TAXATION II TRANSCRIPT OF STENOGRAPHIC NOTES
Based on the Lectures of Atty.Donalvo (2nd Semester of S.Y. 2016-2017)
PRELIMS COVERAGE
November 22, 2016
(By: Alona Suzell B. Ruyeras)
Let’s begin discussing about Tax 2 already. Tax 2
is a little bit easier than Tax 1. Mas maraming pumapasa sa
Tax 2. Let’s begin.
We will first be dealing with estate taxation. This is
like a continuation of income taxation because in the codal,
what follows after income taxation is estate taxation. So we
will be dealing with Transfer Taxation.
So let us first understand, what is this “transfer” all
about? How do we define a “transfer” in the context of
taxation? When you say “transfer”, it involves transfer of
properties or rights from one person to another, with or
without consideration. Transfer in general is just a transfer
of property or transfer of ownership. There is an implication
when you transfer property from one person to another.
What are the kinds of transfers?
 Onerous transfers – it is burdensome. This
involves transfers for a valuable consideration.
Two types of onerous transfers:
1. Ordinary Transfers – involves transfer of
properties used in business.
*Tax implication: subject to income tax;
2. Casual Transfers – involves transfer of
properties outside of or not used in business.
*Tax implication: capital gains tax.
 Gratuitous transfers – transfers without or for a
grossly inadequate any consideration. These are
the ones subjected to Transfer Taxes.
Two types of gratuitous transfers:
1. Donation
*Tax implication: subject to donor’s tax;
2. Succession
*Tax implication: subject to estate tax.
These two (2) taxes are what we will be dealing
with until December.
We said a while ago that if we transfer properties
in line with our business, it will be subjected to income tax.
For example, mag benta ako ng sardinas, ma-subject yan to
income tax. But, will it be subjected to transfer tax? How do
we define transfer taxes, anyway?
 Transfer Tax – it is a tax on the privilege to
transfer properties gratuitously.
Hence, if a transfer is related to your business, it will not
be subjected to Transfer Tax but a Business Tax either VAT
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or Percentage Tax which we will be dealing with when
January comes.
What is the Nature of a Transfer Tax?
It is an Excise Tax. It is like an income tax which is also
a tax on a privilege. Privilege of what? Privilege of
transferring the property gratuitously.
What is the governing law?
When it comes to Transfer Taxes, you apply the law in
effect at the time of transfer. If it is under donor’s
taxation, at the time the donation is made (or at the time
donation is perfected and completed to be accurate). If it is
under estate taxation, you apply the tax laws which are
effective at the time of death.
ESTATE TAXATION
What is an Estate?
It is the mass of properties, rights and obligations left
behind by the decedent. It is not only properties and rights
but also obligation. However, when it comes to obligations,
what is transferred is only up to the extent of the inheritance.
It is synonymous with inheritance.
What is the Object of Estate Tax?
It is to tax the shifting of economic benefits from the
dead to the living.
What are the Purposes of Estate Taxation?
1. For the equitable distribution of wealth;
2. This is the most effective way of taxing the right of
transferring property from the dead to the living;
3. For revenue purposes;
4. The only method of collecting the share which is
properly due to the State as a “partner” in the
accumulation of the property.
Is Inheritance Tax synonymous with Estate Tax?
No. Estate Tax is the tax on the privilege of
transferring property. When you talk about Inheritance Tax, it
is a tax on the privilege of receiving property. Magkaiba yan.
Right now we do not have any Inheritance Tax Laws. Na-
amend na yan. Dati meron yan pero right now wala na yan
sya.
What is the Net Estate?
This is the Tax Base of our Estate Tax.
Just to give you an overview of what we will be
going to discuss, this is similar to your income taxation:
GROSS ESTATE xxx
LESS: DEDUCTIONS xxx
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 TAXATION II TRANSCRIPT OF STENOGRAPHIC NOTES
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- Ordinary
- Special
- Share of the Surviving Spouse
NET ESTATE xxx
The problem lies in what is the composition of the
Gross Estate (GE) and what is the composition of the
deductions. You have to know the correct composition of
these, otherwise, you will not arrive at the correct Net Estate
and ultimately, your Estate Tax.
What are the considerations you need to think of when
you are determining which of these properties are part
of the Gross Estate?
1. Nationality and Residence of the Decedent;
This has something to do with the situs
of the property.
2. Nature and Location of the Property;
3. The Composition and Value of your Gross Estate;
4. The Deductions;
5. The Rates.
When will the Estate Tax accrue?
Lagi tong natatanong sa bar. The estate tax will
accrue as of the date of the death of the decedent and the
accrual of the tax is distinct from the obligation to pay the
same.
What do you mean by “accrual of the tax”? It
means that the obligation to compute the amount of the tax
begins from the time of death. Pag may namatay,
automatically, estate tax obligation follows. But do you have
to pay immediately? No. Why?
1. It is legally and physically impossible – Bakit?
Magbabayad ba yung patay pag namatay sya?
Sino bang magbabayad nyan? Probably the
executor, administrator or the heirs;
2. It is by reason of law – If someone dies, you
cannot pay immediately because you still have to
inform the BIR, you still have to collate the
properties, and if you look at the estate tax return,
you still have to pay the estate tax 6 months from
the date of death of the decedent.
So I will leave you the case of Lorenzo vs. Posadas.
Lorenzo vs. Posadas
This refers to the Inheritance Tax but it also applies to Estate
Tax. The time for payment of the Estate Tax is laid down by
law. Again, it accrues at the time of death, you start
computing from the time of death, and you pay later on. That
is by provision of law.
Let’s review the situs of properties.
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What is the situs of real property?
The place where the property is located.
What about personal property?
General Rule: It follows the domicile of the owner.
Exception: But there is a provision there in the
NIRC, Section 104 that pertains to Intangibles. It does not
necessarily follow the general rule on the situs of personal
properties. Under Section 104, the situs of Intangibles are
considered as located in the Philippines under the following
circumstances:
1. Franchises to be exercised here in the Philippines;
2. Shares, obligations and bonds issued by
Philippine corporations;
3. Shares, obligations and bonds of foreign
corporations 85% of its business is located in the
Philippines;
4. Shares, obligations and bonds of foreign
corporations with business situs in the Philippines;
5. Shares or rights of any partnership established
within the Philippines.
One good case regarding the situs of property is BPI
vs. Posadas. It illustrates an exception to the general rule
that generally, the situs of personal properties is the domicile
of the owner.
BPI vs. Posadas
Facts:
There is this German who found a Filipina wife. Later on, he
returned to Germany. He kept on coming back to the
Philippines because he has a business here. He procured an
insurance for his life and he eventually died.
When he died, the proceeds of the life insurance were
delivered to BPI here in the Philippines because it is the
administrator of the estate.
Issue: Do you add the money in BPI to the estate of the
deceased?
Opposing Contention: It should not be included because the
situs of personal properties is the domicile of the owner and
the deceased is a German living in Germany.
Ruling:
The Supreme Court held that since the insurance proceeds
were delivered to BPI for administration and it was in fact, to
be distributed to the heirs who are located or situated in the
Philippines, it is considered as having situs in the
Philippines. Thus, the insurance proceeds properly form part
of the gross estate of the deceased.
How do you value the properties?
How do you value Real Properties?
It is the fair market value of the property as
determined either by the Commissioner of the BIR (Zonal
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 TAXATION II TRANSCRIPT OF STENOGRAPHIC NOTES
Based on the Lectures of Atty.Donalvo (2nd Semester of S.Y. 2016-2017)
Value) or the one determined by the Local Assessor where
the real property is located (Assessed Value) whichever is
higher.
How about Personal Properties?
You follow the general rule. That is, fair market
value at the time of death.
What about Usufruct?
You just read the provision but the thing is, when
you talk about usufruct, you take into account the life of the
beneficiary in accordance with the Mortality Table.
What is the “Date of Death Valuation Rule”?
The estate, for estate tax purposes, is valued at
the time of the death of the decedent.
What happens if there are increases or decreases
in the value of the property after the death?
Dizon vs. CIR
Facts:
A person died and left a debt not yet paid. This is what we
call a “Claim Against the Estate”. It is supposed to be a
deduction to the estate. But after his death, the creditors
executed a compromise agreement wherein some debts
were condoned.
BIR said that the said condoned amounts should not be
included in the “Claims Against the Estate”.
Issue: Is the BIR correct?
Ruling: No. Those are already post-mortem developments.
Post-death developments are not included. Again, for the
value of the estate, you reckon it at the time of death in line
with the “Date of Death Valuation Rule”. Any post-mortem
developments are not considered in the valuation of the
estate.
November 29, 2016
(By: Peter Quiel Vega)
*Review:
Things to remember:
1. Type of decedent
General rule: All the properties form part of the gross
estate.
Exception: Non-resident alien decedent. The gross estate
will be comprised by properties situated in the Philippines.
2. Types of properties involved.
There are 3 types of properties:
a. Personal properties
b. Real Properties
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c. Intangible properties
You have to know the types of properties because it
has an effect in situs. Especially with respect to intangible
properties vis a vis the non-resident alien decedent because
we have the rule of reciprocity.
And we have certain rules to follow as to the situs of
certain intangible properties, example:
1. Franchises being exercised in the Philippines
2. Shares, obligations, or bonds issued by
domestic corporations, or partnerships, business
or industry located in the Philippines
3. Shares, obligations or bonds issued by foreign
corporations
a. at least 85% of the business of which
is located in the Philippines; or
b. which have acquired situs in the
Philippines
4. All intangibles owned by residents
GROSS ESTATE
Inclusions and Exclusions
It is possible that the decedent no longer has the
possession of the property but it has to be included in the
gross estate as taxable transfers like when the transfer takes
only upon death, you have to add it back to you gross estate.
There are seven (7) items that are specifically included
in the Gross Estate.
1. DECEDENT’S INTEREST
SEC. 85. Gross Estate. - the value of the gross estate of
the decedent shall be determined by including the value
at the time of his death of all property, real or personal,
tangible or intangible, wherever situated: Provided,
however, that in the case of a non-resident decedent who
at the time of his death was not a citizen of the
Philippines, only that part of the entire gross estate which
is situated in the Philippines shall be included in his
taxable estate.
(A) Decedent's Interest. - To the extent of the interest
therein of the decedent at the time of his death;
*Requirement to be included in gross estate: Decedent
must have an interest over the property to form part of
his gross estate.
If you remember, Usufruct is only a right to enjoy
the fruits of the property but you have to include it in the
gross estate. The law also provides for the valuation of that
usufruct.
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Based on the Lectures of Atty.Donalvo (2nd Semester of S.Y. 2016-2017)
Is it necessary for the decedent to be in possession of
the property? Or is it necessary that the decedent has
acquired that property?
Not necessarily. Why? Because it is possible that
the decedent has not yet received any property but has to be
included in the gross estate.
Examples:
Accrued interest and accrued interest. These are
income that were already earned but not yet received by the
decedent at the time of his death.
Another example is rent. Pagkapatay wala pa
nabayran ang rent, so you have to add it in the gross estate.
What about the income earned after the death of the
decedent? Let’s say namatay ang decent June 30, tapos
nag bayad ng rent by year end, December 30. What
happens to the income after June 30 and received on
December 30?
Ang rule natin, “Date of Death Valuation Rule”. Post-
mortem developments are not considered in determining the
gross estate of the deceased.
2. TRANSFERS IN CONTEMPLATION OF DEATH
(B) Transfer in Contemplation of Death. - To the extent
of any interest therein of which the decedent has at any
time made a transfer, by trust or otherwise, in
contemplation of or intended to take effect in possession
or enjoyment at or after death, or of which he has at any
time made a transfer, by trust or otherwise, under which
he has retained for his life or for any period which does
not in fact end before his death (1) the possession or
enjoyment of, or the right to the income from the property,
or (2) the right, either alone or in conjunction with any
person, to designate the person who shall possess or
enjoy the property or the income therefrom; except in
case of a bona fide sale for an adequate and full
consideration in money or money's worth.
There are two ( 2) types of transfers in contemplation of
death under this provision:
1. The transfers which are really effective after
death.
Example: Donation mortis causa
Codal: “any interest therein of which the decedent
has at any time made a transfer, by trust or
otherwise, in contemplation of or intended to take
effect in possession or enjoyment at or after
death”
2. Transfers with the retention of rights.
Codal: “or of which he has at any time made a
transfer, by trust or otherwise, under which he has
retained for his life or for any period which does
Alparaque_Cutamora_Domingo_Jala_Laguialam_Lomondot_Lumapas_Noble_Reyes_Ruyeras_Uy_Vega
not in fact end before his death (1) the possession
or enjoyment of, or the right to the income from the
property, or (2) the right, either alone or in
conjunction with any person, to designate the
person who shall possess or enjoy the property or
the income therefrom; except in case of a bona
fide sale for an adequate and full consideration in
money or money's worth.”
What do you mean transfer in contemplation of
death? Case in point Ganuelas v. Cawed, GR No. 123968,
24 April 2003.
Ganuelas vs. Cawed
The distinguishing characteristics of a donation mortis
causa are the following:
1. It conveys no title or ownership to the transferee before
the death of the transferor; or, what amounts to the same
thing, that the transferor should retain the ownership (full
or naked) and control of the property while alive;
2. That before his death, the transfer should be revocable
by the transferor at will, ad nutum; but revocability may be
provided for indirectly by means of a reserved power in
the donor to dispose of the properties conveyed;
3. The transfer is void if the transferor survives that
transferee.
Take note of the exception.
What if the transfer is by way of sale with full and
adequate consideration?
Example I will sell you my laptop kasi mamatay na ako
next week. But for the meantime, since magiging iyo naman
ito, ako muna mag gamit. If it is a valid sale, you take it out
already from the gross estate.
3. REVOCABLE TRANSFER
(C) Revocable Transfer. –
(1) To the extent of any interest therein, of which the
decedent has at any time made a transfer (except in case
of a bona fide sale for an adequate and full consideration
in money or money's worth) by trust or otherwise, where
the enjoyment thereof was subject at the date of his
death to any change through the exercise of a power (in
whatever capacity exercisable) by the decedent alone or
by the decedent in conjunction with any other person
(without regard to when or from what source the
decedent acquired such power), to alter, amend, revoke,
or terminate, or where any such power is relinquished in
contemplation of the decedent's death.
(2) For the purpose of this Subsection, the power to alter,
amend or revoke shall be considered to exist on the date
of the decedent's death even though the exercise of the
power is subject to a precedent giving of notice or even
though the alteration, amendment or revocation takes
effect only on the expiration of a stated period after the
exercise of the power, whether or not on or before the
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 TAXATION II TRANSCRIPT OF STENOGRAPHIC NOTES
Based on the Lectures of Atty.Donalvo (2nd Semester of S.Y. 2016-2017)
date of the decedent's death notice has been given or the
power has been exercised. In such cases, proper
adjustment shall be made representing the interests
which would have been excluded from the power if the
decedent had lived, and for such purpose if the notice
has not been given or the power has not been exercised
on or before the date of his death, such notice shall
be considered to have been given, or the power
exercised, on the date of death.
If you simply put this provision, it is just a transfer
where the transferor reserves the right to revoke such
transfer.
Kung i-transfer nimo ang property and you
reserved the right, is there really a transfer to begin with by
the decedent if you have the right to revoke or change or
amend the terms of the transfer? Wala diba?
That is why, you have to include it to your gross
estate.
Exception: If it is a transfer under a bona fide sale.
4. PROPERTY PASSING UNDER GENERAL POWER OF
APPOINTMENT
(D) Property Passing Under General Power of
Appointment. - To the extent of any property passing
under a general power of appointment exercised by the
decedent:
(1) by will, or
(2) by deed executed in contemplation of, or intended to
take effect in possession or enjoyment at, or after his
death, or
(3) by deed under which he has retained for his life or any
period not ascertainable without reference to his death or
for any period which does not in fact end before his death
(a) the possession or enjoyment of, or the right to the
income from, the property, or
(b) the right, either alone or in conjunction with any
person, to designate the persons who shall possess or
enjoy the property or the income therefrom; except in
case of a bona fide sale for an adequate and full
consideration in money or money's worth.
What do you understand with power of appointment to
begin with? Is this similar to SPA?
The power of appointment is the power given to
that person to appoint or designate someone who will
receive that property.
Illustration:
Supposing A gave a house and lot to B. A will say,
I will give you the house and lot and I give you the authority
to designate to certain person who will received the property
if we will die.
Whose property are we referring to when we say
property passing under the general power of
appointment? A or B?
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B. A general of appointment exercised by the
decedent. Sino ang binigyan ng appointment? B was given
power to appoint who will receive the property after B dies.
How will you be able to say if the power of appointment
is general in nature or special?
It is general appointment if there is no specific
person or persons designated as the recipient of the
property if B dies.
E.g. Give it to anyone.
Special/Specific appointment, specified and
person who will receive the property. It may be named
person or probably, there is some sort of limitation as to
certain group of persons who are entitled to receive the
property.
E.g. Give it to anyone as long as he is my relative.
RULE: If general power of appointment, you
include it in the gross estate. If specific, excluded from the
gross estate.
What about A’s property? What about in relation to A?
How am I suppose to deal with the property in relation to
A? will it be included or excluded in the gross estate of
A?
It will really depend on how the power of
appointment given to B. If it is in some sort of donation, you
have no gross estate to talk about because the transfer will
be subjected to donor’s tax.
But if the power of appointment given to B is
through succession, this property will form part as gross
estate of A because A owns the property.
You have to take note that when it comes to
general power of appointment, another exception is transfer
by bona fide sale for valuable consideration.
5. PROCEEDS OF LIFE INSURANCE
(E) Proceeds of Life Insurance. - To the extent of the
amount receivable by the estate of the deceased, his
executor, or administrator, as insurance under policies
taken out by the decedent upon his own life, irrespective
of whether or not the insured retained the power of
revocation, or to the extent of the amount receivable by
any beneficiary designated in the policy of insurance,
except when it is expressly stipulated that the designation
of the beneficiary is irrevocable.
Review: what is the role of life insurance proceeds
in income taxation? You have to follow the dead-or-alive
rule. If the recipient died, it is excluded. If the recipient is still
alive, you have to determine of it is interest or return of
premium.
In Estate taxation, two (2) things to remember:
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 TAXATION II TRANSCRIPT OF STENOGRAPHIC NOTES
Based on the Lectures of Atty.Donalvo (2nd Semester of S.Y. 2016-2017)

1. It must be a life insurance and must be taken *Note: only the previous seven (7) items enumerated are
from the life of the decedent inclusions

Nagkuha kog insurance, and then I died. 8. CAPITAL OF THE SURVIVING SPOUSE

2. Who are the beneficiaries?
There are 2 possible beneficiaries in this situation.
One, the beneficiary is the estate, administrator or
executor. Second, the beneficiary is other than estate,
administrator, or executor.
1. Beneficiary is the estate, executor or
administrator. We don’t talk about revocability
anymore. Automatic part of gross estate.
2. The beneficiary is “others”. If revocable, included
in gross estate. If irrevocable, it is excluded.
6. PRIOR INTEREST
(H) Capital of the Surviving Spouse. - The capital of the
surviving spouse of a decedent shall not, for the purpose
of this Chapter, be deemed a part of his or her gross
estate.
This provision says that capital of the surviving
spouse is excluded in the gross estate. Property ito ng
asawa mo.
Which is why it is important to know what are the
exclusive properties of the decedent and what are the
conjugal/communal properties of the spouses.

Just read the codal.
(F) Prior Interests. - Except as otherwise specifically
provided therein, Subsections (B), (C) and (E) of this
Section shall apply to the transfers, trusts, estates,
interests, rights, powers and relinquishment of powers, as
severally enumerated and described therein, whether
made, created, arising, existing, exercised or relinquished
before or after the effectivity of this Code.
We have CPOG and ACOP. If the problem is
silent, it is either conjugal or community.
What if given the date ng marriage? (Magic date
August 3,1988). Aug 3,1988 and beyond, ACOP. Before
that, conjugal.
What is important is to remember what are the
exclusive properties.

From 2015 TSN: One thing to consider pala, itong
prior interest provision is one of the very rare occasions that
Congress will opt to apply the tax measure retroactively.
7. TRANSFER FOR INSUFFICIENT CONSIDERATION
What if you will forget sa kadaghan ug exclusive
property?
If conjugal partnership of gains, property ko,
property mo, but we will share the gains.

(G) Transfers for Insufficient Consideration. - If any If absolute community of property, property ko,
one of the transfers, trusts, interests, rights or powers property mo, property natin.
enumerated and described in Subsections (B), (C) and
(D) of this Section is made, created, exercised or
relinquished for a consideration in money or money's PROPERTY CPG ACP
worth, but is not a bona fide sale for an adequate and full
consideration in money or money's worth, there shall be
1. Property inherited or Exclusive Exclusive
included in the gross estate only the excess of the fair
market value, at the time of death, of the property received as donation during
marriage
otherwise to be included on account of such transaction,
over the value of the consideration received therefor by 2. Property acquired during Conjugal Community
the decedent. marriage (other than
inheritance or donation)
3. Property acquired from Conjugal Community
This is a sale. You sold it but at a very low price. labor, industry work or
profession of the spouse
The consideration is insufficient.
4. Fruits or income due or Conjugal Community
derived during the marriage
What is the tax treatment? Include as part of the
coming from common
gross estate. But upto what extent? property
5. Property before the Exclusive Community
1. In determining whether there was sufficient marriage or brought to the
consideration, compare the FMV of the property at the time marriage
of the transfer with the amount of consideration received at 6. Fruits or income due or Conjugal Exclusive
the time of the transfer. received during the marriage
coming from exclusive
2. However, the amount to be included in the estate is property
computed by taking the difference between the FMV of the
property at the time of death and the amount of
consideration received at the time of transfer.

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*Unresolved question: Supposing I have an exclusive = 1.8 million

property. During my marriage, I sold that house and lot to
someone else. What is the nature of that money I received So very important that if the decedent is married, you should
from the sale of exclusive property? Is it exclusive or know whether the property is exclusive or
community? conjugal/community.

Discussion: I have no problem as to the gain in selling

because it is a gain and forms part of the community
property. But what about the cost of the house and lot? Ang
sabi ng batas “properties acquired in marriage.” You December 1, 2016 (1st Hour)
acquired the money during marriage. So what is the rule? (By: Earvin Alparaque)
Tanungin natin si Ma’am Galas or Vince Juan. Ang sabi ni
Ma’am Galas, it remains to be an exclusive property. But Sir So basically we are done with gross estate, let us
Vince would say that it is community since it is acquired now start with deductions.
during marriage.
So let us go back to the basic formula:
*EXERCISE:
Gross Estate xxx
Digong married Leila, sometime in 1986. In 2014, Leila died, Less:
leaving the following properties: Deductions (xxx)

1. Residential house inherited during marriage. Net Taxable Estate xxx

Acquisition cost 500,000; FMV at the time of death
1 million. Take note of the gross estate, we already
2. Residential house acquired during marriage. discussed the rules with regard to exclusions and inclusions.
Acquisition cost 600,000; FMV at the time of death
1.2 million. Let us now go to DEDUCTIONS.
3. Personal properties acquired during marriage but
from personal savings, cost 100,000; FMV @ DEDUCTIONS
death 400,000
The same with income taxation, what you have to
CPOG
remember are the requisites of deductibility, as well as the
Exclusive: substantiation requirements. If you do not follow the
requisites of deductibility and the substantiation
1. 1 million requirements, the BIR will disallow those expenses, it cannot
be deducted from the gross estate.
3. 400,000
Why do we have to follow the rules of
Conjugal: deductibility?

2. 1.2 million The nature of a deduction is like a tax exemption.

Thus it has a strict interpretation against the taxpayer and
Gross estate: must be interpreted in favor of the state.

1.4 M (exclusive) + 600k (one-half of conjugal) What are the types of deductions?

= 2 million Essentially, there are three types of deductions:

ACOP 1. Ordinary deductions

Exclusive: 2. Special deductions

1. 1 million 3. Share of the surviving spouse - the capital

property of the surviving spouse will always be excluded
Community:
from the gross estate of the decedent.
2. 1.2 million
3. 400,000 *ORDINARY DEDUCTIONS (ELIT MTV)

Gross estate: 1. Expenses

2. Losses
1 M (exclusive) + 800k (one-half of community) 3. Indebtedness

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Based on the Lectures of Atty.Donalvo (2nd Semester of S.Y. 2016-2017)
4. Transfer for public use
5. Mortgage unpaid
6. Taxes
7. Vanishing deductions
*SPECIAL DEDUCTIONS (SMeRFS)
1. Standard deduction
2. Medical Expenses
3. R.A. 4917 or death benefits
4. Family home
5. Share of the surviving spouse
ORDINARY DEDUCTIONS
A. EXPENSES
In the context of gross estate taxation, there are
only two types of expenses-
1. Funeral expenses
How much is allowable as deduction for funeral
expenses? There are three figures to remember-
a. Actual funeral expense
b. 5% of the gross estate
c. In both instances (a and b), the maximum
amount you can deduct is only P200,000
Take note also that before you can deduct funeral
expenses, you have to produce receipts or other
documentation which would prove that you have actually
spent for those funeral expenses.
Does it include the unpaid medical expenses of
the decedent?
Take note that kapag sinabi nating medical
expense, it is covered under a different rule. So this is strictly
funeral expenses and related expenses to the burial. If you
come to think of it, this is one of the exceptions to the Date-
of-Death valuation because these are expenses incurred
after death.
Under the Revenue Regulations No. 02-2003,
there are specific funeral expenses which may be allowed to
be deducted from your gross estate-
(a) Mourning apparel of the surviving spouse and
unmarried minor children of the deceased bought and used
on the occasion of the burial;
(b) Expenses for the wake of the deceased
including food and drinks;
(c) Publication charges for death notices;
(d) Telecommunication expenses incurred in
informing the relatives of the deceased;
(e) Cost of burial lot, tombstones, monument or
mausoleum but not their upkeep. In case the deceased owns
a family estate or several burial lots, only the value
corresponding to the plot where he is buried is deductible;
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(f) Internment and/or cremation fees and charges.
Expenses AFTER internment is no longer allowed (e.g. 40
days); and
(g) All other expenses incurred for the
performance of the rites and ceremonies incident to
internment.
2. Judicial expenses
Judicial expenses for purposes of taxation under
the Revenue Regulations No. 02-2003 includes the
inventory-taking of assets comprising the gross estate, their
administration, the payment of debts of the estate, as well as
the distribution of estate among the heirs. In short, these
deductible expenses are expenses incurred during the
settlement of the estate but not beyond the last day
prescribed by law, or the extension thereof, for filing of the
estate tax return. Judicial expenses may include-
(a) Fees of executor or administrator;
(b) Attorney's fees;
(c) Court fees;
(d) Accountant's fees;
(e) Appraiser's fees;
(f) Clerk hire;
(g) Costs of preserving and distributing the estate;
(h) Costs of storing or maintaining property of the
estate; and
(i) Brokerage fees for selling property of the
estate.
In your outline I provided two cases regarding
judicial expenses. First, the case of CIR vs CA (G.R. No.
123206). What happened in this case?
CIR vs CA (G.R. No. 123206)
Facts:
There was this person who was a World War II veteran. He
survived the war and became old and he became insane.
During his lifetime, his property was placed under the
guardianship of the Philippine National Bank. Eventually, he
died. But after his death, the PNB did not file an estate tax
return but instead required the heirs to execute an
extrajudicial settlement of the estate. Her sister became the
administratix of his property. Nagbigay ang BIR ng
deficiency estate tax. Her sister paid the tax but thereafter
she filed an action to claim a refund of the taxes that she has
paid. According to her, all the taxes she has paid or a portion
of it should be returned to the estate of the deceased. There
were two items in contention- (1) notarial fees and (2)
attorney's fees paid.
Saan kinuha yung notarial fees? Saan binayad?
Sa lawyer ng PNB for the extrajudicial settlement of the
estate. What about the attorney's fees? It was for the
guardianship proceedings instituted by the PNB.
ISSUE: The question here is, are these expenses
deductible?
With respect to the notarial fees, the BIR said it
should not be deducted because there are no judicial
proceedings to begin with. Walang kaso so walang judicial
expense.
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 TAXATION II TRANSCRIPT OF STENOGRAPHIC NOTES
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RULING 1: But what did the SC say? This is an allowable
deduction. The notarial fees are part of the judicial expenses
because according to the SC, the expense is a necessary
contribution for the settlement of the estate. There is no
need for a case to be filed, it is enough that you spend
something for the distribution or the administration of the
estate or the settlement of the estate.
What about the attorney's fees? Ang sabi ng BIR,
the attorney's fees should not be deducted. Why? When did
the guardianship proceedings begin in the first place? It
began when the deceased was still alive.
RULING 2: The SC said here you are allowed to deduct the
attorney's fees even if it was spent or incurred when he was
still alive because anyway, the purpose of that guardianship
proceeding is to distribute the properties later on. Still it is a
necessary expense because it contributed to the settlement
of the estate. This ruling of the SC with regard to the
attorney's fees is weird mainly because it was filed before
the deceased actually died.
What about the expenses incurred in the
preservation of the properties prior to distribution? Is it a
deductible judicial expense? That is actually the case of De
Guzman vs Carillo-
De Guzman vs Carillo
The SC here said that, those expenses spent for the
preservation of the property is part of the judicial expenses.
The administrator has the duty to maintain in tenantable
repair the houses and other structures and fences belonging
to the estate, and deliver the same in such repair to the heirs
or devises when directed to do so by the court. It is a
necessary expense for the administration of the estate.
What are the documentary requirements? Of
course it must be substantiated with proof, and if the judicial
expenses are still unpaid, the cost of expenses must be
supported by a sworn statement of account issued and
signed by the creditor.
B. LOSSES
1. Casualty losses
2. Claims against insolvents
1. Casualty Losses
What are these casualty losses? This is similar to
your income taxation. There shall also be deducted losses
incurred during the settlement of the estate arising from fires,
storms, shipwreck or other casualties or from robbery, theft
or embezzlement when such losses are not compensated for
by insurance or otherwise, and if at the time of the filing of
the return such losses have not been claimed as a deduction
for income tax purposes in an income tax return, and
provided that such losses were incurred not later than the
last day for the payment of the estate tax.
*Requirements of deductibility:
1. It must be incurred during the settlement of the estate;
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2. The loss arose from fires, storms, shipwreck or other
casualties or from robbery, theft or embezzlement;
3. Said losses are not compensated by insurance;
4. It must not have been claimed as a deduction for income
tax purposes;
5. Such losses were not incurred later than the last day of
payment for the estate tax.
December 1, 2016 (2nd Hour)
(By: Cham Jala)
2. Claims Against Insolvents
Kadtong buhi pa ang minatay, naa syay
receivable. He should have received something but he
cannot collect it anymore because the debtor is already
insolvent.
*Requirements of deductibility:
1) The claims or the amounts receivable is an asset.
Kwarta na nimo, so you include it as part of your
gross estate.
2) It must be shown that the debtors are incapable of
paying their indebtedness. So the principles in
income taxation are likewise applicable here with
respect to uncollectible.
C. INDEBTEDNESS (Claims Against The Estate)
Dito, ang minatay ang may utang na hindi na nya
mabayaran kasi namatay na sya.
For claims against the estate: Provided, That at the time the
indebtedness was incurred the debt instrument was duly
notarized and, if the loan was contracted within three (3)
years before the death of the decedent, the administrator or
executor shall submit a statement showing the disposition of
the proceeds of the loan
Who will pay the obligations now? The estate will
have to pay the obligation in arrears, because the obligation
in arrears is only up to the extent of the inheritance.
*Requirements of deductibility:
1) It is a personal obligation of the deceased.
Exception: those which are incident to his death
like funeral expenses, medical expenses
2) It must be contracted in good faith and for
adequate and full consideration
3) It must be valid and enforceable and not
prescribed
4) It must not have been condoned by the creditor.
What about the substantiation requirements?
A) Simple Loan
a. The debt instrument must have been
notarized, even if it is a promissory note.
Exception: when you talk about
financial institution, these financial
institutions do not require that the
promissory notes be notarized.
b. Creditor Certification which must be
notarized. The creditor would certify how
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Based on the Lectures of Atty.Donalvo (2nd Semester of S.Y. 2016-2017)
much is the unpaid obligation of the
decedent.
c. There must be a proof of financial
capacity of the creditor at the time the
loan was demanded. Meron creditor’s
certification, meron pa ring proof of
financial capacity on the part of the
creditor.
B) Purchase of goods or services.
a. There must be pertinent documents
pertaining to the purchase. In this
regard, I think notarization of document
is no longer required.
b. Duly notarized certification of the
creditor as to the unpaid balance
c. The certified true copy of the latest
audited balance sheet of the creditor.
Take note also of the requirement when the debt
was contracted within 3 years from the date of death. There
must be a certification or statement under oath executed by
the administrator or the executor reflecting the disposition of
the loan proceeds.
D. TAXES
Taxes are actually part of indebtedness but we included
it there so that we will have sensible mnemonic.
What you have to take note here in taxes is, what are
those taxes not deductible from the Gross Estate?
1) Income received after death of the decedent, kasi
post mortem development sya.
2) Taxes that accrued before death;
3) Estate taxes.
What are the taxes that are allowed to be deducted
from the Gross Estate?
1) Income tax upon income received before the
death of the decedent, and
2) Property taxes that accrued before the decedent’s
death.
*Requirements of Deductibility:
1) It must accrue at the time of death;
2) It must have been unpaid at the time of death;
3) It must not include those taxes which are not
allowed to be deducted by reason of law.
E. MORTGAGE UNPAID
This is similar with indebtedness, kase kung
meron kang mortgage, meron kang utang either by yourself
or by accommodation. The mortgage was still unpaid at the
time of death.
*Requirements of Deductibility:
1) The property mortgaged must be included in the
gross estate.
2) That value included in the Gross Estate must be
up to the value of the decedent’s interest in the
property.
3) In case the unpaid mortgage payable is being
claimed by the estate, verification must be made
as to who was the beneficiary of the loan
proceeds.
4) Deduction is limited to the extent that they were
contracted bona fide and for an adequate and full
consideration
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F. TRANSFERS FOR PUBLIC USE
You forget about the requirements in income tax. If
there are transfers to government agencies for public
purposes, as long as it is for a public purpose, you can
actually deduct it from your Gross Estate.
*Requirements of Deductibility:
1) There must be a will which contains such
disposition.
2) The disposition takes effect after the death of the
decedent (mortis causa)
3) It is in favor of the government of the Philippines
or any of its political subdivisions (Atty. D: I think
this would include GOCCs)
4) The property must be exclusively for public use.
5) The value of the property must be included in the
gross estate
G. VANISHING DEDUCTIONS
What is the nature of this vanishing deduction? By
the term itself, “vanish”. If you want to be technical about it, it
is “Property Previously Taxed”. This is a diminishing
deduction allowed of the gross estate which the decedent
previously acquired either gratuitously by inheritance or
donation. The deductions allowable depend on a holding
period, maximum of 5 years.
What is the reason behind that? To mitigate the
harshness of successive taxation of the same property or
that person. Makatanggap ka ng property, through donation,
it was taxed a donor’s tax, and then mamatay ka bigla, so
itatax ka uli ng government for transfer taxes for the same
property.
*Requirements of Deductibility:
1) The property must have been transferred by a
prior decent through succession or donation
2) The decedent (transferee) must have died within 5
years from the date of transfer. This has
something to do with the amount or percentage of
deduction allowable. Ex. If the property was
received within one year from the date of death,
you are allowed to deduct 100% of the value of the
property as determined by law. If the decedent
died more than 1 year but before 2 years, it is
80%. If more than 2 years but less than 3 years,
that’s 60%. The value of the property diminishes
by 20% each year. More than 5 years, there is no
more vanishing deduction to speak of.
3) The property must have formed part of the gross
estate of the deceased.
4) The property must also form part of the gross
estate or the gross gift of the prior decedent or the
donor and also the taxes should have been paid.
There is a previous tax imposed on the transfer
and those taxes must have been paid by the donor
or the prior decedent.
5) The property must be situated in the Philippines.
You will not apply this if the property is situated
abroad.
6) The vanishing deduction must not have been
claimed by the previous estate because it is pretty
much possible that the property was already
claimed as part of the vanishing deduction of the
prior decedent. So the next transfer, there is no
vanishing deduction to speak of.
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SPECIAL DEDUCTIONS
A. STANDARD DEDUCTION
This is just automatic 1 million. You don’t have to
prove anything. You don’t have to submit to the BIR
anything. You are entitled to a standard deduction of 1
million.
What if my gross estate is just P900,000? Can I still
claim the standard deduction? YES. You can claim the
standard deduction. The effect would be you do not have to
pay estate taxes anymore.
B. MEDICAL EXPENSES
Let’s start with the amount that we can claim.
What is the amount that you can claim? It is either actual
expense but not exceeding P500,000.
What if there is an excess of P500,000, can you
claim it as part of your claims against the estate? NO.
Medical expenses have a different tax treatment.
How do we interpret medical expenses? What if
there are medical expenses incurred but not by reason of his
death. The medical condition was not the cause of his death.
Is it required that the medical expenses to be claimed as part
of your deduction be actually related to the cause of death of
the decedent? The codal does not provide.
Example na diagnose ka ng cancer then namatay
ka kay naligsan ka and you incurred medical expenses that
are fully substantiated by receipts, you may claim that as
part of your MedEx.
The interpretation of medical expenses is literal. As
long as there is a medical expense that you can actually
substantiate by receipts and any supporting documents and
incurred at least within one year from the time of death, then
you can claim it as part of your medical expenses.
C. RETIREMENT BENEFITS UNDER R.A. 4917
*Requirements for Deductibility:
a. There must be a retirement plan approved by
the BIR
b. Number of years: 10 years (does it need to be
continuous or successive)
c. Age requirement: Not less than 50.
d. It must have been availed of only once
e. The amount of the retirement benefit received
must be included as part of the gross estate
f. This must not have been claimed as a deduction
in your income taxation
D. FAMILY HOME
The amount is actual value or 1 million, whichever
is lower.
Where do we base the 1 million? What if the
individual is married? You must consider only that portion
that pertains to the deceased. So divided by two sya.
E. SHARE OF THE SURVIVING SPOUSE
(Sir did not discuss this.)
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December 6, 2016
(By: Arjan Uy)
Punta na tayo sa deductions. You have the
ordinary deductions, special deductions and then share of
the surviving spouse. So by now you know already the
distinctions between ordinary deductions and special
deductions. You should also remember that you do not
consider the special deductions in determining the
share of the surviving spouse.
So let’s now go to the family home. What
constitutes the “family home” which is deductible from the
gross estate? An amount equivalent to the current fair
market value of the decedent’s family home shall be
deducted from the gross estate; Provided, however, That if
said current fair market value exceeds One million pesos (P
1,000,000), the excess shall be subject to estate tax.
Let’s go to the net estate.
NET ESTATE
SEC. 87 Exemption of Certain Acquisitions and
Transmissions. - The following shall not be taxed:
(A) The merger of usufruct in the owner of the naked title;
(B) The transmission or delivery of the inheritance or legacy
by the fiduciary heir or legatee to the fideicommissary;
(C) The transmission from the first heir, legatee or donee in
favor of another beneficiary, in accordance with the desire of
the predecessor; and
(D) All bequests, devises, legacies or transfers to social
welfare, cultural and charitable institutions, no part of the net
income of which inures to the benefit of any individual:
Provided, however, That not more than thirty percent (30%)
of the said bequests, devises, legacies or transfers shall be
used by such institutions for administration purposes.
After deducting all the allowable deductions from
the gross estate, the net estate of all the deceased not
exceeding P200,000 shall be exempt from estate tax under
Section 84 of the Tax Code, as amended. Just like income
taxation, there is a net estate tax schedule. Sabihin natin na
ang net estate is P2 million, how much is the estate tax?
Again you have to look at the table. The amount is greater
than P500,000 but not greater than P2 million. Then you look
at the fixed figures. At P500,000 how much? You just have
to look at the table.
Anyway, let’s go to Section 86 (A), these refers to
deductions.
SEC. 86. Computation of Net Estate. - For the purpose of
the tax imposed in this Chapter, the value of the net estate
shall be determined:
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((E) Tax Credit for Estate Taxes paid to a Foreign
Country. -
(1) In General. - The tax imposed by this Title shall be
credited with the amounts of any estate tax imposed by the
authority of a foreign country.
(2) Limitations on Credit. - The amount of the credit taken
under this Section shall be subject to each of the following
limitations:
(a) The amount of the credit in respect to the tax paid to any
country shall not exceed the same proportion of the tax
against which such credit is taken, which the decedent's net
estate situated within such country taxable under this Title
bears to his entire net estate; and
(b) The total amount of the credit shall not exceed the same
proportion of the tax against which such credit is taken,
which the decedent's net estate situated outside the
Philippines taxable under this Title bears to his entire net
estate.
This applies to all decedents with properties
located abroad. Because these properties are located
abroad, what will happen is that they are subjected to foreign
taxes abroad. This provision is long and will take time to fully
discuss, but just take note that for tax credit for estate taxes
paid to a foreign country, these may be subject to the per
country basis or worldwide basis. So those are the things to
take note.
ADMINISTRATIVE MATTERS
Let us go to tax administrative matters in tax
returns. The first is notice of death.
SEC. 89. Notice of Death to be Filed. - In all cases of
transfers subject to tax, or where, though exempt from tax,
the gross value of the estate exceeds Twenty thousand
pesos (P20,000),the executor, administrator or any of the
legal heirs, as the case may be, within two (2) months after
the decedent's death, or within a like period after qualifying
as such executor or administrator, shall give a written notice
thereof to the Commissioner.
So what is a notice of death? It is a letter given to
the BIR that someone has died.
Why is it important? The heirs and executors
should be able to get a new TIN for the estate. That is an
exception to the general rule that there is only one TIN per
taxpayer.
Who files the notice of death? It is the executor,
administrator and the other heirs.
Where do you make a notice of death? Normally
you give it to the RDO where the decedent is domiciled at
the time of death. So after filing the notice of death, the
executor or administrator will get the TIN. If the decedent is
engaged in business, the executor or administrator should
filed for a short term income tax return. When you file such
short time income tax return, it must be 60 days after the
Alparaque_Cutamora_Domingo_Jala_Laguialam_Lomondot_Lumapas_Noble_Reyes_Ruyeras_Uy_Vega
decedent’s death. You can apply for extension especially if
the business is so big. But the extension cannot exceed 6
months from the date of decedent’s death or April 15 of the
following year, whichever comes earlier.
Is the notice of death required in all cases? Of
course no. For example, if you estate does not exceed
20,000.
When will the notice of death be given? There are
two possible periods. First, 6 months from the date of death.
Second, 6 months from the appointment of the
administrator/executor.
SEC. 90. Estate Tax Returns. -
(A) Requirements. - In all cases of transfers subject to the
tax imposed herein, or where, though exempt from tax, the
gross value of the estate exceeds Two hundred thousand
pesos (P200,000), or regardless of the gross value of the
estate, where the said estate consists of registered or
registrable property such as real property, motor vehicle,
shares of stock or other similar property for which a
clearance from the Bureau of Internal Revenue is required
as a condition precedent for the transfer of ownership
thereof in the name of the transferee, the executor, or the
administrator, or any of the legal heirs, as the case may be,
shall file a return under oath in duplicate, setting forth:
(1) The value of the gross estate of the decedent at the time
of his death, or in case of a nonresident, not a citizen of the
Philippines, of that part of his gross estate situated in the
Philippines;
(2) The deductions allowed from gross estate in determining
the estate as defined in Section 86; and
(3) Such part of such information as may at the time be
ascertainable and such supplemental data as may be
necessary to establish the correct taxes.
Provided, however, That estate tax returns showing a gross
value exceeding Two million pesos (P2, 000,000) shall be
supported with a statement duly certified to by a Certified
Public Accountant containing the following:
(a) Itemized assets of the decedent with their corresponding
gross value at the time of his death, or in the case of a
nonresident, not a citizen of the Philippines, of that part of
his gross estate situated in the Philippines;
(b) Itemized deductions from gross estate allowed in Section
86; and
(c) The amount of tax due whether paid or still due and
outstanding.
Let’s us just dissect the provision. When is it necessary
to file an estate tax return?
1) In all cases of transfers subject to the estate tax;
2) Where though exempt from tax, the gross value of
the estate exceeds P200,000 or
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3) Regardless of the gross value of the estate, where
the said estate consists of registered or registrable
properties, such as real property, motor vehicle,
shares of stock or other similar property for which
is clearance from the BIR is required as a
condition precedent for the transfer of ownership
thereof in the name of the transferee
It is entirely possible that you are exempt from tax but
you have to file an income tax return. Submitting estate tax
returns is necessary so that you will get you tax clearance.
Also, take note of the instance where you have to hire a
CPA. For estate tax returns showing a gross value
exceeding P2,000,000, there must be a statement duly
certified to by a Certified Public Accountant.
Who files the estate tax return? It is the executor,
administrator or any of the heirs, much like the notice of
death.
What are the contents of the Estate Tax Return?
1) The value of the gross estate of the decedent
2) The deductions allowed from gross estate
3) Supplemental data
4) Indication of the share of the surviving spouse
What is the time of filing?
(B) Time for Filing. - For the purpose of determining the
estate tax provided for in Section 84 of this Code, the estate
tax return required under the preceding Subsection (A) shall
be filed within six (6) months from the decedent's death.
A certified copy of the schedule of partition and the order of
the court approving the same shall be furnished the
Commissioner within thirty (30) days after the promulgation
of such order.
Can an extension be granted? Yes, provided the limitation in
Section 90 (c) is observed.
(C) Extension of Time. - The Commissioner shall have
authority to grant, in meritorious cases, a reasonable
extension not exceeding thirty (30) days for filing the return.
But the extensions are only granted in meritorious
cases.
Where should you file your return?
(D) Place of Filing. - Except in cases where the
Commissioner otherwise permits, the return required under
Subsection (A) shall be filed with an authorized agent bank,
or Revenue District Officer, Collection Officer, or duly
authorized Treasurer of the city or municipality in which the
decedent was domiciled at the time of his death or if there be
no legal residence in the Philippines, with the Office of the
Commissioner.
Except in cases where the Commissioner otherwise
permits, the estate tax return shall be filed with:
1) An authorized agent bank
2) RDO
3) Collection Office
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4) Duly authorized treasurer of the city or municipality
in which the decedent was domiciled at the time of
his death or
5) If there be no legal residence in the Philippines,
with the Office of the Commissioner
SEC. 91. Payment of Tax. -
(A) Time of Payment. - The estate tax imposed by Section
84 shall be paid at the time the return is filed by the
executor, administrator or the heirs.
(B) Extension of Time. - When the Commissioner finds that
the payment on the due date of the estate tax or of any part
thereof would impose undue hardship upon the estate or any
of the heirs, he may extend the time for payment of such tax
or any part thereof not to exceed five (5) years, in case the
estate is settled through the courts, or two (2) years in case
the estate is settled extrajudicially.
In such case, the amount in respect of which the extension is
granted shall be paid on or before the date of the expiration
of the period of the extension, and the running of the Statute
of Limitations for assessment as provided in Section 203 of
this Code shall be suspended for the period of any such
extension.
Where the taxes are assessed by reason of negligence,
intentional disregard of rules and regulations, or fraud on the
part of the taxpayer, no extension will be granted by the
Commissioner.
If an extension is granted, the Commissioner may require
the executor, or administrator, or beneficiary, as the case
may be, to furnish a bond in such amount, not exceeding
double the amount of the tax and with such sureties as the
Commissioner deems necessary, conditioned upon the
payment of the said tax in accordance with the terms of the
extension.
(C) Liability for Payment. - The estate tax imposed by
Section 84 shall be paid by the executor or administrator
before delivery to any beneficiary of his distributive share of
the estate. Such beneficiary shall to the extent of his
distributive share of the estate, be subsidiarily liable for the
payment of such portion of the estate tax as his distributive
share bears to the value of the total net estate.
For the purpose of this Chapter, the term 'executor' or
'administrator' means the executor or administrator of the
decedent, or if there is no executor or administrator
appointed, qualified, and acting within the Philippines, then
any person in actual or constructive possession of any
property of the decedent.
Let us dissect this provision:
 If the estate is settled extrajudicially, extension of
two years
 If the estate is settled judicially, extension of five
years
 Ground for extension: When the Commissioner
finds that the payment on the due date of the
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estate tax or of any part thereof would impose
undue hardship upon the estate or any of the heirs
 When should you file the extension? 6 months
within the death of the decedent.
The next part is more important. What are the effects of
granting an extension of time for the payment of the estate
tax?
1) the amount in respect of which the extension is
granted shall be paid on or before the date of the
expiration of the period of the extension
2) The running of the period of the Statute of
Limitations on making of assessment shall be
suspended within the period of such granted
request for extension
3) The Commissioner may require a bond in such
amount not exceeding double the amount of the
tax
4) Any amount paid after the statutory due date for
the payment of the tax, but within the extension
period, shall be subject to interest but not to
surcharge
What are the grounds for the denial of the extension? Where
the taxes are assessed by reason of negligence, intentional
disregard of rules and regulations, or fraud on the part of the
taxpayer, no extension will be granted by the
Commissioner.Katuladnungmgataosabukid, pag may
namatay, the heirs will just share amongst themselves
without reporting : “Total atinnaman to”. Take note that the
prescriptive period starts upon the discovery of the BIR of
the failure to pay the tax.
One of the case is Marcos II versus Court of Appeals, where
the issue was “Is the court order necessary for the collection
of tax deficiencies?”
BIR can collect the estate tax deficiencies by the summary
remedy of levy upon and sale of real properties of the
decedent without first securing the authority of the court.
Collection of the estate tax is executive in character. The
approval of the court, sitting in probate, is not a mandatory
requirement in the collection of estate tax. Payment of estate
taxes is a condition precedent for the distribution of
properties of the decedent and the collection of estate taxes
is executive in nature for which the court is devoid of any
jurisdiction.
In other words, payment of the estate tax does not depend a
court order. It is because the law provides the duty to pay
the estate tax and thus does not need any court order.
C) Liability for Payment. - The estate tax imposed by
Section 84 shall be paid by the executor or administrator
before delivery to any beneficiary of his distributive share of
the estate. Such beneficiary shall to the extent of his
distributive share of the estate, be subsidiarily liable for the
payment of such portion of the estate tax as his distributive
share bears to the value of the total net estate.
For the purpose of this Chapter, the term 'executor' or
'administrator' means the executor or administrator of the
decedent, or if there is no executor or administrator
appointed, qualified, and acting within the Philippines, then
any person in actual or constructive possession of any
property of the decedent.
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So who has the primary responsibility of paying the estate
tax? It is not the heirs but it is the executors or the
administrator. Kasisilaangmagababayadsa BIR. The heir or
beneficiary has subsidiary liability. The extent of his liability,
however, shall in no case exceed the value of his share in
the inheritance.
Also take note of the meaning of executor or administrator. It
includes those who are in possession of the property.
You just read the succeeding provisions then we go to
donor’s tax.
December 8, 2016
(By: Jessa Noble)
DONOR’S TAXATION
SEC. 98. Imposition of Tax. -
(A) There shall be levied, assessed, collected and paid upon
the transfer by any person, resident or non-resident, of the
property by gift, a tax, computed as provided in Section 99.
(B) The tax shall apply whether the transfer is in trust or
otherwise, whether the gift is direct or indirect, and whether
the property is real or personal, tangible or intangible.
Donor’s tax is an excise tax imposed on the privilege
to transfer property by way of gift inter vivos. So take note,
this is the donation per se. It does not refer to donations
mortis causa. It refers to donations that take effect during the
lifetime of the donor.
Nature
This is an excise tax. It is not a property tax. You do
not tax the property. You tax the privilege to transfer the
property without any consideration and which takes effect
during the lifetime of the donor.
Scope
If you read the law, aside that it applies to
donations inter vivos, the tax shall apply whether the transfer
is in trust or otherwise, whether the gift is direct or indirect,
and whether the property is real or personal, tangible or
intangible. In other words, it does not matter how you give it,
by trust or otherwise, and the type of property does not really
matter. What matters is that it transferred the property
devoid of any consideration.
When do you apply the donor’s tax?
You apply the donor’s tax when there is a
completed gift. It is completed upon the delivery of the
property. Donation is a real contract. You should have
delivered the thing for the donation to be complete.
When is the donation perfected?
The donation is perfected when the donor knows
of the acceptance by the donee.
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*Requisites of a Valid Donation;
1. The donor must have the capacity to donate;
2. There must be a donative intent;
You intend to donate which will take effect during
the lifetime of the donor.
3. There must be an acceptance;
4. There must be delivery; and
5. The formalities of contract must be followed.
If you donate a real property, it must be in a
public document for purposes of validity. The
acceptance must also be in a public instrument. It
may be in the same document or separate
document.
For personal properties, you are allowed to
make verbal donation as long as the value of the
property does not exceed P5,000. If it exceeds
P5,000, the donation must be in writing for
purposes of validity.
Situation 1
I love you so much. I am going to give you a
house and lot. But that someone is in Manila, so I sent the
document evidencing donation to Manila. Natanggap niya
iyong deed of donation. Is the donation valid?
No, because (1) it was not shown that the
donation was in a public instrument; and (2) it was not
shown that there was an acceptance by the donee. Those
are the essential requirements of a valid and completed
donation.
Situation 2
Suppose the deed of donation was already
notarized and they sent it to Manila. Natanggap ng taong
bibigyan ko ng house and lot. Then the person called me
telling me that she will accept the donation. Is there a valid
donation?
There was no valid donation since the acceptance
must also be in a public document.
Situation 3
She accepted the donation but did not send the
document evidencing her acceptance. In the meantime, I
died. Is there a valid donation?
No valid donation since there was no knowledge
of the donor of the acceptance by the donee.
Take note that there are also onerous donations.
If we go back to the provisions of the Civil Code,
there is also a donation when a person gives to another a
thing or a right on account of the latter’s marriage or of
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service rendered by him to the donor, provided that they do
not constitute demandable debt or when the gift imposes
upon the donee a burden which is less than the value of the
thing given.
So, onerous donation is possible. You donate
something, pabayaran mo nga pero masyadong mababa
ang presyo. But is it always subject to donor’s tax? It may be
subject to donor’s tax but when you come to think of it, if you
read the provisions of the NIRC, it will entirely depend on the
classification of the properties.
Example:
I have a luxury car. I bought it for P4.5M. And because you
are my friend, I only sold it for P500K. Is there a taxable
donation?
Sec. 100. Transfer for Less Than Adequate and Full
Consideration. Where property, other than real property
referred to in Section 24 (D), is transferred for less than an
adequate and full consideration in money or money’s worth,
then the amount by which the fair market value of the
property exceeded the value of the consideration shall, for
the purpose of the tax imposed by this Chapter, be deemed
a gift, and shall be included in computing the amount of the
gifts made during the calendar year.
What is Sec. 24 (D)? This refers to real properties
classified as capital assets.
So in the problem, a personal property is involved.
So if there is a huge discrepancy between the selling price
and the fair market value of the property donated, then the
difference between the selling price and the fair market value
shall be subjected to donor’s tax. It will form part of your
gross gift or net gift as the case may be.
What is the tax implication if you sell a real
property located in the Philippines and classified as capital
asset? It is subjected to 6% capital gains tax. There’s no
donor’s tax because it is presumed as a gain in the eyes of
the law.
Condonation of Debt
If it is purely out liberality only and does not
constitute a demandable debt, it may fall under donation. But
what if it is for exchange of services already rendered or
under an employer-employee relationship? There is already
a consideration involved for the work that you have done and
then condoned your debt. So, it entirely depends on the
transaction involved.
Renunciation of inheritance
Suppose a widow will renounce her conjugal or
community share of the property in favor of all the children.
Is it a taxable donation? Take note what is really waived
here is the conjugal share of the spouse. So there’s an act of
liberality involved. If what is waived is the conjugal or
community share of the property in favor of all the children, it
is a taxable donation. It is different if the widow waives her
inheritance in favor of the children indiscriminately.
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If there is a general or indiscriminate renunciation
of inheritance, then there is no taxable donation. If there is
general renunciation of inheritance, it is as if the person who
renounced the inheritance did not actually receive the
property. The properties automatically pass to the heirs in
whose favor the general renunciation was made.
Donations propter nuptias
Is it taxable? It depends upon the person and the
amount.
Sec. 102. Valuation of Gifts Made in Property. If the gift is
made in property, the fair market value thereof at the time of
the gift shall be considered the amount of the gift. In case of
real property, the provisions of Section 88 (B) shall apply to
the valuation thereof.
 Real Property - Determine the zonal value as per
BIR or the assessed value by the local assessor,
whichever is higher.
DEDUCTIONS

How do you compute donor’s tax? There are exemptions of certain gifts in case of
gifts made by a resident.
Gross Gift xx
A. DOWRIES
Less: Exemptions xx
Sec. 101. Exemption of Certain Gifts. The following gifts or
Net Gift xx donations shall be exempt from the tax provided for in this
Chapter: xxx
GROSS GIFT
(1) Dowries or gifts made on account of marriage and
before its celebration or within one year thereafter
It includes all property, real or personal, whether by parents to each of their legitimate, recognized
tangible or intangible or mixed, wherever situated provided natural, or adopted children to the extent of the first
however that when the decedent or donor is a non-resident P10,000.
alien at the time of his death or donation as the case may be
his real or personal properties shall transfer but which those
located outside the Philippines are not included in his gross
gift.

*Requisites:
There are three factors:

1. The gift must be given on account of marriage;

1. The nationality of the donor;
2. The residence of the donor; and
3. The location of the property. 2. It must be given before the celebration or one year
thereafter;
General Rule: The property donated wherever situated
forms part of the gross gift. 3. It must be given by the parent;

Exception: When the donor is a non-resident alien (NRA). 4. It must be given to the legitimate, recognized natural, or
adopted child; and
If the donor is NRA, only consider the properties
situated in the Philippines. Apart from that, determine 5. The maximum of exemption is P10,000.
whether there is reciprocity or none. If there is reciprocity, it
means that the intangible properties will be excluded from
Problem:
the gross gift.

A and B are married. Their child is X. X got

What if the problem is silent as to rule on reciprocity?
I suggest that you lay the basis.
Example: If there is reciprocity, then xxx. Or, since it was not
shown that the reciprocity rule applies in this scenario, then
xxx.
Valuation of Gift
 Cash gift – The amount of cash that you gave for
free.
married to Y. On account of their marriage, A and B gave
P20,000 each to X and Y. How much is the total exemption?
There a 2 donors, namely A and B. Y is a stranger
both to A and B.
What is the presumption if the property is owned
by a married couple? It is part of the community property.
Answer:
Total exemption is P20,000. You always regard the
donors as two separate persons. When it comes to donor’s

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tax, forget about the rule in income taxation na consolidated
ang kanilang tax return. When we talk of donor’s taxation,
we talk about each person giving to another. Consider who
is the donor and the relationship of the donor to the donee.
B. DONATIONS TO NATIONAL GOVERNMENT
Cont…
(2) 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 profit, or to
any political subdivision of the said Government;
The only qualification when you give donations to the
National Government is it must be given for government
entities which are not engaged in profit. It does not matter if
it is given to a GOCC as long as it is not conducted for profit.
Do not confuse this with the rule on estate taxation that it
must be given for public purpose.
C. DONATIONS TO NON-PROFIT ORGANIZATIONS
Cont…
(3) Gifts in favor of an educational and/or charitable,
religious, cultural or social welfare corporation, institution,
accredited nongovernment organization, trust or
philanthropic organization or research institution or
organization: Provided, however, That not more than thirty
percent (30%) of said gifts shall be used by such donee for
administration purposes. For the purpose of this exemption,
a 'non-profit educational and/or charitable corporation,
institution, accredited nongovernment organization, trust or
philanthropic organization and/or research institution or
organization' is a school, college or university and/or
charitable corporation, accredited nongovernment
organization, trust or philanthropic organization and/or
research institution or organization, incorporated as a non-
stock entity, paying no dividends, governed by trustees who
receive no compensation, and devoting all its income,
whether students' fees or gifts, donation, subsidies or other
forms of philanthropy, to the accomplishment and promotion
of the purposes enumerated in its Articles of Incorporation.
2. The donee is a non-stock, non-profit institution
governed by trustees who receive no
compensation, and devoting all its income to the
accomplishment of its purposes under its Articles
of Incorporation;
3. The donation must be actually be used directly
and exclusively for that purpose of the NGO; and
4. The donee or the NGO must be a qualified entity
to receive the donation (accredited by Philippine
Council for NGO Certification or PCNC).
Non-resident aliens
They may claim the same exemptions except the
dowry. They may give to an agency of the National
Government provided that it is not-for-profit.
Also take note of the tax credit provisions. The donor’s taxes
of citizens and residents may be reduced by the donor’s
taxes paid abroad, subject to the limitations as provided by
law.
NET GIFT
Computation of Donor’s Tax
Your basis is your net gifts. You have to file your
donor’s tax return in every donation that you will make during
one calendar year. You prepare your donor’s tax on a
cumulative basis. The tax rate depends on the recipient. It
depends if the recipient is your relative or a stranger. If the
donee is a stranger, the donation is subject to 30%. The
P100,000 exemption (based on the donor’s tax table) does
not apply to donation to stranger because the law does not
provide and exemptions are strictly construed against the
taxpayer. If the donee is a relative, compute using the
donor’s tax table.
A stranger is a person who is not a:
(1) Brother, sister (whether by whole or half-blood),
spouse, ancestor, and lineal descendant; or
(2) Relative by consanguinity in the collateral line
within the fourth degree of relationship. (Sec. 99
(B)).

Covered institutions: Tax Rates

a. Educational Effective January 1, 1998 to present (Republic Act No.

b. Charitable 8424)
c. Religious
d. Cultural or social welfare corporation
e. Trust of philanthropic organization or research
institution or organization The Tax Shall Of the Excess
Net Gift Over But not Over Plus
be Over

*Requirements for exemption:

100,000.00 exempt
1. 30% rule

100,000.00 200,000.00 0 2% 100,000.00

Not more than 30% of the donation shall be used
by such done for administration purposes.

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The law says:

200,000.00 500,000.00 P 2,000.00 4% 200,000.00
 Authorized agent banks;
 The proper RDO; or
500,000.00 1,000,000.00 14,000.00 6% 500,000.00
 Duly authorized treasurer of the city or municipality
where the donor is domiciled at the time of
transfer;
1,000,000.00 3,000,000.00 44,000.00 8% 1,000,000.00

For non-residents, they usually file at the Quezon City

3,000,000.00 5,000,000.00 204,000.00 10% 3,000,000.00 BIR head office.

5,000,000.00 10,000,000.00 404,000.00 12% 5,000,000.00

-END OF FIRST EXAM COVERAGE-

10,000,000.00 and over 1,004,000.00 15% 10,000,000.00
“Endurance is not just the ability to bear a difficult thing,
but to turn it into glory.”
Notes:
~William Barclay
1. Rate applicable shall be based on the law prevailing at the
time of donation. ADVANCE HAPPY CHRISTMAS BREAK! 

2. When the gifts are made during the same calendar year
but on different dates, the donor's tax shall be computed
based on the total net gifts during the year.

ADMINISTRATIVE MATTERS

For donor’s taxation, you still apply the pay-as-

you-file system.

When do you file the donor’s tax return? File it

within 30 days from the date of donation. When you file
the donor’s tax return, you also pay the corresponding
donor’s tax. File another donor’s tax return for each and
every donation you made during a single year on a
cumulative basis.

Who are required to file a donor’s tax return? Any

individual who makes any transfer by gift except those which
under Sec. 101 are exempt from the tax provided for in this
Chapter shall for the purpose of the said tax make a return
under oath in duplicate.

If you give a donation to an accredited NGO, you

have to notify the Commissioner about it as per revenue
regulation. You will file a Notice of Gift if the gift exceeds
P50,000. Along with the Notice of Gift, attach the certification
that particular NGO receiving the gift is an exempt or
accredited entity and that the 30% of the gift will not be used
for administration purposes.

You compute the donor’s taxes yearly so gift-

splitting may be made. It does not really matter if you gave
a donation to a stranger or a relative because you can
always split the gift. Hiwalayin niyo lang ang year kay
taxable year man ang computation ng gross gift. Donate at
year-end then donate at the beginning of the year so you
can claim a tax exemption.

Where do you file a donor’s tax return?

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