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GROSS ESTATE

1. Succession is a mode of acquisition by virtue of which:


(a) Properties,
(b) Rights, and
(c) Obligations, to the extent of inheritance.

are transmitted by the death of a person to another or others, by will (testamentary or


voluntary succession) or by operation of law (intestate or involuntary succession).

2. Which of the following may be the subject of succession?


(a) Properties;
(b) Rights;
(c) Obligations;
(d) All of the above.

Answer: d
Obligations may pass to the heirs, but only to the extent of the inheritance---in other
words, only to the extent of the value of the properties and rights inherited.

3. Statement 1. The estate tax is imposed on the privilege of a person to transmit his
properties upon his death.
Statement 2. The inheritance tax is imposed on the privilege of a person to receive the
properties of the person who died.
(a) True, true; (b) False, false; (c) True, false; (d) False, true.
(Modified/expanded/reformatted BAR examination question)

Answer: a

4. Statement 1. The estate tax is a tax on property (a property tax);


Statement 2. The estate tax is a tax on privilege (an excise tax).
(a) True, true; (b) False, false; (c) True, false; (d) False, true.
(Modified/expanded/reformatted BAR examination question)

Answer: d

5. Statement 1. The estate tax is an excise tax on a person for transmitting his properties
upon his death;
Statement 2. The donor’s tax is an excise tax on a person for transmitting his properties
effective while still alive.
(a) True, true; (b) False, false; (c) True, false; (d) False, true.
(Modified/expanded/reformatted BAR examination question)

Answer: a

6. Statement 1. The estate tax accrues upon the death of the decedent-owner of the
properties transmitted by succession;
Statement 2. The estate tax should be paid by the executor or administrator, or the heir,
before title to any registerable property may be registered in the name of the heir to
whom it is given by succession.
(a) True, true; (b) False, false; (c) True, false; (d) False, true.
(Modified/expanded/reformatted BAR examination question)

Answer: a

7. There are two kinds of decedents:


(a) The resident or citizen of the Philippines; and
(b) The non-resident, not citizen of the Philippines.
A decedent who was a citizen of the Philippines, residing in the Philippines at the time
of his death, is decedent (a).
A decedent who was a citizen of the Philippines, not residing in the Philippines at the
time of his death is decedent (a).
A decedent who was not a citizen of the Philippines, but residing in the Philippines at
the time of his death is decedent (a).
A decedent who was not a citizen of the Philippines, and not residing in the Philippines
at the time of his death is decedent (b).

8. Properties in gross estate are real properties (e.g., land and building), tangible personal
properties (e.g., car), and intangible personal properties (e.g., receivables).

The gross estate of a decedent who was a citizen or resident (Decedent [a] ) shall
include all properties regardless of location.

The gross estate of a decedent who was not a citizen, and not a resident (Decedent [b] )
shall include only properties located in the Philippines.

9. By statutory provision, the following are intangible personal properties located in the
Philippines, and shall be included in the gross estate:

(a) Franchise which must be exercised in the Philippines;


(b) Shares, obligations or bonds issued by a domestic corporation.
(c) Shares, obligations or bonds issued by a foreign corporation eighty-five percent
(85%) of the business of which is located in the Philippines.
(d) Shares, obligations or bonds issued by a foreign corporation, if such shares,
obligations or bonds have acquired a business situs in the Philippines; and
(e) Shares or rights in any partnership, business or industry in the Philippines.

The enumeration in the law is not exclusive, however. Any other intangible property (e.g.,
receivables) in the Philippines shall be included in the gross estate.

10. Although intangible personal properties in the Philippines shall be included in the gross
estate of the decedent who was not a citizen or resident of the Philippines (Decedent [b]),
such intangible personal properties shall not be included in the gross estate if the
reciprocity clause in the estate tax law applies.
Under the reciprocity clause, the intangible personal property in the Philippines shall not
be included in the gross estate.

(a) If the country of which the decedent was a citizen and (not or) resident at the time of
his death either had no death tax at all, or,
(b) If having a law imposing a death tax, totally exempts from that death tax the
intangible personal properties located there belonging to a citizen of the Philippines
not residing there.

11. The property, rights and obligations of a person which are not extinguished by his death
and those which have been accrued thereto since the opening of succession:
(a) Assets;
(b) Capital;
(c) Estate;
(d) Income.

Answer: c (CPA Exam)

12. Which of the following is not subject to estate tax?


(a) A succession to the property of a decedent who left no last will and testament;
(b) A donation mortis causa;
(c) A donation inter vivos;
(d) A transfer during the lifetime for less than full and adequate consideration.

Answer: c
A donation mortis causa takes effect upon death, and the rules on succession apply. A
donation inter vivos takes effect during the lifetime of the transferor, and are not coverd
by the rules on succession, but by a separate set of rules on donation. A transfer for less
than full and adequate consideration has a unique place in the estate tax law and the value
t include in the gross estate is the excess of the fair market value at the time of death over
the consideration received.

13. Which of the following statement is wrong?

(a) The gross estate of a non-resident citizen would include all properties regardless of
location;
(b) The gross estate of a non-resident, not citizen of the Philippines would include
intangible properties in the Philippines;
(c) The gross estate of a resident, not citizen of the Philippines would include all
properties regardless of location;
(d) The gross estate of a non-resident citizen of the Philippines would include only
properties in the Philippines.

Answer: d

14. The personal properties of a non-resident, not citizen of the Philippines, would not be
included in the gross estate if:
(a) The intangible personal property is in the Philippines;
(b) The intangible personal property is in the Philippines and the reciprocity clause of the
estate tax law applies;
(c) The tangible personal property is in the Philippines;
(d) The personal property is shares of stock of a domestic corporation 90% of whose
business is in the Philippines.

Answer: b

15. Mr. A, a resident citizen, died on the United States leaving the following properties:
Real properties in the United States;
Family home in the Philippines;
Office condominium in the Philippines;
Shares of stock of a domestic corporation;
Cash in bank; and
Personal belongings.
Without any obligation.
Statement 1. His gross estate shall include all the properties;
Statement 2. His gross estate shall include only the properties in the Philippines.
(a) True, true; (b) False, false; (c) True, false; (d) False, true.
(Modified/expanded/reformatted BAR examination question)
Answer: a
(For a citizen of the Philippines, his gross estate will include all properties regardless of
location.)

16. Mr. V, a subject of a foreign country, residing in the Philippines, died with the following
properties:
Shares of stock of a domestic corporation;
Condominium unit in Metro Manila;
House and lot in his home country.
Statement 1. His gross estate shall include all the properties;
Statement 2. His gross estate shall include only the properties in the Philippines.
(a) True, true; (b) False, false; (c) True, false; (d) False, true.
(Modified/expanded/reformatted BAR examination question)
Answer: a
(For a resident of the Philippines, his gross estate will include all properties regardless of
location.)

17. Mr. W, an American residing in Taipeh, died leaving the following properties:
Real property in the United States;
A resort in Italy;
Shares of stock in a Taipeh corporation with business in Taipeh only;
Shares of stock of a Taipeh corporation, operating in, and with office at the Philippines;
Time deposit with a Philippine Bank;
Philippine Treasury bills;
Lease contract on his real property in the United States, leased to the Philippine
consulate.
Statement 1. His gross estate shall include all the properties;
Statement 2. His gross estate shall include only the properties in the Philippines.
(a) True, true; (b) False, false; (c) True, false; (d) False, true.
(Modified/expanded/reformatted BAR examination question)
Answer: d
(which means that the gross estate shall not include the real property in the United States,
the resort in Italy, the shares of stock of a Taipeh corporation with business in Taipeh only
and the lease contract. The shares of stock of the Taipeh corporation, operating in and
with office as, the Philippines is property located in the Philippines because it is shares of
stock of a foreign corporation that had acquired a business situs in the Philippines.)

18. Mr. D owned one hundred hectares of agricultural land. The government took nine
hundred ninety-five hectares under the Agrarian Reform Act, with payment for it not yet
received. Mr. D died. What value shall be included in his gross estate?
(a) One hundred hectares of agricultural land;
(b) Five hectares of agricultural land plus the amount receivable from the Government on
the appropriation of ninety-five hectares;
(c) Five hectares of agricultural land;
(d) None.
(Modified/expanded/reformatted BAR examination question)
Answer: b

19. Value to include in the gross estate.


(a) Mortgaged property shall be included in the gross estate at its fair market value,
undiminished by the mortgage.
(b) Receivables from persons who are insolvent shall be in the gross estate at the full
amounts and not just amounts realizable.
(c) Proceeds of life insurance taken out by the decedent on his own life shall be included
in the gross estate if the beneficiary designated is his estate, executor or administrator,
whether or not the designation is revocable, or if the beneficiary designated is a third
person and the designation of beneficiary is revocable. It the life insurance was taken
out not by the decedent himself, the proceeds shall not be included in the gross estate.
On other insurance contracts the proceeds shall be included in the gross estate if
already receivables at the time of death, because they are intangible personal
properties owned at the time of death, but if not yet receivable at the time of death,
shall not be included in the gross estate.
(d) The estate shall be valued at fair market values of the properties at the time of death.
In the case of real property, the value shall be the value as shown in the schedule of
values fixed by the Provincial and City Assessors, or the fair market value as
determined by the Commissioner of Internal Revenue, (zonal value) whichever is
higher.
In the case of shares of stock listed and traded in a stock exchange, the fair market
value shall be the arithmetic mean between the highest and lowest quotation of the
stock on the valuation date, or the date nearest the valuation date. It the shares are
unlisted, the value shall be the book value, if common shares, and the par value, if
preferred shares.
(e) An inventory of the gross estate shall be filed with the Bureau of Internal Revenue.
When the gross estate exceeds two million pesos (P2,000,000), the estate tax return
and inventory shall be accompanied by a certificate of a Certified Public Accountant,
showing among others: registered or registerable property, motor vehicles, and shares
of stock.

20. Proceeds of life insurance inludible in the taxable gross estate.


(a) Insurance proceeds from SSS or GSIS;
(b) Amount receivable by any beneficiary irrevocable, designate in the policy by the
insured;
(c) Amount receivable by any beneficiary designated in the insurance policy;
(d) Proceeds of group insurance taken out by a company for employees.
(CPAExam)
Answer: c

For proceeds to be includible in the gross estate of the insured, the policy should be taken
out by the insured himself. Hence, since the life insurance in (d) was not taken by the
insured himself, the proceeds shall not be included in his gross estate.

21. Which statement is correct?


(a) Proceeds of accident insurance, paid by the insurance company directly to a
revocably designated beneficiary is part of the gross estate of the decedent;
(b) Proceeds receivable under life insurance taken out by the decedent on his own life
with wife as revocable beneficiary, with a loan taken by the decedent on it, is
includible in the gross estate at its value, net of the loan on it;
(c) Proceeds of property insurance receivable when the decedent was still alive is part of
the gross estate;
(d) Proceeds of group insurance secured by the employer, when the revocable beneficiary
is the wife, is part of the gross estate.

Answer: c

22. Proceeds of a life insurance policy taken out by the decedent on his own life are
includible in the gross estate if the beneficiary is:
(a) The estate, whether the designation of is revocable or irrevocable;
(b) The executor or administrator, whether the designation is revocable or irrevocable;
(c) A third person and the designation is revocable;
(d) A third person and the designation is irrevocable.
Which is wrong?
(Modified/expanded/reformatted BAR examination question)
Answer: d

23. For death of a father in an airplane crash, the children received insurance proceeds of
P350,000 by the insurer and airline.
Statement1. The P350,000 shall be included in the gross estate because it was a
receivable at the time of death.
Statement 2. The P350,000 shall not be included in the gross estate because the life
insurance was not taken out by the decedent himself on his own life.
(a) True, true; (b) False, false; (c) True, false; (d) False, true.
(Modified/expanded/reformatted BAR examination question)
Answer: d

24. The widow, Mrs. A received P500,000 under a life insurance of her husband. Should the
proceeds of life insurance be included in the gross estate?
(a) Yes, if the estate, executor or administrator of Mr. A was designated as revocable
beneficiary;
(b) Yes, if the estate was designated as irrevocable beneficiary;
(c) Yes, if Mrs. A was designated as revocable beneficiary;
(d) Yes, if it was Mrs. A who insured Mr. A, and her designation as beneficiary was
irrevocable.
Which statement is wrong?
(Modified/expanded/reformatted BAR examination question)
Answer: d
(a), (b), and (c) assumes that the life insurance was taken out by the decedent on his own
life.

25. Which statement is wrong? The gross estate shall be valued:


(a) At its fair market value at the time of death;
(b) At its fair market value at the time the return is due;
(c) If real property, the zonal value, which may be higher than the fair market value;
(d) In the case of shares of stock, at book value.

Answer: b

26. Which statement is correct? Real property with a cost of P300,000 and a fair market
value at the time of death of P1,000,000 but subject to a mortgage of P200,000:
(a) Shall be in the net taxable estate at P800,000;
(b) Shall be in the gross estate at the decedent’s equity of P800,000;
(c) Shall be in the gross estate at P300,000;
(d) Shall be in the gross estate at the owner’s equity of P100,000.

Answer: a
Gross estate P1,000,000
Less: Mortgage thereon 200,000
Net taxable estate P 800,000

27. Mr. Q A provided in his last will and testament that the properties he would leave should
not be sold or disposed of for a period of the years after his death, and that his property be
given to Mr. Q after such period. The value of the properties increased from P2,000,000
at the time of death to P3,000,000 ten years after death. Which statement is correct?
(a) The Commissioner of Internal Revenue shall assess the estate tax on a value of
P1,000,000;
(b) The Commissioner of Internal Revenue shall assess the estate tax on a value of
P3,000,000.
(Modified/expanded/reformatted BAR examination question)
Answer: a

28. A taxpayer who inherited properties could not pay the estate tax on the original due date.
He asked for extension of time as he had to sell some properties to have cash with which
to pay the estate tax. The Bureau of Internal Revenue agreed to the petition for extension,
provided that the valuation of the gross estate e as at the last day of the period of
extension. Was the position of the Bureau of Internal Revenue correct?
(a) No, because the estate should be valued at its fair market value at the time of death,
regardless of when the estate tax may be collected;
(b) Yes, because the Bureau of Internal Revenue had to wait for the last day of the
extension period before it could proceed to collect.
(Modified/expanded/reformatted BAR examination question)

Answer: a

29. In the last will and testament, a decedent provided that the properties he leaves should not
be sold or disposed of for ten years following his death. He had real estate in his gross
estate as follows:
At the time of death – zonal value of P500,000
At the end of ten years after his death:
Fair market value – P2,500,000;
Declared value in the estate tax return – P1,5000,000
Zonal value – P3,000,000.
What value shall be used for purposes of estate tax?
(a) P3,000,000 (b) P1,500,000 (c) P2,500,000 (d) P500,000.
(Modified/expanded/reformatted BAR examination question)
Answer: d

30. Mr. D owned one hundred hectares of agricultural land. The Government took nine
hundred ninety-five hectares under the Agrarian Reform Act, with payment for it not yet
received. Mr. D died. What value shall be included in his gross estate?
(a) One hundred hectares of agricultural land;
(b) Five hectares of agricultural land plus the amount receivable from the Government on
the appropriation of ninety-five hectares;
(c) Five hectares of agricultural land;
(d) None.

(Modified/expanded/reformatted BAR examination question)

Answer: b

31. The gross estate shall include properties not physically in the estate, if such properties
were transferred by the decedent during his lifetime by way of:
(a) Transfer in contemplation of death; or
(b) Revocable transfer; or
(c) Transfer under general power of appointment.

A transfer in contemplation of death is a transfer motivated by the thought of death,


although death may not be imminent. In law, this is called donation mortis causa.

A revocable transfer is a transfer where the transferor, during his lifetime, could change
the terms of possession or enjoyment by the transferee, or even take back the property.
(See Plate 13)

A transfer under a general power of appointment is illustrated thus: Mr. A transferred


property to Mr. B, Mr. A saying that Mr. B can give such property to whomsoever Mr. B
pleases. Mr. B transferred the property to Mr. C, so that the property was not anymore
with Mr. B at the time of his death. The value of the property shall be included in the
gross estate of Mr. B.

Where the transfer of property was under a limited power of appointment, no value
shall be included in the gross estate. A transfer under a limited power of appointment is
illustrated thus: Mr. D transferred property to Mr. E, Mr. D saying that should Mr. E
transfer the property, the transfer should be only in favor of Mr. F. Mr. E transferred the
property to Mr. F, so that the property was not anymore with Mr. F at the time of his
death. The value of the property shall not be included in the gross estate of Mr. F.
In any of the transfers (a), (b) and (c), if the transfer was in the nature of a bona fide
sale with full and adequate consideration, no value shall be included in the gross estate.
But if the consideration was not full and adequate, the value to include in the gross estate
shall be the excess of the fair market value at the time of death over the consideration
received.

32. Statement 1. A donation inter vivos is subject to estate tax;


Statement 2. A donation mortis causa is subject to estate tax.
(a) True, true; (b) False, false; (c) True, false; (d) False, true.
(Modified/expanded/reformatted BAR examination question)

Answer: d

33. Mr. D, with stage three cancer, made a last will and testament disposing of properties
mentioned in the last will and testament. On the same day, he made gifts inter vivos to his
children. A few days later he died. Are the donated properties to be included in the gross
estate?
(a) No, because they were not his properties anymore at the time of death;
(b) Yes, because the donations were donations mortis causa, and should be governed by
the rules on estate tax;
(c) No, if the donor’s tax had been paid already on the donations;
(d) No, because they were not transfers in contemplation of death, since the donations
were not simultaneous with the execution of the last will and testament.
(Modified/expanded/reformatted BAR examination question)

Answer: b

34. Which of the following is not included in the gross estate?


(a) Revocable transfer where the consideration is not sufficient;
(b) Revocable transfer where the power of revocation was not exercised;
(c) Transfer under a general power of appointment where the consideration was not
sufficient;
(d) Transfer under a limited power of appointment.

Answer: d

35. Mr. N died leaving a painting to his son Mr. O by last will and testament. The will of Mr.
N gave Mr. O the power to appoint by will Mr. P as successor to the painting. When Mr.
O died, Mr. P succeeded to the property.
(a) The value of the painting should be included in the gross estate of Mr. N;
(b) The value of the painting should be included in the gross estate of Mr. O;
(c) The value of the painting should not be included in the gross estate of Mr. O;
(d) Mr. P is succeeding to the estate of Mr. N and not of Mr. O.
Which answer is wrong?
(Modified/expanded/reformatted BAR examination question)

Answer: b
The power of appointment is a limited power of appointment. Succession to property
under a limited appointment is not from the immediate decedent, but from the first
decedent.

36. A revocable transfer with the following circumstances: Fair market value at the time of
transfer – P300,000; fair market value at the time of death – P180,000; consideration
received when transferred – P200,000:
(a) Shall be included in the gross estate at P180,000;
(b) Shall be included in the gross estate at P200,000;
(c) Shall be included in the gross estate at P100,000;
(d) Shall not be included in the gross estate.

Answer: d
There shall be included in the gross estate of the property transferred only if the fair
market value at the time of death exceeds the consideration received. In the present case,
there is no excess.

37. A revocable transfer, with a consideration received:


Consideration received P200,000
Fair market value of property at the time of transfer 300,000
Fair market value of property at the time of death 250,000
Value to include in the gross estate:
(a) P300,000; (b) P250,000; (c) P100,000; (d) P50,000

Answer: d

Fair market value at the time of death P250,000


Less: Consideration received 200,000
Value to include in the gross estate P 50,000

38. Which of the following is not true: A transfer in contemplation of death for less than full
and adequate in money may result in a:
(a) Value included in the gross estate;
(b) Nothing included in the gross estate;
(c) Value included in the net estate;
(d) Value to consider as taxable income.

Answer: d

39. The following acquisitions and transmissions are exempt from the estate tax:
(a) The merger of the usufruct in the owner of the naked title;
(b) The transmission or delivery of the inheritance or legacy by the fiduciary heir or
legatee to the fideicomissary;
(c) The transmission from the first heir, legatee or done in favor of another beneficiary in
accordance with the will of the predecessor;
(d) All bequests, devises 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,
that not more than thirty percent (30%) of said bequests, devises or transfers shall be
used by such institutions for administrative purposes.

40. The following are transactions and acquisitions exempt from transfer tax except:
(a) Transmission from the first heir or done in favor of another beneficiary in accordance
with the desire of the predecessor;
(b) Transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee
to the fideicommisary;
(c) The merger of usufruct in the owner of the naked title;
(d) All bequests, devises, legacies or transfers to social welfare, cultural and charitable
institutions. (CPAExam)

Answer: d
Bequests, devices, legacies or transfers to social welfare, cultural and charitable
institutions shall be exempt from transfer tax only if not more than thirty percent of such
bequests, etc. shall be used for administration purposes.

41. Which of the following shall not be taxed?


(a) Amounts received for war damages;
(b) Amounts received from the United States Veterans Administration;
(c) Benefits received from the Government Service Insurance System;
(d) Benefits received from the Social Security System;
(e) All of the above.

Answer: e
They are all exemptions under special laws.

42. Fair market value Consideration


At transfer At death Received
Revocable transfers
Land P4,000,000 P5,200,000 P3,000,000
Car 1,000,000 0 600,000
Shares of stock 500,000 300,000 400,000
Bonds 200,000 200,000 250,000
Transfer under power of appointment;
Land and building, general power 2,000,000 1,800,000 1,000,000
Farm land, limited power 1,500,000 500,000 1,200,000
The gross estate?
(a) P800,000; (b) P3,000,000; (c) P2,200,000; (d) Some other amount

Answer: b

Revocable transfer of land (P5,200,000 less P3,000,000) 2,000,000


Car 0
Shares of stock 0
Bonds 0
Land and building (P1,800,000 less P1,000,000) 800,000
Gross estate P3,000,000

43. A citizen and resident of the Philippines died leaving:


Cash on hand and in banks (of which P150,000 was provided
in the will to be given to a charitable institution) P1,000,000
Real property in the Philippines:
Assessed value per assessment rolls of the city 100,000
Zonal value per Bureau of Internal Revenue 500,000
Selling price of adjacent piece of land the day preceding
the date of death 600,000
Real property in Malaysia, fair market value 450,000
Car in the Philippines, with a mortgage of P200,000 400,000
Receivables:
From a friend from whom there is no possibility of recovery 20,000
From a sister whose ratio of assets to liabilities is 1:3 15,000
Amounts under insurance contracts:
Receivable under life insurance, with the father as revocable
beneficiary 250,000
Receivable under life insurance, with the mother as irrevocable
beneficiary. 200,000
Receivable under accident insurance, for accident that happened
one year ago 50,000
Receivable under property insurance, for damage caused to
his car 12,000
Revocable transfers:
To sister (fair market value at the time of transfer was
P40,000 and consideration received was P10,000) 50,000
To father (fair market value at the time of transfer was
P30,000 and consideration received was P30,000) 60,000
To mother (fair market value was P40,000 and consideration
Received was P50,000) 70,000
The gross estate is:
(a) P2,737,000; (b) P2,807,000: (c) P2,627,000; (d) P1,350,000

Answer: a

Cash on hand and in banks P1,000,000


Real property in the Philippines (at zonal value) 500,000
Real property in Malaysia, fair market value 450,000
Car in the Philippines 400,000
Receivables:
From a friend from whom there is no possibility of recovery 20,000
From a sister whose ratio of assets to liabilities is 1:3 15,000
Amounts under insurance contracts:
Receivable under life insurance, with the father as revocable
beneficiary 250,000
Receivable under accident insurance, for accident that happened
one year ago 50,000
Receivable under property insurance, for damage caused to
his car 12,000
Revocable transfers:
To sister (fair market value at the time of transfer was
P30,000 and consideration received was P10,000) 40,000
Gross estate P2,737,000

44. The decedent was a resident decedent.


Properties left, at fair market values, were:
Family home (land and residential house) in the Philippines P2,000,000
Piece of land with vacation house in Malaysia 1,500,000
Farm land in the Philippines, with a mortgage in favor of the
Philippine National Bank for P600,000 1,000,000
Shares of stock:
Of a domestic corporation deposited in a band safety
deposit box in Malaysia 200,000
Of a foreign corporation the entire business of which is
In the Philippines, deposited in a bank safety deposit
box in Malaysia 100,000
Receivable from a friend who has no property whatsoever 50,000
Receivables under insurance policies:
Life insurance policy, taken by the decedent on his own
life, with his estate as revocable beneficiary 500,000
Life insurance policy, taken by the decedent on his own
life, with a daughter as revocable beneficiary 400,000
Life insurance policy, taken by the decedent on his own
life with a son as irrevocable beneficiary 300,000
Life insurance (group) taken by the employer of the
decedent, with the estate as revocable beneficiary 50,000
Property insurance, for loss of property 250,000
Accident insurance, for injury sustained 20,000
The gross estate?
(a) P5,920,000; (b) 5,020,000; (c) 4,920,000; (d) P6,020,000

Answer: d

Family home P2,000,000


Piece of land with vacation house 1,500,000
Farm land in the Philippines 1,000,000
Shares of stock of domestic corporation 200,000
Shares of stock of foreign corporation 100,000
Receivable from a friend 50,000
Receivable from life insurance, with estate as beneficiary 500,000
Receivable from life insurance, with daughter as beneficiary 400,000
Receivable from property insurance 250,000
Receivable from accident insurance 20,000
Gross estate P6,020,000

45. A citizen of Malaysia, residing in Kuala Lumpur, with properties in Malaysia and in the
Philippines, had the following data on properties and rights at the time of his death and
their values:
Real estate, Malaysia P1,000,000
Real estate, Philippines 2,000,000
Shares of stock of a domestic corporation 200,000
Shares of stock of a Malaysian corporation 300,000
Shares of stock of an Indonesian corporation, doing
business in the Philippines only 100,000
Philippine peso deposit in BDO bank 500,000
Receivable under a life insurance with an insurance
company doing business in Malaysia 250,000
The gross estate that should be reported in the Philippines is:
(a) P4, 350,000; (b) P3, 700,000; (c) P4,000,000; (d) p2,800,000.

Answer: d

Real estate, Philippines P2,000,000


Shares of stock of a domestic corporation 200,000
Shares of stock of an Indonesian corporation doing
business in the Philippines only 100,000
Philippine peso deposit in BDO bank 500,000
Gross estate P2,800,000

46. The decedent was a citizen of, and residing in, X Foreign Country, who left the following
properties ( at fair market values)

Land in the Philippines P1, 000, 000


Land and building in X Foreign Country 2, 000, 000
Car in the Philippines 600, 000
Shares of stocks of a domestic corporation, with the certificate
in foreign bank 700, 000
Shares of stocks if A co., foreign corporation (with business
in the Philippines) 200, 000
Certificates of shares of stock, in foreign bank:
Shares of stock of B Co., foreign corporation (90% of its
business is in the Philippines) 500, 000
Shares of stock of C Co., foreign corporation (85% of its
business in the Philippines) 400, 000
X foreign Country has no death tax on a succession.
The gross estate in the Philippines?
(a) P1, 600,000; (b) P0 (c) P600, 000; (d) 1, 000, 000.

Answer: a
The “reciprocity clause” does not apply on properties which are not intangible.
Land in the Philippines P 1, 000, 000
Car in the Philippines 600, 000
Total P 1, 600, 000

47. Property relationship between husband and wife may be:


(a) Absolute community of property; or
(b) Conjugal partnership of gains, or relative community of property.

Absolute community of property.

The following shall be exclusive properties:


(a) Property acquired during marriage by gratuitous title (inheritance or gift) by either
spouse, and the fruits as well as the income thereof, if any, unless it is expressly
provided by the benefactor that they shall be part of the community.
(b) Property for personal and exclusive use of either spouse. However, jewelry shall form
part of the community property.
(c) Property acquired before the marriage by either spouse who has legitimate
descendants by the former marriage, and the fruit as well as the income, if any, of
such property.

In general, anything owned before the marriage, upon marriage, becomes community
property (belonging to husband and wife).

In general, anything acquired during the marriage in exchange of exclusive property, or


purchased with exclusive money, is exclusive property,

In general, income during the marriage is community property, and the exception are in
(a) and (c).

Conjugal partnership of gains or relative community of property.

The following shall be exclusive properties:


(a) That which is brought to the marriage as his or her own;
(b) That which each acquires during the marriage by the gratuitous title of inheritance or
gift;
(c) That which each acquires by right of redemption or by exchange of property
belonging to one of the spouse;
(d) That which is purchased with the exclusive money of the wife, or of the husband.

Property that cannot be clearly identified as exclusive shall be presumed to be conjugal


(belonging to husband and wife).
Income during the marriage is conjugal.
Anything acquired during the marriage in exchange of exclusive property, or purchased
with exclusive money, is exclusive property.

48. The decedent was married at the time of death.


Cash owned by the decedent before the marriage P5, 000, 000
Real property inherited by the decedent during the marriage 6, 000, 000
Personal property received by the wife as gift before the marriage 400, 000
Property acquired by the decedent with cash owned before the marriage 600, 000
Clothes of the decedent, purchased with the exclusive money of the wife 500, 000
Jewelry purchased with the exclusive cash of the decedent 1, 000, 000
Property unidentified when and whom acquired 1, 200, 000
Cash – income during the marriage P2, 000, 000

Exclusive gross estate if the spouses were under system of conjugal partnership of gains?
(a) P10, 200 000; (b) P10, 600, 000; (c) P6, 600, 000; (d) P12, 600, 000

Answer: d

Community gross estate if the spouses were under the system of absolute community of
property?
(a) P10, 200, 000; (b) P8, 200, 000; (c) P9, 200, 000; (d) P7, 200, 000

Answer: a
Conjugal Absolute
Partnership Partnership

Cash owned by the decedent before the marriage Exclusive Community


Real property inheritance by the decedent during
the marriage Exclusive Exclusive
Personal property received by the wife as gift before
the marriage Not included Community
Property acquired by the decedent with cash owned
before the marriage Exclusive Community
Clothes of the decedent, purchased with the exclusive
money of the wife Not included Exclusive
Jewelry purchased with the exclusive cash of
the decedent Exclusive Community
Cash owned by the decedent before the marriage Exclusive Community
Jewelry purchased with the exclusive cash of
the decedent Exclusive Community
Unidentified property Conjugal Community
Cash – income during the marriage Conjugal Community

Exclusive gross estate under the conjugal partnership gains P12, 600, 000
Community gross estate P10, 200, 000

49. Mr. B maintained a joint account with Mrs. B in a bank with authority to withdraw either
by Mr. B or Mrs. B (“and/or account”). Mr. B died and the Bureau of International
Revenue included the cash in the bank in that account in the gross estate of Mr. B. Mrs. B
objected on the ground that the account is not really a joint account, and the balance in
the account was allowed by the bank to be withdrawn already by Mrs. B.
Statement 1. The bureau of Internal Revenue was correct. Joint properties, (conjugal or
community) are includible in the gross estate of the person who died.
Statement 2. The bank was in error in allowing the withdrawal of the deposit if it had
knowledge of the death of Mr. B, and the Bureau of Internal Revenue shall not be
precluded from collecting the tax by the error of the bank.
(a) True, True;(b) False, False; (c) True, False; (d) False, True.
Answer: a

50. With information from an obituary in a newspaper on the death of Mr. U, the Bureau of
Internal Revenue communicated with banks, asking them to give information on the bank
deposits of Mr. U. Can the bank give information on the bank deposit?
(a) Yes;
(b) No.

Answer: a
The bank can give information on the deposit because the National Internal Revenue Code itself
provides that inquiry on bank deposits can be made by the Bureau of Internal Revenue to
determine the gross estate and estate tax of a person who died. The Secretary of Bank Deposit
Law provides for this exception.
DEDUCTIONS FROM GROSS ESTATE

1. The deduction from the gross estate allowed by the National Internal Revenue code had
been categorized by a revenue regulation into:
(a) Ordinary deductions; and
(b) Special deductions.

Ordinary deductions:
(a) Expenses, losses, indebtedness, taxes, etc.:
(1) Funeral expenses;
(2) Judicial expenses of testamentary or intestate proceedings;\
(3) Claims against the estate;
(4) Claims against insolvent person;
(5) Unpaid mortgage or indebtedness on property
Taxes:
Losses:
(b) Transfer for public use;
(c) Vanishing deduction

Special deductions:
(a) Family home;
(b) Standard deduction;
(c) Medical expenses;
(d) Amount receivable by heirs under Republic Act. No.4917

The special deductions are not allowed to the estate of non-resident, not citizen
decedent.
The share of the surviving spouse in the net community or net conjugal estate is a
deduction from the net estate. Thus:
Net estate (after deducting ordinary and special deductions) Pxxx
Less: share of the surviving spouse in the net community
or net conjugal estate xxx
Net taxable estate Pxxx

2. Which of the following is not a deduction from the gross estate under the National
Internal Revenue Code?
(a) Taxes;
(b) Losses;
(c) Legacy to the Government;
(d) Legacy to a charitable institution.

Answer: d
For a deduction for legacy to the Government, the property given as legacy should first
be included in the gross estate.

3. From the following:


Funeral expenses P 150,000
Judicial expenses 500,000
Medical expenses 400,000
Claims against the estate 200,000
Claims against insolvent persons 40,000
Taxes 25,000
Losses 60,000
Mortgage or indebtedness on property 120,000
Transfer for public use (e.g., legacy to the Government,
national and local) 100,000
Vanishing deduction 28,000
Family home 700,000
Standard deduction 1,000,000
Net share of the surviving spouse in the conjugal/
community estate 950,000
Amounts receivable under Republic Act 4917 20,000
How much are the ordinary deductions from the gross estate?
(a) P1,620,000; (b) P1,123,000; (c) P723,000; (d) P2,223,000.

Answer: a

How much art the special deductions from the gross estate?
(a) P1,620,000; (b) P2,620,000; (c) P2,220,000; (d) P2,120,000.

Answer: d
Ordinary Special

Funeral expenses P 150,000


Judicial expenses 500,000
Medical expenses 400,000
Claims against the estate 200,000
Claims against insolvent persons 40,000
Taxes 25,000
Loses 60,000
Mortgage or indebtedness on property 120,000
Transfer for public use 100,000
Vanishing deduction 28,000
Family home 700,000
Standard deduction 1,000,000
Amounts received under Republic Act 4917 _________ 20,000

Totals P1,223,000 P2,120,000

4. (a) Funeral expenses.

Funeral expenses are deductible from the gross estate at whichever is the lowest
of actual funeral expenses, five percent (5%) of the gross estate, or P200,000.

Expenses related to the death but after interment are not anymore funeral
expenses.

(b) Judicial expenses.

Judicial expenses in the judicial settlement of the estate are deductible if paid or
incurred prior to the last day for filling of the estate tax return and payment of the estate
tax (within six months from the date of death).

Judicial expenses would include administration expenses of the estate. If the


estate is not settled judicially, the administration expenses paid or incurred by the heirs in
the extra judicial settlement of the estate are deductible from the gross estate as
administration (judicial) expenses.

(c) Claims against the estate.

Claims against the estate are obligations contracted during the decedent’s lifetime,
and enforceable if he were alive.

Obligations of the decedent that already prescribed during his lifetime, or


obligations of the decedent under contracts which must (under the Statute of Frauds0, but
was not, reduced into writing, are not claims against the estate.
If the claim is out of debt instrument, the debt instrument must be notarized
(except for loans granted by financial institutions where notarization is not part of the
business practice or policy of the institution).

If the claim was out of a loan incurred within three years prior to death, the
administrator or executor must submit a statement showing the disposition of the
proceeds of the loan.

It the monetary claim against the decedent did not arise out of a debt instrument,
the requirement of a notarized debt instrument does not apply.

5. Which of the following statement is wrong; There may be funeral expenses deducted:
(a) Whether paid or unpaid;
(b) Even if there is a memorial plan;
(c) In case of a family plot and mausoleum, the cost of the property is the actual funeral
expense;
(d) At not more than P200,000.
Answer: c
Only the part that corresponds to the decedent.

6. In the first year anniversary of the death of Mr. J, his children hosted a dinner to which
were invited friends and relatives, and the hospital personnel who attended to his last
illness. The expenses for the dinner amounted to P50,000, which was well within five
percent (5%) of his gross estate. Is the cost of the dinner deductible from the gross estate?
(a) Yes, because it is related to the death of Mr. J;
(b) No, because funeral expenses have a cut-off point – that of interment.
(Modified/expanded/reformatted BAR examination question)

Answer: b

7. The following are the requisites in order that claims against the decedent’s estate may be
deductible, except;
(a) They must be existing against the estate;
(b) They must be reasonably certain as to amounts;
(c) They must have been prescribed;
(d) They must be enforced by the claimants. (CPAExam)

Answer: c

8. Which of the following statements on judicial expenses, as deductions from the gross
estate, is wrong?
(a) Shall be allowed if the estate is under judicial settlement;
(b) Shall be allowed even if the estate is extra judicially settled;
(c) Shall include judicial expenses to settle the conflicting claims of the heirs;
(d) Shall be allowed even if the decedent is a non-resident alien and represent expenses
outside the Philippines.

Answer: c

9. Date of death February 5, 2013


Gross estate P3,900,000
Funeral expenses:
Paid 150,000
Unpaid 40,000
Payments to the lawyer assisting in the settlement of the estate:
Acceptance fee, April 5, 2013 100,000
Appearance in court, June 16, 2013 3,000
Appearance in court, October 15, 2013 3,000
Appearance in court, December 2, 2013 3,000
Claims against the estate:
Evidenced by a typical promissory note 100,000
Evidenced by a notarized document 200,000

Total of other ordinary deductions from the gross estate?


(a) P493,000; (b) P593,000; (c) P499,000; (d) P500,000.

Answer: a

Funeral expenses:
Paid P150,000
Unpaid 40,000 P190,000
Judicial expenses-
Acceptance fee 100,000
Court appearance, June 16, 2013 3,000 103,000
Claim against the estate (evidenced by a notarized
Document) 200,000
Total
P493,000

10. (a) Claim against insolvent person.

When there is a claim against an insolvent person, the gross estate must include
the gross of the receivable, and the uncollectible portion of the claim shall be the
deduction from the gross estate. Thus, if a debtor had no property whatsoever, the claim
against insolvent persons shall be the whole amount of the receivable. If, for example, the
claim is P40,000, and the debtor had properties of P100,000 and obligations of P400,000,
the deduction for claim against insolvent is P300,000/P400,000 x P40,000, or P30,000.

(b) Mortgage or indebtedness of property.

A mortgage or indebtedness on property is a deduction from the gross estate but


the value of the property, undiminished by the mortgage, must first be included in the
gross estate.

(c) Losses: (See Plate 15)

Losses are deductible from the gross estate if:

(1) Arising from fire, storm, shipwreck or other casualty, robbery, theft or
embezzlement;
(2) Not compensated by insurance or otherwise;
(3) Not claimed as a deduction in the income tax return for the estate;
(4) Occurring during the settlement of the estate; and
(5) Occurring before the last day for the payment of the estate tax (within six months
from the date of the decedent’s death).

(d) Taxes that accrued prior to the decedent’s death are deductible from the gross estate.

By statutory provision, the following taxes cannot be deducted from the gross
estate:
(1) Income tax on income received after death;
(2) Property taxes not acrid before death; and
(3) Estate tax.
(e) Transfer for public use.

A transfer for public use which is a deduction from the gross estate is a provision
in a last will and testament (legacy or devise), or a transfer during the lifetime but to
take effect after death, in favor of the Government of the Philippines, or any political
subdivision thereof, for an exclusively public purpose.
Political subdivisions in the Philippines are:
(1) Provinces;
(2) Cities;
(3) Municipalities; and
(4) Barangays.

11. Which of the following statements is wrong? A claim against an insolvent person, with no
properties whatsoever is:
(a) Included in the gross estate;
(b) Not included in the net taxable estate;
(c) If arising out of a debt instrument of the insolvent, the debt instrument must be
notarized;
(d) Needs no preliminary filing of a case against the insolvent.
Answer: c
A notarized debt instrument as a requirement for deduction is required of claims against
the estate, not of claims against insolvent persons.

12. One of the following statements is wrong. Claims against insolvent persons;
(a) Should always be included in the gross estate;
(b) If entirely uncollectible, may be omitted in the computation for the net taxable estate;
(c) Can give rise to deduction even if the debtor had some properties;
(d) Can be a deduction even if secured by a mortgage.

Answer: b

13. Mr. A died with a receivable from Mr. B. Mr. B has properties worth P220,000 and
obligations of P320,000. Included in the obligations of Mr. B are P20,000 owed to the
Government of the Republic of the Philippines for unpaid taxes of P60,000 owed to Mr.
A.
The estate of Mr. A has a deduction for claim against insolvent of:
(a) P60,000; (b)41,250; (c) P20,000; (d) P 0.

Answer: c
Properties of B P220,000
Less: Property to be applied to preferred credit
(The Government is a preferred creditor) 20,000
Properties available to ordinary creditors P200,000

Obligations of B P320,000
Less: Obligation of preferred creditor (Government) 20,000
Obligations to ordinary creditors P300,000

Obligations to ordinary creditors P300,000


Less: Obligations that shall be paid from the properties 200,000
Obligations to ordinary creditors that shall not be paid P100,000
Ratio of obligations that shall not be paid to
obligations to ordinary creditors 1/3
Deduction of A for uncollectible receivable from insolvent B
1/3 of P60,000 20,000

14. Mr. B died on June 30, 2013, leaving, among other, the following charges and
obligations: Real property tax for the calendar year 2013 – P20, 000; On an interest-
bearing promissory note (notarized): face value of the note – P10, 000; accrued interest
on the note at the time of death – P600; and interest to accrue on the note from the date of
death to the date of maturity – P400. The deduction from the gross estate is:
(a) P20, 600; (b) P30, 600; (c) P31, 000; (d) P21, 000.

Answer: c

Real property tax P20,


000
Face value of the not 10, 000
Interest accrued at the time of death 600
Interest to accrue from the date of death to the date of maturity
400
Deduction P31,
000

15. Which of the following is deductible from the gross estate?


(a) Income tax paid on income received after death.
(b) Property taxes not accrued prior to death.
(c) Estate tax paid to foreign country.
(d) Donor’s tax accrued prior to death.

Answer: d

Taxes that accrued prior to the decedent’s death are deductible from the gross estate. Taxes that
accrued after death are not deductible. Taxes a, d and c accrue after death.

16. Y, a Filipino resident, died on November 5, 1992 and his estate incurred losses due to:

1st loss: From fire on February 2, 1992 of improvement on his property not compensated by
insurance.
2nd loss: From flood on February 25, 1993 of household furniture also not compensated by
insurance.
(a) 1st loss is not deductible and 2nd loss id deductible;
(b) Both losses are not deductible;
(c) Both losses are deductible;
(d) 1st loss is deductible and 2nd loss is not.

Answer: a
On the property lost even before he died, the property would not be included anymore in the
gross estate. If the property is not included in the gross estate, the loss of the property is not
deductible from the gross estate.

17. Statement 1: Losses can be deducted only if incurred during the settlement of the estate;
Statement 2: Losses can be deducted only if incurred prior to the last day for the filing of
the state tax return and payment of the estate tax
(a) True, True;(b) False, False; (c) True, False; (d) False, True.

Answer: a

18. Ordinary deduction from the gross estate of a non-resident, not citizen of the Philippines:

Only a portion of the world ordinary deductions, computed at follows:

Gross estate, Philippines x World ordinary


Gross, estate, world deductions

It does not matter where the ordinary deductions came about whether in the Philippines or
outside the Philippines. The Philippines deductions is always a portion of the world deductions.
(See Plate 28)

19. Which statement is wrong? For a non-resident, not citizen of the Philippines:
(a) There are no special deductions from the gross estate;
(b) There can be deductions for funeral expenses entirely incurred outside the
Philippines;
(c) There can be a vanishing deduction;
(d) There can be a deduction for transfer for public use.

Answer: b

20. Statement 1: Vanishing deduction for the estate of a non-resident, not citizen of the
Philippines, is allowed only if the property is located in the Philippines;
Statement 2: deduction for transfer for public purposes for the estate of a non-resident,
not citizen of the Philippines, is allowed only if the property is located in the Philippines.
(a) True, True;(b) False, False; (c) True, False; (d) False, True.

Answer: a
21. The decedent was a non-resident alien
Gross estate in the Philippines P6, 000, 000
Gross estate outside the Philippines 4, 000, 000
Funeral expenses outside the Philippines 400, 000
Administration expenses in the Philippines 300, 000
Administration expenses outside the Philippines 200, 000
Claims against the estate in the Philippines 800, 000
Claims against the estate outside the Philippines 300, 000
For purpose of the Philippine estate tax:
Allowable deduction from the gross estate?
(a) P1, 800, 000; (b)P1, 080, 000; (c) P1, 500, 000; (d)Some other amount

Answer: b
Funeral expenses P200, 000
Administration expenses in the Philippines 300, 000
Administration expenses outside the Philippines 200, 000
Claims against the estate in the Philippines 800, 000
Claims against the estate outside the Philippines 300, 000
Total world ordinary deductions P1, 800, 000
P6, 000, 000/P10, 000, 000 x P1, 800, 000 P1, 080, 000

22. Mr. Z was a non-resident, not citizen of the Philippines, single, who died with a gross
estate in the Philippines of P4, 000, 000 and outside the Philippines of P6, 000, 000. He
left the following obligations and charges:

Medical expenses, Philippines, in the year of death P1, 000, 000


Funeral expenses, foreign 800, 000
Claims against insolvent person, Philippines 250, 000
Judicial expenses of testamentary proceedings, Philippines 300, 000
Judicial expenses of testamentary proceedings, foreign 350, 000
Other claims against the estate, Philippines 900, 000
Transfer to the Philippine Government, for public use
of property in the foreign country 400, 000
Unpaid taxes, foreign country 20, 000
Mortgage payable, foreign country 180, 000
Losses, Philippines 100, 000
Deduction from the Philippine gross estate is:
(a) P1, 250, 000; (b) P1, 550, 000; (c) P1, 760, 000; (d) P1, 160, 000

Answer: d
Funeral expenses, foreign country P200, 000
Claims against insolvent person, Philippines 250, 000
Judicial expenses of testamentary proceedings, Philippines 300, 000
Judicial expenses of testamentary proceedings, foreign 350, 000
Other claims against the state, Philippines 900, 000
Unpaid taxes, foreign country 20, 000
Mortgage payable, foreign country 180, 000
Losses, Philippines 100, 000
Total P2, 300, 000
P4, 000, 000/P10, 000,000 x P2, 300, 000 P 920, 000

23. VANISHING DEDUCTION.


The requisites are:
(a) The present decedent died within five years from receipt of the property from a prior
decedent or donor;
(b) The property on which vanishing deduction is being claimed must be located in the
Philippines;
(c) The property must have formed part of taxable estate of the prior decedent, or of the
taxable gift of the donor;
(d) The estate tax on the prior succession, or the donor’s tax on the gift, must have been
finally determined and paid;
(e) The property on which vanishing deduction is being claimed must be identifies as the
donor, or something acquired in exchange thereof; and
(f) No vanishing deduction on the property was allowable to the estate of the prior
decedent.

The vanishing deduction is computed in four steps.

First, an initial value must be taken, which is: the value at which the property was
previously taxed, or the value in the present estate, whichever value is lower.
Second. This initial value shall be reduced by any mortgage or indebtedness on the
property paid by the decedent prior to his death.
Third, the value shall be reduced by the second step shall be further reduced by a
formula, as follows: the value as reduced in the second step divided by the gross estate, and
multiplied by the ordinary deductions.
Fourth. The value arrived at after the third step is called the basis of the vanishing
deduction on which shall be applied a percent (%), as follows: Where the time interval between
receipt of the property and death of the decedent was not more than one year, 100%; more than
one year but not more than two years, 80%; more than two years but not more than three years,
60%; more than three years but not more than four years, 40%;more than four years but not more
than five years, 20%. After five years, there is no more vanishing deduction.

24. The following are requisites for vanishing deduction, except one:
(a) The estate tax of the prior succession must have been finally determined;
(b) The present decedent died within five (5) years from date of death of the prior
decedent;
(c) The property with respect to which deduction is sought can be identified;
(d) The property must have formed part of the gross estate situated in the Philippines of
the prior decedent.

Answer: d
If the prior decedent was a citizen or resident of the Philippines, the property outside the
Philippines would have formed part of the gross estate of the prior decedent because his
gross estate would include all property regardless of location, and estate tax would have
been ascertained and paid on it. If such property was already in the Philippines at the time
of the present precedent’s death, it is subject to vanishing deduction. However, if such
property was already in ht Philippines at the time of the present decedent’s death
(although includible in the present decedent’s estate) it is not subject to vanishing
deduction.

25. Rudolfo, a citizen of the Philippines and resident of Bacolod City, died testate on May 10,
1991. Among his gross estate are properties inherited from his deceased father who died
on April 4, 1988. What percentage of deduction will be used in computing the amount of
vanishing deduction?
(a) 80% of the value taken as basis for vanishing deduction;
(b) 100% of the value taken as basis for vanishing deduction;
(c) 60% of the value taken as basis for vanishing deduction;
(d) 40% of the value taken as basis for vanishing deduction. (CPAExam)

Answer: d

26. Which of the following statements is wrong?


(a) If the decedent was a citizen or resident of the Philippines, the property should be
located in the Philippines;
(b) If the decedent was not a citizen nor resident of the Philippines, the property should
be located in the Philippines;
(c) If the decedent was not a citizen but a resident of the Philippines, the property should
be located in the Philippines;
(d) If the decedent was a citizen and resident of the Philippines, the property may be
located anywhere.

Answer: d
Only property located in the Philippines at the time of the present decedent’s death may
be allowed vanishing deduction.

27. One of the following statements is wrong. Which is it?


Vanishing deduction is allowed to:
(a) A resident citizen, and on property located in the Philippines;
(b) A resident citizen, and on property located outside the Philippines;
(c) A non-resident citizen, and on property in the Philippines;
(d) A resident alien and on property in the Philippines.

Answer: b

28. Statement 1. For a vanishing deduction, there should always be two deaths within five
years from receipt of property.
Statement 2. For two acquisitions by lucrative title at different dates, but both within five
years from present death, there may be one consolidated computation only for the
vanishing deduction.
(a) True, true; (b) False, false; (c) True, false; (d) False, true.

Answer: d
On Statement 1, if the property subject of vanishing deduction was acquired by gift, the
donor need not be dead in order that there can be vanishing deduction. On Statement 2, if
there is the same applicable percentage on the two sets of properties, there can be a
consolidated computation of vanishing deduction.

29. Statement 1. The underlying reason for vanishing deduction is to offer a relief from heavy
burden of taxation if the same property is subjected to two estate taxes within a short
period of time because of proximate dates.
Statement 2. In order that there can be vanishing deduction, the estate tax on a prior
succession must have been previously finally determined and paid.
(a) True, true; (b) False, false; (c) True, false; (d) False, true.

Answer: a
There can be a heavy burden of taxes if two estate taxes were to be paid. If the estate tax
on the prior succession was not previously finally determined and paid, there is no
situation of a two taxes on the same property.

30. Mr. R and a child Mr. W, died in an accident. Mrs. R died one day after the death of Mr.
R and the child. With the following properties in the Philippines:
Mrs. R, exclusive properties of P5,000,000,
Mr. and Mrs. R, community properties of P19,300,000,
Mr. W, exclusive properties of P1,200,000
Is the estate of Mr. W subject to estate tax?
(a) Yes
(b) (b) no
(Modified/expanded/reformatted BAR examination question)

Answer: a
Inheritance from Mr. R was (1/2 of P19,300,000 divided by 2)
P4,825,000
Exclusive property of Mr. W
1,200,000
Total estate, Mr. W
P6,025,000
Under the law on succession, the older person shall be presumed to have died ahead of
the young person. So that Mr. W inherited from Mr. R, and his legitime is on the ½ share
of Mr. R on the community estate.

Can there be a vanishing deduction in the estate of Mrs. R?


(a) Yes
(b) No

Yes. The only doubtful element for vanishing deduction is that the estate tax on the prior
succession must have been finally determined and paid. But of course, the law should be
liberally construed to cover situations where the period to pay the estate tax of the prior
decedent and the present decedent are within almost the same time frame. If the estate tax
was paid on the estate of Mr. R before the net taxable estate of Mrs. R is computed, the
requirement of a prior estate tax payment would have been satisfied.

31. At the time of his death, Mr. A was a resident of the United States. He left, among others,
shares of stock of a Philippine corporation. The estate tax of the United States was paid
on this property. The Bureau of Internal Revenue of the Philippines seeks to impose the
Philippine estate tax on the same property. If the decedent was a citizen of the Philippines
is the Philippine Bureau of Internal Revenue correct in what it seeks?

Statement 1. The Bureau of Internal Revenue is correct because his estate subject to
Philippine estate tax would include all properties regardless of location.
Statement 2. The Bureau of Internal Revenue, cannot allow an exclusion of such property
from the gross estate but can allow only a tax credit against the Philippine estate tax for
the foreign estate tax paid.
(a) True, true; (b) False, false; (c) True, false; (d) False, true.
(Modified/expanded/reformatted BAR examination question)
Answer: a

32. Decedent was a citizen of the Philippines who was single at the time of death, with
properties and charges thereon:
Properties:
Inherited two and one-half years ago:
Property outside the Philippines P300,000
Property in the Philippines:
Fair market value when inherited 650,000
Fair market value at death 700,000
Mortgage on the property when inherited 150,000
Mortgage on the property at death 100,000
Property acquired thru own labor 2,000,000
Charges:
Ordinary deductions from the gross estate 390,000
Vanishing deduction?
(a) P522,000; (b) P417,600; (c) P313,200; (d) P208,800.

Answer: c

Initial value of inherited property in the Philippines P650,000


Less: Mortgage paid 50,000
Balance P600,000
Less: P600,000/P3,000,000xP390,000 78,000
Basis of vanishing deduction P522,000
Vanishing deduction at 60% P313,200
33. Property inherited four and a half years ago (fair market
value of P5,000,000 when inherited and subject to a
mortgage of P1,200,000) P7,000,000
property received as gift three and one-half years ago
(fair market value of P5,000,000 when inherited) 3,000,000
Unpaid mortgage on inherited property 200,000
Funeral expenses 300,000
Judicial expenses 500,000
Claims against the estate (not including mortgage) 1,100,000
Vanishing deduction?
(a) P640,000; (b) P960,000; (c) P1,600,000; (d) P2,400,000

Answer: c
Inherited Gift
Fair market value when received P5,000,000 P3,000,000
Less: Mortgage paid 1,000,000
Balance 4,000,000
Less:
P4,000,000/P10,000,000xP2,000,000* 800,000
P3,000,000/P10,000,000xP2,000,000* ________ 600,000
Basis of vanishing deduction P3,200,000 P2,400,000
Vanishing deduction (20%) P 640,000 (40%)P 960,000

*Ordinary deductions:
Unpaid mortgage on inherited property P 200,000
Funeral expenses (Maximum) 200,000
Judicial expenses 500,000
Claims against the estate (not including mortgage) 1,100,000
Total ordinary deductions, not including vanishing deduction P2,000,000

34. The decedent had a gross estate, and allowable deductions, before computing for
vanishing deduction, from the gross estate, as follows:
Funeral expenses P 80,000
Judicial expenses 100,000
Claims against the estate 120,000
Mortgage on exclusive property 40,000
Bequest to charitable institution 5,000
Bequest to the Philippine Government 60,000
Medical expenses 300,000
Amount received under R.A. 4917 60,000

In formula for vanishing deduction where:

Initial basis of property x Deductions


Gross Estate

The multiplier “deductions” is:


(a) P400,000; (b) P405,000; (c) P 40,000; (d) P100,000.

Answer: a

Funeral expenses (assumed lesser than 5% of gross estate) P 80,000


Judicial expenses 100,000
Claims against conjugal properties 120,000
Mortgage on exclusive property 40,000
Bequest to the Philippine Government 60,000
Total, the multiplier “deductions” P400,000
The bequest to the charitable institution is not part of the multiplier because it is not a
deduction under the National Internal Revenue Code. It is a deduction under a special law
(and and exempt acquisition or transmission by provision of the National Internal
Revenue Code). The multiplier also does not include special deductions.

35. Mr. Ramon Asuncion, a citizen and resident of the Philippines, died leaving the following
properties:
Real and personal properties P3,000,000
Land and building inherited from the father 1 ½ years ago
(with a fair market value at that time of P1,500,000) 2,000,000
Car purchased with cash received as gift from the mother
during the year 500,000
Cash (including P500,000 received by inheritance from the
father) 1,500,000
Claims against the estate 600,000
Unpaid mortgage on the land and building inherited
(from an original of P600,000 when inherited) 100,000
The vanishing deduction is:
(a) P1,530,000; (b) P1,080,000; (c) P450,000; (d) P1,130,000.

Answer: a

On property received from: Father Mother


Initial basis:
Land and building (family home) P1,500,000
Cash 500,000
Car P500,000
Total P2,000,000
Less: Mortgage paid 500,000
Balance P1,500,000
Less:
P1,500,000/ P7,000,000 x P700,000 150,000
P 500,000/P7,000,000 x P700,000 _________ 50,000
Basis of vanishing deduction P1,350,000 P450,000
Applicable rate of vanishing deduction 80% 100%
Vanishing deduction P1,080,000 P450,000

36. ON SPECIAL DEDUCTIONS.

Tax formula per revenue regulation:

Total of net exclusive and net community estate Pxxx


Less: Special deductions:
Medical expenses Pxxx
Family home xxx
Standard deduction xxx xxx
Net estate Pxxx
Less: Share of the surviving spouse
(1/2 of net community estate) xxx
Net taxable estate Pxxx

37. Medical expenses.

Medical expenses are deductible from the gross estate at actual medical expenses, or
P500,000, whichever is lower, if incurred within one year prior to death.

Medical expenses are deductible, whether paid or unpaid at the time of death.
Medical expenses incurred more than one year prior to the date of death, even if unpaid,
are not deductible from the gross estate.

38. Which of the following statements is wrong?


(a) If the family home is community property, the deduction for family home is ½ of its
value, and from gross community estate to arrive at net community estate;
(b) If the family home is community property, the deduction for family home is ½ of its
value, and from the total of exclusive and community estate;
(c) Medical expenses are deductions from the total of exclusive and community estate;
(d) The standard deduction is against the total of exclusive and community estate.

Answer: a

39. Statement 1. The standard deduction, as deduction from the gross estate is always P1,
000, 000.
Statement 2. For a married person with exclusive conjugal/community properties, the
standard deduction need not classified as exclusive or conjugal/community deduction.
(a) True, true; (b) False, false; (c) True, false; (d) False, true.

Answer: a

40. One of the following statements is wrong. Identify. Medical expenses deduction from the
gross estate:
(a) Is only if the decedent was a citizen or resident of the Philippines at the time of death.
(b) Is actual medical expenses or P500, 000, whichever is lower.
(c) Need not be on the illness resulting in death.
(d) Must be unpaid at the time of death.

Answer: d
The revenue regulation states that medical expenses, whether paid or unpaid at the time of death
are allowable as deductions from the gross estate. And if the medical expenses were incurred
more than one year prior to death, and still unpaid at the time of death, such medical expenses
cannot be deducted from the gross estate, not even as claims against the estate.

41. The following expenses, except one, should be paid or take place within a certain period
in order to be deducted from the gross estate of a resident or citizen decedent. Which is
the exception?
(a) Vanishing deduction;
(b) Judicial expenses;
(c) Medical expenses;
(d) None.

Answer: d
On vanishing deduction, the property on which the deduction is being claimed must have been
received within five years prior to death; on judicial expenses, only those incurred before the last
day of filing of the return will be allowed as a deduction. Medical expenses are allowable as
deduction only if incurred within the day prior to death.

42. Only one statement is correct. Deduction for family home:


(a) Shall be allowed if the family home is in the Philippines;
(b) Shall be at a maximum of P1, 000, 000, based on cost;
(c) May be allowed for two family homes (one in the city and another in the province),
both in the Philippines and with certification of the barangay captains.
(d) Shall be deducted at lesser than P1, 000, 000 if, with vanishing deduction and unpaid
mortgage or indebtedness, the value of the family home is already reduced to zero.

Answer: a
43. Which statement I true?
(a) A single person, who is not a head of the family, may not have a deduction for family
home.
(b) There can be a deduction for two family homes if their aggregate value does not
exceed P 1, 000, 000.
(c) Deduction may be claimed for a family home of a non resident citizen of the
Philippines located outside the Philippines
(d) A family home is always conjugal/community property.

Answer: a
On letter (a), under the law and implementing regulations a single person who is head of the
family is entitled to a deduction for family home. On letter (c) the special deduction for family
home is allowed only to a decedent who was a resident or citizen of the Philippines at the time of
death. On letter (d), a family home of a single individual is exclusive property. A family home
acquired during marriage and from conjugal/community funds is conjugal/community property.
If the family home acquired during the marriage is from exclusive funds, the family home is
exclusive property.

44. Statement 1. Amount received by the heirs under Republic Act 4917 is a special
deduction.
Statement 2. Deduction from the gross estate allowed by a special law is a special
deduction.
(a) True, true; (b) False, false; (c) True, false; (d) False, true.

Answer: a
Medical expenses, family home and standard deduction (recent deductions in the National
Internal Revenue Code by an amendatory law) were classified by the regulation as special
deductions. Amount receivable under republic act 4917 which was among the recent deductions
should be considered also as special deductions.
By the revenue regulations, only deductions under the National Internal Revenue Code are
ordinary deductions.

45. DEDUCTIONS WITH CEILING are:


(a) Funeral expenses – not exceeding five percent (5%) of the gross estate, and not
exceeding P200, 000;
(b) Medical expenses – nor exceeding P500, 000;
(c) Family home – not exceeding P1, 000, 000.

SPECIAL PROBLEMS

1. Net taxable estate


2. Net distributable estate\
3. Tax credit for foreign estate tax paid
4. Returns and reportorial requirements

NET TAXABLE ESTATE AND ESTATE TAX.

1. Tax formula (per revenue regulation):


Exclusive Community Total
Gross estate Pxxx Pxxx
Pxxx
Less: ordinary deductions xxx xxx
xxx
Net exclusive/community [or conjugal] estate Pxxx Pxxx
Pxxx
Less: Special deductions
xxx
Net estate
Pxxx
Less: share of the surviving spouse in the net
community [or conjugal] estate (1/2)
xxx
net taxable estate
Pxxx

2. As general rule, obligations contracted during the marriage are presumed to have
benefited, and are charges against the community/conjugal property (e.g. funeral
expenses, judicial expenses, claims against the estate).
Vanishing deduction may be a deduction against exclusive or community/conjugal
property, depending on the classification of the property to which it is related, if exclusive
or community/conjugal.
A deduction, whether against exclusive or community/conjugal estate follows the
classification of the property in the gross estate. If the property to which the deduction is
related is exclusive property in the gross estate, if the property to which the deduction is
community/conjugal property in the gross estate. The deduction is against the
community/conjugal gross estate.

3. The decedent was a resident citizen, single at the time of death. He left the following:

Property inherited2 ½ years ago:

Value in the present estate P500, 000


Fair market value when inherited 400, 000
Mortgage on the property when inherited 60, 000
Mortgage on the property paid by the present decedent 30, 000
Properties received as gift within the year:
Value in the present estate
300, 000
Value when received
320, 000
Other properties P1,
000, 000
Ordinary deductions, not including vanishing deduction
500, 000
Net taxable estate?
(a) P95, 000; (b) P500, 000; (c) P320, 000; (d) P275, 000.
Answer: a
Properties received as inheritance P500, 000
Properties received as gift 300, 000
Other properties P1, 200 ,000
Gross estate P2, 000, 000
Less: ordinary deductions
Others P500, 000
Vanishing deductions:
On property received as inheritance 180, 000
On properties received as gift 225, 000 405, 000
Special deduction – Standard deduction 1, 000, 000
Total deductions P1, 905, 000
Net taxable estate P 95, 000

Vanishing deduction on: Inheritance Gift


Initial value to take P430, 000 P300, 000
Less: mortgage paid 30, 000
Balance: P400, 000
Less:
P400, 000/P2, 000, 000 x P500, 000 P100, 000
P300, 000/P2, 000, 000 x P500, 000 _______ 75, 000
Basis of vanishing deduction P300, 000 P225, 000
Percent to apply 60% 100%
Vanishing deduction P180, 000 P225, 000

4. The decedent was married and under the system of absolute community of property.
Property inherited one and one-half years ago and before the marriage
(with a fair market value of P160, 000 when inherited and a mortgage
of P60, 000, which mortgage was paid in full by the decedent) P250, 000
Other properties 2,
750, 000
Deductions against community properties, except vanishing deductions 600, 000
Net taxable estate?
(a) P1, 336, 000; (b) P168, 000; (c) P2, 336, 000; (d)some other amount

Answer: b
Properties inherited before the marriage P 250, 000
Other properties 2, 750, 000
Gross estate P3, 000, 000
Less: Ordinary deductions –
Other 600, 000
Vanishing deduction 64, 000 664, 000
Net community estate 2, 336, 000
Less: Special deduction
Standard deduction 1, 000, 000
Net estate P1, 336, 000
Less: Share of the spouse in the net community estate
( ½ of P2, 336, 000) 1, 168, 000
Net taxable estate P 168, 000

Vanishing deduction:
Initial value to take P160, 000
Less: Mortgage paid 60, 000
Balance 100, 000
Less: P100, 000/P3, 000, 000 x P600, 000 20, 000
Basis of vanishing deduction P80, 000
Vanishing deduction (P80, 000 x 80%) P64, 000

5. The decedent was under the system of absolute community of property. He died leaving:

Land and house acquired during the marriage, used as family home P2, 700, 000
Clothes of the decedent purchased with exclusive money 300, 000
Car inherited during the marriage six years before 1, 000, 000
Other real and personal property 1, 950, 000
Medical expenses 600, 000
Actual funeral expenses 300, 000
Administration expenses on extrajudicial partition of the estate 500, 000
Claims against an insolvent friend 50, 000
Claims against the estate (other than mortgage) 700, 000
Unpaid mortgage on inherited land 300, 000
Unpaid mortgage on car 500, 000
Net taxable estate?
(a) P0; (b) P1, 250, 000; (c) P1, 200, 000; (d) Some other amount.
Answer: a
Exclusive Community
Total
Land and house P2, 700, 000
Clothes of decedent P300, 000
Car 1, 000, 000
Other properties 1, 950, 000
Claims against insolvent _________ 50, 000
Totals P1, 300, 000 P4, 700, 000
Funeral expenses (maximum) 200, 000
Administration expenses 500, 000
Claim against insolvent 50, 000
Claims against the estate 700, 000
Unpaid mortgage 500, 000 300, 000
Totals P500, 000 P1, 750, 000
Net exclusive/ community estate P800,000 P2, 950 ,000 P3, 750, 000
Medical expenses (maximum) ( 500, 000)
Standard deduction (1, 000, 000)
Family home ( ½ of P2, 700, 000 is
P1, 350, 000) (maximum) (1, 000, 000
Net estate P1, 250, 000
Less: Share of surviving spouse
In the net community estate
( ½ of P2, 950, 000) 1, 475, 000
Net taxable estate P ________0

6. Date of death was March 5, 2013. Data at the time of death:


Real property in Manila inherited from the father
two and one-half (2 ½ ) years ago and before the marriage,
with affair market value at that time of P2, 000, 000 P1, 500, 000
Real property in Quezon City acquired during the marriage 4, 000, 000
Cash remaining of P500, 000 proceeds from a sale of personal
property (property was received within the year as gift
with a value of P200, 000, with an unpaid purchase price
of P100, 000 assumed by the decedent.
The unpaid price as paid out of the proceeds of the sale). 400, 000
Cash from the earnings of the wife 600, 000
Personal properties acquired thru own labor 400, 000
Clothes of the surviving spouse, purchased with income during marriage 600, 000
Mortgage payable on the real property in Manila, from a mortgage
on the property of P800,000 when inherited 500, 000
Funeral expenses (paid of P160,000 and unpaid of P140,000) 300, 000

Medical expenses on last illness two weeks before death:


(paid of P180,000 and unpaid of P3000,000) 480, 000
Medical expenses, unpaid, on illness on January 6, 2012 600, 000
Other obligations 497, 000
Claim against insolvent 100, 000
Payments to the lawyer assisting in the settlement of the estate:
Acceptance fee, April 5, 2013 100, 000
Appearance in court, June 16, 2013 3, 000
Appearance in court, October 15, 2013 3, 000
Appearance in court, December 2, 2013 3, 000
If under the absolute community of property, the net taxable estate is:
(a) P4,944,000; (b) P1,152,000; (c) P3,464,000; (d) P3,944,000

Answer: b
Exclusive Community
Total

Gross estate:
Real property in Manila P 1,500,000
Real property in Quezon City 4,000,000
Cash from proceeds of sale P 400,000
Cash from earnings of the wife 600,000
Personal properties 400,000
Claim against insolvent _______ 100,000
Total P 400,000 P 6,600,000
Ordinary deductions:
Mortgage payable P 500,000
Funeral expenses 200,000
Other obligations 497,000
Claim against insolvent 100,000
Judicial expenses-
Acceptance fee 100,000
Court appearance, June 16, 2013 3,000
Vanishing deduction (Schedule) P 80,000 576,000
Totals 80,000 P 1,976,000
Net exclusive/community estate P 320,000 P 4,624,000 P 4,944,000
Special deductions:
Standard deduction ( 1,000,000)
Medical expenses (P180,000 + P300,000) ( 480,000)
Net estate P 3,464,000
Share of the surviving spouse in the
Net conjugal estate (1/2 of P3,624,000)
( 2,312,000)
Net taxable estate P 1,152,000

Schedule on vanishing deduction.


Cash Real
Property
Initial value to take P 200,000 P 1,500,000
Less:
Payment on mortgage (300,000)
Payment on unpaid price (100,000)
________
Balance P 100,000 P 1,200,000
Less:
P1,200,000/P7,000,000 x P1,400,000 240,000
P 100,000/P7,000,000 x P1,400,000 20,000 _______
Basis of vanishing deduction P 80,000 P 960,000
Vanishing deduction
(60% of P960,000) P 576,000
(100% of P80,000) P 80,000

7. Mrs. Lauren McDonald, a citizen and resident of Brisbane, Australia, died leaving
properties and obligations in Australia and in the Philippines; Data on her properties and
obligations follow:
Properties in Australia (inherited within the year)
of which P1,000,000 is family home P 3,000,000
Properties in the Philippines 1,000,000
Funeral expenses in Australia 250,000
Unpaid obligations in Australia 700,000
Medical expenses in the Philippines 200,000
The taxable estate in the Philippines is:
(a) P1,000,000; (b) P800,000; (c) P775,000; (d) PO.

Answer: c

Gross estate, Philippines P 1,000,000


Less deductions:
Funeral expenses in Australia
(Maximum allowable under Philippine law) P 200,000
Unpaid obligations in Australia 700,000
Total P 900,000
P1,000,000/P4,000,000 x P900,000 225,000
Net taxable estate P 775,000

A non-resident, not citizen decedent has no deduction for standard deduction, medical expenses
and family home or an amount receivable under R.A. 4917.

NET DISTRIBUTABLE ESTATE.

1. The taxable estate on which the estate tax rates are applied is not the same as the net
distributable estate. The taxable estate is the result of the formula under the
National Internal Revenue Code: Gross estate, on the other hand, is: Properties
physically in the estate, less actual diminutions of the estate equals the net
distributable estate.

Net taxable estate and net distributable estate may be at different amounts
because of deductions to arrive at net taxable estate which are paper deductions
only but do not physically diminish the gross estate:

Net taxable estate and net distributable estate may be at different amounts
because there are deductions from the gross estate to arrive at net taxable estate
which are only at maximum amounts provided by law, and are not the actual
diminutions of the estate.

Any of the following may result in the net distributable estate being at a figure
different from that of the net taxable estate:

(a) Funeral expense, which is deduction from the taxable gross estate at a statutory
maximum, but which reduces the distributable gross estate at the actual amount;
(b) Funeral expense already paid as at the time of death (e.g., memorial plan) which
is still allowable as deduction from the taxable gross estate but which does not
physically reduce the distributable gross estate anymore;
(c) Medical expense, which is a deduction from the taxable gross estate at a
statutory maximum, but which reduces the distributable gross estate at the
actual amount;
(d) Medical expense already paid as at the time of death, which is still allowable as a
deduction from the gross estate but which will not physically reduce the
distributable gross estate anymore;
(e) Medical expense, still unpaid, incurred more than one year prior to death, which
is not a deduction from the taxable gross estate, but which shall physically
diminish the distributable gross estate as it is still a liability of the estate;
(f) Medical expense, paid by a pre-need company, which can be deducted from the
taxable gross estate, but which shall not physically reduce the distributable gross
estate;
(g) Judicial expense incurred beyond the period provided by the law for filing the
estate tax return and payment of estate tax, which is not a deduction from the
gross estate, but which physically diminishes the distributable gross estate;
(h) A claim against the estate arising from a debt instrument which is not notarized,
which is not a deduction from the taxable gross estate, but which shall physically
diminish the distributable gross estate;
(i) A claim against the estate arising from a debt instrument which was contracted
within three years prior to the decedent’s death must be supported by a
statement from the executor or administrator showing the disposition of the loan
in order to be deductible from the taxable gross estate, but which shall physically
diminish the distributable gross estate even without the certification;
(j) A loss, in order to be deductible from the gross estate must occur before the last
day for filing the estate tax return and payment of the tax, but which would
physically diminish the distributable gross estate even if beyond such period;
(k) Vanishing deduction, which is a deduction from the taxable gross estate, but
which is not a physical diminution of the distributable gross estate;
(l) Family home, which is a deduction from the taxable gross estate, but which is
not a physical diminution of the distributable gross estate;
(m) Standard Deduction of one million pesos (P1,000,000), which is a deduction
from the taxable gross estate, but which does not physically diminish the
distributable gross estate;
(n) Amount receivable under RA 4917 which is deduction from the gross estate but
which does not physically diminish the distributable gross estate;
(o) The share of the surviving spouse in the net conjugal or net community estate is
a deduction from the taxable gross estate at an amount computed applying the
rules on gross estate and deductions under the estate tax law, while it is a
diminution of the distributable gross estate at an amount computed under the
civil law on succession in the New Civil Code and the Family Code of the
Philippines;
(p) The estate tax on the net taxable estate is not a deduction from the taxable gross
estate while it is a diminution of the physical gross estate. (See Plate 16)

2. Decedent was single at the time of death.


Real and personal properties in the Philippines P 6,000,000
Proceeds of life insurance:
Receivable by the estate, as revocable beneficiary 1,000,000
Receivable by the spouse, as irrevocable beneficiary 500,000
Medical expenses within one year prior to death:
Paid by the time of death 300,000
Unpaid as at the time of death 400,000
Funeral expenses:
Paid by the time of death 100,000
Unpaid at the time of death 150,000
Other obligations of the decedent 1,000,000
Net taxable estate?
(a) P5,000,000; (b) P4,052,000; (c) P4,300,000; (d) P5,300,000

Answer: c

Net distributable estate?


(a) P5,450,000; (b) P3,912,000; (c) P5,062,000; (d) P4,052,000.
Answer: c

Taxable Distributable
Gross estate P 6,000,000 P 6,000,000
Receivable under life insurance, with estate
As beneficiary 1,000,000 1,000,000
Total 7,000,000 7,000,000
Medical expenses (P 500,000) ( 400,000)
Funeral expenses ( 200,000) ( 150,000)
Other obligations ( 1,000,000) ( 1,000,000)
Standard deduction ( 1,000,000)
Total deductions P 2,700,000
Net taxable estate P 4,300,000
Estate tax P 388,000 ( 388,000)
Net distributable estate P 5,062,000

3. The taxpayer was married and under the system of absolute community of property. He
died on January 2, 2013. He left the following properties and charges thereon:

Personal properties owned for ten years and before the marriage P 1,000,000
Real property received as gift six years ago and during
the marriage 5,000,000
Personal and real properties acquired during the marriage 4,000,000
Actual funeral expenses 500,000
Judicial expenses on March 1, 2013 200,000
Judicial expenses on November 6, 2013 120,000
Loss of property on February 6, 2013 100,000
Loss of property on October 16, 2013 200,000
Net taxable estate?
(a) P7,250,000; (b) P6,630,000; (c) P5,250,000; (d) Some other amount.

Answer: b

Net distributable estate?


(a) P6,087,500; (b) P6,630,000; (c) P6,940,000; (d) Some other amount.

Answer: a
Exclusive Community
Total
Personal properties owned
before marriage P 1,000,000
Real property received as gift P 5,000,000
Personal and real properties
acquired during the marriage _________ 4,000,000
Gross estate P 5,000,000 P
5,000,000
Funeral expenses ( 200,000)
Judicial expenses ( 200.000)
Losses ( 100,000)
Net exclusive/community estate P 5,000,000 P 4,500,000 P
9,500,000
Standard deduction
( 1,000,000)
Net share of surviving spouse in
The net community estate
(1/2 P4,500,000)
( 2,250,000)
Net taxable estate P
6,250,000
Estate tax P
652,500

Exclusive Community
Total

Personal properties owned


before marriage P 1,000,000
Real property received as gift P 5,000,000
Personal and real properties
acquired during the marriage ________ 4,000,000
Gross estate P 5,000,000 P 5,000,000 P
10,000,000
Funeral expenses
( 500,000)
Judicial expenses
( 320,000)
Losses
( 300,000)
Net exclusive/community estate P
8,880,000
Net share of surviving spouse in
The net community estate
Less P300,000 equals P3,880,000;
( P3,880,000 divided by 2)
( 1,940,000)
Estate tax (
852,500)
Net distributable estate P
6,087,500

TAX CREDIT FOR FOREIGN ESTATE TAX PAID. (See Plate 17)

1. Only the estates of citizens or reridents of the Philippines at the time of death can
claim credit for foreign estate tax/es paid.

If there was one foreign country only to which an estate tax was peid, the
estate tax credit shall not exceed the amount arrived at with the use of the following
formula:

Net estate, foreign county x Philippine estate


Net estate world tax = Pxxx

Compare with:

Foreign estate tax paid


Pxxx

Tax credit allowed, whichever is lower (This is called


Limitation A)

To compute for tax credit, net estate by country has to be arrived at. In
computing for the vet estate by country, gross estate and the related deductions must
be identified by country. Certain items of deductions may have to be apportioned:
Examples are: (a) Funeral expenses; (b) Medical expenses; and (c) Standard
deduction.

Where there were two or more foreign countries to which foreign estate taxes
were paid, tax credit for foreign estate taxes shall be computed, as follows:

Step 1. Tentative tax credit, Limitation A:

Computative limitation A by country. Add the tax credits by country Pxxx

Compare with:
Step 2. Tentative tax credit, Limitation B:

Net estate, foreign countries x Philippine estate


Net estate world tax = Pxxx

Compare with:

Total foreign estate taxes paid Pxxx


Tax credit allowed, whichever is lower Pxxx

Step 3. Final tax credit (Limitation A, or Limitation B,


whichever is lower) Pxxx

2. Estate tax credit for foreign estate tax paid is available to the estate of:
(a) Resident or citizen of the Philippines;
(b) Non-resident alien;
(c) All kinds of decedents;
(d) All of the above.

Answer: a

3. The decedent was a citizen of the Philippines, under the system of absolute community of
property during the marriage, with properties of P7,000,000 in the Philippines and
P4,000,000 in Foreign Country A, and all deductions, except the net share of the
surviving spouse in the community properties, from the gross estate of P2,000,000 in the
Philippines and P3,000,000 in Foreign Country A. There was a payment of P50,000 of
the estate tax of Foreign Country A.
Estate tax still due after tax credit?
(a) P195,000.00; (b) P204,166.67; (c) P201,435.25; (d) Some other amount.

Answer: b
Philippines Country A Total
Properties P 7,000,000 P 4,000,000
All deductions 2,000,000 3,000,000
Net estate P 5,000,000 P 1,000,000 P 6,000,000
Less: Net share of the
Surviving spouse in the
Community estate 3,000,000
Net taxable estate P 3,000,000
Estate tax P 245,000
Less estate tax credit –
Foreign estate tax paid P 50,000.00
P1,000,000/P6,000,000 x P245,000 P 40,833.33
Allowed 40,833.33
Estate tax still due P204,166.67

4. The taxpayer was single at the time of death. Data were: Country A: Net estate of
P100,000 and estate tax of P8,000, Country B: Net estate of P200,000 and estate tax paid
of P12,000; Philippines: Net estate of P1,200,000. The decedent was a resident and
citizen of the Philippines.
Estate tax credit for foreign estate taxes paid?
(a) P19,000.00 (b) P18,333.33 (c) P20,000.00 (d) P12,000.00

Answer: b

Net estate, Country A P 100,000


Net estate, Country B 200,000
Net estate, Philippines 1,200,000
Net estate, taxable P 1,500,000
Estate tax P 95,000

Tax credit.

Limitation A.

Country A: P100,000/P1,500,000 x P95,000 P 6,333.33


Foreign estate tax paid 8,000.00
Allowed P 6,333.33
Country B: P200,000/P1,500,000 x P95,000 P 12,666.67
Foreign estate tax paid P 12,000.00
Allowed P 12,000.00
Total P 18,333.33

Limitation B: P300,000/P1,500,000 x P95,000 P 19,000.00


Total of foreign estate taxes paid P 20,000.00
Allowed P 19,000.00
Tax credit to apply (Limitation A) P 18,333.33

5. A resident citizen died leaving (all before standard deduction): Net estate in the
Philippines – P1,000,000; Net estate in Foreign Country A – P250,000; Net estate in
Foreign Country B – P750,000. His estate paid estate taxes to Foreign Country A of
P7,500 and to Foreign Country B of P18,125.
Tax credit against the Philippines estate tax?
(a) P25,000.00; (b) P25,625.00; (c) P27,5000; (d) P26,405.00

Answer: a
Philippines Country A Country B
Net estate before standard deduction P 1,000,000 P 250,000 P 750,000
Less: Standard deduction –
P1,000,000/P2,000,000 x P1,000,000 500,000
P250,000/P2,000,000 x P1,000,000 125,000
P750,000/P2,000,000 x P1,000,000 _______ _______ 375,000
Net taxable estate P 500,000 P 125,000 375,000
Estate tax on P1,000,000 P 55,000
Estate tax credit:
Limitation A:
Foreign Country A:
P125,000/P1,000,000 x P55,000 P 6,875
Foreign estate tax paid P 7,500
Allowed P 6,875
Foreign Country B::
P375,000/P1,000,000 x P55,000 P 20,625
Foreign estate tax paid P 18,125
Allowed 18,125
Total P25,000
Limitation B:
P500,000/P1,000,000 x P55,000 P27,500
Total of foreign estate taxes paid P25,625
Allowed P25,625
Allowed tax credit against Philippine estate tax (Limitation A) P25,000

6. The decedent was single leaving properties in three countries: Philippines, Malaysia and
Indonesia, as follows:
Philippines Malaysia Indonesia
Gross estate P 7,000,000 P 4,000,000 P 5,000,000
Ordinary deductions 2,000,000 1,000,000 3,000,000
Estate tax paid 4,000,000 195,000
Philippine estate tax after tax credit?
(a) P595,000; (b) P544,583; (c) P595,000; (d) Some other amount

Answer: b

Net estate P 10,000,000


Less: Standard deduction 1,000,000
Net taxable estate P 9,000,000
Estate tax before tax credit on P9,000,000 P 1,065,000
Less; Tax credit (Schedule) P 520,417
Estate tax still due P 544,583

Schedule. Tax credit.


Philippines Malaysia Indonesia
Net credit before Standard
Deduction P 5,000,000 P 3,000,000 P 2,000,000
Less: Standard deduction ( 437,500) ( 250,000) ( 312,500)
Net taxable estate P 4,562,500 P 2,750,000 P 1,687,500

Estate tax on P9,000,000 is P1,065,000

Limitation A:
Estate tax credit-
Actually paid P 400,000 P 195,000
Formula:
P2,750,000/P9,000,000 x P1,065,000 P 325,417
P1,687,500/P9,000,000 x P1,065,000 P 199,687
Allowed P 325,417 P 195,000
Total of Limitation A P 520,417

Limitation B:
Total actually paid P 595,000
P443,750/P9,000 x P1,065,000 P 525,104
Allowed P 525,104

Final tax credit P 525,104

7. Mr. C, a citizen and resident of the Philippines, died with data on community properties
(of which P850,000 is family home) in the Philippines, exclusive properties in Country X
and Country Y, charges thereon, and foreign estate taxes paid, as follows:
Philippines Country X Country Y
Gross estate P 3,000,000 P 1,500,000 P 1,500,000
Funeral expenses 250,000 250,000
Medical expenses 200,000 600,000
Other charges 400,000 225,000 1,000,000
Estate tax paid 15,000 5,000

Estate tax credit for foreign estate tax paid?


(a) P18,444.44; (b) P19,555.55; (c) P17,344.44; (d) Some other amount.

Answer: a
Philippines Country X Country Y
(Community) (Exclusive) (Exclusive)
Gross estate P 3,000,000 P 1,500,000 P 1,500,000
Ordinary deductions:
Funeral expenses-
250,000/500,000 x 200,000 (100,000)
250,000/500,000 x 200,000 (100,000)
Other charges (400,000) (225,000) (1,000,000)
Net exclusive/community estate 2,500,000 1,175,000 500,000
Special deduction:
Standard deduction –
3,000,000/6,000,000 x 1,000,000 (500,000)
1,500,000/6,000,000 x 1,000,000 (250,000)
1,500,000/6,000,000 x 1,000,000 (250,000)
Family home (1/2 of 850,000) (425,000)
Medical expenses –
200,000/800,000 x 500,000 (125,000)
600,000/800,000 x 500,000 ________ (375,000) ________
Net estate (per Rev. Reg. 2-2003 1,450,000 500,000 250,000
Share of the surviving spouse in the
Net community estate
(1/2 of P2,500,000) (1,250,000) ________ ________
Net taxable estate 200.000 500,000 250,000

Estate tax on P1,000,000 55,000


Tax credit, Limitation A:
Country X –
Estate tax paid to Country X 15,000.00
550,000/2,250,000 x 55,000 13,444.44
Allowed 13,444.44
Country Y –
Estate tax paid to County Y 5,000.00
250,000/2,250,000 x 55,000 6,111.11
Allowed 5,000.00
Total 18,444.44
Tax credit, Limitation B:
Total of foreign estate taxes paid 20,000.00
800,000/2,250,000 x 55,000 19,555.55
Allowed 19,555.55
Tax credit to apply (Limitation A) 18,444.44

8. Data on an estate:
Philippines Foreign
Gross estate P 6,000,000 P 4,000,000
Claims against the estate 1,000,000 1,000,000
How much was the Philippine estate tax due if the decedent was a non-resident, not
citizen of the Philippines, and there was a foreign estate tax payment of P500,000?
(a) P O; (b) Refund of P57,000; (c) P265,800; (d) P443,000.

Answer: d

Gross estate, Philippines P 6,000,000


Claims against the estate:
P6,000,000/ P10,000,000 x P2,000,000 1,200,000
Net taxable estate, Philippines P 4,800,000
Estate tax on P4,800,000 P 443,000
Less: Tax credit for foreign estate tax 0
Estate tax still due P 443,000
The estate of a non-resident, not citizen, of the Philippines is not entitled to tax credit for
foreign estate.

RETURNS AND REPORTORIAL REQUIREMENTS.


1. Required returns and reports:

When the gross estate exceeds P20,000 – Notice of death

When the gross estate exceeds P200,000:


(a) Notice of death;
(b) Estate tax return.

When the gross estate exceeds P2,000,000:


(a) Notice of death;
(b) Estate return tax;
(c) CPA certificate.

Regardless of the value of the gross estate, a return is required if there is


registered or registerable property (land, motor vehicle, shares of stock or
similar property) where clearance of the Commissioner of Internal Revenue is
required in order to transfer title to the transferee.

2. An executor or administrator, after paying the estate tax, and to escape a future
liability for a deficiency estate tax, must secure a written discharge from personal
liability from:
(a) The heirs;
(b) The Commissioner of Internal Revenue;
(c) The court where the estate was being settled;
(d) Need not secure a written discharge as long as he has a receipt on payment of the
estate tax.

Answer: b

3. The estate tax return should be accompanied by a certificate of an independent


Certified Public Accountant if the gross estate is:
(a) P2,000,000;
(b) P2,000,000 or over;
(c) Over P2,000,000;
(d) P50,000 or over.

Answer: c

4. Which statement is wrong? An estate tax return is required to be filed:


(a) When the estate is subject to estate tax;
(b) When the estate is not subject to estate tax but the gross estate exceeds P200,000;
(c) Where the gross estate includes registered real property;
(d) In all cases where there is a gross estate.

Answer: d
On c, the law states: “Regardless of the amount of the gross estate, where the said
gross estate consists of registered or registerable property, motor vehicle, or
shares of stock, or other similar property for which clearance from the Bureau of
Internal Revenue is required as a condition precedent for the transfer of
ownership therof in the name of the transferee”.

5. Statement 1. The period within which the estate tax return may be filed may be
extended by the Bureau of Internal Revenue for a period not exceeding thirty days.
Statement 2. The estate tax return may be signed by any one of the heirs if the estate
is not settled judicially.
(a) True, true; (b) False, false; (c) True, false; (d) False, true.

Answer: a
6. Statement 1. The estate tax return should be filed with the authorized agent bank,
Revenue District Officer, Collection Agent or duly authorized treasurer of the
municipality in which the decedent was domiciled at the time of his death;
Statement 2. If the decedent was a non-resident, not a citizen of the Philippines, the
estate tax return may be filed with the Commissioner of Internal Revenue.
(a) True, true; (b) False, false; (c) True, false; (d) False, true.

Answer: a

7. Statement 1. The payment of the estate tax may be extended for a period not
exceeding five years if there is judicial settlement of the estate;
Statement 2. The payment of the estate tax may be extended for a period not
exceeding two years if there is an extrajudicial settlement of the estate.
(a) True, true; (b) False, false; (c) True, false; (d) False, true.

Answer: a
The law: When the Commissioner of Internal Revenue shall find that the
payment of the estate tax on the due date would impose undue hardships upon
the estate or any one 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 extra-judicially.

8. Which of the following statements is not correct?


(a) No judge shall order a distribution of any part of the estate to an heir without a
certification from the Bureau of Internal Revenue that the tax has been paid;
(b) A bank shall not allow the co-depositor of a deceased to withdraw from the joint
bank account without a certification from the Bureau of Internal Revenue that the
tax has been paid;
(c) No Register of Deeds shall transfer to any heir the title of a decedent to real
property without a certification from the Bureau of Internal Revenue that the tax
has been paid;
(d) None of the above.

Answer: d

9. When an estate is settled extra-judicially, the estate tax return may be filed and the
estate tax paid;
(a) By any of the heirs, with a right of reimbursement from the other heirs;
(b) Only by the heir with written authority from the other heirs;
(c) By each of the heirs, the payment being for his distributive share in the estate tax;
(d) The eldest of the heirs and closest in relationship to the decedent.

Answer: a

10. Statement 1. There will be a penalty to pay even if an estate tax return was filed and
the estate tax was paid if notice of death was not given to Bureau of Internal
Revenue;
Statement 2. A notice of death is given at any time within two months after the
decedent’s death.
(a) True, true; (b) False, false; (c) True, false; (d) False, true.

Answer: a

11. Statement 1. When an estate under administration has income-producing properties,


the annual income of the estate becomes part of the estate subjected to the estate tax;
Statement 2. When an estate under administration has income-producing property, the
annual income is not part of the estate subject to estate tax but when distributed in the
year that the income was earned becomes income to the heir subject to income tax.
(a) True, true; (b) False, false; (c) True, false; (d) False, true.

Answer: d

12. Which of the following statements is false? When an estate tax return had been filed
and the estate tax had been paid but subsequently, because of errors in the return, a
deficiency estate tax has to paid:
(a) The Bureau of Internal Revenue can ask payment from the heirs to whom the
estate had been distributed;
(b) The Bureau of Internal Revenue cannot ask the executor or administrator to pay
because he would have been discharged from liability for the estate tax to the
state, the estate and the heirs once an estate tax had been paid on the estate that he
administered;
(c) The Bureau of Internal Revenue can still ask the executor or administrator to pay,
even if the heirs have dissipated the inheritance, if the executor or administrator
did not ask for a written discharge from liability from the Bureau of Internal
Revenue;
(d) The Bureau of Internal Revenue shall have a lien on the properties of the estate
once a demand for payment had been made.

Answer: b

13. When a donation which paid a donor’s tax was actually a donation mortis causa, as
ascertained by the Bureau of Internal Revenue, which of the following is true?
(a) The donation shall be required to pay the estate tax on its proper valuation at the
time of death, and there can be a refund for the wrong payment of the donor’s tax;
(b) The donation shall be required to pay the estate tax so that the estate tax computed
shall be reduced by the donor’s tax already paid;
(c) The donation shall not pay any transfer tax anymore;
(d) There is the estate tax in addition to the donor’s tax previously paid.

Answer: a

14. Statement 1. The Bureau of Internal Revenue can collect the estate tax by the
summary proceedings of distraint and levy without first securing authority from the
court in which the settlement of the estate is pending;
Statement 2. The Bureau of Internal Revenue cannot collect the estate tax when the
estate is still under settlement in court because the property is in custodia legis.
(a) True, true; (b) False, false; (c) True, false; (d) False, true.
(Modified/expanded/reformatted BAR examination question)

Answer: c

15. The administrator of an estate, without first paying the estate tax, distributed the
estate to the heirs. The Bureau of Internal Revenue is seeking to collect the tax from
the heirs.
Statement 1. The estate tax is a personal liability of the administrator and can be held
liable if she did not pay and secure a written discharge from personal liability from
the Bureau of Internal Revenue;
Statement 2. The Bureau of Internal Revenue can go after the heirs or beneficiaries of
the estate, should the administrator not be able to pay the estate tax because the heirs
or beneficiaries are subsidiarily liable for the estate tax.
(a) True, true; (b) False, false; (c) True, false; (d) False, true.
(Modified/expanded/reformatted BAR examination question)
Answer: a

DONOR’S TAX

GROSS GIFTS

1. Donation is an act of liberality whereby a person gives property gratuitously to another


who accepts it. The one who gives is called the donor and the one who accepts is called
the donee. There is no perfected contract of donation until the donee accepts the donation.
The acceptance may be on the same document that makes the donation or in a separate
document that makes the donation or in a separate document of acceptance. Only when a
donation is perfected shall there be a tax – on the donor. There is no tax on the donee.

2. The formula starts with gross gifts, and after being reduced by the allowable deductions,
net gifts is arrived at on which to apply the donor’s tax rates.

3. The gross gifts of a donor would depend on what kind of donor he is, whether he is:

(a) A resident or citizen of the Philippines; or


(b) A non-resident, not citizen of the Philippines.

A donor who is a citizen of the Philippines, residing in the Philippines, at the time of
the donation, is donor (a).
A donor who is a citizen of the Philippines, residing in the Philippines, at the time of
his donation is donor (a).
A donor who is not a citizen of the Philippines, but residing in the Philippines, at the
time of his donation is donor (a).
A donor who is not a citizen of the Philippines, and not residing in the Philippines at
the time of his donation is donor (b).

Gross gift shall include real properties (e.g., land and building), tangible personal
properties (e.g., car), and intangible properties (e.g., receivables).

The gross gifts of a donor who is a citizen or resident (Donor [a]) shall include all
properties regardless of location.

The gross gifts of a donor who is not a citizen, and not a resident (Donor [b]) shall
include only properties located in the Philippines.

4. By statutory provision, the following are intangible personal properties located in the
Philippines, and shall be included in gross gifts:

(a) Franchise which must be exercised in the Philippines;


(b) Shares, obligations or bonds issued by a domestic corporation;
(c) Shares, obligations or bonds issued by a foreign corporation eighty-five percent
(85%) of the business of which is located in the Philippines;
(d) Shares, obligations or bonds issued by a foreign corporation, if such shares,
obligations or bonds have acquired a business situs in the Philippines; and
(e) Shares or rights in any partnership, business or industry in the Philippines.

The enumeration in the law is not exclusive, however. Any other intangible property
(e.g., receivables) in the Philippines shall be included in gross gifts.

5. Although intangible personal properties in the Philippines shall be included in the


gross gifts if donor who is not a citizen or resident of the Philippines (Donor [B]),
such intangible personal properties shall not be included in the gross gifts if the
reciprocity clause in the donor’s tax law applies.

Under the reciprocity clause, the intangible personal properties in the Philippines shall not
be included in gross gifts:

(a) If the country of which the donor was a citizen and (not or) resident at the time
of the donation either has no donor’s tax at all, or,
(b) If having a law imposing a donor’s tax, totally exempts from that donor’s tax the
intangible personal properties there belonging to citizen of the Philippines not
residing there.

6. The following are the requisites of a donation for purpose of the donor’s tax, except one:
(a) Capacity of the donor;
(b) Capacity of the donee;
(c) Delivery of the subject matter of gift;
(d) Donative intent.

Answer: b
While the best answer is b, however, it seems that the capacity of the done, as a general rule, is
also required. There is no donation until there is acceptance. Acceptance requires knowledge of
the legal consequences of the act. For a prospective done to know the legal consequences of
acceptance, he must have the capacity to give his consent. However, there are cases when the
capacity of the prospective done himself is not required. For example, in a donation to conceived
child, the acceptance of the child is not required by law.

7. Donor’s tax distinguishes from the estate tax:


1st distinction: The rates of donor’s tax are lower than those for the estate tax;
2nd distinction: The donor’s tax exemption is only P100, 000 while the estate tax is P200,
000 (modified on amount to correspond to TRA tax rates).
Which of the following is correct?
a. Both distinctions are correct;
b. Both distinctions are wrong;
c. 1st distinction is correct while 2nd distinction is wrong;
d. 1st distinction is wrong while 2nd distinction is correct. (CPA Exam)

Answer: a

8. Mr. Tan was the president of a profitable corporation which was engage in the marketing
of Mercedes Benz. When Mr. Tan’s daughter got married to the son of a senator, the
corporation gave the newly-wedded couple a brand new Mercedes Benz sedan worth P2,
000, 000 and entered the wedding gift in its book as an advertising expense.
1st statement: The Mercedes Benz is not taxable income to the couple because it is truly a
wedding gift, but they should pay gift tax;
2nd statement: The donor corporation should pay the donor’s tax and deduct it from its
gross income.
(a) Both statements are true;
(b) Both statements are false;
(c) First statement is true while second statement is false;
(d) First statement if false while second statement is true. (CPA Exam)
Answer: b
There is a true donation, but the donor’s tax should be paid by the donor, the corporation, and not
by the donees-spouses. The corporation cannot deduct the donation made because under the
income tax law, the donation does not qualify as an ordinary and necessary business expense.

9. Which of the following examples is not taxable?


(a) A, Filipino citizen donated a parcel of land located in the United States to B, a non-
resident alien;
(b) On June 1, 1993, A made a gift of P20, 000 to his daughter on account of her
marriage celebrated on May 1, 1992.
(c) Mr. Ramos gives his wife a diamond ring worth P100, 000 as a birthday gift;
(d) A and B are the only heirs of C. A renounces his share of inheritance in favor of B.

Answer: d
When an heir renounces the inheritance in favor of nobody in particular, he is deemed not to
have received it at all. For all intents and purposes, the property would have passed directly from
C to B.

10. Statement 1. A receivable from a debtor can be a donation only is the creditor notifies the
debtor that he is not collecting anymore and the debtor makes a positive act signifying his
acceptance of the benevolence of the debtor.
Statement 2. A donation inter vivos that had paid the donor’s tax can still be reduced if
the legitimates of the compulsory heirs were prejudiced, and there would be a resulting
refundable donor’s tax.
(a) True, true; (b) false, false; (c) True, false; (d) false, true.

Answer: a
A donation is an act of liberality that requires acceptance on the part of the beneficiary. There
should be some evidence of acceptance.
Under the law, a person cannot give by way of donation more than what he can give by way of
inheritance. Which means that the legitimates of compulsory heirs should not be prejudiced.

11. Case A. Mr. Z performed services to Mr. Y, and he was to be paid P50, 000 under a
contract signed by both parties. Mr. Z assigned his right under the contract to Mr. X, a
son. Mr. X collected the P50, 000. Is there a donation to Mr. X?
Case B. Mr. B introduced a friend, Mr. C to an influential member of the Board of
Directors of a multinational corporation. Mr. C was able to get a profitable contract with
the corporation. Mr. C gave Mr. B a car by way of appreciation of the help of Mr. B. the
Bureau of Internal Revenue asserts that car is income to Mr. B. Is the car a donation to
Mr. B?
Case C. the chief accountant of a hospital, upon his retirement, was paid a retirement pay
according to the retirement plan of the hospital. In view of his loyalty and invaluable
service, the Board of Directors resolved to give him a gratuity of one million pesos over
and above his retirement pay. Is there donation on the one million pesos?
Case D. Mr. M was in a “live-in” relationship with a hospitality girl. He executed a deed
of sale to the girl of the condominium unit which is their love nest. There was no
consideration in money on the transfer. The Bureau of Internal Revenue is collecting the
income tax from the girl. Is the Bureau of Internal Revenue correct? Is there a gift to the
girl?
Statement 1. All the transactions/events are gifts subject to the donor’s tax;
Statement 2. One or more of the transactions/event are income, and not subject to the donor’s tax.
(a) True, true; (b) False, false; (c) True, false; (d) False, true.

Answer: a

12. Mr. D properties as follows:


Real property, with a cost of P100, 000 and fair market value of P1, 000, 000, sold to a
brother. The selling price was P600, 000.
Shares in a wholly owned corporation, with accost of P1, 000, 000 but at the time of sale
with a book value of P3, 000, 000 and fair market value of P5, 000, 000, sold to
executives of the corporation so that they would have a stake in, and hence, loyalty to the
corporation. The selling price was at a book value.\
Statement 1. The transactions have donor’s tax consequences because they are gifts;
Statement 2. The transactions have income tax consequences because gains accrue to Mr.
D if his selling prices are compared with his costs.
(a) True, true; (b) False, false; (c) True, false; (d) False, true.

Answer: c

13. Mr. L made a donation during apolitical campaign period for campaign materials.
Statement 1. If the donation is given to a particular candidate, the donation is exempt
from the donor’s tax;
Statement 2. If the donation is given to a political party of the candidate, the donation is
subject to the donor’s tax.
(a) True, true; (b) False, false; (c) True, false; (d) False, true.

Answer: a

14. The A Co. donated a piece of land to the Municipality of Y, Province of Z, for relocation
site of informal settlers. The municipal government awarded parcels to the settlers, and
houses were built on them.
Statement 1. The donation to the Municipality of Y, Province of Z is exempt from donor’s
tax;
Statement 2. The awarding of parcels of land and houses to the settlers by the
municipality is exempt from the donor’s tax.
(a) True, true; (b) False, false; (c) True, false; (d) False, true.

Answer: a
On statement 1, a donation to a political subdivision of the government, for exclusively public
purposes, is exempt from donor’s tax. On statement 2, a municipality, a political subdivision, is
exempt from donor’s tax.

15. Mr. F donated a piece of land to Mr. G, but did not pay the donor’s tax. Mr. G began
employing the income tax from the land. When the Bureau of Internal Revenue sought to
collect income tax from Mr. G, he alleged that the property is still owned by Mr. F
because with the donor’s tax not having been paid, the property is still the property of Mr.
F.
Statement 1. The transfer of ownership is not negated by the payment of the donor’s tax
on the transfer;
Statement 2. The income from the property does not belong to, and is not enjoyed by Mr.
F.
(a) True, true; (b) False, false; (c) True, false; (d) False, true.

Answer: a

16. Case A. Mr. F, a subject of a Japan and resident of Tokyo, gave a gift check of $50, 000 to
a future daughter in law who is to be married to his son in the Philippines.
Case B. G Co. a multinational corporation doing a business in the Philippines donated
one hundred shares of stocks to Mr. H, to its resident manager in the Philippines.
Statement 1. The transactions are gifts;
Statement 2. The gifts are not subject to donor’s tax
(a) True, true; (b) False, false; (c) True, false; (d) False, true.
Answer: a
While the transactions are gifts, they are no subject to donor’s tax because the donors are non-
resident, not citizen/domestic corporation and do not involve properties in the Philippines.

17. Statement 1. A donation inter vivos is an act of liberality where a person disposes of
gratuitously property in favor of another who accepts it;
Statement 2. A donation mortis causa is an act of liberality where a person disposes of
gratuitously property in favor of another who accepts it.
(a) True, true; (b) False, false; (c) True, false; (d) False, true.

Answer: a
The difference between the two donations is that a donation inter vivos takes effect during the
lifetime of the donor while a donation mortis causa takes effect after the death of the donor. The
first donation is subject to the donor’s tax while the second donation is subject to estate tax.

18. Which of the following statements is wrong? A distinction between a donation inter vivos
and a donation mortis causa is:
(a) The first takes effect during the life time of the grantor while the second takes effect
after the death of the grantor;
(b) The first is subject to the donor’s tax while the second is subject to the estate tax;
(c) The first always requires a public document while the second may not require a
public document;
(d) The first is valued at a fair market value at the time the property is given while the
second is valued at fair market value at the time of the death of the grantor.

Answer: c
A donation inert vivos of personal property worth not more than P5, 000 may be made orally.
Which means that if the property is worth more than P5, 000, the donation must be in writing,
although the writing need not be a public document. But a donation of real property must be in
public document. A donation mortis causa is in the nature of a testamentary disposition and
covered by the rules on last wills and testaments. But the formalities required of a donation inter
vivos should also apply. Hence, a donation mortis causa may be in writing which may be a
public document or not, depending on what is being donated.

19. Which of the following statements is wrong?


(a) The gross gifts of a non-resident citizen would include all properties regardless of
location;
(b) The gross gifts on a non-resident, not citizen of the Philippines would include
intangible properties in the Philippines;
(c) The gross gifts of a non-resident citizen of the Philippines would include all
properties regardless of location;
(d) The gross gifts of a non-resident citizen of the Philippines would include only
properties in the Philippines.

Answer: d

20. Who is not subject to the donor’s tax?


(a) An individual making a donation;
(b) A corporation making a donation;
(c) A partnership making a donation;
(d) An individual who pays premiums on the life insurance of another.

Answer: d

21. Statement 1. The gross gifts of a donor who is a citizen or resident will include all
properties, regardless of location;
Statement 2. The gross gifts of a donor who is a non-resident, not citizen of the
Philippines, will include only property located in the Philippines.
(a) True, true; (b) False, false; (c) True, false; (d) False. True.

Answer: a

22. All the following statements are correct, except one. If the donor is a non-resident, not
citizen of the Philippines.
(a) Property situated abroad, but donated to a citizen of the Philippines will not pay the
donor’s tax;
(b) Property situated in the Philippines but donated to a done abroad will pay the donor’s
tax;
(c) Property outside the Philippines donated on account of marriage to a resident of the
Philippines has a deduction of P10, 000;
(d) Property in the Philippines with a value of P150, 000, donated to a citizen of the
Philippines, will pay the donor’s tax.

Answer: c
For a donor who is a non-resident, not citizen of the Philippines, only property ties located in the
Philippines shall be subject to the donor’s tax, regardless of whether the donee is a citizen or
resident of the Philippines or a non-resident, not citizen. If the property donated is outside the
Philippines, it shall not be included in the gross gifts, therefore, there is no deduction for
donation on account of marriage. But even if the property donated is in the Philippines, net gifts
are not exceeding P100, 000 do not pay the donor’s tax.

23. The reciprocity clause in the donor’s tax law applies to a:


(a) Non-resident citizen;
(b) Resident alien;
(c) Resident citizen;
(d) Non-resident alien.

Answer: d

24. The reciprocity clause applies to:


(a) Real property;
(b) Tangible personal property;
(c) Intangible personal property;
(d) All of the above

Answer: c

25. The following were donations all in one date.


Real property in the Philippines P4, 000, 000
Real property in Indonesia 3, 000, 000
Tangible personal property in the Philippines 1, 000, 000
Tangible personal property in Thailand 900, 000
Intangible personal property in the Philippines 1, 200, 000
Intangible personal property in Malaysia 500, 000
Gross gifts, if the donor is a citizen or resident of the Philippines?
(a) P6, 200, 000; (b) P10, 600, 000; (c) P6, 600, 000; (d) P7, 600, 000.

Answer: b

Gross gifts, if the donor is not a citizen nor resident of the Philippines?
(a) P 6,200,000; (b) P 10,600,000; (c) P 6,600,000; (d) P 7,600,000.

Answer: a

Citizen or Non-
resident,
resident Not
citizen
Real property in the Philippines P4, 000, 000 P4,
000, 000
Real property in Indonesia 3, 000, 000
Tangible personal property in the Philippines 1, 000, 000 1,
000, 000
Tangible personal property in Thailand 900, 000
Intangible personal property in the Philippines 1, 200, 000 1,
200, 000
Intangible personal property in Malaysia 500,000
Gross gifts P10, 600, 000 P6,
200, 000

26. Donations of properties, with fair market values:


Land in Indonesia P1, 000, 000
Land and building in the Philippines 1, 000, 000
Shares of stocks of a domestic corporation 500, 000
Shares of stocks of a foreign corporation 400, 000
Receivable from a friend (residing in the same
country as that of the donor) 50, 000
there was transfer inter vivos (to take effect
during the lifetime of the transferor) of
property in the country of the transferor.
Consideration received – P90, 000; fair market value
of the property at the time of transfer was 200, 000
Cancellation if indebtedness of a resident of the country
where the transferor resides, as an act of liberality 20, 000
Gross gifts, if the donor was a citizen or resident of the Philippines?
(a) P2, 080, 000; (b) P2, 580, 000; (c) P3, 580, 000; (d) Some other amount.

Answer: c

If the donor was a citizen or resident:


Land in Indonesia P1, 000, 000
Land and building in the Philippines 1, 500, 000
Shares of stocks of a domestic corporation 500, 000
Shares of stocks of a foreign corporation 400, 000
Receivable from a friend 50, 000
Transfer for insufficient consideration (P200, 000 less P90, 000) 110, 000
Cancellation of the indebtedness 20, 000
Gross gifts, if donor is a citizen or resident of the Philippines P3, 580, 000

If donor was a non-resident, not citizen


Land in the Philippines P1, 500, 000
Shares of stocks of a domestic corporation 500, 000
Gross gifts, if donor is a non-resident, not citizen of the Philippines P2, 000, 000

27. A donation by husband and wife out of joint property (community or conjugal) is
one-half (½ ) a donation by the husband and one-half (½ ) a donation of the wife.
(See plate 18).

28. Mr. K owns real property with a cost of P1, 000, 000. On December 31, 2012, with a fair
market value of P10, 000, 000 and a zonal value of P12, 000, he donated one-half of the
property pro-indiviso interest a son. On January 2, 2013, he donated the other half pro-
indiviso to the same son.
Statement 1. The value of the gross gift on December 31, 2013 is P10, 000, 000 and on
January 2, 2013is P1, 000, 000.
Statement 2. The value of the gross gift on December 31, 2012 is P20, 000, 000 because
the splitting up the donations into two is from a single intent of donating P20, 000, 000 to
the son.
(a True, true; (b) False, false; (c) True, false; (d) False, true.

Answer: c
There comes to play what is called “gift splitting”. This is a legitimate tax planning. After all, as
at December 31, 2012, nobody could say that there would be another donation.
DEDUCTIONS FROM THE GROSS GIFTS

1. Deductions from gross gifts, to arrive at net gifts on which to impose the donor’s tax, are
in a provision of the law with a heading “Exemptions of certain gifts”.

Available deductions from the gross gifts of:


(a) All donors, whether (1) a resident or citizen donor or (2) a non-resident, not
citizen donor:
(1) Gifts made to or for the use of the National Government or any entity created
by any of its agencies which is not conducted for profits; and
(2) Gifts in favor of an educational and/or charitable, religious, cultural or social
welfare corporation or institution, accredited non-government organization,
trust or philanthropic organization, research institution or organizations:
Provided, however, that not more than thirty percent (30%) of said gifts shall
be used by the done for administration purposes.
(b) Available only to a resident or citizen donor (See plate 18):
Dowry or donation on account of marriage, if:
(a) made before the celebration of the marriage or within one year after the
celebration of the marriage;
(b) Made by a parent;
(c) To a:
(1) Legitimate child;
(2) Recognized natural child; or
(3) Legally adopted child,
(d) To the extent of the first ten thousand pesos (10, 000).

Any mortgage or indebtedness on the property which is assumed by the done shall
be a deduction from the gross gift.

2. Which of the following statements is wrong?


(a) A donation on account of marriage to a legitimate child has a deduction of P10, 000;
(b) A donation on account of marriage on a legally adopted child has a deduction of P10,
000;
(c) A donation on account of marriage to a child of single parents (natural child) has a
deduction of P10, 000;
(d) A donation on account of marriage to a child whose parent are not married (called the
Family Code of the Philippines as illegitimate child) has a deduction of P10, 000;
(e) A donation on account of marriage to one who was sheltered and treated as a child
has a deduction of P10, 000.

Answer: a
*Since under the Family Code of the Philippines, the distinction between “recognized natural
child” and “illegitimate child” has been removed, and one who was a natural child under the
New Civil Code is now called “illegitimate child”, a donation on account of marriage to an
illegitimate child should have a deduction of P10, 000.

3. Which of the following statements is wrong? A marriage of legitimate child was


celebrated on December 25, 2012. Donations were made by a parent. Which statement is
wrong?
(a) A donation on account of marriage on January 1, 2012 has a deduction of P10, 000;
(b) A donation on account of marriage on December 5, 2013 has a deduction of P10, 000;
(c) A donation on account of marriage on December 25, 2013 (date of celebration of
marriage) has a deduction of P10, 000;
(d) A donation on account of marriage on January 15, 2013 has a deduction of P10, 000;
(e) A donation on account of marriage on December 30, 2013 has a deduction of P10,
000.

Answer: e
The donation on account of marriage can have a deduction of P10, 000 if made before marriage
(no matter how long before, the law does not qualify), on the date of the celebration of the
marriage, or within one year after the celebration of the marriage. The law does not require for
deductibility that the donation should be in the same year as the celebration of the marriage.

4. The marriage was celebrated on June 5, 2013. Donations were made by a parent. Which
statement is wrong?
(a) A donation on account of marriage of P20, 000 on June 1, 2013 has a deduction of
P10, 000;
(b) A donation on account of marriage of P20, 000 on June 10, 2013 has a deduction of
P10, 000;
(c) A donation on account of marriage of P7, 000 on June 1, 2013 and another donation
on account of marriage of P13, 000 on June 10, 2013, has a deduction of P7, 000 on
the donation of June 1, 2013 and a deduction of P3, 000 on the donation of June 10,
2013;
(d) A donation on account of marriage of P15, 000 on June 1, 2013 and another donation
on account of marriage of P15, 000 on June 10, 2013 has a deduction of P10, 000 on
the donation of June 1, 2013, and no deduction on the donation of June 10, 2013;
(e) A donation on account of marriage of P20, 000 to a legitimate son, and a donation on
account of marriage of P20, 000 to a legitimate daughter, on the occasion of a double
wedding, has a deduction of P10, 000 against the aggregate net gift of P40, 000.

Answer: e

5. Statement 1. A donation on account of marriage made by a parent to a legitimate child


has an exemption on the first P10, 000;
Statement 2. A donation on account of marriage made by a parent who is getting married
(for the second time?) has an exemption on the foist P10, 000.
(a) True, true; (b) False, false; (c) True, false; (d) False, true.

Answer: c

6. A legitimate son got married. A donation of P100,000 on account of marriage was made
by a parent to the son and daughter-in-law.
Statement 1. On the donation of P50, 000 to the son, there is a deduction of P10, 000;
Statement 2. On the donation of P50, 000 to the daughter-in-law, there is a deduction of
P10, 000.
(a) True, true; (b) False, false; (c) True, false; (d) False, true.

Answer; c

7. Which of the following statements is wrong?


(a) A donation of P20, 000 made by a parent to a son because of his forthcoming
marriage, but when the marriage did not take place, and the P20, 000 was not returned
to the parent, is nonetheless a donation on account of marriage, entitled to a deduction
of P10, 000;
(b) A donation by a parent to a son and his fiancée, where the marriage celebrated is void
for lack of the requirements in the law for marriage (e.g., age of the parties) is an
ordinary donation to the son and his fiancée;
(c) A donation on account of marriage of the son, where the marriage was annulled at a
later date, was still a donation on account of marriage.
(d) A donation on account of Marriage No. 1 of the son (second marriage because the
wife by the first marriage died) are both donations on account of marriage, and each
donation is entitled to a deduction of P10,000.0

Answer: a

8. A joint donation made by husband and wife, is one-half by the husband, and one-half by
the wife: In a joint donation on account of marriage by father and mother:
Statement 1. Each parent is entitled to a deduction of P10,000;
Statement 2. Each parent is entitled to a deduction of P5,000.
(a) True, true; (b) False, false; (c) True, false; (d) False, true.

Answer: c

9. Which of the following donations is not entitled to deduction?


(a) Donation to charitable institution;
(b) Donation to scientific organization;
(c) Donation to social welfare institution;
(d) Donation to a political party.

Answer: none of the choices.


A donation to a candidate for election, or a political party is exempt from the donor’s tax
by provision of the Election Code of the Philippines, provided it is reported to the
Commission on Elections.

10. Statement 1. A deduction from gross gift for donation on account of marriage is available
to a donor who is a citizen or resident of the Philippines.
Statement 2. A deduction from gross gift for donation on account of marriage is not
available to a donor who is not a citizen and not a resident of the Philippines.
(a) True, true; (b) False, false; (c) True, false; (d) False, true.

Answer: a

11. A donation on account of marriage will give a donor a deduction from the gross gifts
made if:
(a) The donee is a legitimate child;
(b) The donee is anybody;
(c) The donee is a stranger;
(d) None of the above.

Answer: a

12. Husband and wife made out of conjugal/community cash of P100,000, a donation on
account of marriage, to a legitimate child. Which of the following statements is correct on
deduction for donation on account of marriage?
(a) P10,000 to each spouse, on separate computations for donor’s tax;
(b) P 5,000 to each spouse, on separate computations for donor’s tax;
(c) P10,000 on a consolidated computation for donor’s tax;
(d) P20,000 on a consolidated computation for donor’s tax.

Answer: a

13. Which of the following statements is wrong? A deduction for a donation on account of
marriage:
(a) Shall be allowed as a deduction to a resident citizen when the property donated is
located outside the Philippines;
(b) Shall be allowed to resident citizen when the property donated is located within the
Philippines;
(c) Shall be allowed to a resident alien when the property donated is located outside the
Philippines;
(d) Shall be allowed to a non-resident alien when the property donated is located within
the Philippines.

Answer: d
Deduction for dowries or donations on account of marriage is allowed only to a donor
who is a citizen or resident of the Philippines, regardless of where the property donated is
located. The deduction is not allowed to a donor who is a non-resident, not citizen of the
Philippines.

14. Since a donation to a charitable institution has a deduction without any ceiling,
First statement: The net gift will be zero, so that in computing the donor’s tax, the
donation may be omitted in gross gifts if it is likewise omitted in deductions.
Second statement: the gross gifts should be reported and the deduction shall be claimed.
(a) True, true; (b) False, false; (c) True, false; (d) False, true.

Answer: d
The deduction is subject to verification by the Bureau of Internal Revenue that not more
than thirty percent of the donation shall be used by the done for administrative purpose.

15. On a contribution to the Roman Catholic Church by an individual, which of the following
correctly state/s in computing the donor’s tax?
(a) There is no deduction from the gross gift;
(b) It is not considered a gift on which there will be a donor’s tax;
(c) It is considered a gross gift and a deduction from the gross gift;
(d) It pays the donor’s tax at the time of the contribution at the graduated rates of donor’s
tax.

Answer: c

16. Mr. A, a citizen and resident of Country Z, made a donation of shares of stock of a
corporation in Country Z to a son in the Philippines who is getting married to a Filipina.
Country Z has no transfer tax on donations.
Statement 1. The deduction of P10,000 for donation on account of marriage is not
available to Mr. A;
Statement 2. The rule on reciprocity shall preclude the imposition of the Philippine
donor’s tax.
(a) True, true; (b) False, false; (c) True, false; (d) False, true.
(Modified/expanded/reformatted BAR examination
question)

Answer: a
The deduction is not available because the donor is a non-resident, not citizen of the
Philippines. There is no circumstance on which to apply the reciprocity clause because
the donation in the Philippines is exempt from the donor’s tax.

17. Donations were made as follows:


Of cash in the Philippines:
To a legitimate daughter, on account of marriage P 500,000
To an illegitimate son, on account of marriage 600,000
To a legally adopted daughter, on account of marriage 9,500
To a friend, on the occasion of her birthday 50,000
To the Paco Catholic church, Philippines
Of cash in the United States:
To a recognized natural child 100,000
To the Quiapo Catholic Church, in Philippine pesos 60,000
Of land in Malaysia, to a legitimate son, on account
of marriage, but the son will assume a mortgage
on the land of P200,000 500,000
Deductions from the gross gifts, if the donor was a citizen or resident of the Philippines?
(a) P559,500; (b) P359,500; (c) P449,500; (d) Some other amount.

Answer: a
Deductions from the gross gifts, if the donor was not a citizen nor resident of the
Philippines?
(a) PO; (b) P50,000; (c) P250,000; (d) Some other amount.

Answer: b
Citizen or Non-
resident,
Resident Not
citizen
For donations on account of marriage
Of cash:
To a legitimate daughter P 10,000
To a legally adopted daughter 9,500
To an illegitimate child 10,000
Of land, to a legitimate son 210,000
Of cash, donation to the Paco Catholic Church,
Philippines 50,000 P 50,000
Of cash, donation to the Quiapo Catholic
Church, Philippines, in pesos 60,000
Of land in Malaysia (P10,000 + P200,000) 200,000 ______
Total P559,500 P 50,000

18. Donations were made, as follows:


On account of marriage:
Of property in the Philippines, to a legitimate son P500,000
Of property in Malaysia, to a recognized natural daughter 600,000
Of property in Indonesia, to an illegitimate child
300,000
Of property in the Philippines, to an adopted child 200,000
Of property in the Philippines, to a brother, with an assumption
By brother of a P15,000 mortgage on the property 50,000
Of cash to the Philippine National Government 150,000
Of cash to the Philippine National Red Cross 20,000
Deductions from the gross gifts, if the donor is a resident or citizen of the Philippines?
(a) P200,000; (b) P180,000; (c) P195,000; (d) P215,000.

Answer: d

Deductions from the gross gifts, if the donor is a non-resident, not citizen, of the
Philippines?
(a) P170,000; (b) P185,000; (c) P205,000; (d) P195,000.

Answer: b

If the donor is a resident or citizen of the Philippines:


On the donations, on account of marriage:
To a legitimate son P 10,000
To a recognized natural daughter
10,000
To an adopted child 10,000
To a brother, for the mortgage assumed
15,000
On the donation to the Philippine National Government 150,000
On the donation to the Philippine National Red Cross 20,000
Total deductions if the donor is a resident or citizen P 215,000

If the donor is a non-resident, not citizen of the Philippines


On the donation to brother, for mortgage assumed by the brother P 15,000 On
the donation to the Philippine National Government 150,000 On the
donation to the Philippine National Red Cross 20,000
Total P 185,000

SPECIAL PROBLEMS

1. Net gifts and the donor’s tax


2. Tax credit for foreign donor’s tax paid
3. Returns and reportorial requirements

NET GIFTS AND DONOR’S TAX

1. Tax formula:

On a first donation in a calendar year:

Gross gifts
Less: Deductions from these gross gifts
Equals: Net gifts

On a subsequent donation in the same calendar year:


Gross gifts on this date
Less: Deductions from these gross gifts
Net gifts made on this date
Add: All prior net gifts within the same calendar year
Aggregate net gifts within the same calendar year

Donor’s tax on aggregate net gifts within the same year


Less: Donor’s tax on all prior net gifts within the
same calendar year
Donor’s tax due on the net gifts of this date

2. The donor’s tax is at graduated rates on the taxable net gift, if the donee is not a
stranger.

The donor’s tax is at a single rate of 30% on the taxable net gift, if the donee is a
stranger. Who is a stranger? A stranger is a person who is not the spouse, not a
brother or a sister, not an ascendant or descendant, and not a relative by
consanguinity in the collateral line within the fourth degree of relationship.

A donee who is not a blood relative is a stranger. A corporation, or any artificial


being, as a donee, is a stranger.

Thus-

A donation to a son of P250,000 is subject to the donor’s tax of:

Gross gifts made P 250,000


Less: Deduction (None. This is an ordinary deduction) 0

Net gift made P 250,000


Donor’s tax:
On P200,000 P 2,000
50,000 at 4% 2,000
P250,000 P 4,000
A donation to a friend of P250,000 is subject to the donor’s tax of:

Gross gifts made P 250,000


Less: Deduction (None. This is an ordinary deduction) 0
Net gift made P 250,000
Donor’s tax at 30% P 75,000

3. When the donee is a stranger, the donor’s tax is a flat 30% of the net gift. One or some of
the following is a stranger. Who is he or who are they?
(a) A brother or sister by whole blood;
(b) A brother or sister by half blood;
(c) The spouse;
(d) Ancestor;
(e) Lineal descendant;
(f) Relative by blood within the fourth degree of relationship;
(g) A friend.
(Modified/expanded/reformatted BAR examination question)

Answer: g

4. If on the same date:

(a) There are two or more donations to donees who are non-strangers, there shall be
one computation of the donor’s tax on the net gifts to non-strangers of that date;
(b) There are two or more donations to donees who are strangers, there shall be one
computation of the donor’s tax on the net gifts to strangers of that date;
(c) There is/are donations to non-strangers and strangers, there shall be separate
computations for the donor’s on the net gifts to non-strangers and the net gifts to
strangers. The total of the two donor’s taxes is the donor’s tax of the date.

5. Who of the following is a stranger under the donor’s tax law?


(a) A child of a brother;
(b) A grandchild;
(c) A granduncle;
(d) A second cousin.

Answer: d

6. Statement 1. A donation to a corporation is a donation to a stranger.


Statement 2. A donation by one spouse to the legitimate child by a former marriage of the
other spouse is a donation to a stranger.
(a) True, true; (b) False, false; (c) True, false; (d) False, true.

Answer: a

7. Which statement is wrong? The donor’s tax is:


(a) Computed on the basis of the net gifts of a calendar year;
(b) Computed and paid within thirty days from the date of donation;
(c) Computed separately for each spouse in case of a joint donation;
(d) Becomes proportionately bigger on later donations.

Answer: d
Two provisions of law: A provision of the donor’s tax law says that the donor’s tax is
based on the net gifts of the calendar year. Another provision of the same law says that
the donor’s tax should be paid within thirty days from the date of the donation. The two
provisions made during the same year with credits for donor’s taxes previously paid
within the same year. Hence, a and b are correct. In the case of husband and wife, each is
considered a donor. Statement d would be correct if the donations being considered are
all made to non-strangers is a flat 30%. Hence, letter d which gives an absolute rule is
wrong.

8. In computing the donor’s tax on a subsequent donation, the donor must also consider:
(a) All prior net gifts during his lifetime;
(b) All prior net gifts during the calendar year;
(c) The present and the immediately preceding donation;
(d) Only the present donation.

Answer: b

9. Which of the following statements is wrong? A donation by husband and wife out of
community or conjugal property to a brother of the wife:
(a) Is one-half a donation to a non-stranger by the wife;
(b) Is one-half a donation to a stranger by the husband;
(c) Is a donation on which the husband must pay a donor’s tax of 30% on his net gift;
(d) Is a donation on which the husband must pay the graduated donor’s tax on his net
gift.

Answer: d

10. Donations on one date by K, father, of property and cash, as follows: To L, a legitimate
daughter, on account of marriage, land with a fair market value of P500,000 but subject
to a mortgage of P100,000 which is assumed by L. To M, a legitimate son, on account of
marriage, cash of P200,000. The net gifts made are:
(a) P680,000; (b( P580,000; (c) P590,000; (d) P700,000.

Answer: b

Gross gifts made:


To L, on account of marriage P 500,000
To M, on account of marriage 200,000
Total 700,000
Deductions for-
Donation to L on account of marriage P 10,000
Donation to M on account of marriage 10,000
Mortgage assumed by L on the property donated 100,000 120,000
Net gifts made P 580,000

11. In 2013, Jose made the following gifts:


1. On June 1, 2013, P150,000 to Anton, his son, on account of his marriage celebrated
on May 1, 2011;
2. On July 19, 2013, a parcel of land worth P180,000 to his father, subject to the
condition that the father would assume the mortgage indebtedness of Jose in the
amount of P40,000;
3. On September 30, 2013, P150,000 dowry to his daughter Dana, on account of her
scheduled marriage on October 25, 2013.
How much is the total net gifts? (Years involved were changed)
(a) P500,000; (b) P450,000; (c) P430,000; (d) P460,000. (CPAExam)

Answer: b

June 1, 2013
Gross gift made P 150,000
Deduction none P 150,000
July 10, 2013
Gross gift made P 180,000
Deduction for mortgage 40,000 140,000

September 30,2013
Gross gift made P 150,000
Deduction for donation on account of marriage 10,000 140,000
November 20,2013
Gross gift made P 20,000
Deduction none 20,000
Total net gifts P 450,000

12. Mr. Lodovigo Cruz made donation to Ato Cruz and Tricia Santos, son and daughter-in-
law, on account of marriage, of real property with a fair market value of P1,500,000, but
subject to a mortgage of P300,000 which was assumed by the donees.
The donor’s tax is:
(a) P77,750; (b) P84,950; (c) P185,950; (d) P199,400.

Answer: d
Ato
Tricia
Gross gifts made
Donations on account of marriage P 750,000 P 750,000
Deductions for:
Donation on account of marriage ( 10,000)
Mortgage assumed by donee ( 150,000) ( 150,000)
Net gifts made P 590,000 P 600,000
Donor’s tax P 19,400 P 180,000
Total donor’s tax (P19,400 + P180,000) is P199,400
Tricia is a stranger to the donor.

13. Donations were made on one date, as follows:


To a legitimate son, on account of marriage P 200,000
To a legitimate daughter 40,000
To a close friend 10,000
Donor’s tax?
(a) P3,000; (b) P3,200; (c) P6,200; (d) Some other amount

Answer: c
Non-stranger
Stranger
Gross gifts:
To legitimate son, on account of marriage P 200,000
To legitimate daughter 40,000
To close friend _______ P 10,000
Total P 240,000
Deduction for donation on account of marriage 10,000 ______
Net gifts made P 230,000 P 10,000
Donor’s tax at graduated rates P 3,200
Donor’s tax of 30% P 3,000
One payment only – P6,200

14. A citizen and resident of the Philippines made the following donations in a calendar year:

March 10, 2013:

To a legitimate child, on account of marriage, cash of P250,000;


November 19, 2013:

To a legitimate daughter, an ordinary donation of real property with a fair market value of
P1,000,000 with a mortgage of P600,000 assumed by the donee.
Donor’s tax on the donation of March 10, 2013?
(a) P4,000; (b) P3,600; (c) P72,000; (d) Some other amount.

Answer: b

(b) Donor’s tax on the donation of November 19, 2013?


(a) P18,800; (b) P22,400; (c) P44,000; (d) Some other amount.

Answer: a

March 10, 2013


Gross gift made P 250,000
Deduction for donation on account of marriage 10,000
Net gift made P 240,000
Donor’s tax P 3,600

November 19, 2013


Gross gift made P 1,000,000
Deduction for mortgage assumed by the donee 600,000
Net gift made on this date P 400,000
Add: Prior net gift within the year 240,000
Aggregate net gifts P 640,000
Donor’s tax on aggregate net gifts P 22,400
Less: Donor’s tax paid on prior net gifts 3,600
Donor’s tax due P 18,800

15. A citizen and resident of the Philippines made the following donations:

October 5, 2013:
Donation to legitimate daughter, on account of marriage P 200,000
Donation to a friend 100,000

December 6, 2013:
Donation to legitimate daughter P 100,000
Donation to his controlled corporation 50,000
Donor’s tax on the donations of October 5,2013?
(a) P31,800; (b) P30,000; (c) P87,000; (d) Some other amount.

Answer: a

Donor’s tax on the donations of December 5, 2013?


(a) P50,600; (b) P18,800; (c) P45,000; (d)

Answer: b

Non-stranger Stranger
Total
October 5, 2013:
Gross gifts:
To legitimate daughter P 200,000
To friend P 100,000
Deduction for donation on
account of marriage 10,000 ______

Net gifts made P190,000 P 100,000


Donor’s tax
At graduate rates P 1,800 P 1,800
At flat rate of 30% P 30,000 30,000
Total donor’s on this date 31,800

December 6, 2013:
Gross gifts
To daughter P 100,000
To corporation P 50,000
Deductions 0 0
Net gift made on this date P 100,000 P 50,000
Add: Prior net gifts within the year 190,000 100,000
Aggregate net gifts P 290,000 P 150,000
Donor’s tax on aggregate net gifts P 5,600 45,000 P 50,600
Less: Donor’s tax on prior net gift P 1,800 30,000 31,800
Donor’s tax due P 3,800 P 15,000 P 18,800

16. A citizen of the Philippines residing in Japan, with a legitimate son and a legitimate
daughter, made the following donations:

April 2, 2012:
Donation on account of marriage to a legitimate son P 180,000
Donation on account of marriage to a legitimate daughter 150,000
June 12, 2012:
Donation to legitimate son P 100,000
September 3, 2012:
Donation to legitimate daughter P 120,000
March 6, 2013:
Donation on account of marriage, to the legitimate son P 140,000
April 11, 2013
Donation to legitimate daughter of property with a fair market value of P150,000, with
an assumption by the daughter of a P50,000 indebtedness of the property.
Donor’s tax on the donation of April 11, 2013?
(a) P3,600; (b) P2,800; (c) P3,100; (d) Some other amount.

Answer: b

March 6, 2013:
Donation to son on account of marriage P 140,000
Deduction for donation on account of marriage
(The maximum P10,000 had been fully used) 0
Net gift made on this date P 140,000
Donor’s tax P 800

April 11, 2013:


Gross gift made to daughter P 150,000
Deduction for indebtedness assumed by daughter 50,000
Net gift made on this date P 100,000
Add: Prior net gifts within the year 140,000
Aggregate net gifts P 240,000
Donor’s tax on aggregate net gifts P 3,600

Less: Donor’s tax on prior net gift 800


Donor’s tax due P 2,800
There is no need for computations for the calendar year 2012. The donor’s tax is based on
data only within a calendar year.

17. Husband and wife, citizens and residents of the Philippines, made the following
donations:

June 2, 2013:
To legitimate son, on account of marriage P 300,000

September 5, 2013
To legitimate daughter P 100,000
Donor’s taxes on the donations of the husband on June 2, 2013?
(a) P800; (b) P1,600; (c) P1,200; (d) Some other amount.

Answer: a

Donor’s taxes on the donations of the wife on September 5, 2013?


(a) P1,600; (b) P1,200; (c) P1,000; (d) Some other amount.

Answer: c
Husband
Wife
June 2, 2013:
Gross gifts made to son P 150,000 P 150,000
Deduction for donation on account of marriage 10,000 10,000
Net gifts made P 140,000 P 140,000
Donor’s tax P 800 P 800

September 5, 2013:
Gross gift made to daughter P 50,000 P 50,000
Deduction 0 0
Net gifts made on this date P 50,000 50,000
Add: Prior net gifts within the year P 140,000 P 140,000
Aggregate net gifts P 190,000 P 190,000
Donor’s tax on aggregate net gifts P 1,800 P 1,800
Less: Donor’s tax on prior net gift 800 800
Donor’s tax due P 1,000 P 1,000

18. Husband and wife, citizens and residents of the Philippines, made the following
donations:

June 2, 2013: To a daughter and future son-in-law, on account of marriage to be


celebrated on June 15, 2010, cash of P1,000,000.
July 2, 2013: To an illegitimate child of the husband, cash of P100,000.
Donor’s tax of husband on the donations of June2, 2013?
(a) P68,200; (b) P75,000; (c) P78,600; (d) Some other amount.

Answer: c

Donor/s tax of the wife on the donations of July 2, 2013?


(a) P90,000; (b) P15,000; (c) P75,000; (d) Some other amount.

Answer: b
Husband Wife
Non-stranger Stranger Total Non-stranger Stranger Total
June 2, 2013:
Gross gifts:
To daughter and
Son-in-law P250,000 P250,000 P250,000 P250,000

Deductions for donations


on account of marriage 10,000 0 10,000 0
Net gifts made P240,000 P250,000 P240,000 P250,000
Donor’s tax P 3,600 P 75,000 P 78,600 P 3,600 P 75,000 P 78,600

July 2, 2013:
Gross gifts made:
To illegitimate child
of husband P 50,000 P 50,000
Deduction 0 0
Net gifts made P 50,000 P 50,000
Prior net gifts 240,000 P250,000
Aggregate net gifts P290,000 P300,000
Donor’s tax on agg-
regate net gifts P 5,600 P 90,000
Less: Prior donor’s tax 3,600 75,000
Donor’s tax due P 2,000 P 15,000

TAX CREDIT FOR FOREIGN DONOR’S TAX PAID (See Plate 24).

1. Tax credit for foreign donor’s tax paid may be claimed by a donor who is a resident
or citizen of the Philippines, if his donation of property outside the Philippines paid
a foreign donor’s tax.

If there was one foreign country only to which a donor’s tax was paid, the
donor’s tax credit shall not exceed the amount arrived at with the use of the formula:

Net gifts, foreign country x Philippine donor’s


Net gifts world tax = Pxxx

Compare with:
Foreign donor’s tax paid Pxxx
Tax credit allowed, whichever is lower (this is called Limitation A) Pxxx

Where there were two or more foreign countries to which foreign donor’s taxes were paid,
tax credit for foreign donor’s taxes shall be computed as follows:

Step 1. Tentative tax credit, Limitation A:


Compute limitation A by country. Add the tax credits by country Pxxx
Compare with:
Step 2. Tentative tax credit, Limitation B:

Net gifts, foreign country x Philippine donor’s


Net gifts world tax = Pxxx
Compare with:
Total foreign donor’s taxes paid Pxxx
Tax credit allowed, Limitation B, whichever is lower Pxxx

Step 3. Final tax credit (Limitation A, or Limitation B,


whichever is lower Pxxx

2. Statement 1. Tax credit for donor’s tax paid to a foreign country is allowed only if the
donor is a citizen or resident of the Philippine.
Statement 2. There can be a donor’s tax paid to a foreign country even if the citizen or
resident donor had no donation of property in the Philippines.
(a) True, true; (b) False, false; (c) true, false; (d) False, true.

Answer: a
The donation of property outside the Philippines by a citizen or resident donor is subject to the
foreign donor’s tax and the Philippine donor’s tax.

3. Mr. Leonardo de Velez, a citizen and resident of the Philippines, made donations on
January 10, 2013 as follows:
Donation to Arnan, a legitimate son, on account of marriage,
to be celebrated on February 14, 2013, property in the United States
(on which a U.S. donor’s tax of P1, 200 was paid),
with a fair market value of P110, 000
Donation to Arnan, cash in the Philippines of 100, 000
Donor’s tax credit for donor’s tax paid to the U.S.:
(a) P1, 200; (b) P1, 000 (c) P600; (d) P850.

Answer: b

Gross gift to Arnan, on account of marriage P110, 000


Deduction for donation on account of marriage 10, 000 P 100, 000
Net gift (cash) to Arnan 100, 000
Net gifts made on this date P 200, 000
Donor’s tax on P200, 000 P 2, 000

Tax credit:
P100, 000/P200, 000 x P2, 000 P 1, 000
Foreign donor’s tax paid P 1, 200
Allowed (whichever is lower) P 1, 000

4. Donations to a legitimate child of properties:


Property in the Philippines P 110, 000
Property outside the Philippines, on account of marriage 200, 000
Donor’s tax paid to foreign country 4, 500
Donor’s tax due after the credit for foreign donor’s tax paid:
(a) P2, 200; (b) P2, 750.00; (c) P4, 625. 50; (d) P3, 208. 33.

Answer: a
Gross gifts made:
Of property in the Philippines P 110, 000
Of property outside the Philippines, gross P200, 000
Deduction for donation on account of marriage 10, 000 P 190, 000
Total P 300,
000

Donor’s tax before credit for foreign donor’s tax paid P 6, 000
Less: tax credit
Formula: P190, 000/P300, 000 x P6, 000 P 3, 800
Foreign donor’s tax paid P 4, 500
Allowed (whichever is lower) 3, 800
Still due P 2,
200

5. On one date, Mr. A made donations of property on the Philippines to a non-stranger, and
of property outside the Philippines to a stranger. In taking a credit for the foreign donor’s
tax paid, the credit shall be against the Philippines donor’s tax on the:
(a) Donation to the non-stranger;
(b) Donation to the stranger;
(c) Donation to the non-stranger plus that to the stranger;
(d) None given.

Answer: c

6. Mr. B, a citizen and resident of the Philippines, made the following donations on
February 14, 2013:
To Mr. C, a legitimate child, on account of marriage
on the same day, property in Malaysia (which paid the
Malaysian donor’s tax of P52, 000) with a fair market value of P 610,
000
To Mr. D, a friend, ordinary donation of property in the Philippine,
subject to a mortgage of P60, 000 which was assumed by D.
Fair market value of the property P 160,
000
The tax credit for foreign tax paid:
(a) P34, 628. 06; (b) P52, 000. 00; (c) P42, 857. 14; (d) P31, 520. 43.

Answer: c
Donee is
Non-stranger
Stranger
Gross gifts P 610, 000 P 160,
000
Deduction:
Donation on account of marriage 10, 000
Mortgage assumed by donee. 60, 000
Net gifts P 600, 000 P 100,
000
Donor’s tax P 20, 000 P 30, 000
Total donor’s tax (P20, 000 = P30, 000) is P50, 000
Tax credit:
P600, 000/P700, 000 x P50, 000 P42, 857. 14
Foreign donor’s tax paid P52, 000. 00
Allowed P42, 857. 14

7. A donation was made by Mr. A, a citizen and resident of the Philippines, to B Co., of
property in a foreign country with a fair market value of P300, 000. Foreign donor’s tax
of P700, 000 was paid. There was a donation earlier in the year of P150, 000 cash to Mr.
C, a legitimate child.
How much was the donor’s tax on the donation to B Co. after foreign donor’s tax credit?
(a) P20, 000. 00; (b) P29, 333. 33; (c) P35, 333. 33; (d) P32, 677. 67.

Answer: b

Net gift made to B Co. P300, 000.00


Donor’s tax P90, 000.00
Add: prior net gifts within the year P150, 000.00
Donor’s tax on prior net gift 1, 000.00
Donor’s tax on aggregate net gift P91, 000.00
Less: donor’s tax paid on prior net gifts 1, 000.00
Donor’s tax before tax credit P90, 000.00
Less: Foreign donor’s tax credit
P300, 000/P450, 000 x P92, 000 P 60, 666.67
Foreign donor tax paid P 70, 000.00
Allowed 60, 666.67
Donor tax still due P29, 333.33

8. Mr. P is a citizen and resident of the Philippines. On July 8, 2013, he made donations to
Mr. Q, a friend, of properties in Country Y and Country Z. donor’s taxes were paid to
Country Y and Country Z of P95, 000 and P50, 00, respectively. The property in country
Y had a fair market value of P300, 000 while the property in country had a fair market
value of P200, 000.
Donor’s tax still due after credit for foreign donor’s taxes paid?
(a) P0; (b) P15, 000; (c) P145, 000; (d) P10, 000

Answer: d
Net gift, Country Y P300, 000
Net gift, Country Z 200, 000
Total P500,
000
Donor’s tax at 30% P150, 000
Less: donor’s tax credit (Schedule) 140, 000
Donor’s tax due P 10, 000
Schedule. Tax credit
Limitation A
Country Net gifts Formula Foreign
Country Net gifts Formula tax
Allowed
Y Country P300, 000 P300, 000/P500, 000 x P150, 000 = P90, 000 P 95, 000 P 90, 000
Z Country 200, 000 P200, 000/P500, 000 x P150, 000 = P60, 000 50, 000 50, 000
500, 000 P 140,
000
Limitation B: P500, 000/P500, 000 x P150, 000 = P150, 000 P 145, 000 P 145,
000
Tax credit to apply (Limitation A) P 140, 000

RETURN AND REPORTORIAL REQUIREMENTS

1. Statement 1: In showing gross gifts in the donor’s tax return, real property shall be
valued at the current and fair market value, as shown in the assessment rolls, or the fair
market value, as determined by the Commissioner of Internal Revenue, whichever is
higher;
Statement 2: In showing gross gifts in donor’s tax return, personal property must be
valued at current fair market value or at cost, whichever is lower.
(a) True, true; (b) False, false; (c) True, false; (d) False, true.

Answer: c
On personal property, valuation shall be at fair market value on the date of donation.

2. One of the statements that follow is correct. Which is it? a deed of donation was executed
by Mr. A, resident of Manila, in the city of Manila, in favor of Mr. B, a resident of
Quezon City. Mr. B executed a deed of acceptance in Quezon City. The donor’s tax return
must be filed with the Bureau of Internal Revenue Office:
(a) At the residence of the donor;
(b) At the residence of the donee;
(c) At the residence of the donor or of the donee, whichever the donor chooses;
(d) None of the above.

Answer: a

3. One of the following statements is correct. The donor’s tax return:


(a) Must be filed within thirty day after the end of celebration of the calendar year;
(b) Must be filed within thirty days from the date of donation;
(c) Must be accompanied by a certificate of an independent Certified Public Accountant
if the gross gift is P50, 000 or more;
(d) In the case of husband and wife making donations, one donor’s tax return shall be
filed signed by either the husband or the wife.

Answer: b
Although the donor’s tax on the basis of net gifts made during a calendar year, the law requires
that the donor’s tax return should be filed within thirty days from the date of donation was made.
There is no requirement on a certificate of an independent Certified Public Accountant under the
donor’s tax law as determined by the amount of the gross or net gifts. In the case of husband and
wife making a donation, there are two separate donors, hence there must be two separate donor’s
tax returns.
4. One of the following statements is wrong. When a donor with several donations during
the year fails to file the donor’s tax return for each of the dates that donations were made:
(a) Such failure can be cured by filing a donor’s tax return at the end of the year
reflecting all the donations made within the year and paying the taxes shown in that
one return;
(b) Each failure is subject to penalties for non-filing and non-payment of the tax on time;
(c) He can voluntarily file late the donor’s tax return for each date that donations were
made and make payments on the tax due shown on each return, with penalties;
(d) If the different donor’s taxes were not paid on the original due gates because of
requests for extension seasonably filed with the Commissioner of Internal Revenue,
each required payment of tax shall have an extended period of not more than six
months.

Answer: a
Regarding d, a request for extension of time to pay the donor’s tax may be granted by the
Commissioner of Internal Revenue if the payment of the tax on the original due date will impose
undue hardship upon the donor. In such cases the amount is respect of which the extension is
granted shall be paid on or before the date of the expiration of the period of extension.

5. One of the following statements is wrong:


(a) The Commissioner may, in meritorious cases, grant extension of time within which
the donor’s tax return be filed, and such extension shall not exceed thirty days.
(b) The return may be filed in one municipality and the tax paid in another municipality;
(c) When a donor’s tax is assessed by reason of negligence, international disregard of
rules and regulations, or fraud on the part of the taxpayer, no extension of time for
payment of the tax may be granted by the Commissioner of Internal Revenue;
(d) A gross gift of P50, 000 for the whole year to non-strangers need not be covered by a
donor’s tax return.

Answer: b
The donor’s tax must b ad at the time the return is filed. This is referred to in taxation as the
“pay-as-you-file” system. Where the return is required to be filed with the office of the Bureau of
Internal Revenue having jurisdiction over the municipality where the donor has his domicile, the
donors tax must be paid at the same place. Although b provision of law, only those making
donations are covered by the provision. “Exemptions of certain gifts” are exempt from the
requirement of filing the donor’s tax return, however, because the amount of donation of P50,
000is exempt from the donor’s tax (see donor’s tax table), there is no need to file a donor’s tax
return.

6. One of the following statements is not true. Which is it? If on any one date there is a
donation by one donor to a donee who is not a stranger together with a donation to a
donee who is a stranger:
(a) There will be two separate donor’s tax return because the donor’s tax on the donation
to a non-stranger is at graduated rates while the donor’s tax on the donation to a
stranger is at the flat rate of 30%;
(b) There will beone donor’s tax return only, where the donor’s tax at graduated rates on
the donation to a non-stranger will be shown together with the donor’s tax at the flat
rate of 30% on the donation to a stranger, the total being the donor’s tax to pay;
(c) If there were previous donations to a strangers during the year, the prior net gifts to
strangers need not be added anymore in the computation of the aggregate net gifts,
donor’s tax on aggregate net gifts and donor’s tax due on the donations to strangers;
(d) A donation on account to marriage, before the marriage, by a parent to a son and
daughter-in-law shall be considered as donations to a non-stranger and stranger.

Answer: a

7. Statement 1: when a donor’s tax return was filed and it was found by the Bureau on
Internal Revenue to have errors which gave rise to a deficiency donor’s tax, the donor
may be required to pay the deficiency although he does not possess or own the property
anymore;
Statement 2: The government is not bound by any agreement between the donor and the
donee that the latter shall pay the tax on the donation.
(a) True, true; (b) False, false; (c)True, false; (d) False, true

Answer: a
The donor’s tax is a tax on the privilege to transmit property by way of gift, hence it is imposed
on the donor. It is a direct tax, and cannot be shifted by a taxpayer. Any deficiency donor’s tax is
the liability of the donor.

8. Situation 1: Mr. A, in trading business, had a receivable of P150, 00 from Mr. B. Without
exerting utmost effort to collect, Mr. A cancelled the indebtedness of Mr. B notified Mr. B
and the latter thanked Mr. A for it.
Situation 2: Mr. C sold to Mr. D personal property worth P200, 000 for a consideration of
P50, 000, to take effect immediately upon receipt of the consideration.
Which statement is correct?
(a) Situation1 involves a donation of P150, 000 and should be covered by a donor’s tax
return within thirty days from the date of cancellation of the indebtedness;
(b) Situation 1 is bad debt expense of the business and should not be treated as involving
a taxable donation;
(c) Situation 2 shall be considered a bad bargain and not involving a taxable donation;
(d) Situation 2 involves a donation of P200, 000 and should be covered by donor’s tax
return within thirty days from the date of the sale.

Answer: a
Cancellation of indebtedness is not a bad debt expense of business if utmost effort was not taken
to collect, short of judicial action. It is considered a donation, hence a donor’s tax return should
be filed for that donation. When a sale is for less than full adequate consideration, to take effect
immediately during the lifetime of the transferor, there is a donation. It is not considered a mere
bad bargain. The amount that should be considered as a donation is the excess of the fair market
value at the time of transfer over the consideration received. There should be a donor’s tax return
showing a gross gift of (P200, 000 less P50, 000) P150, 000.

9. Statement 1: A donation on which the donor’s tax was not paid is not a valid donation;
Statement 2: title to the donated real property cannot be transferred to the donee in the
Register of Deeds unless the donor’s tax on the donation had been paid.
(a) True, true; (b) false, false; (c) True, false; (d) False, true.

Answer: d