G.R. No.

L-19342 May 25, 1972

LORENZO T. OA and HEIRS OF JULIA BUALES
INTERNAL REVENUE

vs.

THE COMMISSIONER OF

FACTS
Julia Buales died on March 23, 1944, leaving as heirs her surviving spouse, Lorenzo
T. Oa and her five children. A case was filed for the settlement of her estate. Later, Lorenzo
T. Oa the surviving spouse was appointed administrator of the estate. Oa then submitted
the project of partition, which was approved by the Court. The Court appointed Oa to be
guardian of the persons and property of the 3 minor children. No attempt was made to
divide the properties which remained under the management of Oa who used said
properties in business by leasing or selling them and investing the income derived from
them. As a result, petitioners' properties and investments gradually increased. The children
usually comes back to Oa for payment of the taxes.
Respondent CIR decided that the petitioners formed an unregistered partnership and
therefore, subject to the corporate income tax and was assessed. Petitioners protested
against the assessment and asked for reconsideration which was denied. They then filed a
Petition for review of the decision of the Court of Tax Appeals
ISSUE
W/N the petitioners formed an unregistered partnership and thus subject to corporate
taxes.
RULING
Yes. The petitioners formed an unregistered partnership.
The project of partition was approved in 1949 yet, the properties remained under the
management of Oa who used said properties in business by leasing or selling them and
investing the income derived from it which increased the value of the properties.
The corporate tax law states that in cases of inheritance, there should be a period
when the heirs can be considered as co-owners rather than unregistered co-partners.
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.
From the moment of such partition, the heirs are entitled already to their respective
definite shares of the estate and the incomes thereof, for each of them to manage and
dispose of as exclusively his own without the intervention of the other heirs, therefore he
becomes liable individually for all taxes in connection with his share. 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, even if no document or instrument were executed for
that purpose, an unregistered partnership is formed.