BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 28

SUGGESTED ANSWERS
Chapter 5: ESTATE TAX

CHAPTER 5

ESTATE TAX
Problem 51
1. True
2. False 20% of the net taxable estate
3. False intangible property of nonresident alien decedent.
4. False Not any claims, but legal claims substantiated with supporting documents
5.

False Not allowed to nonresident alien decedent because they are taxed only on properties
situated within.
6. False the first P200,000 is estate tax-exempt.
7. True
8. True
9. True
10. False If the value of the gross estate exceeds P2,000,000.
11. True
12. True
Problem 52
1. False This is also allowed to nonresident alien decedent for their ELITE.
2. True
3. True
4. True
5. False deductible in full
6. False standard deduction will not reduce the inheritance.
7. False only 30 days.
8. True
9. True
10. True
11. True
12. True
Problem 5-3
1.
A
2.
C
3.
D
4.
A
5.
C
6.
A
7.
D
8.
B
9.
A
10. C
11. D
12. D

Problem 5-4
1.
C
2.
B
3.
B
4.
D
5.
A
6.
D
7.
D
8.
C
9.
A
10. D
11. D

Problem 5-5
1.
C
2.
A
3.
D
4.
A
5.
B
6.
D
7.
A
8.
C
9.
A
10.
D
11.
D

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 29
SUGGESTED ANSWERS
Chapter 5: ESTATE TAX

Problem 56
B
Conjugal gross estate (P3,120,000 + P180,000)
Funeral expense allowed (P3,300,000 x 5%)
Share of surviving spouse (P3,300,000 P165,000) x 50%
Standard deduction
Net estate

P3,300,000
( 165,000)
( 1,567,500)
( 1,000,000)
P 567,500

Problem 57
D
Gross estate
Funeral expense allowed (P3,000,000 x 5%)
Net conjugal/community estate
Standard deduction
Net estate
Share of surviving spouse (P2,850,000 x 50%)
Net taxable estate

P3,000,000
( 150,000)
P2,850,000
(1,000,000)
P1,850,000
1,425,000
P 425,000

Problem 58
A
Estate after actual deductions
Add: Actual deductions (P150,000 + P50,000)
Gross estate
Less: Funeral expense allowed (P1,400,000 x 5%)
Other deduction
Standard deduction
Net taxable estate
Problem 59

Property cash
Family home
Transfer for public use
Funeral expense allowed
Net conjugal estate
Family home (P800,000/2)
Standard deduction
Net estate
Share of surviving spouse (P4,600,000 x 50%)
Net taxable estate
Problem 510
A
Gross estate
Charges against the estate
Net conjugal estate
Standard deduction
Family home
Net estate
Share of surviving spouse (P4,300,000 x 50%)
Net estate taxable in the Philippines
Problem 511

Properties
Funeral expense, limit
Judicial expenses

P 70,000
50,000
1,000,000

Exclusive
P1,000,000
(1,000,000)

P1,200,000
200,000
P1,400,000
(1,120,000)
P 280,000
Conjugal
P4,000,000
800,000
( 200,000)
P4,600,000
(400,000)
(1,000,000)
P3,200,000
(2,300,000)
P 900,000
P4,500,000
( 200,000)
P4,300,000
(1,000,000)
(1,000,000)
P2,300,000
(2,150,000)
P 150,000
Conjugal
P3,400,000
( 200,000)
( 250,000)

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 30
SUGGESTED ANSWERS
Chapter 5: ESTATE TAX

Claims against properties

Net conjugal estate

( 550,000)
P2,400,000

Problem 512
C
Net estate of P500,000 has a estate tax amounting to

P15,000

Problem 513
A
Estate tax of P5,000,000
Problem 514

P465,000

Net estate
P2,000,000

Amounts

Estate tax
P135,000

Nonresident alien decedent is not allowed to have standard deduction. The funeral expense is not
deductible because no part of gross estate located outside the Philippines is reported. (Sec. 86
(B), NIRC)
Problem 515
A
Net taxable estate
Add: Family home
Standard deduction
Distributable estate before estate tax
Less: Estate tax of P10,000,000
Net distributable estate
Problem 516
1. Letter B
Real estate
Personal property
Funeral expense, limit
Judicial expenses
Unpaid mortgage loan
Net exclusive/conjugal state
Standard deduction
Family home (P1,600,000/2)
Net estate
Share of surviving spouse (P1,800,000 x 50%)
Net taxable estate
2.

Letter D
Estate tax on P500,000
Estate tax on excess (P1,600,000 x 8%)
Estate tax

3.

Letter B
Real estate
Personal property
Funeral expense, actual
Judicial expenses
Unpaid mortgage loan
Net exclusive/conjugal estate
Share of surviving spouse (P1,755,000 x 50%)
Estate tax
Net distributable estate

P1,000,000
1,000,000

Exclusive
P2,800,000

.
P2,800,000

Conjugal
P1,600,000
800,000
( 200,000)
( 100,000)
( 300,000)
P1,800,000

P10,000,000
2,000,000
P12,000,000
1,215,000
P10,785,000

P4,600,000
(1,000,000)
( 800,000)
P2,800,000
( 900,000)
P2,100,000
P 15,000
128,000
P143,000

Exclusive
P2,800,000

.
P2,800,000

Conjugal
P1,600,000
800,000
( 245,000)
( 100,000)
( 300,000)
P1,755,000

P4,555,000
( 877,500)
( 143,000)
P3,534,500

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 31
SUGGESTED ANSWERS
Chapter 5: ESTATE TAX

Problem 517
C
Tax credit P100,000 x 2M/5M)

P40,000

Problem 518
A
Total gross estate (P1,700,000 + P800,000)
Less: Deductions
Net taxable estate

P2,500,000
1,500,000
P1,000,000

Estate tax on P500,000

Excess P500,000 x 8%
Total estate tax in the Philippines

P15,000
40,000
P55,000

Tax credit allowed (P800,000/P2,500,000) x P55,000 = P17,600 vs. P20,000

P17,600

Problem 519
Real property
Inherited property
Other properties
Gross estate
Less: Deductions:
ELITE:
Funeral expenses
Judicial expenses
Claims against the estate
Transfer for public use
Total deductions
Net conjugal/exclusive estate
Less: Special deductions:
Standard deduction
Medical expense
Net estate before share of surviving spouse
Less: Share of surviving spouse (P1,500,000 x 50%)
Net taxable estate

Conjugal
P1,500,000
500,000
P2,000,000
100,000
80,000
300,000
20,000
P 500,000
P1,500,000

Exclusive

Total

P700,000
.
P700,000

P2,700,000

P700,000

500,000
P2,200,000

1,000,000
200,000
P1,000,000
750,000
P 250,000

Estate tax:
Tax on P200,000
Tax on excess (P50,000 x 5%)
Estate tax due

Problem 520
Family home Philippines
Family business Philippines
Properties USA
Gross estate
Deductions:
ELITE Funeral expense
Net conjugal/exclusive
Less: Special deduction
Std. deduction
Family home
Net estate before share of surviving spouse
Less: Share of surviving spouse (P3,800,000 x 50%)
Net taxable estate
Estate tax:

P - 0 2,500
P 2,500
Conjugal
P2,000,000
2,000,000
.
P4,000,000

Exclusive

Total

P1,000,000
P1,000,000

P5,000,000

200,000
P3,800,000

.
P1,000,000

.
P4,800,000
1,000,000
1,000,000
P2,800,000
1,900,000
P 900,000

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 32
SUGGESTED ANSWERS
Chapter 5: ESTATE TAX
P15,000
32,000
P47,000
13,429
P33,571

Tax on P500,000
Tax on excess (P400,000 x 8%)
Estate tax due
Less: Estate tax credit allowed (P47,000 x 8/28) lower
Estate tax still due and payable
Supporting computation:
The computation of net estate per country is as follows:
Philippines
Conjugal
Gross estate
P4,000,000
Funeral expense
(200,000)
Family home
(1,000,000)
Allocation of std deduction
(P1,000,000 x 4/5): (1/4)
(800,000)
Net estate
P2,000,000

U. S. A
Exclusive
P1,000,000

( 200,000)
P 800,000

Problem 521

Conjugal
Gross estate*
P5,800,000
Less Deductions:
Ordinary deductions:
Funeral expenses (actual, P350,000;
5% limit, P500,000; statutory
Maximum allowed, P200,000) - lowest
(200,000)
Judicial expenses
(500,000)
Other deductions
(100,000)
Vanishing deductions (note 1)
.
Net conjugal/exclusive estate
P5,000,000
Special deductions:
Standard deduction
Family home (50% is P1,500,000) max. allowed
Medical expenses (actual, P600,000) max. allowed
Amount receivable under R.A. 4917
Net estate
Less: Share of the surviving spouse (P5,000,000 x 50%)
Net taxable estate

Total
P5,000,000
(200,000)
(1,000,000)
(1,000,000)
P2,800,000

Exclusive
Total
P4,200,000 P10,000,000

( 92,000)
P4,108,000

9,108,000
(1,000,000)
(1,000,000)
(500,000)
(200,000)
P6,408,000
2,500,000
P3,908,000

*Note: The amount receivable under R.A. 4917 must be reclassified as exclusive property in order
not to increase the deduction by 50%.
Vanishing deduction:
Cash, initial value allowed to take
Less: Proportionate deductions:
Funeral expense
Judicial expense
Other obligations
Total
(P800,000 x P500,000/P10,000,000)
Final basis
Multiplied by vanishing deduction rate
Vanishing deduction

P500,000
P200,000
500,000
100,000
P800,000

40,000
P460,000
20%
P 92,000

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 33
SUGGESTED ANSWERS
Chapter 5: ESTATE TAX

Problem 522
Gross estate (P2,000,000 + P180,000)
Less: Deductions:
Unpaid mortgage
Funeral expense
Judicial expense
Standard
Net estate

P2,180,000
P 480,000
60,000
20,000
1,000,000

Tax on P500,000
Tax on excess P120,000 x 8%
Total estate tax

P15,000
9,600
P24,600

Gross estate
Less: Ordinary deductions (P480,000 + P80,000)
Estate tax
Net distributable estate

P560,000
24,600

Problem 523
Cash
Property
Gross estate
Deductions:
Promissory note
Funeral expense
Net conjugal estate
Less: Standard deduction
Net estate
Less: Share of surviving spouse (P1,330,000 x 50%)
Net taxable estate

Gross estate (P1,000,000 + P9,000,000)

Ordinary deductions:
Funeral expense (limit)
Judicial expense
Claims against the estate
Net conjugal estate
Special deductions:
Standard deduction

P2,180,000
584,600
P1,595,400
P 400,000
1,500,000
P1,900,000
( 500,000)
(
70,000)
P1,330,000
1,000,000
P 330,000
665,000
(P335,000)

Gross estate
Less: Promissory note
Funeral expense
Net estate before share of surviving spouse
Less: Share of surviving spouse (P1,330,000 x 50%)
Net distributable estate
Problem 524

1,560,000
P 620,000

P500,000
70,000

Conjugal
P1,000,000
(
(
(
P

200,000)
200,000)
500,000)
100,000

Exclusive
P9,000,000

P1,900,000
570,000
P1,330,000
665,000
P 665,000
Total
P10,000,000
( 200,000)
( 200,000)
( 500,000)
P9,100,000
(1,000,000)

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 34
SUGGESTED ANSWERS
Medical expense
Net estate
Less: Share of surviving spouse (P100,000 x 50%)
Net taxable estate

Chapter 5: ESTATE TAX

( 500,000)
P7,600,000
50,000
P7,550,000

Tax on P5,000,000
Tax on excess P2,550,000 x 15%
Estate tax

P465,000
382,500
P847,500

Conjugal estate
Less: Ordinary deductions (actual):
Funeral expense
Judicial expense
Claims against the estate
Net conjugal estate before share of surviving spouse
Less: Share of surviving spouse (P90,000 x 50%)
Net share of the decedent
Add: Exclusive property of the decedent
Net distributable estate before estate tax
Less: Estate tax
Net distributable estate
Divide by number of heirs (12 + 1)
Share of each heir

P1,000,000
P210,000
200,000
500,000

910,000
90,000
45,000
P 45,000
9,000,000
P9,045,000
847,500
P8,197,500
13
P 603,576.92
P

Note: The medical expense is assumed to have been paid.

Problem 525
Conjugal property - real estate
Ordinary deductions:
Funeral expenses, limit (P2M + P300,000) x 5%
Judicial expenses
Unpaid mortgage
Vanishing deduction*
Net conjugal estate
Add: Exclusive property personal property inherited
Net estate before special deduction
Less: Standard deduction
Net estate before share of surviving spouse
Less: Share of surviving spouse (P1,204,696 x 50%)
(P1,345,000 x 50%)
Net taxable/distributable estate
Divide by number of compulsory heirs
Inheritance of each heir
Vanishing deduction:
*Value taken
Less: Proportionate deductions (P620,000 x P300,000/ P2,300,000)
Final basis
Multiply by percentage of vanishing deduction one year ago
Vanishing deductions

Taxable
P2,000,000

Distributable
P2,000,000

( 115,000)
(
5,000)
( 500,000)
( 175,304)
P1,204,696
300,000
P1,504,696
1,000,000
P 504,696
602,348

( 150,000)
(
5,000)
( 500,000)
.
P1,345,000
300,000
P1,645,000
.
P1,645,000

(P 97,652)

672,500
P 972,500
3
P 324,167
P300,000
80,870
P219,130
80%
P175,304

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 35
SUGGESTED ANSWERS
Chapter 5: ESTATE TAX

Problem 526
The property relationship of Don and Dona Dinero shall be governed by the regime of absolute
community property ownership because they got married after August 3, 1988. Hence, the
computation would be:
1. Computation of net estate:
Communal
Residential house and lot
P 3,500,000
Building apartment
10,000,000
Income of apartment
3,000,000
Deposit in Equitable Bank
5,000,000
Agricultural land
Family car
550,000
Other personal properties
1,000,000
Claim against insolvent person
100,000
Total gross estate
P23,150,000
Less: Ordinary deductions:
ELIT:
Funeral expenses maximum
200,000
Judicial expenses
600,000
Claims against the estate
600,000
Claims against insolvent person
100,000
Unpaid mortgage
Transfer for public use
.
Net estate before special deductions
P21,650,000
Less: Special deductions:
Standard deduction
Family home maximum
Medical expenses maximum
Net estate
Less: Share of surviving spouse (P21,650,000 x 50%)
Net taxable estate

Exclusive

P 800,000
.
P 800,000

P23,950,000

300,000
200,000
P 300,000

2,000,000
P21,950,000
1,000,000
1,000,000
500,000
P19,450,000
10,825,000
P 8,625,000

2. Computation of estate tax:

For the first P5,000,000
Excess (P3,625,000 x 15%)
Estate tax due
3.

Total

465,000
543,750
P1,008,750

Computation of net distributable estate:

Residential house and lot
Building apartment
Income of apartment
Deposit in equitable bank
Agricultural land
Family car
Other personal properties
Claims against insolvent person

Communal
P 3,500,000
10,000,000
3,000,000
5,000,000
550,000
1,000,000
100,000

Exclusive

P 800,000
.

Total

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 36
SUGGESTED ANSWERS
Total gross estate
Less: Actual deductions:
Funeral expense actual
Judicial expenses
Claims against the estate actual
Claims against insolvent person
Unpaid mortgage
Transfer for public use
Net estate before share of surviving spouse
Share of surviving spouse (P21,300,000 x 50%)
Net estate before estate tax
Less: Estate tax
Net distributable estate

4.

P23,150,000
350,000
600,000
800,000
100,000
.
P21,300,000

Chapter 5: ESTATE TAX

P23,950,000

P 800,000

300,000
200,000
P300,000

2,350,000
P21,600,000
10,650,000
P10,950,000
1,008,750
P 9,941,250

Distribution of the net distributable estate:

Following the assumptions given above, the computation of the share from the net
distributable estate of each heir would be:
Legitime:
To two legitimate children (P9,941,250 x 50%)
To legally surviving spouse (P4,970,625/2)
To illegitimate child (P2,485,313 x 50%)

P 4,970,625
2,485,313
1,242,656

Free portion:
To church based on Will
Total
Problem 5-27
Estate tax:
Gross estate
House and lot, Baguio City
House and lot, Quezon City family home*
Grocery store, Baclaran
Inventory (P700,000 P300,000) x 450/300
Cash sales
Claims against insolvent persons
Ordinary deductions:
Funeral (P3,900,000 x 5%)
Claims against insolvent persons
Unpaid income taxes
Net estate before special deductions
Special deductions:
Family home (P1,500,000/2)
Medical expenses
Standard deductions
Net estate
Less: Share of surviving spouse (P3,635,000 x 50%)
Net taxable estate
Estate tax due

1,242,656
P 9,941,250

P1,000,000
1,500,000
300,000
600,000
450,000
50,000
P 195,000
50,000
20,000
P 750,000
500,000
1,000,000

P3,900,000

265,000)
P3,635,000

(2,250,000)
P1,385,000
1,817,500
(P 432,500)
P

- 0 -

Note: The house and lot in New York, Quezon City is assumed family home because Don and
Dona Posamin reside in that place.
Net distributable estate:

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 37
SUGGESTED ANSWERS
Gross estate
Actual deductions:
Funeral
Claims against insolvent persons
Unpaid income taxes
Medical expense
Net estate before share of spouse
Share of surviving spouse (P3,030,000 x 50%)
Net distributable estate
Problem 528
1. Estate tax
House and lot (family home)
Time deposit principal amount
Accrued interest 2004: (P2,000,000 x 12% x 12/12)
2005: (P2,000,000 x 12% x 10/12)
Car
Claims against insolvent person
Gross estate
Ordinary deductions:
Funeral expense, limit
Judicial
Claims against insolvent person
Net estate before special deductions
Special deductions:
Standard deductions
Medical expense, limit
Family home, limit
Net estate
Less: Share of surviving spouse (P6,190,000 x 50%)
Net taxable estate

Chapter 5: ESTATE TAX

P3,900,000
P250,000
50,000
20,000
550,000

870,000
P3,030,000
1,515,000
P1,515,000

P3,000,000
2,000,000
240,000
200,000
1,000,000
100,000
P6,540,000
P 200,000
50,000
100,000
P1,000,000
500,000
1,000,000

Tax on P500,000
Tax on excess (P95,000 x 8%)
Estate tax
2.

3.

Net distributable estate

Gross estate
Actual deductions:
Funeral expense
Judicial expense
Claims against insolvent person
Net distributable estate before share of surviving spouse
Less: Share of surviving spouse (P6,140,000 x 50%)
Net actual estate
Less: Estate tax
Net distributable estate
Distribution of inheritance
Net distributable estate
Divided by number of heirs (intestate succession)
Share of each heir

( 350,000)
P6,190,000

(2,500,000)
P3,690,000
3,095,000
P 595,000
P 15,000
7,600
P 22,600
P6,540,000

P250,000
50,000
100,000

( 400,000)
P6,140,000
3,070,000
P3,070,000
22,600
P3,047,400
P3,047,400
4
P 761,850

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 38
SUGGESTED ANSWERS
Chapter 5: ESTATE TAX

Problem 529
1. Estate tax credit = P215,000
2. Estate tax payable = P222,500
Supporting computations:
a. Estate tax payable to the Philippines :
Country A
Gross estate
P1,200,000
Unpaid mortgages
(200,000)
Unpaid taxes
Transfer for public use
.
Net of identifiable deductions
P1,000,000
Allocated deductions**
(172,500)
Net estate
P 827,500

Country B
P2,500,000

Philippines
P5,000,000

(500,000)
.
P2,000,000
(358,750)
P1,641,250

(2,000,000)
P3,000,000
(718,750)
P2,281,250

Entire
P8,700,000
(200,000)
(500,000)
(2,000,000)
P6,000,000
(1,250,000)
P4,750,000

** Computation of allocated deductions:

Funeral expenses
Judicial expenses
Standard deduction allocated
Total allocated deductions

Country A
P 27,600
6,900
138,000
P172,500

Country B
P 57,400
14,350
287,000
P358,750

Philippines
Entire
P115,000 P 200,000
28,750
50,000
575,000
1,000,000
P718,750 P1,250,000

Note: The above deductions are allocated because they are not specifically identified as
deductions from a specific country. The fraction per country is computed as follows:
Country A
Country B
Philippines
Entire
Gross state per country
P1,200,000
P2,500,000
P5,000,000 P8,700,000
Divide by entire gross estate
P8,700,000
P8,700,000
P8,700,000 P8,700,000
Fraction
13.80%
28.70%
57.50%
100%

b. Computation of Philippines estate tax:

Tax on P2,000,000
Tax on excess (P2,750,000 x 11%)
Total
Less: Tax credit allowed*
Estate tax payable to the Philippine Government
c. Computation of tax credit:
Limit A:
Country A: [P437,500 x (P827,500/P4,750,000)]
Actual payment to country A lower
Country B: (P437,500 x P1,641,250/P4,750,000)

P135,000
302,500
P437,500
215,000
P222,500

P
P

76,217
75,000

P151,167

P 75,000

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 39
SUGGESTED ANSWERS
Chapter 5: ESTATE TAX

Actual payment to country B lower

P140,000

Tax credit Limit A

P215,000

Limit B:
Total net estate foreign
[(P2,468,750)/P4,750,000] x P437,500
Total actual estate tax payments foreign
(P75,000 + P140,000) lower
Tax credit Limit B

P227,385
P215,000

Cash
Shares of stock (P100 x 100,000 shares)
Insurance proceeds
Transfer in contemplation of death
Total gross estate
Less: Ordinary deduction Transfer for public use
Net estate before special deduction
Less: Standard deduction
Net estate
Less: Share of surviving spouse (P2,000,000 x 50%)
Net taxable estate

Conjugal
P2,000,000
.
P2,000,000
.
P2,000,000

Exclusive

Total

P10,000,000
1,000,000
3,000,000
P14,000,000 P16,000,000
10,000,000
10,000,000
P 4,000,000 P 6,000,000
1,000,000
P 5,000,000
1,000,000
P 4,000,000

Estate tax on P2,000,000

Tax on excess (P2,000,000 x 11%)
Total estate tax
Less: Tax credits on tax previously paid (P34,840 + P204,000)
Transfer tax still due
Problem 531
Estate tax on P5,000,000
Estate tax on excess (P3,000,000 x 15%)
Estate tax
Add: Surcharges willful neglect (P585,000 x 50%)
Interest for 4 years (P585,000 x 20% x 4)
Total amount to be paid

P215,000
P215,000

*Tax credit allowed (the lower of limit A or B)

Problem 530

140,000

P135,000
220,000
P355,000
238,840
P116,160
P
P292,500
468,000

135,000
450,000
585,000

760,500
P1,345,500