1.DIZON vs.

CIR- Estate Tax Compromise Payments and Deductions

Category: Estate and Donor's Taxes

DIZON in his capacity as Administrator of deceased Fernandez vs. COMMISSIONER OF INTERNAL REVENUE - Estate Tax Compromise Payments and Deductions
FACTS:
There were claims against the estate which the BIR contested stating that lower amounts were paid as compromise payments during the settlement of the estate and these amounts should be what will be considered as deductions in arriving at the net estate.

ISSUE:
Will the compromise amounts be the amounts considered as deductions to the gross estate?

HELD:
NO. The deductions allowable are the amounts determined at the time of death. Post-death developments are not material in determining the amount of deduction. Thus, the Court applied the date-of-death valuation rule which is the US rule on deductions and which is applicable also in the Philippines. The amount deductible is the debt which could have been enforced against the deceased in his lifetime.

2. Judicial Settlement of Estates

Category: Estate and Donor's Taxes 1. Depending on the pendency of the settlement, the estate through the executor, administrator or his heirs is liable for the payment of the estate income tax. [Sec. 60 (3)] 2. If upon the termination of the judicial settlement, when the decision of the court shall have become final and executory, the theirs still do not divide the property, the followig possibiliteis may arise: a. If the heirs contribute to the estate money, property, or industry, with the intention to divide the profits between and among them, an unregistered partnership is created and the estate becomes liable for the payment of corporate income tax. (Evangelista vs. Collector, 102 Phil 140) b. If the heirs without contributing money, property or industry improve the estate, simply divide the fruits thereof between and among themselves, a co-ownership is created and individual income tax in imposed on the income derived by each of the heirs, payable in their separate and individual capacity. (Pascual vs. Commissioner, 166 SCRA 560, and Obillios vs. Commissioner, 139 SCRA 463).

3. Estates and Trusts

Category: Estate and Donor's Taxes

For estates, the status of the taxpayer will depend upon the status of the decedent at the time of his death similar to the individual taxpayer. So, an estate as an income taxpayer can be a citizen or an alien.
When a person who owns property dies, the following taxes are payable under the provisions of the income tax law: 1. Income tax for individuals - to cover the period beginning January to the time of death. 2. Estate Income Tax- if the property is transferred to the heirs.

3. If no partition is made, individual or corporate income tax, depending on whether there is no settlement of the estate. And, if there is, depending on whether the settlement is judicial or extrajudicial.