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TAXATION II- Compilation of doctrines based on the syllabus of Atty.

Bobby Lock
(Secs. 84 to 104 of the NIRC as implemented by Revenue Regulations (RR) No. 2-03, as amended)
I. Nature of Transfer Taxes
II. Estate Tax
A. Nature of Estate Tax
1. Definition
2. Tax Exempt Net Estate (Sec. 84)
3. Minimum and Maximum Rates (Sec. 84)
4. Accrual of Estate Tax vs. Liability for Payment (Sec. 3 of RR
No. 2-03)
B. Composition of the Gross Estate (Sec. 104) / (Sec. 4 of RR No.
1. Residents and Citizens
2. Non-resident aliens
a) Rule on Reciprocity
Note: SEC 122
CIR vs. Campos Rueda (42 SCRA 23)
The controlling legal provision as noted is a proviso in Section
122 of the National Internal Revenue Code. It reads thus: "That no tax
shall be collected under this Title in respect of intangible personal
property (a) if the decedent at the time of his death was a resident of a
foreign country which at the time of his death did not impose a transfer
tax or death tax of any character in respect of intangible person
property of the Philippines not residing in that foreign country, or (b) if
the laws of the foreign country of which the decedent was a resident at
the time of his death allow a similar exemption from transfer taxes or
death taxes of every character in respect of intangible personal
property owned by citizens of the Philippines not residing in that
foreign country."
The fact that the laws of Tangier, Morocco, do not impose
transfer or death taxes upon intangible personal properties of our
citizens not residing therein, entitles to a reciprocal exemption similar
properties belonging to the decedent who at the time of his death

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resides in Tangiers, no matter that the latter country does not possess
international personality in the traditional sense.
CIR vs. Fisher (1 SCRA 93)
In determining- the net taxable estate of a deceased British
subject, for purposes of the estate and inheritance taxes, where said
deceased was married to another British citizen in Manila in 1909, the
onehalf conjugal share of the surviving wife should be deducted
inasmuch as they are presumed to have adopted the system of
conjugal partnership in the absence of an ante-nuptial agreement.
Under section 122 of the Tax Code and section 13851 of the
California Inheritance Tax Law, the reciprocity must be total, that is,
with respect to transfer or death taxes of any and every character, in
the case of the Philippine law, and to legacy, succession, or death
taxes of any and every character, in the case of the California law.
Therefore, if any of the two states collects or imposes and does not
exempt any transfer, death, legacy, or succession tax of any character,
the reciprocity does not work. The shares of stock in the Philippines,
left by a deceased resident of California, are subject to the Philippine
inheritance tax. The reciprocity provisions of section 122 of the Tax
Code are not applicable because there is no total reciprocity under the
two laws.
The amount allowed under the Federal Estate Tax Law is in the
nature of a deduction and not of an exemption, regarding which
reciprocity cannot be claimed under section 122 of the Philippine Tax
Code. Nor is reciprocity allowed under the Federal Law.
For purposes of the estate and inheritance taxes, the assessed
value of real estate is considered as the fair market value only when
evidence to the contrary has not been submitted. If there is such
contrary evidence, the assessed value will not be considered the fair
market value.

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TAXATION II- Compilation of doctrines based on the syllabus of Atty. Bobby Lock
Shares of stock of a Philippine (domestic) corporation have a
situs here for purposes of taxation. Their situs is not California where
the certificates were located and in whose stock exchange the shares
were registered. Their fair market value should be based on the price
prevailing in this country where they are sought to be taxed.
No deduction from the estate of a nonresident alien is allowed
unless the value of his gross estate not situated in the Philippines is
stated in the return. This requirement is intended to enable the revenue
officer to determine how much of the debt may be deducted pursuant
to section 89(b)(l) of the Tax Code. The deduction is allowed only to
the extent of that portion of the debt, which is equivalent to the
proportion that the Philippine estate bears to the total estate wherever
situated. If the Philippine estate constitutes but 1/5 of the entire estate,
wherever situated, then only 1/5 of the debt may be deducted. If no
statement of the estate situated outside the Philippines is attached to
the return, then no part of the debt may be deducted from the
decedents' estate.
In the absence of any statutory provision clearly or expressly
directing or authorizing the payment of interest on taxes overpaid, the
National Government cannot be required to pay interest.
3. Gross Estate (Secs. 85 and 104)
a) Valuation (Sec. 85 and 88) (Sec. 5 of RR No. 2-03)
(1) Real Property
(2) Personal Property (applicability of RR No. 6-2013)
(3) Shares of Stock
(4) Usufruct
b) Decedent’s Interest
c) Transfer in Contemplation of Death
d) Revocable Transfer
e) Property Passing Under General Power of Appointment
f) Proceeds of Life Insurance
g) Prior Interest
h) Transfers for Insufficient Consideration

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i) Capital of Surviving Spouse
C. Deductions from the Gross Estate (Sec. 86) (Sec. 6 of RR No.
1. Allowed to Residents and Citizens
2. Allowed to Non-resident alien (See also Sec. 86 D)
a) Limitation (Sec. 7 RR No. 2-03)
3. Allowable Deductions
a) Ordinary Deductions (Expenses, Losses, Indebtedness
and Taxes)
(1) 1. Funeral Expenses
(a) Limitation
(b) Examples
(c) tems not deductible
(d) Substantiation requirement
(e) How computed
(2) Judicial Expenses
(a) Examples
(b) Limitation
CIR vs. CA and Pajonar (GR No. 123206 dated March 22, 2000)
Judicial expenses are expenses of administration.
Administration expenses, as an allowable deduction from the gross
estate of the decedent for purposes of arriving at the value of the net
estate, have been construed by the federal and state courts of the
United States to include all expenses “essential to the collection of the
assets, payment of debts or the distribution of the property to the
persons entitled to it.” In other words, the expenses must be essential
to the proper settlement of the estate. Expenditures incurred for the
individual benefit of the heirs, devisees or legatees are not deductible.
(3) Claims against the Estate
(a) Requisites for deductibility
(b) Simple Loan
(c) Unpaid obligation from purchase of goods
(d) Court Settlement
Dizon vs. CTA (GR No. 140944 dated April 30, 2008)

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TAXATION II- Compilation of doctrines based on the syllabus of Atty. Bobby Lock
Verily, the second issue in this case involves the construction of
Section 79 of the National Internal Revenue Code (Tax Code) which
provides for the allowable deductions from the gross estate of the
decedent. The specific question is whether the actual claims of the
aforementioned creditors may be fully allowed as deductions from the
gross estate of Jose despite the fact that the said claims were reduced
or condoned through compromise agreements entered into by the
Estate with its creditors.
Claims against the estate, as allowable deductions from the gross
estate under Section 79 of the Tax Code, are basically a reproduction
of the deductions allowed under Section 89 (a) (1) (C) and (E) of
Commonwealth Act No. 466 (CA 466), otherwise known as the
National Internal Revenue Code of 1939, and which was the first
codification of Philippine tax laws. Philippine tax laws were, in turn,
based on the federal tax laws of the United States. Thus, pursuant to
established rules of statutory construction, the decisions of American
courts construing the federal tax code are entitled to great weight in
the interpretation of our own tax laws.
It is noteworthy that even in the United States, there is some dispute
as to whether the deductible amount for a claim against the estate is
fixed as of the decedent's death which is the general rule, or the same
should be adjusted to reflect post-death developments, such as where
a settlement between the parties results in the reduction of the amount
actually paid. On one hand, the U.S. court ruled that the appropriate
deduction is the value that the claim had at the date of the decedent's
death.Also, as held in Propstra v. U.S., where a lien claimed against
the estate was certain and enforceable on the date of the decedent's
death, the fact that the claimant subsequently settled for lesser amount
did not preclude the estate from deducting the entire amount of the
claim for estate tax purposes. These pronouncements essentially
confirm the general principle that post-death developments are not
material in determining the amount of the deduction.

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On the other hand, the Internal Revenue Service (Service) opines that
post-death settlement should be taken into consideration and the claim
should be allowed as a deduction only to the extent of the amount
actually paid. Recognizing the dispute, the Service released Proposed
Regulations in 2007 mandating that the deduction would be limited to
the actual amount paid.
We express our agreement with the date-of-death valuation rule, made
pursuant to the ruling of the U.S. Supreme Court in Ithaca Trust Co. v.
United States. First. There is no law, nor do we discern any legislative
intent in our tax laws, which disregards the date-of-death valuation
principle and particularly provides that post-death developments must
be considered in determining the net value of the estate. It bears
emphasis that tax burdens are not to be imposed, nor presumed to be
imposed, beyond what the statute expressly and clearly imports, tax
statutes being construed strictissimi juris against the government. Any
doubt on whether a person, article or activity is taxable is generally
resolved against taxation. Second. Such construction finds relevance
and consistency in our Rules on Special Proceedings wherein the term
"claims" required to be presented against a decedent's estate is
generally construed to mean debts or demands of a pecuniary nature
which could have been enforced against the deceased in his lifetime,
or liability contracted by the deceased before his death. Therefore, the
claims existing at the time of death are significant to, and should be
made the basis of, the determination of allowable deductions.
(4) Claims against insolvent persons
(5) Unpaid Mortgages, Taxes and Casualty Losses
(a) Rules
b) Special Deductions
(1) Vanishing Deduction
(a) Requisites for deductibility
(2) Transfers for Public Use
(3) Family Home
(4) Standard Deduction
(5) Medical Expenses
(a) Limitation
(b) Substantiation requirement

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TAXATION II- Compilation of doctrines based on the syllabus of Atty. Bobby Lock
(c) How computed
(6) Amount Received by Heirs Under Republic Act No.

Exclusion from Net Estate and Exemptions (Secs. 86 C and 87)
Foreign Estate Tax Credit/s (Sec. 86 E)
Notice of Death (Sec. 89)
Estate Tax Returns and Payment of Tax (Secs. 90 and 91)
1. When required and contents
2. Time of Filing / Extension of time to file
3. Place of Filing
4. Time of Payment / Extension of time to pay
5. CPA Certification
H. Other Matters
1. Who is liable to pay? [Sec. 91 (C)]
Estate of Vda. De Gabriel vs. CIR (GR No. 155541 dated January
27, 2004)
Respondent claims that Section 104 of the National Internal
Revenue Code of 1977 imposed the legal obligation on Philtrust to
inform respondent of the decedent’s death. The said Section reads:
SEC. 104. 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 three thousand pesos, the executor, administrator, or any of
the legal heirs, as the case may be, within two months after the
decedent’s death, or within a like period after qualifying as such
executor or administrator, shall give written notice thereof to the
Commissioner of Internal Revenue. The foregoing provision falls in
Title III, Chapter I of the National Internal Revenue Code of 1977, or
the chapter on Estate Tax, and pertains to “all cases of transfers
subject to tax” or where the “gross value of
the estate exceeds three thousand pesos.” It has absolutely no
applicability to a case for deficiency income tax, such as the case at
bar. It further lacks applicability since Philtrust was never the executor,
administrator of the decedent’s estate, and, as such, never had the
legal obligation, based on the above provision, to inform respondent of
her death.

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Respondent argues that an assessment is deemed made for
the purpose of giving effect to such assessment when the notice is
released, mailed or sent to the taxpayer to effectuate the assessment,
and there is no legal requirement that the taxpayer actually receive
said notice within the five-year period. It must be noted, however, that
the foregoing rule requires that the notice be sent to the taxpayer, and
not merely to a disinterested party. Although there is no specific
requirement that the taxpayer should receive the notice within the said
period, due process requires at the very least that such notice actually
be received. In Commissioner of Internal Revenue v. Pascor Realty
and Development Corporation, we had occasion to say: An
assessment contains not only a computation of tax liabilities, but also a
demand for payment within a prescribed period. It also signals the time
when penalties and interests begin to accrue against the taxpayer. To
enable the taxpayer to determine his remedies thereon, due process
requires that it must be served on and received by the taxpayer.
In Republic v. De le Rama, we clarified that, when an estate is
under administration, notice must be sent to the administrator of the
estate, since it is the said administrator, as representative of the estate,
who has the legal obligation to pay and discharge all debts of the
estate and to perform all orders of the court. In that case, legal notice
of the assessment was sent to two heirs, neither one of whom had any
authority to represent the estate. We said: The notice was not sent to
the taxpayer for the purpose of giving effect to the assessment, and
said notice could not produce any effect. In the case of Bautista and
Corrales Tan v. Collector of Internal Revenue . . . this Court had
occasion to state that “the assessment is deemed made when the
notice to this effect is released, mailed or sent to the taxpayer for the
purpose of giving effect to said assessment.” It appearing that the
person liable for the payment of the tax did not receive the
assessment, the assessment could not become final and executory.
(Citations omitted, emphasis supplied.)
a) Discharge of Executor or Administrator from Personal
Liability (Sec. 92)

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TAXATION II- Compilation of doctrines based on the syllabus of Atty. Bobby Lock
b) Liability of Heirs
CIR vs. Pineda (21 SCRA 105)
An heir is liable for the assessment as an heir and as a holdertransferee of property belonging to the estate/taxpayer. As an heir, he
is individually answerable for the part of the tax proportionate to the
share he received from the inheritance. His liability, however, cannot
exceed the amount of his share (Art. 1311, Civil Code). As a holder of
the property belonging to the estate, he is liable for the tax up to the
amount of the property in his possession. The reason is that the
Government has a lien on such property. But after payment of such
amount, he will have a right to contribution from his co-heirs.
The Government has two ways of collecting the taxes in
question. One, by going after all the heirs and collecting from each one
of them the amount of the tax proportionate to the inheritance
received, Another remedy, pursuant to the lien created by Section 315
of the Tax Code upon all property and rights to property belong to the
taxpayer for unpaid income tax, is by subjecting said property of the
estate which is in the hands of an heir or transferee to the payment of
the tax due the estate.
2. Payment Before Delivery by Executor Sec. 94
Marcos II vs. CA 273 SCRA 47
“Taxes assessed against the estate of a deceased person, after
administration is opened, need not be submitted to the committee on
claims in the ordinary course of administration. In the exercise of its
control over the administrator, the court may direct the payment of
such taxes upon motion showing that the taxes have been assessed
against the estate.”
Such liberal treatment of internal revenue taxes in the probate
proceedings extends so far, even to allowing the enforcement of tax
obligations against the heirs of the decedent, even after distribution of
the estate’s properties.

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“Claims for taxes, whether assessed before or after the death
of the deceased, can be collected from the heirs even after the
distribution of the properties of the decedent. They are exempted from
the application of the statute of non-claims. The heirs shall be liable
therefor, in proportion to their share in the inheritance.”
“Thus, the Government has two ways of collecting the taxes in
question. One, by going after all the heirs and collecting from each one
of them the amount of the tax proportionate to the inheritance
received. Another remedy, pursuant to the lien created by Section 315
of the Tax Code upon all property and rights to property belong to the
taxpayer for unpaid income tax, is by subjecting said property of the
estate which is in the hands of an heir or transferee to the payment of
the tax due the estate. (Commissioner of Internal Revenue vs. Pineda,
21 SCRA 105, September 15, 1967.)”
From the foregoing, it is discernible that the approval of the
court, sitting in probate, or as a settlement tribunal over the deceased
is not a mandatory requirement in the collection of estate taxes. It
cannot therefore be argued that the Tax Bureau erred in proceeding
with the levying and sale of the properties allegedly owned by the late
President, on the ground that it was required to seek first the probate
court’s sanction. There is nothing in the Tax Code, and in the pertinent
remedial laws that implies the necessity of the probate or estate
settlement court’s approval of the state’s claim for estate taxes, before
the same can be enforced and collected.
On the contrary, under Section 87 of the NIRC, it is the probate
or settlement court which is bidden not to authorize the executor or
judicial administrator of the decedent’s estate to deliver any distributive
share to any party interested in the estate, unless it is shown a
Certification by the Commissioner of Internal Revenue that the estate
taxes have been paid. This provision disproves the petitioner’s
contention that it is the probate court which approves the assessment
and collection of the estate tax.
The Notices of Levy upon real property were issued within the
prescriptive period and in accordance with the provisions of the
present Tax Code. The deficiency tax assessment, having already

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TAXATION II- Compilation of doctrines based on the syllabus of Atty. Bobby Lock
become final, executory, and demandable, the same can now be
collected through the summary remedy of distraint or levy pursuant to
Section 205 of the NIRC. The applicable provision in regard to the
prescriptive period for the assessment and collection of tax deficiency
in this instance is Article 223 of the NIRC.
3. Duties of Certain Officers (Sec. 95)
4. Restitution of Tax Upon Satisfaction of Outstanding
Obligations (Sec. 96)
5. Payment of Tax Antecedent to the Transfer of Shares,
Bonds or Rights (Sec. 97)
III. Donors Tax
A. Nature of Donor’s Tax
Lladoc vs. Vs. CIR ( 14 SCRA 292)
Section 22(3), Art. VI of the Constitution of the Philippines,
exempts from taxation cemeteries, churches and parsonages or
convents, appurtenant thereto, and all lands, buildings, and
improvements used exclusively for religious purposes. The exemption
is only from the payment of taxes assessed on such properties
enumerated, as property taxes, as contra-distinguished from excise
A gift tax is not a property tax, but an excise tax imposed on the
transfer of property by way of gift inter vivos, the imposition of which on
property used exclusively for religious purposes, does not constitute an
impairment of the Constitution.
The head of the diocese and not the parish priest is the real
party in interest in the imposition of a donee’s tax on property donated
to the church for religious purposes.
Pirovano vs. CIR (14 SCRA 232)
A donation made by a corporation to the heirs of a deceased
officer out of gratitude for his past services is subject to the donees’ gift

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A donation made out of gratitude for past services is not subject
to deduction for the value of said services which do not constitute a
recoverable debt.
Gratitude has no economic value and is not “consideration” in
the sense that the word is used under Section 311 of the Tax Code.

1. Definition
2. Composition of Gross Gift (Secs. 98 and 104)
3. Tax Exempt Net Gift (Sec. 99)
4. Minimum and Maximum Rates (Sec. 99)
5. Who is a stranger and applicable tax rate (Sec. 99)
6. Gift Splitting
B. Composition of the Gross Gifts (Sec. 104)
1. Residents and Citizens
2. Non-resident alien
a) Rule on Reciprocity
3. Corporations
4. Valuation of Gifts made in property (Sec. 102)
5. Exemption of Certain Gifts (Sec. 101)
a) Residents and Citizens
b) Non-residents aliens
c) Corporations
C. Other Matters
1. 1. Rule on Political Contributions [99C] (Secs. 13 and 14
RA No. 7166) (RR No. 7-2011)
Abello vs. CIR, GR No. 120721 dated February 23, 2005
Donation has the following elements: (a) the reduction of the
patrimony of the donor; (b) the increase in the patrimony of the donee;
and, (c) the intent to do an act of liberality or animus donandi.
Since animus donandi or the intention to do an act of liberality
is an essential element of a donation, petitioners argue that it is
important to look into the intention of the giver to determine if a political
contribution is a gift. Petitioners’ argument is not tenable. First of all,

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TAXATION II- Compilation of doctrines based on the syllabus of Atty. Bobby Lock
donative intent is a creature of the mind. It cannot be perceived except
by the material and tangible acts which manifest its presence. This
being the case, donative intent is presumed present when one gives a
part of one’s patrimony to another without consideration. Second,
donative intent is not negated when the person donating has other
intentions, motives or purposes which do not contradict donative intent.
This Court is not convinced that since the purpose of the contribution
was to help elect a candidate, there was no donative intent. Petitioners’
contribution of money without any material consideration evinces
animus donandi. The fact that their purpose for donating was to aid in
the election of the donee does not negate the presence of donative
Since the purpose of an electoral contribution is to influence the
results of the election, petitioners again claim that donative intent is not
present. Petitioners attempt to place the barrier of mutual exclusivity
between donative intent and the purpose of political contributions. This
Court reiterates that donative intent is not negated by the presence of
other intentions, motives or purposes which do not contradict donative
2. Transfer for Less than adequate and full consideration (Sec.
100) (RR No. 6-2008 on shares of stock as amended by RR
Philamlife vs. SOF, GR No. 210987 dated November 24, 2014
Petitioner’s substantive arguments are unavailing. The absence
of donative intent, if that be the case, does not exempt the sales of
stock transaction from donor’s tax since Sec. 100 of the NIRC
categorically states that the amount by which the fair market value of
the property exceeded the value of the consideration shall be deemed
a gift. Thus, even if there is no actual donation, the difference in price
is considered a donation by fiction of law. Moreover, Sec. 7(c.2.2) of
RR 06-08 does not alter Sec. 100 of the NIRC but merely sets the
parameters for determining the “fair market value” of a sale of stocks.
Such issuance was made pursuant to the Commissioner’s power to

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interpret tax laws and to promulgate rules and regulations for their
3. Manner of Computing the Donor’s Tax (Sec. 12 RR No.
4. Tax Credit for Donor’s Taxes paid to a Foreign Country
[Sec. 101 (C)]
5. Renunciation of share in the conjugal partnership or
absolute community; and, hereditary estate (Sec. 11 RR
No. 2-03)
6. Capacity to Buy
Spouses Evono vs. DOF, CTA EB Case No. 705 dated June 4, 2012
In this case, petitioners admitted that their children are not
earning income, but are financially capable to purchase the subject
properties from their own savings from allowances given by their
parents. True, children can save money from their allowances and
would be able to purchase properties from their savings, however, in
this case, records show that petitioners' children were only 11 , 10 and
5 years old at the time of the sale of the subject properties, the
consideration of which amounted to the total amount of P5,473,500.00
(P4,117,500.00 for the purchase of Diores' property and P1,356,000.00
for the purchase of Credo's property). Logically, at such young ages,
the three minor children would not be able to save such substantial
amount, even if they were receiving enormous allowances from their
parents. As a consequence thereof, the inclusion of the children's
names in the transfer of the titles/properties shall be deemed a
donation or gift from their parents. To own a real property at an early
age without a source of income, said property is deemed to be a
donation, within the meaning of the law. There is a clear animus
donandi, as evidenced by petitioners’ request to include the names of
their minor children in the CARs and certificates of title of the
properties. Thus, We agree with then Commissioner Joel Tan- Torres in
his Final Decision dated March 1, 2010, citing the ruling of Regional
Director Jaime B. Santiago, CESO V, Revenue Region No. 13, Cebu
City, dated November 17, 2004, to wit:

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TAXATION II- Compilation of doctrines based on the syllabus of Atty. Bobby Lock

"It is noteworthy that, "The gift tax was enacted mainly to
prevent the loss of revenue due to the practice of wealthy
individuals of donating inter vivos or otherwise gratuitously
disposing of their properties during their lifetime for the purpose
of reducing their estate and thus, avoid payment of the
estate tax upon their death. A gift tax is imposed to prevent
avoidance of estate tax." (BIR Ruling No. 261-87 dated
September 2, 1987)
Therefore, without a source of income or acceptable form of
acquisition of substantial amount to purchase the subject properties,
the inclusion of the names of petitioners' minor children in the CARs is
deemed a gratuitous transaction, which is subject to donor's tax. The
inclusion of the names of petitioners' minor children in the certificates
of title of the subject properties shall be deemed an implied donation
within the purview of the law. Therefore, respondent's imposition of
donor’s tax in the inclusion of the names of the children in the CARs
and transfer titles is in accordance with Section 98 of the NIRC of
1997, as amended.
D. Filing and Payment of Returns (Sec. 103) / (Sec. 13 RR No.
1. Requirements
2. Time and Place of Filing
3. Notice of Donation – Exemption from Donor’s Tax (RR No.

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