Dizon vs CIR

GR No. 140944
Jose Fernandez died in November 7, 1987. A petition for probate of his will was filed
and Dizon was appointed by the probate court as administrator of the estate of Jose.
An estate tax return was filed later on which showed no tax liability which caused
the BIR to issue a tax certificate clearance in favor of the estate stating that the
taxes due on the transfer of properties of the Jose had been fully paid and said
properties maybe transferred to his heirs.
Petitioner requested the probate court’s authority to sell several properties forming
part of the Estate, for the purpose of paying its creditors. However, the Assistant
Commissioner for Collection of the BIR issued an Estate Tax Assessment Notice,
demanding the payment of deficiency estate tax amounting to 66.97 million. This
was subsequently reduced by CTA to Php 37.42 million.
CA affirmed the decision of the CTA, ruling that the petitioner’s act of filing an
estate tax return with the BIR and the issuance of the BIR Certification did not
deprive the BIR Commissioner of her authority to re-examine or re-assess the said
return filed on behalf of the Estate. Hence, the instant Petition.
Whether the actual claims of the 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
Section 84(79) of the National Internal Revenue Code(Tax Code) which provides for
the allowable deductions from the gross estate of the decedent.


The petitioner claims that in as much as Since the claims of the estate’s creditors
the valid claims of the creditors against have been condoned, such claim may no
the Estate are in excess of the gross longer be deducted from the gross estate.
estate, no estate tax is due.

Court’s ruling:
Yes. Deductible amount for a claim against the estate is fixed as of the death of the
decedent. As held in Propstra vs US, where a lien claimed against the estate was
certain and enforceable on the death of the decedent, 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. This pronouncement
essentially confirms the general principle that post-death developments are not
material in determining the allowable deduction.
Also, in Inthaca vs US, the court announced its agreement with the date of death
valuation rule: first, there is no law, nor it can be discern any legislative intent in
our tax laws which disregards, date- of- death valuation principle and particularly

provides that post-death developments must be considered in determining the net
value of the estate. It bear emphasis that tax burden are not to be imposed, nor
presumed to be imposed beyond what the statute clearly imports, tax statutes
being construed strictisimmi 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 the
decedent’s estate is generally construed to mean debts or demands of a pecuniary
nature which could have been enforced against the deceased during his lifetime, or
liability contracted by the deceased prior to his death. Thus, the claims existing at
the time of his death is significant to, and should be made the basis of the
determination of the allowable deduction.