ESTATE TAXES ââ1.

In determining the gross estate of a decedent, are his

properties abroad to be included, and more particularly, what constitutes gross
estate ? SUGGESTED ANSWER: Yes, if the decedent is a Filipino citizen or a
resident alien. The gross estate of a Filipino citizen or a resident alien comprises
all his real property, wherever situated; all his personal property, tangible,
intangible or mixed, wherever situated, to the extent of his interest existing
therein at the time of his death.

The gross estate of a non-resident alien comprises all his real property, situated
in the Philippines; all his personal property, tangible, intangible or mixed,
situated in the Philippines, to the extent of his interest existing therein at the time
of his death.

2. William Smith, an American citizen, was a permanent resident of the

Philippines. He died in San Francisco, California. He left 10,000 shares of San
Miguel Corporation, a condominium unit at the Twin Towers Building at Pasig,
Metro Manila and a house and lot in Miami, Florida. What assets shall be included
in the Estate Tax Return to be filed with the BIR?

SUGGESTED ANSWER: All of the assets should be included in the Estate Tax
Return to be filed with the BIR. Smith, an American citizen and a permanent
resident of the Philippines is considered, for Philippine estate tax purposes, a
resident alien. Consequently, the assets to be included in the Estate Tax Return
to be filed with the BIR should be all property, real or personal, tangible,
intangible or mixed, wherever situated, to the extent of the interest that Smith has
at the time of his death. Thus, all of the properties enumerated in the problem
irrespective of where they are situated are includible in the gross estate of Smith.
ââ

3. Proceeds of life insurance includible in a decedent’s gross estate. a) The

decedent takes the insurance policy on his own life 1. The amounts are receivable
by • The decedent’s estate, • his executor, or • administrator irrespective of
whether or not the insured retained the power of revocation, OR 2. The amounts
are receivable by any beneficiary designated in the policy of insurance as
revocable beneficiary. [Sec. 85 (E), NIRC of 1997] b) One, other than the decedent
takes the insurance policy on the life of the decedent 1. The amounts are
receivable by • the decedent’s estate, • his executor, or • administrator 2.
irrespective of whether or not the insured retained the power of revocation. ââ 4.
Proceeds of life insurance NOT included in a decedent’s gross estate. a) The
decedent takes the insurance policy on his own life, and b) the proceeds are
receivable by a beneficiary designated as irrevocable

NOTES AND COMMENTS: The beneficiary must not be the decedent’s estate,
executor or administrator, because the proceeds are includible as part of gross
estate whether or not the decedent retained the power of revocation. (Ibid.) c)
Where the insurance was NOT taken by the decedent upon his own life and the
beneficiary is not the decedent’s estate, his executor or administrator.

4. Items deductible from the gross estate of a resident or nonresident Filipino

decedent or resident alien decedent: a) Expenses, losses, claims, indebtedness
and taxes; b) Property previously taxed; c) Transfers for public use; d) The Family
Home up to a value not exceeding P1 million; e) Standard deduction of P1 million;
f) Medical expenses not exceeding P500,000.00; g) Amount of exempt retirement
received by the heirs under Rep. Act Mo. 4917; h) Net share of the surviving
spouse in the conjugal partnership.
5. There is no
transfer in contemplation of death if there is no showing that the transferor
“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.” [Sec.
85 (B), NIRC of 1997] ââ

VANISHING DEDUCTION: Is a special discount that will be enjoyed by the second heir inheriting the same
property. Purpose: It reduces the harshness of successive taxation involving the same property passing
from one heir to the other heir within a short period of time (within a span of five years). It is S who will
be enjoying the discount. Si W, wala.

There must be two sets of transfer taxes and the two deaths occurred within a period of five years.
Example: T died 04 December 2009 W died 11 January 2014 Determine whether the two deaths
occurred within 5 years. The two deaths occurred: 4 years 1 month 7 days. Within 5 years therefore,
Vanishing Deductions will apply? NOT YET! TAKE NOTE: There should be two sets of estate taxes paid.
First Transfer, can be by way of DONATION or by way of SUCCESSION. Second Transfer should ONLY AND
ABSOLUTELY be by way of SUCCESSION. The second heir will enjoy the vanishing deduction. So S will
enjoy the vanishing deduction but not W.

VANISHING DEDUCTION: Is a special discount that will be enjoyed by the second heir inheriting the same
property. Purpose: It reduces the harshness of successive taxation involving the same property passing
from one heir to the other heir within a short period of time (within a span of five years). It is S who will
be enjoying the discount.
There must be two sets of transfer taxes and the two deaths occurred within a period of five years.
Example: T died 04 December 2009 W died 11 January 2014 Determine whether the two deaths
occurred within 5 years. The two deaths occurred: 4 years 1 month 7 days. Within 5 years therefore,
Vanishing Deductions will apply? NOT YET! TAKE NOTE: There should be two sets of estate taxes paid.
First Transfer, can be by way of DONATION or by way of SUCCESSION. Second Transfer should ONLY AND
ABSOLUTELY be by way of SUCCESSION. The second heir will enjoy the vanishing deduction. So S will
enjoy the vanishing deduction but not W. Si W, wala.

6. Vanishing deduction (deduction for property previously taxed), defined. The

deduction allowed from the gross estates of citizens, resident aliens and
nonresident estates for properties which were previously subject to donor’s or
estate taxes. The deduction is called a vanishing deduction because the
deduction allowed diminishes over a period of five (5) years. It is also known as a
deduction for property previously taxed. ââ

7. Vanishing deduction (property previously taxed) allowed as a deduction from

the gross estate of a Filipino citizen, whether resident or not, of a resident alien
decedent, or of a nonresident alien decedent.

a) An amount equal to the value specified below of

b) Any property forming a part of the gross estate situated in the Philippines
c) Of any person who died within five years prior to the death of the decedent, or
transferred to the decedent by gift within five years prior to his death,
d) Where such property can be identified as having been received by the
decedent from the donor by gift, or from such prior decedent by gift, bequest,
devise, or inheritance, or
e) Which can be identified as having been acquired in exchange for property so
received: • 100% of the value if the prior decedent died within one year prior to
the death of the decedent, or if the property was transferred to him by gift within
the same period prior to his death; • 80% of the value if the prior decedent died
more than one year but not more than two years prior to the death of the
decedent, or if the property was transferred to him by gift within the same period
prior to his death; • 60% of the value if the prior decedent died more than two
years but not more than three years prior to the

NOTES AND COMMENTS: The beneficiary must not be the decedent’s estate,
executor or administrator, because the proceeds are includible as part of gross
estate whether or not the decedent retained the power of revocation. (Ibid.) c)
Where the insurance was NOT taken by the decedent upon his own life and the
beneficiary is not the decedent’s estate, his executor or administrator. 4. Items
deductible from the gross estate of a resident or nonresident Filipino decedent or
resident alien decedent: a) Expenses, losses, claims, indebtedness and taxes; b)
Property previously taxed; c) Transfers for public use; d) The Family Home up to
a value not exceeding P1 million; e) Standard deduction of P1 million; f) Medical
expenses not exceeding P500,000.00; g) Amount of exempt retirement received
by the heirs under Rep. Act Mo. 4917; h) Net share of the surviving spouse in the
conjugal partnership.

. The approval of the court sitting in probate, or as a settlement tribunal over the
estate of the deceased is not a mandatory requirement for the collection of the
estate. The probate court is determining issues which are not against the
property of the decedent, or a claim against the estate as such, but is against the
interest or property right which the heir, legatee, devisee, etc. has in the property
formerly held by the decedent.

The notices of levy were regularly issued within the prescriptive period. The tax
assessment having become final, executory and enforceable, the same can no
longer be contested by means of a disguised protest. (Marcos, II v. Court of
Appeals, et al., 273 SCRA 47)

DONOR’S TAXES ââ 1. What is the donor’s tax rate if the donee is a stranger?
prior to the death of the decedent, or if the property was transferred to him by gift
within the same period prior to his death; and • 20% of the value if the prior
decedent died more than four years but not more than five years prior to the
death of the decedent, or if the property was transferred to him by gift within the
same period prior to his death.

[Sec. 86 (A) (2) and (B) (2), NIRC of 1997, numbering, arrangement and
underlining supplied] ââ 8. The approval of the court sitting in probate, or as a
settlement tribunal over the estate of the deceased is not a mandatory
requirement for the collection of the estate. The probate court is determining
issues which are not against the property of the decedent, or a claim against the
estate as such, but is against the interest or property right which the heir, legatee,
devisee, etc. has in the property formerly held by the decedent. The notices of
levy were regularly issued within the prescriptive period. The tax assessment
having become final, executory and enforceable, the same can no longer be
contested by means of a disguised protest. (Marcos, II v. Court of Appeals, et al.,
273 SCRA

47) DONOR’S TAXES ââ 1. What is the donor’s tax rate if the donee is a stranger?

SUGGESTED ANSWER: When the donee or beneficiary is a stranger, the tax

payable by the donor shall be 30% of the net gifts. ââ 2. For purposes of the
donor’s tax who is a stranger?

SUGGESTED ANSWER: A stranger is a is person who is not a: a) Brother, sister

(whether by whole or half-blood), spouse, ancestor and lineal descendant; or b)
Relative by consanguinity in the collateral line within the fourth degree of
relationship.” [Sec. 99 (B), NIRC of 1997]
NOTES AND COMMENTS: All relatives by affinity, irrespective of the degree, are
considered as strangers. 3. What is the tax base for donations? SUGGESTED
ANSWER: The net gifts made during the calendar year. [Sec. 99 (A), NIRC of 1997]

4. For purposes of the donor’s tax, what is meant by “net gifts?”

SUGGESTED ANSWER: The net economic benefit from the transfer that accrues
to the donee. Accordingly, if a mortgaged property is transferred as a gift, but
imposing upon the donee the obligation to pay the mortgage liability, then the net
gift is measured by deducting from the fair market value of the property the
amount of the mortgage assumed. (last par., Sec. 11, Rev. Regs.No.2-2003)

5. How are gifts of personal property to be valued for donor’s tax purposes ?
SUGGESTED ANSWER: The market value of the personal property at the time of
the gift shall be considered the amount of the gift. (Sec. 102, NIRC of 1997) 6.
What is the valuation of donated real property for donor’s tax purposes ?

SUGGESTED ANSWER: The real property shall be appraised at its fair market
value as of the time of the gift. However, the appraised value of the real property
at the time of the gift shall be whichever is the higher of: a) the fair market value
as determined by the Commissioner of Internal Revenue (zonal valuation) or b)
the fair market value as shown in the schedule of shown in the schedule of values
fixed by the Provincial and City Assessors. [Sec. 102, in relation to Sec. 88 (B)
both of the NIRC of 1997] â

7. A died leaving as his only heirs, his surviving spouse B, and three minor
children, X, Y and Z. Since B does not want to participate in the distribution of the
estate, she renounced her hereditary share in the estate. a. Is the renunciation
subject to donor’s tax? Explain.

SUGGESTED ANSWER: No. The general renunciation by an heir, including the

surviving spouse, as in the case B, of her share in the hereditary estate left by the
decedent is not subject to donor’s tax. (4th par., Sec. 11, Rev. Regs. No. 2-2003)
This is so because the general renunciation by B was not specifically and
categorically done in favor of identified heir/s to the exclusion or disadvantage of
the other co-heirs in the hereditary estate.

b. Supposing that instead of a general renunciation, B renounced her hereditary

share in A’s estate to X who is a special child, would your answer be the same ?
Explain.

SUGGESTED ANSWER: My answer would be different. The renunciation in favor

of X would be subject to donor’s tax. This is so because the renunciation was
specifically and categorically done in favor of X and identified heir to the
exclusion or disadvantage of Y and Z, the other co-heirs in the hereditary estate.
(4th par., Sec. 11, Rev. Regs. No. 2-2003) âââ

8. Give some donations that are exempt from donor’s tax.

SUGGESTED ANSWER:
a) The first P100,000.00 net donation during a calendar year is exempt from
donor’s tax [Sec. 99 (A), NIRC of 1997] made by a resident or non resident shown
in the schedule of values fixed by the Provincial and City Assessors. [Sec. 102, in
relation to Sec. 88 (B) both of the NIRC of 1997] â

7. A died leaving as his only heirs, his surviving spouse B, and three minor
children, X, Y and Z. Since B does not want to participate in the distribution of the
estate, she renounced her hereditary share in the estate. a. Is the renunciation
subject to donor’s tax? Explain.
SUGGESTED ANSWER: No. The general renunciation by an heir, including the
surviving spouse, as in the case B, of her share in the hereditary estate left by the
decedent is not subject to donor’s tax. (4th par., Sec. 11, Rev. Regs. No. 2-2003)
This is so because the general renunciation by B was not specifically and
categorically done in favor of identified heir/s to the exclusion or disadvantage of
the other co-heirs in the hereditary estate.

b. Supposing that instead of a general renunciation, B renounced her hereditary

share in A’s estate to X who is a special child, would your answer be the same ?
Explain.

SUGGESTED ANSWER: My answer would be different. The renunciation in favor

of X would be subject to donor’s tax. This is so because the renunciation was
specifically and categorically done in favor of X and identified heir to the
exclusion or disadvantage of Y and Z, the other co-heirs in the hereditary estate.
(4th par., Sec. 11, Rev. Regs. No. 2-2003) âââ 8.

Give some donations that are exempt from donor’s tax. SUGGESTED ANSWER:
a) The first P100,000.00 net donation during a calendar year is exempt from
donor’s tax [Sec. 99 (A), NIRC of 1997] made by a resident or non resident
The donation by a resident or non-resident of a prize to an athlete in an
international sports tournament held abroad and sanctioned by the national
sports association is exempt from donor’s tax (Sec. 1, Rep. Act No. 7549) c)
Political contributions made by a resident or non-resident individual if registered
with the COMELEC irrespective of whether donated to a political party or
individual. However, the Corporation Code prohibits corporations from making
political contributions. (Corp. Code, Title IV, Sec. 36.9) d) Dowries or gifts made
on account of marriage and before its celebration or within one year thereafter by
residents who are parents to each of their legitimate, recognized natural, or
adopted children to the extent of the first ten thousand pesos (P10,000.00); e)
Gifts made by residents or non-residents 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 subdivisions of the said Government; f) Gifts made
by residents or non residents in favor of an educational and/or charitable,
religious, cultural or social welfare corporation, institution, foundation, 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. [Sec. 101 (A), NIRC of 1997, numbering
and arrangement supplied] g) Gifts made by non-resident aliens outside of the
Philippines to Philippine residents are exempt from donor’s taxes because
taxation is basically territorial. The transaction, which should have been subject
to tax was made by nonresident aliens and took place outside of the Philippines.
ââ 9.

What is the concept of donation or gift splitting? Illustrate. SUGGESTED

ANSWER: Donation or gift splitting is spreading the gift over numerous calendar
years in order to avail of lower donor’s taxes.

In 2008 Leon was thinking of donating a P200,000.00 to Miklos, his first cousin.
The P200,000.00 is the totality of the net gifts for 2008. If he donated the
P200,000.00 in 2008 the first P100,000 would be exempt and the remaining
P50,000.00 would be subject to donor’s tax If Leon spreads the P200,000 donation
over two (2) calendar years, donating P100,000.00 on December 30, 2008 and the
remaining P100,000.00 on January 1, 2009 the transaction would be exempt from
donor’s tax. This is so even if the donation is separated only by two days
because the basis is the calendar year. Leon would be enjoying the exemption for
the first P100,000.00 net gifts for each calendar year. Ââ

10. A, who is engaged in the car “buy and sell” business sold to B P7 million
Jaguar for only P4 million. The proper VAT on the sale was paid. If you are the
BIR examiner assigned to review the sale, would you issue a tax assessment on
the transaction? Explain your answer briefly.

SUGGESTED ANSWER: Donor’s taxes would be due on the insufficiency of

consideration. Where property, other than real property that has been subjected
to the final capital gains tax, 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 at the time of the execution of the Contract to Sell or
execution of the Deed of Sale which is not preceded by a Contract to Sell
exceeded the value of the agreed or actual consideration or selling price shall be
deemed a gift, and shall be included in computing the amount of gifts made
during the calendar year.

ESTATE TAXES  1. The gross estate for purposes of estate taxation of Filipino
citizens, whether residents or nonresidents and resident alien includes the value
at the time of his death of all his real property, wherever situated, personal
property, whether tangible, intangible or mixed, wherever situated, to the extent
of the interest existing therein of the decedent at the time of his death.  2. The
gross estate for purposes of estate taxation of non-resident aliens includes the
value at the time of his death of all the real property situated in the Philippines,
personal property whether tangible, intangible or mixed, situated in the
Philippines, to the extent of the interest therein of the decedent at the time of his
death. 3. Items deductible from the gross estate of a resident or nonresident
Filipino decedent or resident alien decedent: a. Expenses, losses, claims,
indebtedness and taxes; b. Property previously taxed; c. Transfers for public use;
d. The Family Home up to a value not exceeding P1 million; e. Standard deduction
of P1 million; f. Medical expenses not exceeding P500,000.00; g. Amount of
exempt retirement received by the heirs under Rep. Act Mo. 4917; h. Net share of
the surviving spouse in the conjugal partnership. 4. Not every inter-vivos transfer
in anticipation of death is considered “ transfer in contemplation of death” for
purposes of determining the property to be included in the gross estate of a
decedent. 5. To be considered a “ transfer in contemplation of death” “ 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” [Sec.
85 (B), NIRC of 1997]. It is clear that the properties are not transferred in
contemplation of or intended to take effect in possession or enjoyment at or after
death. 6. There is no transfer in contemplation of death
death if there is no showing the transferor “ 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.” [Sec. 85 (B), NIRC of 1997]  7. The
approval of the court sitting in probate, or as a settlement tribunal over the estate
of the deceased is not a mandatory requirement for the collection of the estate.
The probate court is determining issues which are not against the property of the
decedent, or a claim against the estate as such, but is against the interest or
property right which the heir, legatee, devisee, etc. has in the property formerly
held by the decedent. The notices of levy were regularly issued within the
prescriptive period. The tax assessment having become final, executory and
enforceable, the same can no longer be contested by means of a disguised
protest. (Marcos, II v. Court of Appeals, et al., 273 SCRA 47) DONOR’ S
TAXESdeath if there is no showing the transferor “ 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.” [Sec. 85 (B), NIRC of
1997]  7. The approval of the court sitting in probate, or as a settlement
tribunal over the estate of the deceased is not a mandatory requirement for the
collection of the estate. The probate court is determining issues which are not
against the property of the decedent, or a claim against the estate as such, but is
against the interest or property right which the heir, legatee, devisee, etc. has in
the property formerly held by the decedent. The notices of levy were regularly
issued within the prescriptive period. The tax assessment having become final,
executory and enforceable, the same can no longer be contested by means of a
disguised protest. (Marcos, II v. Court of Appeals, et al., 273 SCRA 47)

DONOR’ S TAXES

 1. What is the donor’ s tax rate if the donee is a stranger ? SUGGESTED

ANSWER: When the donee or beneficiary is a stranger, the tax payable by the
donor shall be 30% of the net gifts.  2. For purposes of the donor’ s tax who is
a stranger ? SUGGESTED ANSWER: A stranger is a is person who is not a: a.
Brother, sister (whether by whole or half-blood), spouse, ancestor and lineal
descendant; or b. Relative by consanguinity in the collateral line within the fourth
degree of relationship.” [Sec. 99 (B), NIRC of 1997] NOTES AND COMMENTS: All
relatives by affinity, irrespective of the degree, are considered as strangers. 3.
What is the tax base for donations ? SUGGESTED ANSWER: The net gifts made
during the calendar year. [Sec. 99 (A), NIRC of 1997] 4. For purposes of the donor’
s tax, what is meant by “ net gifts ?” SUGGESTED ANSWER: The net economic
benefit from the transfer that accrues to the donee. Accordingly, if a mortgaged
property is transferred as a gift, but imposing upon the donee the obligation to
pay the mortgage liability, then the net gift is measured by deducting from the fair
market value of the property the amount of the mortgage assumed. (last par., Sec.
11, Rev. Regs.No.2-2003) 5. How are gifts of personal property to be valued for
donor’ s tax purposes ? SUGGESTED ANSWER: The market value of the personal
property at the time of the gift shall be considered the amount of the gift. (Sec.
102, NIRC of 1997) 6. What is the valuation of donated real property for donor’ s
tax purposes ? SUGGESTED ANSWER: The real property shall be appraised at its
fair market value as of the time of the gift. However, the appraised value of the
real property at the time of the gift shall be whichever is the higher of: a. the fair
market value as determined by the Commissioner of Internal Revenue (zonal
valuation) or b. the fair market value as shown in the schedule of values fixed by
the Provincial and City Assessors. [Sec. 102, in relation to Sec. 88 (B) both of the
NIRC of 1997]  7. A died leaving as his only heirs, his surviving spouse B, and
three minor children, X, Y and Z. Since B does not want to participate in the
distribution of the estate, she renounced her hereditary share in the estate. a. Is
the renunciation subject to donor’ s tax ? Explain. SUGGESTED ANSWER: No.
The general renunciation by an heir, including the surviving spouse, as in the
case B, of her share in the hereditary estate left by the decedent is not subject to
donor’ s tax. (4th par., Sec. 11, Rev. Regs. No. 2-2003) This is so because the
general renunciation by B was not specifically and categorically done in favor of
identified heir/s to the exclusion or disadvantage of the other co-heirs in the
hereditary estate. b. Supposing that instead of a general renunciation, B
renounced her hereditary share in A’ s estate to X who is a special child, would
your answer be the same ? Explain. SUGGESTED ANSWER: My answer would be
different. The renunciation in favor of X would be subject to donor’ s tax. This is
so because the renunciation was specifically and categorically done in favor of X
and identified heir to the exclusion or disadvantage of Y and Z, the other co-heirs
in the hereditary estate. (4th par., Sec. 11, Rev. Regs. No. 2-2003)  8. Give
some donations that are exempt from donor’ s tax. SUGGESTED ANSWER: a. The
first P100,000.00 net donation during a calendar year is exempt from donor’ s tax
[Sec. 99 (A), NIRC of 1997] made by a resident or non resident; b. The donation by
a resident or non-resident of a prize to an athlete in an international sports
tournament held abroad and sanctioned by the national sports association is
exempt from donor’ s tax (Sec. 1, Rep. Act No. 7549)  1. What is the donor’ s
tax rate if the donee is a stranger ? SUGGESTED ANSWER: When the donee or
beneficiary is a stranger, the tax payable by the donor shall be 30% of the net
gifts.  2. For purposes of the donor’ s tax who is a stranger ? SUGGESTED
ANSWER: A stranger is a is person who is not a: a. Brother, sister (whether by
whole or half-blood), spouse, ancestor and lineal descendant; or b. Relative by
consanguinity in the collateral line within the fourth degree of relationship.” [Sec.
99 (B), NIRC of 1997] NOTES AND COMMENTS: All relatives by affinity,
irrespective of the degree, are considered as strangers. 3. What is the tax base for
donations ? SUGGESTED ANSWER: The net gifts made during the calendar year.
[Sec. 99 (A), NIRC of 1997] 4. For purposes of the donor’ s tax, what is meant by “
net gifts ?” SUGGESTED ANSWER: The net economic benefit from the transfer
that accrues to the donee. Accordingly, if a mortgaged property is transferred as
a gift, but imposing upon the donee the obligation to pay the mortgage liability,
then the net gift is measured by deducting from the fair market value of the
property the amount of the mortgage assumed. (last par., Sec. 11, Rev.
Regs.No.2-2003) 5. How are gifts of personal property to be valued for donor’ s
tax purposes ? SUGGESTED ANSWER: The market value of the personal property
at the time of the gift shall be considered the amount of the gift. (Sec. 102, NIRC
of 1997) 6. What is the valuation of donated real property for donor’ s tax
purposes ? SUGGESTED ANSWER: The real property shall be appraised at its fair
market value as of the time of the gift. However, the appraised value of the real
property at the time of the gift shall be whichever is the higher of: a. the fair
market value as determined by the Commissioner of Internal Revenue (zonal
valuation) or b. the fair market value as shown in the schedule of values fixed by
the Provincial and City Assessors. [Sec. 102, in relation to Sec. 88 (B) both of the
NIRC of 1997]  7. A died leaving as his only heirs, his surviving spouse B, and
three minor children, X, Y and Z. Since B does not want to participate in the
distribution of the estate, she renounced her hereditary share in the estate. a. Is
the renunciation subject to donor’ s tax ? Explain. SUGGESTED ANSWER: No.
The general renunciation by an heir, including the surviving spouse, as in the
case B, of her share in the hereditary estate left by the decedent is not subject to
donor’ s tax. (4th par., Sec. 11, Rev. Regs. No. 2-2003) This is so because the
general renunciation by B was not specifically and categorically done in favor of
identified heir/s to the exclusion or disadvantage of the other co-heirs in the
hereditary estate. b. Supposing that instead of a general renunciation, B
renounced her hereditary share in A’ s estate to X who is a special child, would
your answer be the same ? Explain. SUGGESTED ANSWER: My answer would be
different. The renunciation in favor of X would be subject to donor’ s tax. This is
so because the renunciation was specifically and categorically done in favor of X
and identified heir to the exclusion or disadvantage of Y and Z, the other co-heirs
in the hereditary estate. (4th par., Sec. 11, Rev. Regs. No. 2-2003)  8. Give
some donations that are exempt from donor’ s tax. SUGGESTED ANSWER: a. The
first P100,000.00 net donation during a calendar year is exempt from donor’ s tax
[Sec. 99 (A), NIRC of 1997] made by a resident or non resident; b. The donation by
a resident or non-resident of a prize to an athlete in an international sports
tournament held abroad and sanctioned by the national sports association is
exempt from donor’ s tax (Sec. 1, Rep. Act No. 7549)

c. Political contributions made by a resident or non-resident individual if

registered with the COMELEC irrespective of whether donated to a political party
or individual. However, the Corporation Code prohibits corporations from making
political contributions. (Corp. Code, Title IV, Sec. 36.9) d. Dowries or gifts made
on account of marriage and before its celebration or within one year thereafter by
residents who are parents to each of their legitimate, recognized natural, or
adopted children to the extent of the first ten thousand pesos (P10,000.00); e.
Gifts made by residents or non-residents 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 subdivisions of the said Government; f. Gifts made by
residents or non residents in favor of an educational and/or charitable, religious,
cultural or social welfare corporation, institution, foundation, 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. [Sec. 101 (A), NIRC of 1997, numbering
and arrangement supplied] g. Gifts made by non-resident aliens outside of the
Philippines to Philippine residents are exempt from donor’ s taxes because
taxation is basically territorial. The transaction, which should have been subject
to tax was made by non-resident aliens and took place outside of the Philippines.
 9. What is the concept of donation or gift splitting ? Illustrate. SUGGESTED
ANSWER: Donation or gift splitting is spreading the gift over numerous calendar
years in order to avail of lower donor’ s taxes. In 2008 Leon was thinking of
donating a P200,000.00 to Miklos, his first cousin. The P200,000.00 is the totality
of the net gifts for 2008. If he donated the P200,000.00 in 2008 the first P100,000
would be exempt and the remaining P50,000.00 would be subject to donor’ s tax If
Leon spreads the P200,000 donation over two (2) calendar years, donating
P100,000.00 on December 30, 2008 and the remaining P100,000.00 on January 1,
2009 the transaction would be exempt from donor’ s tax. This is so even if the
donation is separated only by two days because the basis is the calendar year.
Leon would be enjoying the exemption for the first P100,000.00 net gifts for each
calendar year. 10. A sold to B and P7 million Jaguar for only P4 million. The
proper VAT on the sale was paid. If you are the BIR examiner assigned to review
the sale, would you issue a tax assessment on the transaction ? Explain your
answer briefly. SUGGESTED ANSWER: Donor’ s taxes would be due on the
insufficiency of consideration. Where property, other than real property that has
been subjected to the final capital gains tax, 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 at the time of the execution of the
Contract to Sell or execution of the Deed of Sale which is not preceded by a
Contract to Sellc. Political contributions made by a resident or non-resident
individual if registered with the COMELEC irrespective of whether donated to a
political party or individual. However, the Corporation Code prohibits
corporations from making political contributions. (Corp. Code, Title IV, Sec. 36.9)
d. Dowries or gifts made on account of marriage and before its celebration or
within one year thereafter by residents who are parents to each of their legitimate,
recognized natural, or adopted children to the extent of the first ten thousand
pesos (P10,000.00); e. Gifts made by residents or non-residents 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 subdivisions of the said Government;
f. Gifts made by residents or non residents in favor of an educational and/or
charitable, religious, cultural or social welfare corporation, institution, foundation,
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. [Sec. 101 (A), NIRC of 1997,
numbering and arrangement supplied] g. Gifts made by non-resident aliens
outside of the Philippines to Philippine residents are exempt from donor’ s taxes
because taxation is basically territorial. The transaction, which should have been
subject to tax was made by non-resident aliens and took place outside of the
Philippines.  9. What is the concept of donation or gift splitting ? Illustrate.
SUGGESTED ANSWER: Donation or gift splitting is spreading the gift over
numerous calendar years in order to avail of lower donor’ s taxes. In 2008 Leon
was thinking of donating a P200,000.00 to Miklos, his first cousin. The
P200,000.00 is the totality of the net gifts for 2008. If he donated the P200,000.00
in 2008 the first P100,000 would be exempt and the remaining P50,000.00 would
be subject to donor’ s tax If Leon spreads the P200,000 donation over two (2)
calendar years, donating P100,000.00 on December 30, 2008 and the remaining
P100,000.00 on January 1, 2009 the transaction would be exempt from donor’ s
tax. This is so even if the donation is separated only by two days because the
basis is the calendar year. Leon would be enjoying the exemption for the first
P100,000.00 net gifts for each calendar year. 10. A sold to B and P7 million
Jaguar for only P4 million. The proper VAT on the sale was paid. If you are the
BIR examiner assigned to review the sale, would you issue a tax assessment on
the transaction ? Explain your answer briefly. SUGGESTED ANSWER: Donor’ s
taxes would be due on the insufficiency of consideration. Where property, other
than real property that has been subjected to the final capital gains tax, 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 at the time
of the execution of the Contract to Sell or execution of the Deed of Sale which is
not preceded by a Contract to Sell
Sell exceeded the value of the agreed or actual consideration or selling price
shall be deemed a gift, and shall be included in computing the amount of gifts
made during the calendar year. (5th par., Sec. 11, Rev. Regs. No. 2-2003)

TAX REMEDIES Remedies are both important to both the government and the taxpayer. For the
government, it needs remedies for the reason that money has to be with it as soon as possible
otherwise all its projects and activities will be jeopardized. Legal Basis: LIFEBLOOD DOCTRINE For the
taxpayer, remedies are needed because of the right to due process. Consultation with the people in the
local level is mandatory are proposed to be introduced. If people will not agree and has strong
objection, THE POWER OF TAXATION WILL STILL PREVAIL.

Consultation is needed for the sanggunian to be aware of the plight of these constituents. In the
national level, there is no need to consult with the people. A congressman was already chosen to be the
representative of the people to the lawmaking body. He is the voice of the people. FOUR REMEDIES If it
is a Local Tax, like business permit, business licenses, apply the Local Tax Code. If it is a property tax,
then apply the remedies under the real property tax code. If it is an import-export tax, then apply the
Tariff and Customs Code. If it is an IR tax, then apply the Tax Code. Only the Tax Code requires a Tax
Return. IR taxes are self-assessing. The computation must be in a prescribed form called the tax return .
Tax Returns are considered self-serving documents. If you submit that, the BIR is not bound by that tax
return. If the CIR does not believe your gross income, the BIR can amend your return. The CIR is
empowered to amend a return. If somebody reported that he gave you money but you did not report it
in your return, then the government can prepare your tax return for failure to submit one when one is
required. BIR CAN AMEND. BIR CAN PREPARE. Tax returns are highly confidential. Once submitted, the
same cannot be withdrawn from the BIR. You are bound by all the mistakes you committed in that
return. There is no mandate under the Tax Code that the Taxpayer should prepare his own tax return.
The preparation of the return can be delegated to somebody who understands math, accountant or
bookkeeper. The preparation of a tax return by a taxpayer is a delegable authority. But when delegated,
principal-agent relationship comes in, therefore, one is bound by all the mistakes of the agent. If once
submitted but noticed errors upon submission, there two remedies for erroneous return: 1. Submit an
amended the return to correct the error (Amended return) 2. Submit a supplemental return to complete
an incomplete return (Supplemental return) Period: you can amend or supplement a return within 3
years from submission of that erroneous return provided there is no investigation yet. Once
investigation begins, you cannot touch that return anymore and no remedies are available anymore.
CASE: There was this corporation, and they submitted their return. Several months later, they noticed
errors in the return. They caused the correction of that erroneous return by submitting and amended
return. They were able to do that because there was no investigation yet. After submission, several
months have passed. And here now is an investigation. Tax audit. To cut the story short, when the
taxpayer is already facing the BIR, T noticed that what the BIR was holding was the old return and not
the new return. So T argued that they have already amended that return and requested the BIR to look
into the new return. But the BIR argued that the old return will still be considered because it is part of its
records. RULING: All papers and documents submitted will be included in the investigation including
those amended return to be looked into because they form part of the records. THIRD PARTY
VERIFICATION RULE: BIR is authorized to gather evidence wherever, whenever in support of tax audit
and tax examination, with or without the knowledge or consent of the taxpayer. PEOPLE REQUIRED TO
SUBMIT A TAX RETURN: (Please refer to the book) PEOPLE EXEMPT FROM SUBMISSION OF TAX RETURN:
(Please refer to the book) If you have only one employer, you are exempt from submitting an income tax
return because the employer will do that for you. (Only for income tax return but not for other returns)
The employer will prepare that for you and on the part of the employer, that is called the ALPHA LIST,
listing down all the names of the employees, their tax account number, their exemptions, the number of
children, and their compensation and the withholding taxes. MATERIALITY OF TAX RETURN: Tax return is
a stepping-stone to a full-blown tax investigation. When a tax return is submitted, the government is
only given 3 years to look into that return. Prescriptive period to assess, investigate, audit, examine,
compute: Generally, the government has 3 years to go over the tax return. If within the 3-year period,
the government finds something in your return, they will call your attention. RECKONING POINT OF THE
3-YEAR PERIOD TO ASSESS: EARLY PAYMENT: the 3year period to assess commences to run one day
after the due date if the tax was paid early. LATE PAYMENT: the 3-year period to assess commences to
run from actual payment if it was paid late. TWO-YEAR PERIOD TO CLAIM INVALID PAYMENT UNDER
SECTION 229 OF THE TAX CODE. EARLY PAYMENT: Two-year period commences to run from payment if
paid early. LATE PAYMENT: Two-year period commences to run from due date if paid late. 10-a-w are
the exceptions to the 3 year period within which the government can assess. (10) When during the 3-
year period for the government to go over the return, fraud is discovered or there is failure or omission
to file a return when one is required to be filed, the right of the government to assess the taxpayer is
automatically extended to 10 years and the 10-year period commences to run from discovery. Fraud
cannot be presumed. Fraud must be established concrete, valid, acceptable, legal evidence. HOW THE
BIR ESTABLISHES FRAUD: Example: The employer submitted a return showing that your salary for the
whole year amounting to Php 3 Million pesos, but the employee submitted a return of only Php 500K
gross income. Now between the employer’s and employee’s return, the EMPLOYER’S RETURN WILL
PREVAIL because that is supported with a payroll and acknowledgement voucher. Over claiming of
deductions is also a proof of fraudulent return. Fraud penalty will then apply which is 50% of the main
tax.
How will the BIR get in touch with the taxpayer? The BIR will send a Notice of Informal Conference (NIC).
NIC is an invitation for you to appear there and also an avenue to present supporting documents to the
alleged deductions. No assessed tax liability yet in this stage. Example:The BIR is investigating you for
the year 2012. You received the notice today (March 10, 2017), is that a valid investigation? NO.
Because the 3-year period already lapsed. Explanation: 2012 is the year sought to be investigated. Tax
return for that year is payable April 15, 2013. Today, March 10, 2017, you received a letter. Because the
3-year period already lapsed. REMEMBER: An UNCONTESTED ASSESSMENT ripens into a collection case.
During the hearing, the uncontested assessment can no longer be assailed because the failure to dispute
it seasonably, means that you have waived all you defenses against the validity of that assessment.
What you can only question is the VALIDITY OF THE COLLECTION but never now the validity of the
assessment. ASSESSMENT NOTICE Is an assessment sent to the taxpayer, showing a fixed and
determined tax liability. Purpose: It fixes, shows and determines a tax liability. DEFENSES WHEN THERE
IS A JUDICIAL CASE FOR COLLECTION UNDER AN UNCONTESTED ASSESSMENT: 1. The court is without
jurisdiction 2. The right of the government to collect has prescribed. 3. The collection was not approved
by the CIR or by the Regional Director. After receiving the NIC, one can dispute the same within 15 days.
(A). Agreement. If the taxpayer would request the BIR for another meeting and bring with him his
accountant or bookkeeper, the BIR can accommodate him for that. However, the taxpayer MUST SIGN
an agreement that the taxpayer will not apply the 3 year prescriptive period. If there is an agreement
between the BIR and the taxpayer to give more time for the taxpayer to explain and substantiate his
position, then the 3-year prescriptive period will not apply. However, the agreement must be in writing.
After NIC comes now the Preliminary Assessment Notice (PAN). PAN- a notice showing an alleged tax
liability. Prospective Assessment- the alleged tax liability mentioned in the PAN. If the taxpayer does not
agree with the PAN, he has 15 days from receipt to dispute the PAN. NOTE: Prospective Assessment is
not appealable to the CTA because that is interlocutory. The NIC and PAN with the Prospective
Assessment should be within the original 3-year period within which the government may assess. The
prospective assessment should provide the legal basis for the alleged tax liability. It should provide the
particular law or provision of the Tax Code that is violated, otherwise, it is a violation of the taxpayer’s
right to due process. REQUISITES OF A VALID ASSESSMENT It must be within the 3-year period. It must
state the facts and the law as legal basis for the alleged tax liability. If the taxpayer would dispute the
assessmen How will the BIR get in touch with the taxpayer? The BIR will send a Notice of Informal
Conference (NIC). NIC is an invitation for you to appear there and also an avenue to present supporting
documents to the alleged deductions. No assessed tax liability yet in this stage. Example:The BIR is
investigating you for the year 2012. You received the notice today (March 10, 2017), is that a valid
investigation? NO. Because the 3-year period already lapsed. Explanation: 2012 is the year sought to be
investigated. Tax return for that year is payable April 15, 2013. Today, March 10, 2017, you received a
letter. Because the 3-year period already lapsed. REMEMBER: An UNCONTESTED ASSESSMENT ripens
into a collection case. During the hearing, the uncontested assessment can no longer be assailed
because the failure to dispute it seasonably, means that you have waived all you defenses against the
validity of that assessment. What you can only question is the VALIDITY OF THE COLLECTION but never
now the validity of the assessment. ASSESSMENT NOTICE Is an assessment sent to the taxpayer, showing
a fixed and determined tax liability. Purpose: It fixes, shows and determines a tax liability. DEFENSES
WHEN THERE IS A JUDICIAL CASE FOR COLLECTION UNDER AN UNCONTESTED ASSESSMENT: 1. The
court is without jurisdiction 2. The right of the government to collect has prescribed. 3. The collection
was not approved by the CIR or by the Regional Director. After receiving the NIC, one can dispute the
same within 15 days. (A). Agreement. If the taxpayer would request the BIR for another meeting and
bring with him his accountant or bookkeeper, the BIR can accommodate him for that. However, the
taxpayer MUST SIGN an agreement that the taxpayer will not apply the 3 year prescriptive period. If
there is an agreement between the BIR and the taxpayer to give more time for the taxpayer to explain
and substantiate his position, then the 3-year prescriptive period will not apply. However, the
agreement must be in writing. After NIC comes now the Preliminary Assessment Notice (PAN). PAN- a
notice showing an alleged tax liability. Prospective Assessment- the alleged tax liability mentioned in the
PAN. If the taxpayer does not agree with the PAN, he has 15 days from receipt to dispute the PAN.
NOTE: Prospective Assessment is not appealable to the CTA because that is interlocutory. The NIC and
PAN with the Prospective Assessment should be within the original 3-year period within which the
government may assess. The prospective assessment should provide the legal basis for the alleged tax
liability. It should provide the particular law or provision of the Tax Code that is violated, otherwise, it is
a violation of the taxpayer’s right to due process. REQUISITES OF A VALID ASSESSMENT It must be within
the 3-year period. It must state the facts and the law as legal basis for the alleged tax liability. If the
taxpayer would dispute the assessment
t must also present and cite the legal basis of the dispute. “I do not agree” would not suffice. The next
will be the Final Assessment Notice (FAN).
The taxpayer has 30 days from receipt to dispute the FAN. If no agreement is arrived at under the FAN, it
will be the FAN that is appealable to the CTA. REMEMBER: Any issue regarding the FAN is appealable to
the CTA. If the taxpayer received the FAN outside the 3- year period, can the government enforce
collection? YES. Because a FAN without a PAN is void. PAN is mandatory before a FAN. Good Luck!