Collector of Internal Revenue vs.
Fisher may be allowed as deductions from the gross estate of decedent in order to arrive at the
GR. No. L-11622 January 28, 1961
DOCTRINE: Reciprocity must be total. If any of the two states collects or imposes or does
not exempt any transfer, death, legacy or succession tax of any character, the reciprocity
does not work.
FACTS:
Walter G. Stevenson was born in the Philippines of British parents, married in Manila to
another British subject, Beatrice. He died in 1951 in California where he and his wife
moved to.
In his will, he instituted Beatrice as his sole heiress to certain real and personal properties,
among which are 210,000 shares of stocks in Mindanao Mother Lode Mines (Mines).
Ian Murray Statt (Statt), the appointed ancillary administrator of his estate filed an estate
and inheritance tax return. He made a preliminary return to secure the waiver of the CIR
on the inheritance of the Mines shares of stock.
In 1952, Beatrice assigned all her rights and interests in the estate to the spouses Fisher.
Statt filed an amended estate and inheritance tax return claiming ADDITIOANL
EXEMPTIONS, one of which is the estate and inheritance tax on the Mines shares of stock
pursuant to a reciprocity proviso in the NIRC, hence, warranting a refund from what he
initially paid. The collector denied the claim. He then filed in the CFI of Manila for the said
amount.
CFI ruled that (a) the share of Beatrice should be deducted from the net estate of Walter,
(b) the intangible personal property belonging to the estate of Walter is exempt from
inheritance tax pursuant to the reciprocity proviso in NIRC.
ISSUE/S: Whether or not the estate can avail itself of the reciprocity proviso in the NIRC
granting exemption from the payment of taxes for the Mines shares of stock.
RULING: NO. Reciprocity must be total. If any of the two states collects or imposes or does
not exempt any transfer, death, legacy or succession tax of any character, the reciprocity
does not work.
In the Philippines, upon the death of any citizen or resident, or non-resident with
properties, there are imposed upon his estate, both an estate and an inheritance tax.
But, under the laws of California, only inheritance tax is imposed. Also, although the
Federal Internal Revenue Code imposes an estate tax, it does not grant exemption on the
basis of reciprocity. Thus, a Filipino citizen shall always be at a disadvantage. This is not
what the legislators intended.
SPECIFICALLY:
Section122 of the NIRC provides that No tax shall be collected under this Title in respect
of intangible personal property
(a) if the decedent at the time of his death was a resident of a foreign country which at the
time of his death did not impose a transfer of tax or death tax of any character in respect
of intangible personal property of citizens of the Philippines not residing in that foreign
country, or
(b) if the laws of the foreign country of which the decedent was a resident at the time of
his death allow a similar exemption from transfer taxes or death taxes of every character in
respect of intangible personal property owned by citizens of the Philippines not residing in
that foreign country."
On the other hand, Section 13851 of the California Inheritance Tax Law provides that
intangible personal property is exempt from tax if the decedent at the time of his death
was a resident of a territory or another State of the United States or of a foreign state or
country which then imposed a legacy, succession, or death tax in respect to intangible
personal property of its own residents, but either:.
Did not impose a legacy, succession, or death tax of any character in respect to intangible
personal property of residents of this State, or
Had in its laws a reciprocal provision under which intangible personal property of a non-
resident was exempt from legacy, succession, or death taxes of every character if the
Territory or other State of the United States or foreign state or country in which the
nonresident resided allowed a similar exemption in respect to intangible personal property
of residents of the Territory or State of the United States or foreign state or country of
residence of the decedent."
Cir v ca and pajonar
Facts: Private respondent Josefina Pajonar was the guardian of the person of decedent
Pedro Pajonar. The property of the decedent was put by the RTC- Dumaguete, under the
guardianship of the Philippine National Bank via special proceeding, wherein 50, 000 was
spent therein for payment of attorney's fees.
When the decedent died, instead of filing a estate tax return, PNB advised Josefina to extra-
judicially settle the estate of his brother. The decedent's estate was extra-judicially settled
and the heirs paid an amount of 60, 753 for the notarization of the deed of extra-judicial
settlement of estate.
The private paid the estate tax, however, they were subsequently assessed of deficiency
taxes because the amount paid in the special proceeding [50, 000] and the notarization fee
[60, 753] cannot be claimed as a deduction to the decedent's estate. Private respondent paid
the said taxes under protest. While the case is under review by the BIR, she filed a claim for
refund in the CTA which was granted.
Issue: whether or not the notarial fee paid for the extrajudicial settlement in the amount of
P60,753 and the attorney's fees in the guardianship proceedings in the amount of P50,000
value of the net estate.
Held: Yes.
As to the deductibility of the amount spent for notarization of the deed of extra-
judicial settlement of estate- Explained the SC, administration expenses, as an allowable
deduction from the gross estate of the decedent for purposes of arriving at the value of the
net estate, have been construed by the federal and state courts of the United States [which
the law on allowable deductions from gross estate was copied!] to include all expenses
"essential to the collection of the assets, payment of debts or the distribution of the property
to the persons entitled to it."
In other words, the expenses must be essential to the proper settlement of the estate.
Expenditures incurred for the individual benefit of the heirs, devisees or legatees are not
deductible. This distinction has been carried over to our jurisdiction. Thus, in Lorenzo
v.Posadas the Court construed the phrase "judicial expenses of the testamentary or intestate
proceedings" as not including the compensation paid to a trustee of the decedent's estate
when it appeared that such trustee was appointed for the purpose of managing the
decedent's real estate for the benefit of the testamentary heir. In another case, the Court
disallowed the premiums paid on the bond filed by the administrator as an expense of
administration since the giving of a bond is in the nature of a qualification for the office,
and not necessary in the settlement of the estate. Neither may attorney's fees incident to
litigation incurred by the heirs in asserting their respective rights be claimed as a deduction
from the gross estate.
In this case, it is clear that the extrajudicial settlement was for the purpose of payment of
taxes and the distribution of the estate to the heirs. The execution of the extrajudicial
settlement necessitated the notarization of the same. It follows then that the notarial fee of
P60,753.00 was incurred primarily to settle the estate of the deceased Pedro Pajonar. Said
amount should then be considered an administration expenses actually and necessarily
incurred in the collection of the assets of the estate, payment of debts and distribution of the
remainder among those entitled thereto. Thus, the notarial fee of P60,753 incurred for the
Extrajudicial Settlement should be allowed as a deduction from the gross estate.
Deductible expenses of administration of the estate may include executor's or
administrator's fees, attorney's fees, court fees and charges, appraiser's fees, clerk hire, costs
of preserving and distributing the estate and storing or maintaining it, brokerage fees or
commissions for selling or disposing of the estate, and the like. Deductible attorney's fees
are those incurred by the executor or administrator in the settlement of the estate or in
defending or prosecuting claims against or due the estate.
As to the deductibility of attorney's fees in the Special proceedings- As a rule attorney's
fees in order to be deductible from the gross estate must be essential to the collection of
assets, payment of debts or the distribution of the property to the persons entitled to it. The
services for which the fees are charged must relate to the proper settlement of the estate. [34
Am. Jur. 2d 767.] In this case, the guardianship proceeding was necessary for the
distribution of the property of the late Pedro Pajonar to his rightful heirs. It is noteworthy to
point that PNB was appointed the guardian over the assets of the deceased. Necessarily the
assets of the deceased formed part of his gross estate. Accordingly, all expenses incurred in
relation to the estate of the deceased will be deductible for estate tax purposes provided
these are necessary and ordinary expenses for administration of the settlement of the estate.
Hence the attorney's fees of 50, 000 is deductible from the gross estate of the decedent.
Dizon v CTA (Taxation)
Dizon v CTA G.R. No. 140944 April 30, 2008
FACTS:
On November 7, 1987, Jose P. Fernandez (Jose) died. Thereafter, a petition for the
probate of his will was filed with Branch 51 of the Regional Trial Court (RTC) of
Manila (probate court). The probate court then appointed retired Supreme Court
Justice Arsenio P. Dizon (Justice Dizon) and petitioner, Atty. Rafael Arsenio P. Dizon
(petitioner) as Special and Assistant Special Administrator, respectively, of the
Estate of Jose (Estate). Petitioner alleged that several requests for extension of the
period to file the required estate tax return were granted by the BIR since the
assets of the estate, as well as the claims against it, had yet to be collated,
determined and identified.
ISSUES:
1. Whether or not the CTA and the CA gravely erred in allowing the admission of
the pieces of evidence which were not formally offered by the BIR; and
2. Whether the actual claims of the aforementioned creditors may be fully allowed
as deductions from the gross estate of Jose despite the fact that the said claims
were reduced or condoned through compromise agreements entered into by the
Estate with its creditors Or Whether or not the CA erred in affirming the CTA in the
latter's determination of the deficiency estate tax imposed against the Estate.
RULING:
1. Yes. While the CTA is not governed strictly by technical rules of evidence, as
rules of procedure are not ends in themselves and are primarily intended as tools in
the administration of justice, the presentation of the BIR's evidence is not a mere
procedural technicality which may be disregarded considering that it is the only
means by which the CTA may ascertain and verify the truth of BIR's claims against
the Estate. The BIR's failure to formally offer these pieces of evidence, despite
CTA's directives, is fatal to its cause
2. Yes. The claims existing at the time of death are significant to, and should be
made the basis of, the determination of allowable deductions. Also, as held
in Propstra v. U.S., where a lien claimed against the estate was certain and
enforceable on the date of the decedent's death, the fact that the claimant
subsequently settled for lesser amount did not preclude the estate from deducting
the entire amount of the claim for estate tax purposes. This is called the date-of-
death valuation rule.