first case the tax paid is converted into an expense of administration which the administrator may fully recover, plus his commission; in the second case, he may only collect his commission, which partakes of the nature of an expense of administration. 2. The claim of an administrator for the necessary expenses of administration enjoys preference over the claim for payment of income tax.

d. Insolvent
GONZALEZ Include the claims first in the gross estate.

e. Unpaid mortgage
GONZALEZ The mortgage must be included in the gross estate as an asset.

2. Property previously taxed (vanishing deduction)


GONZALEZ If died/transferred within 5 years prior to the death of the decedent. A died which transferred properties to B who has an heir C. The provision applies when B dies within 5 years from the death of A. A transferred properties to B who has an heir C. The provision applies when B dies within 5 year from the transfer of property of A. o 100% if B died within 1 year from the donation/succession of A o 80% if B died more than 1 year but not more than 2 years o 60% if B died more than 2 years but not more than 3 years o 40% if B died more than 4 years but not more than 4 years o 20% if B died more than 4 years but not more than 5 years The percentage pertains to the tax paid. If a 1 million property is taxed at 50,000, and B died 2 years and 1 month after the death of A. Then 60% of the 50,000 will be deductible. Basic requirements o Prior decedent o Estate tax of prior decedent has been settled and paid.

3. Transfer for public use 4. Family Home (maximum of 1 million)


GONZALEZ Question: A and B are married. The family home, which is conjugal property, is worth 1 million pesos. B died. What is the amount deductible? Answer: The amount deductible is 500,000. Sec. 8 Rev. Reg. 2-2003 Question: What if the family home is exclusively owned by B? Answer: The amount deductible is the full 1 million. Sec. 8 Rev. Reg. 2-2003 Question: What if the house is conjugal property but the lot where it stands is the exclusive property of B? Answer: The whole lot can be deductible but only of the value of the house must be taken into account. The total value of the lot and the house must still not exceed 1 million. Sec. 8 Rev. Reg 2-2003 Question: Same facts as the first question. A died a few years after the death of B. At the time A died, the value of the property appreciated to 1.5 million pesos. What is the deductible amount of A? Answer: A can deduct 750,000. Art. 777 concerns itself at the time of death regardless of the amount previously deducted. Sec. 8 Rev. Reg. 2-2003

5. Standard Deduction (P1 million) 6. Medical Expenses (Maximum of P500,000) 7. Amount received under RA 4917

B. Non-Resident non-Citizen All of 1-7 above plus tax credits to foreign country III. Exempt Transfer (Sec. 87 NIRC)

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 done in favour 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 inures to the benefit of any individual: Provided, however, That no more than 30% of said bequests, devises, legacies or transfers shall be used by such institutions for administration purposes.

1. First P200,000 2. Merger in usufruct (BIR Ruling 50-84)


BIR Ruling 50-84 Facts: A deed of assignment was made by the husband of Macaria transferring several lots of Macaria, who died, to their children. The estate taxes have already been paid. Issue: Whether the deed of assignment is subject to capital gains tax? Held: No capital gains tax accrued and became collectible on account of the Deed of Assignment because in this case, no taxable sale or transfer of property took place between the assignor and the assignees. The assignor did not part with any property but merely gave to the assignee what rightfully belonged to them as their share in the decedent's estate, the corresponding estate tax on which had already been fully paid.

3. Transmission of fiduciary 4. Donee Institution (Sec. 34 (H) NIRC) (Revenue Regs 13-98)
Section 34 (H) NIRC Charitable and Other Contributions. (1) In General. - Contributions or gifts actually paid or made within the taxable year to, or for the use of the Government of the Philippines or any of its agencies or any political subdivision thereof exclusively for public purposes, or to accredited domestic corporation or associations organized and operated exclusively for religious, charitable, scientific, youth and sports development, cultural or educational purposes or for the rehabilitation of veterans, or to social welfare institutions, or to non-government organizations, in accordance with rules and regulations promulgated by the Secretary of finance, upon recommendation of the Commissioner, no part of the net income of which inures to the benefit of any private stockholder or individual in an amount not in excess of ten percent (10%) in the case of an individual, and five percent (%) in the case of a corporation, of the taxpayer's taxable income derived from trade, business or profession as computed without the benefit of this and the following subparagraphs. (2) Contributions Deductible in Full. - Notwithstanding the provisions of the preceding subparagraph, donations to the following institutions or entities shall be deductible in full; (a) Donations to the Government. - Donations to the Government of the Philippines or to any of its agencies or political subdivisions, including fully-owned government corporations, exclusively to finance, to provide for, or to be used in undertaking priority activities in education, health, youth and sports development, human settlements, science and culture, and in economic development according to a National Priority Plan determined by the National Economic and Development Authority (NEDA), In consultation with appropriate government agencies, including its regional development councils and private philantrophic persons and institutions: Provided, That any donation which is made to the Government or to any of its agencies or political subdivisions not in accordance with the said annual priority plan shall be subject to the limitations prescribed in paragraph (1) of this Subsection; (b) Donations to Certain Foreign Institutions or International Organizations. - Donations to foreign institutions or international organizations which are fully deductible in pursuance of or in compliance with agreements, treaties, or commitments entered into by the Government of the Philippines and the foreign institutions or international organizations or in pursuance of special laws; (c) Donations to Accredited Nongovernment Organizations. - The term "nongovernment organization" means a nonprofitdomestic corporation: (1) Organized and operated exclusively for scientific, research, educational, character-building and youth and sports development, health, social welfare, cultural or charitable purposes, or a combination thereof, no part of the net income of which inures to the benefit of any private individual; (2) Which, not later than the 15th day of the third month after the close of the accredited nongovernment organizations taxable year in which contributions are received, makes utilization directly for the active conduct of the activities constituting the purpose or function for which it is organized and operated, unless an extended period is granted by the

Secretary of Finance in accordance with the rules and regulations to be promulgated, upon recommendation of the Commissioner; (3) The level of administrative expense of which shall, on an annual basis, conform with the rules and regulations to be prescribed by the Secretary of Finance, upon recommendation of the Commissioner, but in no case to exceed thirty percent (30%) of the total expenses; and (4) The assets of which, in the even of dissolution, would be distributed to another nonprofit domestic corporation organized for similar purpose or purposes, or to the state for public purpose, or would be distributed by a court to another organization to be used in such manner as in the judgment of said court shall best accomplish the general purpose for which the dissolved organization was organized. Subject to such terms and conditions as may be prescribed by the Secretary of Finance, the term "utilization" means: (i) Any amount in cash or in kind (including administrative expenses) paid or utilized to accomplish one or more purposes for which the accredited nongovernment organization was created or organized. (ii) Any amount paid to acquire an asset used (or held for use) directly in carrying out one or more purposes for which the accredited nongovernment organization was created or organized. An amount set aside for a specific project which comes within one or more purposes of the accredited nongovernment organization may be treated as a utilization, but only if at the time such amount is set aside, the accredited nongovernment organization has established to the satisfaction of the Commissioner that the amount will be paid for the specific project within a period to be prescribed in rules and regulations to be promulgated by the Secretary of Finance, upon recommendation of the Commissioner, but not to exceed five (5) years, and the project is one which can be better accomplished by setting aside such amount than by immediate payment of funds. (3) Valuation. - The amount of any charitable contribution of property other than money shall be based on the acquisition cost of said property. (4) Proof of Deductions. - Contributions or gifts shall be allowable as deductions only if verified under the rules and regulations prescribed by the Secretary of Finance, upon recommendation of the Commissioner. Revenue Regs 13-98 Missing

5. Family home IV. Procedural Requirements Notice of Death (Sec. 89 NIRC)


Section 89 NIRC 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.

Returns to be filed (Sec. 90 NIRC)


Section 90 NIRC 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 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.

Payment of estate tax (Sec. 91 NIRC) (Ruiz v. CA) (Bond Requirement)


Section 91 NIRC 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 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. Ruiz v. CA Facts: Ruiz left a will and named several heirs. Immediately after his death, the cash component of the estate was distributed to the heirs according to what was provided in the will. Peculiar though since the son never initiated the probate of Ruiz will. In the meanwhile, the house that was allotted to the 3 children was leased by the son. The daughter initiated the probate of the will. The daughter moved for the release of the rental income to the 3 grandchildren. Issue: Whether the release of the titles of the bequeathed properties 6 months after the date of publication is proper? Held: In settlement of estate proceedings, the distribution of the estate properties can only be made: (1) after all the debts, funeral charges, expenses of administration, allowance to the widow, and estate tax have been paid; or (2) before payment of said obligation only if the distributees or any of them gives a bond in a sum fixed by the court conditioned upon the payment of said obligation within such time as the court directs, or when provision is made to meet those obligations. The estate tax is one of those obligations that must be paid before distribution of the estate, and if not paid, the rule requires that the distributees post a bond or make such provisions as to meet the said tax obligation in proportion to their respective shares in the inheritance.

Surcharges (Comm v. Cu Unjieng) (BIR Ruling 46-98)


Commissioner v. Cu Unjieng Facts: Cu Unjieng died leaving properties on which estate and inheritance taxes are imposed. On May 1958 her heirs paid estate tax, and on October 1958, the inheritance tax. On March 1959, BIR informed them of deficiency taxes due and payable on or before April 1959. On March 1959, the heirs requested a grace period to which the commissioner gave them a grace period of 2 years and it should be made in 24 equal monthly instalments with 5% surcharge. The heirs assail the validity of the 5% surcharge. Issue: Whether the imposition of the 5% surcharge with the extension of payment deadline is valid? Held: The 5% surcharge for deficiency payment of the inheritance tax is mandatory and must be imposed regardless of any extension in the payment of the deficiency tax given by the commissioner. The 5% surcharge attaches at the end of the 30 day period reckoned from the day a notice of assessment and demand issued by the Commissioner is received, if the taxpayer fails to pay the deficiency within the said period. Tax Code empowers commissioner to extend the deadline for the payment of death taxes in meritorious cases has no effect on the provision that states that the 5% surcharge shall be collected in addition to the interest prescribed herein and in sections 99 and 100. The power of the BIR to extend the deadline has no modifying effect on the imposition of surcharge. BIR Ruling 46-98 Facts: Toda left properties. The estate is asking that the surcharge and interest be waived due to difficulties encountered in the settlement of the estate. Issue:

Whether the surcharge and interest can be waived by the BIR? Held: The request for waiver of the surcharge on the estate tax due on the transmission of the estate of Toda is granted. However, it is reasonable that the interest must be paid to compensate for the concomitant use of the funds by the estate when it is supposed to have been paid. In this regard, you are requested to pay the basic estate tax and the corresponding interest accruing thereon, if the same has not yet been paid on the date above requested or if the basic estate tax has been paid without the corresponding interest, to pay the interest which has accrued thereon.

V.

Liabilities of Executor and Heirs (Sec. 92 NIRC) (Government v. Pamintuan)

Section 92 NIRC 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 therefor, the Commissioner (as soon as possible, and in any event within 1 year after the making of such application, or if the application is made before the return is filed, then within 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 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. Government v. Pamintuan Facts: Pamintuan, while still alive, was able to pay and file necessary taxes. However, he was not able to pay the income tax for the sale of his house and lot. When he died, partition was made on the property. The proceeding was already closed with everything being distributed to the heirs already. The government recognized the deficiency. It tried to run after the heirs. Issue: Whether the heirs can be made liable for the deficient tax? Held: Heirs are not required to respond with their own property for the debts of their deceased ancestors. But even after the partition of an estate, heirs and distributees are liable individually for the payment of all lawful outstanding claims against the estate in proportion to the amount or value of the property they have respectively received from the estate. Claims for income tax need not be filed with the committee on claims and appraisals appointed in the course of testate proceedings, and the amount thereof may be collected after the distribution of the decedents estate among his heirs, who shall be liable therefore in proportion to their share in the inheritance.

Deficiency (Sec. 93 NIRC)


Section 93 NIRC Definition of Deficiency. - 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 amount 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 amounts 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.

VI.

Government agencies duties (Sec. 94, 95 and 97 NIRC)

Section 94 NIRC 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 NIRC 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 inter vivos 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 97 NIRC 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. 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.

VII.

Special Topics 1. Renunciation of heir of share in the estate (BIR Ruling 455-93) (Unnumbered BIR Ruling 53612-01-98) (Unnumbered BIR Ruling 251-4-23-99)

BIR Ruling 455-93 Facts: An extrajudicial settlement was executed Mrs. Asuncion and her children wherein it is shown that Mrs. Asuncion inherited certain properties from her deceased husband, the late Felipe F. Asuncion; that she, however, renounced her inheritance of the said properties including that of her conjugal share in the properties left by her deceased husband in favor of her first-born grandchildren. Issue: Whether Mrs. Asuncion is liable for any tax? Held: In legal succession, accretion takes place in case of repudiation among heirs of the same degree. This is so because there is no right of representation. The co-heirs in legal succession are co-owners of the inheritance, for which reason there is always a right of accretion among them, unlike in testamentary succession where there may or may not be a right of accretion (Arts. 1018, 977, 967, New Civil Code). However, if the renunciation by an heir or heirs is made in favor of one or more heirs but not all the other heirs, the act of renunciation is in effect an act of disposition inasmuch as the act of disposition and the benefits thereof are not enjoyed by everybody but by one or more heirs (Arts. 1050, 1051, 1016, New Civil Code). GONZALEZ The surviving spouse regarding the issue on his/her conjugal share. If the surviving spouse renounces the share of the conjugal property, it will trigger donors tax. But if the surviving spouse renounces his/her share in the property of his/her deceased spouse via succession, no donors tax will trigger. Unnumbered BIR Ruling 536-12-01-98 Facts: Mamerto had a wife and 6 children. When he died, one of the properties left is a residential lot. This was divided among the heirs by virtue of an extrajudicial settlement. The estate tax and other charges were paid accordingly. Afterwards, a waiver of rights was executed by the mother and 2 children in favor of 2 but not all siblings. Issue: Whether the act is taxable? Held: In legal succession, accretion takes place in case of repudiation among heirs of the same degree. This is so because there is no right of representation. The co-heirs in legal succession are co-owners of the inheritance, for which reason there is always a right of accretion among them, unlike in testamentary succession where there may or may not be a right of accretion. However, if the renunciation by an heir or heirs is made in favor of one or more heirs but not all the other heirs, the act of renunciation is in effect an act of disposition inasmuch as the act of disposition and the benefits thereof are not enjoyed by everybody but only by one or more heirs. Renunciation or waiver by any of the co-heirs in favor of one or more of the co-heirs but not all of the co-heirs, no right of accretion shall take place in favor of the co-heir/s to whom the share in the inheritance was renounced since the act of renunciation shall be treated both as inheritance and donation and the co-heirs to whom the waiver was made shall equally divide the same and shall equally pay the estate tax computed in accordance with Section 77 of the Tax Code of 1997. The corresponding gift tax thereof shall likewise be paid computed in accordance with Section 92 of the same Code; otherwise, the waiver may be considered as if made by any of the co-heirs in favor of all the other co-heirs. (BIR Ruling No. 455-93 dated November 19, 1993) The renunciation in favor of the other co-heirs specifying the areas for each and every co-heir shall be treated as donation and therefore the coheirs to whom the renunciation was made shall pay not only the inheritance/estate tax but also the gift tax in proportion to what they received. Unnumbered BIR Ruling 251-4-23-99 Facts: Oscar died intestate leaving Pacita, surviving spouse, and Jesus, legitimate son, as his sole and compulsory heirs. Pacita and Jesus executed an Extra-Judicial Settlement of Estate wherein the parties agreed to adjudicate the entire Estate of the late Oscar to Jesus with Pacita waiving all her rights and interest therein. Issue: Whether the act is taxable? Held: In legal succession, accretion takes place in case of repudiation among heirs of the same degree. This is so because there is no right of

representation. The co-heirs in legal succession are co-owners of the inheritance, for which reason there is always right of accretion among them, unlike in testamentary succession where there may or may not be a right of accretion. (Arts. 1018, 977, 969, New Civil Code). In the instant case, when Pacita V. Villa waived her share in the inheritance in favor of the legitimate son, Jesus S. Villa, accretion had effectively took place in the latter's favor and the renounced share was added or incorporated to his share. Undoubtedly, when the surviving spouse renounced her share in the inheritance, she did not donate the property which had never became hers. Such being the case, the renunciation is not subject to donors tax imposed under Section 98 of the Tax Code. GONZALEZ If there is a document stating I, Y, renounce my share to X. The only heirs are X and Y. Is there a donation on the part of Y? Is it a specific or general waiver? It is a general waiver which means it is not a donation. There are only 2 heirs and the waiver, despite being specific, pertains to the only other heir. Read BIR Ruling 56-106.

2. Creation of an unregistered partnership (Ona v. Comm) (BIR Ruling 102-87)


Ona v. Commissioner
It is but logical that in cases of inheritance, there should be a period when the heirs can be considered as co-owners rather than unregistered co-partners within the contemplation of our corporate tax laws aforementioned. Before the partition and distribution of the estate of the deceased, all the income thereof does belong commonly to all the heirs, obviously, without them becoming thereby unregistered co-partners, but it does not necessarily follow that such status as co-owners continues until the inheritance is actually and physically distributed among the heirs, for it is easily conceivable that after knowing their respective shares in the partition, they might decide to continue holding said shares under the common management of the administrator or executor or of anyone chosen by them and engage in business on that basis. Withal, if this were to be allowed, it would be the easiest thing for heirs in any inheritance to circumvent and render meaningless Sections 24 and 84(b) of the National Internal Revenue Code. The income derived from inherited properties may be considered as individual income of the respective heirs only so long as the inheritance or estate is not distributed or, at least, partitioned, but the moment their respective known shares are used as part of the common assets of the heirs to be used in making profits, it is but proper that the income of such shares should be considered as the part of the taxable income of an unregistered partnership. BIR Ruling 102-87

For tax purposes, the co-ownership of inherited properties is automatically converted into an unregistered partnership the moment the said common properties and/or the incomes derived therefrom are used as a common fund with intent to produce profits for the heirs in proportion to their respective shares in the inheritance as determined in a project partition either duly executed in an extrajudicial settlement or approved by the court in the corresponding testate or intestate proceeding. The reason for this is simple. From the moment of such partition, the heirs are entitled already to their respective definite shares of the estate and the income thereof, for each of them to manage and dispose of an exclusively his own without the intervention of the other heirs, and, accordingly, he becomes liable individually for all taxes in connection therewith. If after such partition, he allows his share to be held in common with his co-heirs under a single management to be used with the intent of making profit thereby in proportion to his share, there can be no doubt that, even if no document or instrument were executed for the purpose, for tax purposes, at least, an unregistered partnership is formed.

3. Partition of estate individually among heirs (BIR Ruling 258-91)


BIR Ruling 258-91 On the other hand, under Article 1082 of the Civil Code, every act which is intended to put an end to indivision among co-heirs and legatees and devises is deemed to be a partition, although it should purport to be a sale, an exchange, a compromise, or any other transaction. Moreover, under Article 1086 of the Civil Code, should a thing be indivisible, or would be much impaired by its being divided it may be adjudicated to one of the heirs, provided he shall pay the others the excess in cash. From the foregoing, it is clear therefore, that, in the instant case, A and D, are not subject to the 5% capital gains tax imposed under the aforecited provision of Section 21 (e) of the Tax Code, as amended, considering that there was neither a sale, exchange nor disposition of real property on their part, but a partition of the estate of their parents wherein both of them agreed to receive the cash equivalent of their respective shares in the estate of their parents.

4. Extension of time to file estate tax return (BIR Ruling 66-98)


(a) For the purpose of determining the estate tax provided for in Section 84 of the Tax Code, the estate tax return shall be filed within six (6) months from the decedent's death. (Section 90(B) of the Tax Code) Moreover, the Commissioner of Internal Revenue shall have the authority to grant, in meritorious cases, a reasonable extension not exceeding thirty days for filing the return. (Section 90(C) of the Tax Code) Accordingly, in view of the aforesaid justifiable reasons, your request for an extension of thirty (30) days from April 15, 1998 to May 15, 1998 within which to file the estate tax return is hereby granted. (b) The estate tax imposed by Section 84 of the Tax Code shall be paid at the time the return is filed by the executor, administrator, or the heirs. (Sec. 91(A) of the Tax Code) Moreover, when the Commissioner of Internal Revenue 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 years, in case the estate is settled through the courts, or two 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 limitation for assessment as provided in Section 203 of the Tax Code of 1997 shall be suspended for the period of any such extension. (Section 91(B) of the Tax Code)

Gatchalian v. CIR
Gatchalian v. CIR There is no doubt that if the plaintiffs merely formed a community of property the latter is exempt from the payment of income tax under the law. But according to the stipulation facts the plaintiffs organized a partnership of a civil nature because each of them put up money to buy a sweepstakes ticket for the sole purpose of dividing equally the prize which they may win, as they did in fact in the amount of P50,000 (article 1665, Civil Code). The partnership was not only formed, but upon the organization thereof and the winning of the prize, Jose Gatchalian personally appeared in the office of the Philippines Charity Sweepstakes, in his capacity as co-partner, as such collection the prize, the office issued the check for P50,000 in favor of Jose Gatchalian and company, and the said partner, in the same capacity, collected the said check. All these circumstances repel the idea that the plaintiffs organized and formed a community of property only. Having organized and constituted a partnership of a civil nature, the said entity is the one bound to pay the income tax which the defendant collected under the aforesaid section 10 (a) of Act No. 2833, as amended by section 2 of Act No. 3761. There is no merit in plaintiff's contention that the tax should be prorated among them and paid individually, resulting in their exemption from the tax.

Pascual v. CIR
Pascual v. CIR In the present case, there is no evidence that petitioners entered into an agreement to contribute money, property or industry to a common fund, and that they intended to divide the profits among themselves. Respondent commissioner and/ or his representative just assumed these conditions to be present on the basis of the fact that petitioners purchased certain parcels of land and became co-owners thereof. In Evangelista, there was a series of transactions where petitioners purchased twenty-four (24) lots showing that the purpose was not limited to the conservation or preservation of the common fund or even the properties acquired by them. The character of habituality peculiar to business transactions engaged in for the purpose of gain was present. In the instant case, petitioners bought two (2) parcels of land in 1965. They did not sell the same nor make any improvements thereon. In 1966, they bought another three (3) parcels of land from one seller. It was only 1968 when they sold the two (2) parcels of land after which they did not make any additional or new purchase. The remaining three (3) parcels were sold by them in 1970. The transactions were isolated. The character of habituality peculiar to business transactions for the purpose of gain was not present.

Obillos v. CIR
As testified by Jose Obillos, Jr., they had no such intention. They were co-owners pure and simple. To consider them as partners would obliterate the distinction between a co-ownership and a partnership. The petitioners were not engaged in any joint venture by reason of that isolated transaction. Their original purpose was to divide the lots for residential purposes. If later on they found it not feasible to build their residences on the lots because of the high cost of construction, then they had no choice but to resell the same to dissolve the co-ownership. The division of the profit was merely incidental to the dissolution of the co-ownership which was in the nature of things a temporary state. It had to be terminated sooner or later. Castan Tobeas says: Article 1769(3) of the Civil Code provides that "the sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing them have a joint or common right or interest in any property from which the returns are derived". There must be an unmistakable intention to form a partnership or joint venture. Such intent was present in Gatchalian vs. Collector of Internal Revenue, 67 Phil. 666, where 15 persons contributed small amounts to purchase a two-peso sweepstakes ticket with the agreement that they would divide the prize The ticket won the third prize of P50,000. The 15 persons were held liable for income tax as an unregistered partnership.

DONORS TAX Donors Tax (Sec. 98 NIRC) (Donation Article 725, 734, 749 Civil Code of the Philippines)
Section 98 NIRC Imposition of Tax. (A) There shall be levied, assessed, collected and paid upon the transfer by any person, resident or nonresident, of the property by gift, a tax, computed as provided in Section 99. (B) The tax shall apply whether the transfer is in trust or otherwise, whether the gift is direct or indirect, and whether the property is real or personal, tangible or intangible. Article 725 Civil Code Donation is an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another, who accepts it. Article 734 Civil Code The donation is perfected from the moment the donor knows of the acceptance by the donee.

Article 749 Civil Code In order that the donation of an immovable may be valid, it must be made in a public document, specifying therein the property donated and the value of the charges which the donee must satisfy. The acceptance may be made in the same deed of donation or in a separate public document, but it shall not take effect unless it is done during the lifetime of the donor. If the acceptance is made in a separate instrument, the donor shall be notified thereof in an authentic form, and this step shall be noted in both instruments.

What is donors tax? o A tax on the privilege of transmitting ones property or property rights to another or others without adequate and full valuable consideration. It is an act of liberality. (Tuason v. CIR)

Tuason v. CIR ??? GONZALEZ Period of assessment (prescription): 3 years. Read BF Goodrich v. CIR What do you mean by liberality? Should there be anything that the donor will get back? No. If you gave a friend 50 pesos. Is it a donation? Yes. If you gave a friend 50 pesos with interest. Is it a donation? No.

What it should not mean (Dison v. Posadas) (Roces v. Posadas) (BIR Ruling 076-89)

Dison v. Posadas Facts: Don Dison made a donation inter vivos to Luis, his only son, of all his property. Luis did not receive anything upon the death of Don Dison. BIR included the donated properties in the assessment of inheritance tax against Luis. Issue: Whether the gift was subject to an inheritance tax? Held: The transfer of property to Luis was an advancement upon the inheritance which Luis, as the sole and forced heir of Don Dison, would be entitled to receive upon the death of Don Dison. The gift is taxable. When the law says all gifts, it doubtless refers to gifts inter vivos, and not mortis causa. The law presumes that such gifts have been made in anticipation of inheritance, devise, bequest, or gift mortis causa, when the donee, after the death of the donor proves to be his heir, devisee or donee mortis causa, for the purpose of evading the tax, and it is to prevent this that it provides that they shall be added to the resulting amount. GONZALEZ Dison v. Posadas not a donation because it took effect after the death of the decedent. Vidal de Roces v. Posadas Facts: Tuazon donated parcels of land to de Roces. The donation was accepted. They took possession, received fruits, and got the TCTs. Tuazon died and she gave P5,000 to each donee. BIR imposed an inheritance tax on the donation and legacy. De Roces argues that donations inter vivos are not included in the additional inheritance tax to be imposed on them. Issue: Whether inter vivos donations are included under all gifts subject to inheritance tax? Held: In tunewithearlier rulingson the same issue, allgifts refers togifts intervivos inasmauchasthelawconsidersthemas advancesmadeincontemplationofdeath. In this case, the transmissionswereeffectedand thenafter less thana year, the donor died, leaving the appellants as legatees in the donors will. It is in this allegation that there ispresumption juris tantum that saiddonationsweremade mortiscausaandassuch,aresubjecttothepaymentofinheritancetax. Donation does not mean: Gifts inter vivos, the transmission of which take effect immediately or during the lifetime of the donor, but are made in consideration of death. BIR Ruling 076-89 Facts: GMPI is owned by GM-US 60% and IZUZU 40%. GMPI is deemed insolvent. It has several liabilities. GM-US agreed to transfer its 60% shares to IZUZU subject to certain conditions. In the agreement, the clean-up would entail the waiver of the banks interest due to them. Issue: Whether the bank's waiver of accrued interest on the non-trade and trade related indebtedness of GMPI and GM-US condonation or forgiveness of GMPI's non-trade related indebtedness are not subject to income tax nor to gift tax?

Held: Banks waiver is not subject to tax. Cancellation and forgiveness of indebtedness may amount to a payment of income, to a gift, or to a capital transaction, dependent upon the circumstances. If for example, an individual performs services for a creditor who, in consideration thereof cancels the debt, income to that amount is realized by the debtor as compensation for his services. If, however, a creditor merely desires to benefit a debtor and without any consideration therefor cancels the debt, the amount of the debt is a gift from the creditor to the debtor and need not be included in the latter's gross income. The condonation is likewise not subject to gift tax since there is no donative interest on the part of GM-US but solely for business consideration since Isuzu will only acquire the GMPI shares from GM-US if GMPI has a "clean" balance sheet with no outstanding liabilities except those to Isuzu. GONZALEZ There may look like a donation but the act was accompanied by a business consideration. Ergo, no donation. No income for an insolvent company despite condonation because it is already in the negative state.

Rules Gifts by employers to employees Gifts by corporation to shareholders


GONZALEZ When company gives its shareholders gifts. Is it subject to tax? Normally not subject to donors tax.

Corporate sponsorship (BIR Ruling 03-80)


BIR Ruling 03-80 Facts: Wack Wack Golf and Country Club has Corporate Hole Sponsorship Scheme in which it will solicit several companies 200k or 250k per hole. Hole will be named after the company and they will be allowed to advertise around the area. Issue: Whether the payments made by the paying corporations to Wack Wack are deductible? Held: The payments to be made by the paying corporations constitute advertising and business promotion costs. They are included in business expenses; hence deductible from gross income. The paying corporation is not subject to the donor's gift tax or to any tax liability, since its payment does not constitute a gift to that Club. GONZALEZ Not a donation but advertising expense. It only looks like a donation. Like the BF Goodrich case. If you donate something to an entity, what is the limitation? If corporation 5%, if individual 10%. Apply the rate on the taxable income without the benefit of deduction.

Bonus plus additional compensation (Unnumbered BIR Ruling 060-2-5-99)


Unnumbered BIR Ruling 060-2-5-99 Facts: IMA Phil is a branch office of IMA. IMA Phil is internationally funded specifically from USAID and from various donations around the world which includes the countries where it has its local offices or headquarters. The grant coming from USAID and donations locally are being used to finance the project which IMA, Phil regularly undertakes. IMA Phils local officers and employees in the Philippines solicit donations from various individuals and NGOs abroad which are being coursed through IMA, Phil and IMA Mass. and are being released in the form of allowances which include diving gears, transportation, living quarters, meal allowances and other facilities which are relatively of small value. The said facilities are being furnished and utilized by the said employees and officers in order to pursue the object for which IMA, Phils. was organized. Issue: Whether "compensation and allowances" which are being allotted and paid to the local officers and employees directly from donations abroad through IMA, Mass. are exempt from Philippine income tax and consequently from the withholding tax? Held: In reply, since the monthly financial support are not compensation and/or salary per se, but donations made by individuals and NGOs in the U.S.A. specifically to sustain the purpose for which IMA was organized and from which the officers and employees receive such kind of benefits to sustain them to such endeavors, said financial support are not subject to income tax. However, the net gift or donation to each and every local officer and employee by each and every individual donor shall be subject to donors tax.

Contributions to political campaigns (Abello v. CIR)


Abello v. CIR Facts: Petitioners, who were all partners of the ACCRA law firm, during the election period, made contributions to the campaign of Senator Angara.

The Commissioner then assessed each one of them for the payment of donors tax. They didnt want to pay and maintained that electoral contributions are not donations and thus, cannot be subjected to donors tax. However, their claim was denied by the commissioner. Issue: Whether the partners are liable for donors tax? Held: Donation has the following elements: (a) the reduction of the patrimony of the donor; (b) the increase in the patrimony of the donee; and, (c) the intent to do an act of liberality or animus donandi. The present case falls squarely within the definition of a donation. Abello, Concepcion, Regala, and Cruz each gave 800k to the campaign funds of Angara without any material consideration. All three elements of a donation are present. The patrimony of the 4 petitioners were reduced by 800k. Angaras patrimony increased 3.2 million. There was an intent to do an act of liberality or animus donandi was present since each of the petitioners gave their contributions without and consideration. The petitioners argue that there is a distinction between a political donation and a gift by pointing that the consideration for a gift is the liberality of the donor, while the consideration for a political contribution is the desire of the giver to influence the result of an election by supporting candidates who, in the perception of the giver, would influence the shaping of government policies that would promote the general welfare and economic well-being of the electorate, including the giver himself. The argument is untenable. The fact that petitioners will somehow in the future benefit from the election of the candidate to whom they contribute, in no way amounts to a valuable material consideration so as to remove political contributions from the purview of a donations. Angara has no obligation to benefit the petitioners. The purpose for which the sums of money were given, which was to fund the campaign of Angara in his bid for a senatorial seat, cannot be considered as material consideration so as to negate a donation.

Who are liable Citizen and residents See discussion in estate tax Non Resident alien See discussion in estate tax Rates payable Who is subject to graduated rates plus who is a stranger? (Sec. 99 (B))
Section 99 (B) NIRC Tax Payable by Donor if Donee is a Stranger. - When the donee or beneficiary is stranger, the tax payable by the donor shall be thirty percent (30%) of the net gifts. For the purpose of this tax, a "stranger", is a person who is not a: (1) Brother, sister (whether by whole or half-blood), spouse, ancestor and lineal descendant; or (2) Relative by consanguinity in the collateral line within the fourth degree of relationship.

1. Treatment of sons in laws and parent in law (BIR Ruling 159-89)


BIR Ruling 159-89 Facts: Spouses Gumersindo and Virginia made and executed a Deed of Donation in favor of the Spouses Ildefonso where they donated their real property. The donees are the parents of one of the donors, Virginia. The donors paid the gift tax. However, BIR considered the donees as strangers which means the donors have a deficiency in payment of tax. Issue: Whether a son-in-law or a parent-in-law is deemed a stranger? A relative by affinity like parents-in-law are not included in the enumeration of those not considered as strangers. "Expressio unius est exclusio alterius." GONZALEZ A corporation donates to its subsidiary. That subsidiary is 100% owned by the corporation. Is it deemed a donation to relative? No. A corporation is an artificial being, it cannot have relatives. Computation on cumulative donation: tax due less tax previously paid within the taxable year is the taxable amount. If you donate to ateneo, is it exempt? Yes. If you donate to Office of the VP and VP Binay, which one is exempt? There is a difference between the seat of the VP and the VP himself. If it is a donation is to an office, it is not subject to donors tax. The donation to the person sitting in the office is subject to donors tax.

Donation of conjugal property (Tong Ho v. Board of Tax Appeals)


Tong Ho v. Board of Tax Appeals Facts: LiSengGiapandhiswifeTangHowerethestockholderstogetherwiththeir13childrenoftwofamily corporations. Aperusalof thecorporaterecordswould reflect investments by the children inshares. Theywereassessedfordonorstaxbythe Commissioner, allegingthesewereundeclaredgifts.Bywayofdefense, they submitted donorsanddoneestax returns, reflecting donations inter vivosmadeeachyeartothechildren;thatthechildrenwhomarriedweregivendowries. The spouses admitted that the gifts were unreported but they alleged that the same camefromconjugalfundsandthusshould be considered asindividual

contributionsbyeachofthespouses. Issue: Whether the donation of the conjugal property be taxed on both spouses? Held: It is not enoughthatthepropertydonatedshouldbelong to theconjugalpartnershipinorderthatthedonationbeconsideredand taxedasadonationofbothhusbandandwife,evenif the husband should appear as the sole donor. There is no blinking the fact that,under theoldCivilCode, tobe adonationbyboth spouses, taxable toboth, thewifemustexpressly join the husbandinmakingthegift;herparticipationthereincannotbeimplied. GONZALEZ How to lessen donors tax: spouses half the donation and donate it separately. It would have an effect of a lower tax base. Thus, each spouse would fall under a lower tax bracket. Example: instead of donating 1 million from the conjugal assets of A and B. A and B would donate 500k separately. If wife does not consent: taxable to husband alone despite character of the property.

Donation Mortis Causa (BIR Ruling 204-81) (BIR Ruling 081-98)


BIR Ruling 204-81 In reply thereto, please be informed that since the above-named transaction is a donation mortis causa, the tax exemption provisions of Section 123(a)(3) of the Tax Code does not apply. Since said donation is in contemplation of death, the donated party forms part of the gross estate of the deceased subject to the estate tax prescribed in Section 99, in relation to Section 100(b), of the Tax Code, as amended by Section 16 of Presidential Decree No. 1705. Accordingly, for purposes of effecting the registration of the deed of donation with the Register of Deeds of Quezon City, it is necessary that an estate tax return be filed pursuant to Section 105 of the Tax Code, declaring therein as part of the gross estate of the decedent, the fair market value of the donated property, and the estate tax due, if any, paid, in accordance with Section 107 of the Tax Code, as amended. BIR Ruling 081-98 All property, real or personal, . . . (b) 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 his death, . . . or (c) to the extent of any interest therein, of which the decedent has at any time made transfer (except in case of bona fide sale . . .) by trust or otherwise, where the enjoyment thereof was subject at the date of his death to any change through the exercise of power by the decedent alone . . . to alter, amend, revoke or terminate, or where any such power is relinquished in contemplation of the decedent's death . . .", are included in determining the value of the gross estate of the decedent. (Emphasis supplied.) Parallel to the above provision is Article 728 of the New Civil Code stating that donations which are to take effect upon the death of the donor partake of the nature of testamentary provisions. Accordingly, the donations/gifts made by you in favor of your sister, Marijo B. Cario, which are "intended to take effect upon the death of the donor" partake of the nature of testamentary provisions and the same shall remain part of the donor decedent's gross estate at the time of his/her death even if the same have been donated in favor of the donee. Therefore, the aforestated provisions relative to the imposition of estate tax on transfers in contemplation of death shall apply in this case. Such being the case, the instant donation/gifts are exempt from the donor's (gift) tax imposed under Section 91 of the Tax Code, as amended, (Section 98 of the Tax Code of 1997) hence, your request for exemption is hereby granted. GONZALEZ The case is not subject to gift tax for being mortis causa or transfer in contemplation of death but will be included in the gross estate that shall be subject to estate tax.

2. Contributions to political campaigns (CIR v. Abello)


CIR v. Abello missing

3. Donation by spouses (Tang Ho v. Board of Tax Appeals)


Tong Ho v. Board of Tax Appeals Facts: LiSengGiapandhiswifeTangHowerethestockholderstogetherwiththeir13childrenoftwofamily corporations. Aperusalof thecorporaterecordswould reflect investments by the children inshares. Theywereassessedfordonorstaxbythe Commissioner, allegingthesewereundeclaredgifts.Bywayofdefense, they submitted donorsanddoneestax returns, reflecting donations inter vivosmadeeachyeartothechildren;thatthechildrenwhomarriedweregivendowries. The spouses admitted that the gifts were unreported but they alleged that the same camefromconjugalfundsandthusshould be considered asindividual contributionsbyeachofthespouses. Issue: Whether the donation of the conjugal property be taxed on both spouses?

Held: It is not enoughthatthepropertydonatedshouldbelong to theconjugalpartnershipinorderthatthedonationbeconsideredand taxedasadonationofbothhusbandandwife,evenif the husband should appear as the sole donor. There is no blinking the fact that,under theoldCivilCode, tobe adonationbyboth spouses, taxable toboth, thewifemustexpressly join the husbandinmakingthegift;herparticipationthereincannotbeimplied.

Exemptions Residents 1. P100,000 Sec 99(A) 2. Donations Propter Nuptias Only to their legitimate, recognized natural, adopted children for the first 10,000 but not son or daughter in law (see above) 3. Gifts to National Government (BIR Ruling 67-98) (100-98) (see special topics)
BIR Ruling 67-98 Conversely, an agricultural lessee does not assume, whether directly or indirectly, the payment of any taxes or part thereof levied by the government. "SEC. 66. Exemptions from Taxes and Fees of land Transfers. Transactions under this Act involving a transfer of ownership, whether from natural or juridical persons, shall be exempted from taxes arising from capital gains. These transactions shall also be exempted from the payment of registration fees, and all other taxes and fees for the conveyance or transfer thereof; Provided, That all arrearages in real property taxes, without penalty and interest, shall be deductible from the compensation to which the owner may be entitled." In view of the foregoing, this Office is of the opinion as it hereby holds that the execution of a Deed of Absolute Sale over a portion of an agricultural land falling under the coverage of the agrarian reform program by vendee Elvira Sales in favor of agricultural lesseesredemptioneers, Graciano Solomon and Maximino Solomon in pursuance to the DARAB's decision upholding the latter's right to redeem under R.A. 3844, is exempt from capital gains tax and other taxes under Section 66 of R.A. 6657 since the transfer was made during the effectivity of the aforesaid CARL. BIR Ruling 100-98 In reply, please be informed that pursuant to Section 66 of R.A 6657, otherwise known as the "Comprehensive Agrarian Reform Law of 1988", transactions involving a transfer of ownership, like in the instant case, shall be exempted from the payment of registration fees, and other taxes for the conveyance or transfer thereof. Applying the foregoing provision, the donation of homelots to the tenant-beneficiaries of the comprehensive agrarian reform program are therefore exempt from all taxes and fees being imposed in connection therewith. Accordingly, pursuant to Section 66 of R.A. 6657, in relation to Section 65 of the Act, donations of homelots, including replacement houses built on the relocated site, made by Science Park of the Philippine, Inc. in favor of the tenants/farm workers are exempt from donor's tax imposed under Section 91 of the Tax code, as amended (now Section 98 of the Tax Code of 1997).

4. Gifts to educational and/or charitable organization (BIR Ruling 42-80) (101-80)


BIR Ruling 42-80 In reply, I have the honor to inform you that under the foregoing facts, it is the opinion of this Office that your client, "for compensation or profits, sells or brings about sales or purchases of merchandise for other persons;" hence, it is a commercial broker within the purview of Section 187(t) of the Tax Code of 1977, as amended. Accordingly, your client is subject to the fixed tax of P1,000.00 prescribed in Section 192(3)(bb) of the Tax Code of 1977, as amended, and to the 6% broker's tax based on its gross compensation consisting of 15% of the selling price, pursuant to Section 208 of the same Code. BIR Ruling 101-80 In reply, please be informed that since the aforesaid donation is being made to a cultural organization, the same is exempt from the donor's gift tax, pursuant to Section 123(a)(3) of the Tax Code of 1977, as amended. Moreover, since CCP is a non-municipal public corporation (Sec. 3, P.D. No. 15, as amended by P.D. No. 1444), it is a government agency. Accordingly, donations of members of the British Community to the CCP shall be deductible in full from the gross income of said members for income tax purposes, if said donations are given exclusively to finance, to provide for, or to be used in undertaking priority activities in culture

according to a national priority plan to be determined by the NEDA. In case any such donation to CCP is not in accordance with the said annual priority plan, the same shall be subject to the 6% limitation prescribed in Section 30(h)(1) of the Tax Code. (Section 30(h)(2)(A) of the Tax Code of 1977, as amended by Batas Pambansa Blg. 45).

Non-residents not a citizen 1. Gifts to National Government (see above) 2. Gifts to educational/charitable organization (see above)

Credits for Donors Taxes Paid to foreign country 1. General 2. Limitation

Filing of Returns Sec 103 NIRC o Information required, when payable

Sec 103 NIRC Filing of Return and Payment of Tax. (A) Requirements. Any individual who makes any transfer by gift (except those which, under section 101, are exempt from the tax provided for in this Chapter) shall, for the purpose of the said tax, make a return under oath in duplicate. The return shall set forth: (1) Each gift made during the calendar year which is to be included in computing net gifts; (2) The deductions claimed and allowable; (3) Any previous net gifts made during the same calendar year (4) The name of the donee; and (5) Such further information as may be required by rules and regulations made pursuant to law. (B) Time and Place of Filing and Payment. The return of the donor required in the Section shall be filed within 30 days after the date the gift is made and the tax due thereon shall be paid at the time of filing. Except in cases where the Commissioner otherwise permits, the return shall be filed and the tax paid to an authorized agent bank, the Revenue District Officer, Revenue Collection Officer or duly authorized Treasurer of the city or municipality where the donor was domiciled at the time of the transfer, or if there be no legal residence in the Philippines, with the Office of the Commissioner. In the case of gifts made by a non-resident, the return may be filed with the Philippines Embassy or Consulate in the country where he is domiciled at the time of the transfer, or directly with the Office of the Commissioner. GONZALEZ 30 days after gift means 30 days after the donor knows of the acceptance.

Special topics Termination of trust (BIR Ruling 085-82)


BIR Ruling 085-82 In reply, please be informed that inasmuch as the "Deed of Transfer of Trust" actually involved the termination of the Trust when the DoneeBeneficiary attained the age of twenty-five (25), no capital gains was realized nor loss incurred on the subsequent transfer of the title to the property from the Trustee to the Donee-Beneficiary. Accordingly, no capital gains tax, as imposed under Section 34(h) of the Tax Code, as amended by Batas Pambansa No. 37, is due from the Trustee under these particular circumstances. GONZALEZ Take note that there is payment of donors tax involved upon institution of trust. The ruling stated that not capital gains tax is imposed.

Income tax exempt organization (BIR Ruling 107-82)


BIR Ruling 107-82 The organization is a fraternal, charitable and beneficiary Society in the form of a private non-stock corporation. Under Section 123(a)(3) of the Tax Code, gifts in favor of an educational and/or charitable, religious, cultural or social welfare corporation, institution, foundation, trust or philanthropic organization or research institution or organization, are exempt from the donor's gift tax. Under this provision, the donee organization must be organized solely for either one of said purposes, or a combination thereof. In the case of said organization, while it is engaged for charitable purposes, it is also engaged for fraternal and beneficiary purposes which are not within the purview of said tax exemption provision. Accordingly, net gifts to the said organization exceeding P1,000 are subject to the donor's gift tax imposed by Section 121 of the Tax Code.

Neither can the donors to the said organization claim full deduction of their donations for income tax purposes. Under Section 30(h) of the Tax Code, as amended by Batas Pambansa Blg. 45, only those donations to non-profit domestic corporation which are organized and operated exclusively for scientific, research, educational, character-building and youth and sports development, health, social welfare, cultural or charitable purposes, or a combination thereof, no part of the net income of which inures to the benefit of any private individual, can be claimed for full deduction. As heretofore stated, the above-named organization is not organized solely for charitable purposes or a combination of the purposes enumerated in Section 34(h), as amended by Batas Pambansa Blg. 45. Finally, the donors cannot claim the donations to the above-named organization as deduction to an amount not exceeding 6%, in the case of an individual, or 3% in the case of a corporation, for the reason that the donee organization is not organized or operated exclusively for religious, charitable, scientific, youth and sports development, cultural or educational purposes or for the rehabilitation of veterans; and it is not a social welfare institution. [Sec. 30(h)(l), Tax Code] It is understood that the aforesaid organization is exempt from income tax in respect to income derived by it as a fraternal, charitable and beneficiary society and, therefore, need not file an income tax return concerning such income. [Sec. 27(c) and (e), Tax Code]. However, the income of whatever kind and character of said organization from any of its properties, real or personal, or from any of its activities conducted for profit, regardless of the disposition made of such income shall be subject to internal revenue taxes. (Sec. 27, Tax Code, as amended by P.D. No. 1457). Moreover, it is required to file on or before April 15 of each year a profit and loss statement and balance sheet with the annual information return under oath, stating its gross income and expenses incurred during the year and a certificate showing that there has not been any change in its By-Laws, Articles of Incorporation, manner of operation and activities as well as sources and disposition of income.

Dissolution of conjugal partnership (BIR Ruling 220-83)


BIR Ruling 220-83 In reply, I have the honor to inform you that no donor's tax accrued and became collectible on account of the abovestated quitclaim because no donation took place or could take place between Mr. Lichauco and Mrs. Lichauco. They segregated and adjudicated for their individual and separate ownership the properties which from the celebration of their marriage right-fully belonged to them equally. Accordingly, there is no clear and unmistakable intent on the part of one or the other to part away with his or her dominion oven an exclusive property. What actually happened was the appropriation to themselves by Mr. and Mrs. Lichauco of their respective shares in the dissolved conjugal partnership. Thus, in return for the waiver, cession, assignment and execution of quitclaim by Mr. Lichauco of all his rights, title and interest over his one-half share in their conjugal house and lot in favor of Mrs. Lichauco, he received one million pesos (P1,000,000.00), as his share in the balance of the conjugal assets.

Homeowners Association to member (BIR Ruling 440-93)


BIR Ruling 440-93 The association which donates to its underprivileged and homeless members property certified to by the local government unit concerned to be used for socialized housing project shall be exempt from the payment of the donor's tax (Revenue Regulations No. 9-93).

Repudiation of heir (BIR Ruling 25 August 1977) compare with (BIR Ruling 455-93)
BIR Ruling 25 August 1977 The waiver made by all of the legitimate children of the late Felix H. Yoingco of their right to inherit and to participate in a place of real property located in Caloocan City in favor of their mother, Mrs. Consolacion B. Yoingco by virtue of a Deed of Extrajudicial Partition with Waiver, and Sale executed on April 25, 1976 is not subject to donor's (gift) tax. The inheritance renounce by the Yoingco children in favor of their mother is not a deduction but additional inheritance to the latter, hence no donor's (gift) taxes are due from the Yoingco children. (BIR Ruling No. 65-092 dated August 20, 1965) BIR Ruling 455-93 In reply, please be informed that in legal succession, accretion takes place in case of repudiation among heirs of the same degree. This is so because there is no right of representation. The co-heirs in legal succession are co-owners of the inheritance, for which reason there is always a right of accretion among them, unlike in testamentary succession where there may or may not be a right of accretion (Arts. 1018, 977, 967, New Civil Code). However, if the renunciation by an heir or heirs is made in favor of one or more heirs but not all the other heirs, the act of renunciation is in effect an act of disposition inasmuch as the act of disposition and the benefits thereof are not enjoyed by everybody but by one or more heirs (Arts. 1050, 1051, 1016, New Civil Code). Accordingly, since the renunciation by Mrs. Paciencia G. Asuncion of the properties she inherited her late husband, Felipe F. Asuncion in favor of their first-born grandchildren who are not her co-heirs but are heirs of different degree as that of Mrs. Paciencia G. Asuncion as well as the disposition of her conjugal shares in said properties in favor of the same first-born grandchildren were made out of pure liberality on the part of Mrs. Asuncion, she shall be subject to the donor's tax imposed under then Section 108 (now Section 91) of the Tax Code, as amended, on such renunciation or disposition of properties.

Benefits of a Qualified Donee Institution: Sec 34(H)(1) and (2)(C) NIRC and Sec 101 (A)(3) NIRC Termination of co-ownership (BIR Ruling 145-98)

BIR Ruling 145-98 In reply, please be informed that under Article 496 of the Civil Code, Partition as a mode of terminating co-ownership may be made by agreement between the parties or by judicial proceedings. Partition shall be governed by the Rules of Court insofar as they are consistent with the Civil Code. Thus, the said Agreement executed on February 8, 1994 by and between Maria Elena Posadas and the Administratrix of the Estate of Juan Posadas III is in fact an Agreement partitioning the properties owned by the co-owners Maria Elena Posadas and Juan Posadas III transferring from the co-ownership by designating the said properties to each of the said owners. Moreover, the transfer of Title from the coowners is not a barter, exchange or other disposition of realty that would warrant the imposition of the capital gains tax on said transaction including the documentary stamp tax imposed in Section 196 of the Tax Code of 1997. Such being the case, the dissolution by the co-owners of the co-ownership by an Agreement to divide among the co-owners the properties is not subject to the capital gains tax imposed under Section 24(D)(1) of the Tax Code of 1997. However, that portion of the properties of the coownership which is designated to be the properties belonging to the deceased co-owner, Juan Posadas III, shall be subject to the estate tax prescribed under then Section 99 of the Tax Code, as amended or the law enforced at the time of the death of the decedent, before the said properties are transferred to his heirs. GONZALEZ The transaction involving land exchange that will entail person A to give up his share in the co-ownership in one lot for the exclusive ownership of another is not subject to donors tax.

Partition of co-owned properties (BIR Ruling DA 499-11-18-98) (DA 065-97)


DA 499-11-18-98 In reply, please be informed that under Article 496 of the Civil Code, partition as a mode of terminating co-ownership may be made by agreement between the parties or by judicial proceedings. Partition shall be governed by the Rules of Court insofar as they are consistent with the Civil Code. Considering that the transfer of title from the co-ownership to the respective co-owners is not a barter, exchange or other disposition of realty, the same is not subject to the capital gains tax imposed under Section 24(D)(1) and to the documentary stamp tax imposed in Section 196, both of the Tax Code of 1997. Such being the case, the agreement dissolving the co-ownership and dividing the properties among the co-owners is not subject to the capital gains tax imposed under Section 24(D)(1) and to the documentary stamp tax imposed under Section 196, both of the Tax Code of 1997. (BIR Ruling No. 145-98 dated October 09, 1998) DA 065-97 In reply, please be informed that pursuant to Section 20(b) of the Tax Code, as amended, the term corporation includes partnerships, now matter how created or organized, joint stock companies, joint accounts (cuentas en participacion), associations or insurance companies, but does not include general or professional partnerships and a joint venture or consortium formed for the purpose of undertaking construction projects or engaging in petroleum, coal, geothermal and other energy operations pursuant to an operating or consortium agreement under a service contract with the Government. In view thereof, it is our opinion that the joint venture of DMSC and ALI for the construction of the "Regency of Salcedo" is not subject to the corporate income tax under Section 24 of the Tax Code. However, the co-ventures are separately subject to the regular corporate income tax on their taxable income during each taxable year respectively derived by them from the aforesaid construction project. Moreover, Section 185 of the Revised Documentary Stamp Tax (DST) Regulations No. 26 provides that "conveyances of realty not in connection with a sale, to trustees or other persons without consideration are not taxable." Accordingly, since the aforementioned Deed of Partition and Deed of Conveyance are without consideration and are not in connection with a sale made to DMSC or ALI and the condominium corporation, respectively, no income was generated and a fortiori, no creditable EWT and DST are payable and collectible. However, the acknowledgment to said deed of Partition and Deed of Conveyance are subject to DST of P=15.00 pursuant to Section 188 of the Tax Code, as amended. In view thereof, your opinions that the Deed of Partition whereby ALI and DMSC allocate unto each other their respective shares in the floors or units and parking slots in the Project, in consideration of their respective contributions in the Project, and that the Deed of Conveyance to be executed by DMSC to convey the land to a condominium corporation formed pursuant to the Condominium Act, considering both are without monetary consideration, will not be subject to income tax EWT and DST under Section 196 of the Tax Code, as amended, are also hereby confirmed. (BIR Ruling No. 207-92 dated July 16, 1992; BIR Ruling No. 349-93 dated July 30, 1993; BIR Rulings No. UN-025-95 dated January 11, 1995). GONZALEZ JV subject to individual tax and not corporate tax.

Revocation of Donation (BIR Ruling 192-90)


BIR Ruling 192-90 In this connection, Section 91(a) and (b) of the Tax Code, as amended, provides that there shall be levied, assessed, collected and paid upon the transfer by any person, resident or non-resident, of the property by gift, a tax, computed as provided in Section 92 of the same Code. The tax shall apply whether the transfer is in trust or otherwise, whether the gift is direct or indirect, and whether the property is real or personal, tangible or intangible. Under this Section imposing a gift tax, the taxable event is the irrevocable divestment of all donor's rights in the property rather than the irrevocable vesting of rights in the particular beneficiaries. (Helvering vs. Robinette, 129 F(2d) 832, off'd 318 U.S. 184, 635 S. Ct.

540). Corollary to such right to donate, is the right to revoke donation previously made which could be exercised as a matter of right only in those cases where it is allowed by law; and within the period provided therefor. Accordingly, in cases where revocation of donation is anchored on grounds other than those where the law allows the same to be exercised as a matter of right on the part of the donor, the donee, as in the instant case, should in the opinion of this Office, give his consent to the revocation of the donation in order that the donation in his favor be considered, for purposes of the donor's tax to have been validly revoked; otherwise, the donation should be treated as subsisting subject to the donor's tax imposed under said Section 91(a) and (b) of the Tax Code, as amended. GONZALEZ Donee must consent to the revocation.