TAXATION II ATTY. DEBORAH S.

ACOSTA-CAJUSTIN
decedent at the time of his death;
ESTATE TAX
(B) Transfer in Contemplation of Death. - To the extent of any interest
Sec 84-97, Sec. 104, NIRC therein of which the decedent has at any time made a transfer, by
trust or otherwise, in contemplation of or intended to take effect in
Republic Act No. 8424 December 11, 1997
possession or enjoyment at or after death, or of which he has at any
AN ACT AMENDING THE NATIONAL INTERNAL REVENUE CODE, AS time made a transfer, by trust or otherwise, under which he has
AMENDED, AND FOR OTHER PURPOSES 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
TITLE III the income from the property, or (2) the right, either alone or in
ESTATE AND DONOR'S TAXES conjunction with any person, to designate the person who shall
CHAPTER I - ESTATE TAX possess or enjoy the property or the income therefrom; except in
case of a bonafide sale for an adequate and full consideration in
Section 84. Rates of Estate Tax. There shall be levied, assessed, collected and money or money's worth.
paid upon the transfer of the net estate as determined in accordance with
Sections 85 and 86 of every decedent, whether resident or nonresident of the (C) Revocable Transfer. -
Philippines, a tax based on the value of such net estate, as computed in (1) To the extent of any interest therein, of which the
accordance with the following schedule: decedent has at any time made a transfer (except in case of a
If the net estate is: bona fide sale for an adequate and full consideration in
money or money's worth) by trust or otherwise, where the
But Not The Tax shall Of the Excess enjoyment thereof was subject at the date of his death to any
Over Plus change through the exercise of a power (in whatever
Over be Over
capacity exerciseable) by the decedent alone or by the
P 200,000 Exempt decedent in conjunction with any other person (without
regard to when or from what source the decedent acquired
P 200,000 550,000 0 5% P 200,000 such power), t o alter, amend, revoke, or terminate, or where
any such power is relinquished in contemplation of the
500,000 2,000,000 P 15,000 8% 500,000 decedent's death.

2,000,000 5,000,000 135,000 11% 2,000,000 (2) For the purpose of this Subsection, the power to alter,
amend or revoke shall be considered to exist on the date of
5,000,000 10,000,000 465,000 15% 5,000,000 the decedent's death even though the exercise of the power
is subject to a precedent giving of notice or even though the
10,000,000 And Over 1,215,000 20% 10,000,000 alteration, amendment or revocation takes effect only on the
expiration of a stated period after the exercise of the power,
Section 85. Gross Estate. - the value of the gross estate of the decedent shall whether or not on or before the date of the decedent's death
be determined by including the value at the time of his death of all property, notice has been given or the power has been exercised. In
real or personal, tangible or intangible, wherever situated: Provided, however, such cases, proper adjustment shall be made representing
that in the case of a nonresident decedent who at the time of his death was the interests which would have been excluded from the
not a citizen of the Philippines, only that part of the entire gross estate which power if the decedent had lived, and for such purpose if the
is situated in the Philippines shall be included in his taxable estate. notice has not been given or the power has not been
exercised on or before the date of his
(A) Decedent's Interest. - To the extent of the interest therein of the
death, such notice shall be considered to have been given, or
1
TAXATION II
the power exercised, on the date of his death.
(D) Property Passing Under General Power of Appointment. - To the
extent of any property passing under a general power of
appointment exercised by the decedent: (1) by will, or (2) by deed
executed in contemplation of, or intended to take effect in possession
or enjoyment at, or after his death, or (3) by deed under which he has
retained for his life or any period not ascertainable without reference
to his death or for any period which does not in fact end before his
death (a) the possession or enjoyment of, or the right to the income
from, the property, or (b) the right, either alone or in conjunction
with any person, to designate the persons who shall possess or enjoy
the property or the income therefrom; except in case of a bona fide
sale for an adequate and full consideration in money or money's
worth.
(E) Proceeds of Life Insurance. - To the extent of the amount
receivable by the estate of the deceased, his executor, or
administrator, as insurance under policies taken out by the decedent
upon his own life, irrespective of whether or not the insured retained
the power of revocation, or to the extent of the amount receivable by
any beneficiary designated in the policy of insurance, except when it
is expressly stipulated that the designation of the beneficiary is
irrevocable.
(F) Prior Interests. - Except as otherwise specifically provided therein,
Subsections (B), (C) and (E) of this Section shall apply to the
transfers, trusts, estates, interests, rights, powers and relinquishment
of powers, as severally enumerated and described therein, whether
made, created, arising, existing, exercised or relinquished before or
after the effectivity of this Code.
(G) Transfers of Insufficient Consideration. - If any one of the transfers,
trusts, interests, rights or powers enumerated and described in
Subsections (B), (C) and (D) of this Section is made, created,
exercised or relinquished for a consideration in money or money's
worth, but is not a bona fide sale for an adequate and full
consideration in money or money's worth, there shall be included in
the gross estate only the excess of the fair market value, at the time of
death, of the property otherwise to be included on account of such
transaction, over the value of the consideration received therefor by
the decedent.
(H) Capital of the Surviving Spouse. - The capital of the surviving
spouse of a decedent shall not, for the purpose of this Chapter, be
2
ATTY. DEBORAH S. ACOSTA-CAJUSTIN
deemed a part of his or her gross estate.
Section 86. Computation of Net Estate. - For the purpose of the tax imposed in
this Chapter, the value of the net estate shall be determined:
(A) Deductions Allowed to the Estate of Citizen or a Resident. - In the
case of a citizen or resident of the Philippines, by deducting from the
value of the gross estate -
(1) Expenses, Losses, Indebtedness, and taxes. - Such
amounts -
(a) For actual funeral expenses or in an amount
equal to five percent (5%) of the gross estate,
whichever is lower, but in no case to exceed Two
hundred thousand pesos (P200,000);
(b) For judicial expenses of the testamentary or
intestate proceedings;
(c) For claims against the estate: Provided, That at
the time the indebtedness was incurred the debt
instrument was duly notarized and, if the loan was
contracted within three (3) years before the death
of the decedent, the administrator or executor shall
submit a statement showing the disposition of the
proceeds of the loan;
(d) For claims of the deceased against insolvent
persons where the value of decedent's interest
therein is included in the value of the gross estate;
and
(e) For unpaid mortgages upon, or any indebtedness
in respect to, property where the value of decedent's
interest therein, undiminished by such mortgage or
indebtedness, is included in the value of the gross
estate, but not including any income tax upon
income received after the death of the decedent, or
property taxes not accrued before his death, or any
estate tax. The deduction herein allowed in the case
of claims against the estate, unpaid mortgages or
any indebtedness shall, when founded upon a
promise or agreement, be limited to the extent that
they were contracted bona fide and for an adequate
and full consideration in money or money's worth.
There shall also be deducted losses incurred during
TAXATION II
the settlement of the estate arising from fires,
storms, shipwreck, or other casualties, or from
robbery, theft or embezzlement, when such losses
are not compensated for by insurance or otherwise,
and if at the time of the filing of the return such
losses have not been claimed as a deduction for the
income tax purposes in an income tax return, and
provided that such losses were incurred not later
than the last day for the payment of the estate tax as
prescribed in Subsection (A) of Section 91.
(2) Property Previously Taxed. - An amount equal to the
value specified below of any property forming a part of the
gross estate situated in the Philippines of any person who
died within five (5) years prior to the death of the decedent,
or transferred to the decedent by gift within five (5) years
prior to his death, 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 which can be identified as having been
acquired in exchange for property so received:
One hundred percent (100%) of the value, if the
prior decedent died within one (1) 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;
Eighty percent (80%) of the value, if the prior
decedent died more than one (1) year but not more
than two (2) 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;
Sixty percent (60%) of the value, if the prior
decedent died more than two (2) years but not more
than three (3) 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;
Forty percent (40%) of the value, if the prior
decedent died more than three (3) years but not
more than four (4) years prior to the death of the
decedent, or if the property was transferred to him
3
ATTY. DEBORAH S. ACOSTA-CAJUSTIN
by gift within the same period prior to his death;
Twenty percent (20%) of the value, if the prior
decedent died more than four (4) years but not
more than five (5) 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;
These deductions shall be allowed only where a
donor's tax or estate tax imposed under this Title
was finally determined and paid by or on behalf of
such donor, or the estate of such prior decedent, as
the case may be, and only in the amount finally
determined as the value of such property in
determining the value of the gift, or the gross estate
of such prior decedent, and only to the extent that
the value of such property is included in the
decedent's gross estate, and only if in determining
the value of the estate of the prior decedent, no
deduction was allowable under paragraph (2) in
respect of the property or properties given in
exchange therefor. Where a deduction was allowed
of any mortgage or other lien in determining the
donor's tax, or the estate tax of the prior decedent,
which was paid in whole or in part prior to the
decedent's death, then the deduction allowable
under said Subsection shall be reduced by the
amount so paid. Such deduction allowable shall be
reduced by an amount which bears the same ratio to
the amounts allowed as deductions under
paragraphs (1) and (3) of this Subsection as the
amount otherwise deductible under said paragraph
(2) bears to the value of the decedent's estate.
Where the property referred to consists of two or
more items, the aggregate value of such items shall
be used for the purpose of computing the deduction.
(3) Transfers for Public Use. - The amount of all the
bequests, legacies, devises or transfers to or for the use of
the Government of the Republic of the Philippines, or any
political subdivision thereof, for exclusively public purposes.
(4) The Family Home. - An amount equivalent to the current
fair market value of the decedent's family home: Provided,
TAXATION II
however, That if the said current fair market value exceeds
One million pesos (P1,000,000), the excess shall be subject
to estate tax. As a sine qua non condition for the exemption
or deduction, said family home must have been the
decedent's family home as certified by the barangay captain
of the locality.
(5) Standard Deduction. - An amount equivalent to One
million pesos (P1,000,000).
(6) Medical Expenses. - Medical Expenses incurred by the
decedent within one (1) year prior to his death which shall
be duly substantiated with receipts: Provided, That in no
case shall the deductible medical expenses exceed Five
Hundred Thousand Pesos (P500,000).
(7) Amount Received by Heirs Under Republic Act No. 4917.
- Any amount received by the heirs from the decedent -
employee as a consequence of the death of the decedent-
employee in accordance with Republic Act No. 4917:
Provided, That such amount is included in the gross estate of
the decedent.
(B) Deductions Allowed to Nonresident Estates. - In the case of a
nonresident not a citizen of the Philippines, by deducting from the
value of that part of his gross estate which at the time of his death is
situated in the Philippines:
(1) Expenses, Losses, Indebtedness and Taxes. - That
proportion of the deductions specified in paragraph (1) of
Subsection (A) of this Section which the value of such part
bears to the value of his entire gross estate wherever
situated;
(2) Property Previously Taxed. - An amount equal to the
value specified below of any property forming part of the
gross estate situated in the Philippines of any person who
died within five (5) years prior to the death of the decedent,
or transferred to the decedent by gift within five (5) years
prior to his death, 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 which can be identified as having been
acquired in exchange for property so received:
One hundred percent (100%) of the value if the
prior decedent died within one (1) year prior to the
4
ATTY. DEBORAH S. ACOSTA-CAJUSTIN
death of the decedent, or if the property was
transferred to him by gift, within the same period
prior to his death;
Eighty percent (80%) of the value, if the prior
decedent died more than one (1) year but not more
than two (2) 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;
Sixty percent (60%) of the value, if the prior
decedent died more than two (2) years but not more
than three (3) 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;
Forty percent (40%) of the value, if the prior
decedent died more than three (3) years but not
more than four (4) 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;
and
Twenty percent (20%) of the value, if the prior
decedent died more than four (4) years but not
more than five (5) 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.
These deductions shall be allowed only where a
donor's tax, or estate tax imposed under this Title is
finally determined and paid by or on behalf of such
donor, or the estate of such prior decedent, as the
case may be, and only in the amount finally
determined as the value of such property in
determining the value of the gift, or the gross estate
of such prior decedent, and only to the extent that
the value of such property is included in that part of
the decedent's gross estate which at the time of his
death is situated in the Philippines; and only if, in
determining the value of the net estate of the prior
decedent, no deduction is allowable under
paragraph (2) of Subsection (B) of this Section, in
respect of the property or properties given in
exchange therefore. Where a deduction was allowed
of any mortgage or other lien in determining the
TAXATION II
donor's tax, or the estate tax of the prior decedent,
which was paid in whole or in part prior to the
decedent's death, then the deduction allowable
under said paragraph shall be reduced by the
amount so paid. Such deduction allowable shall be
reduced by an amount which bears the same ratio to
the amounts allowed as deductions under
paragraphs (1) and (3) of this Subsection as the
amount otherwise deductible under paragraph (2)
bears to the value of that part of the decedent's
gross estate which at the time of his death is
situated in the Philippines. Where the property
referred to consists of two (2) or more items, the
aggregate value of such items shall be used for the
purpose of computing the deduction.
(3) Transfers for Public Use. - The amount of all bequests,
legacies, devises or transfers to or for the use of the
Government of the Republic of the Philippines or any
political subdivision thereof, for exclusively public purposes.
(C) Share in the Conjugal Property. - the net share of the surviving
spouse in the conjugal partnership property as diminished by the
obligations properly chargeable to such property shall, for the
purpose of this Section, be deducted from the net estate of the
decedent.
(D) Miscellaneous Provisions. - No deduction shall be allowed in the
case of a nonresident not a citizen of the Philippines, unless the
executor, administrator, or anyone of the heirs, as the case may be,
includes in the return required to be filed under Section 90 the value
at the time of his death of that part of the gross estate of the
nonresident not situated in the Philippines.
(E) Tax Credit for Estate Taxes paid to a Foreign Country. -
(1) In General. - The tax imposed by this Title shall be
credited with the amounts of any estate tax imposed by the
authority of a foreign country.
(2) Limitations on Credit. - The amount of the credit taken
under this Section shall be subject to each of the following
limitations:
(a) The amount of the credit in respect to the tax
paid to any country shall not exceed the same
5
ATTY. DEBORAH S. ACOSTA-CAJUSTIN
proportion of the tax against which such credit is
taken, which the decedent's net estate situated
within such country taxable under this Title bears to
his entir net estate; and
(b) The total amount of the credit shall not exceed
the same proportion of the tax against which such
credit is taken, which the decedent's net estate
situated outside the Philippines taxable under this
Title bears to his entire net estate.
Section 87. Exemption of Certain Acquisitions and Transmissions. - The
following shall not be taxed:
(A) The merger of usufruct in the owner of the naked title;
(B) The transmission or delivery of the inheritance or legacy by the
fiduciary heir or legatee to the fideicommissary;
(C) The transmission from the first heir, legatee or donee in favor of
another beneficiary, in accordance with the desire of the
predecessor; and
(D) All bequests, devises, legacies or transfers to social welfare,
cultural and charitable institutions, no part of the net income of
which insures to the benefit of any individual: Provided, however,
That not more than thirty percent (30%) of the said bequests,
devises, legacies or transfers shall be used by such institutions for
administration purposes.
Section 88. Determination of the Value of the Estate. -
(A) Usufruct. - To determine the value of the right of usufruct, use or
habitation, as well as that of annuity, there shall be taken into
account the probable life of the beneficiary in accordance with the
latest Basic Standard Mortality Table, to be approved by the
Secretary of Finance, upon recommendation of the Insurance
Commissioner.
(B) Properties. - The estate shall be appraised at its fair market value
as of the time of death. However, the appraised value of real property
as of the time of death shall be, whichever is higher of -
(1) The fair market value as determined by the
Commissioner, or
(2) The fair market value as shown in the schedule of values
fixed by the Provincial and City Assessors.
TAXATION II
Section 89. Notice of Death to be Filed. - In all cases of transfers subject to tax,
or where, though exempt from tax, the gross value of the estate exceeds
Twenty thousand pesos (P20,000), the executor, administrator or any of the
legal heirs, as the case may be, within two (2) months after the decedent's
death, or within a like period after qualifying as such executor or
administrator, shall give a written notice thereof to the Commissioner.
Section 90. Estate Tax Returns. -
(A) Requirements. - In all cases of transfers subject to the tax imposed
herein, or where, though exempt from tax, the gross value of the
estate exceeds Two hundred thousand pesos (P200,000), or
regardless of the gross value of the estate, where the said estate
consists of registered or registrable property such as real property,
motor vehicle, shares of stock or other similar property for which a
clearance from the Bureau of Internal Revenue is required as a
condition precedent for the transfer of ownership thereof in the
name of the transferee, the executor, or the administrator, or any of
the legal heirs, as the case may be, shall file a return under oath in
duplicate, setting forth:
(1) The value of the gross estate of the decedent at the time
of his death, or in case of a nonresident, not a citizen of the
Philippines, of that part of his gross estate situated in the
Philippines;
(2) The deductions allowed from gross estate in determining
the estate as defined in Section 86; and
(3) Such part of such information as may at the time be
ascertainable and such supplemental data as may be
necessary to establish the correct taxes.
Provided, however, That estate tax returns showing a gross
value exceeding Two million pesos (P2,000,000) shall be
supported with a statement duly certified to by a Certified
Public Accountant containing the following:
(a) Itemized assets of the decedent with their
corresponding gross value at the time of his death,
or in the case of a nonresident, not a citizen of the
Philippines, of that part of his gross estate situated
in the Philippines;
(b) Itemized deductions from gross estate allowed
in Section 86; and
(c) The amount of tax due whether paid or still due
6
ATTY. DEBORAH S. ACOSTA-CAJUSTIN
and outstanding.
(B) Time for filing. - For the purpose of determining the estate tax
provided for in Section 84 of this Code, the estate tax return required
under the preceding Subsection (A) shall be filed within six (6)
months from the decedent's death.
A certified copy of the schedule of partition and the order of the court
approving the same shall be furnished the Commissioner within
thirty (30) after the promulgation of such order.
(C) Extension of Time. - The Commissioner shall have authority to
grant, in meritorious cases, a reasonable extension not exceeding
thirty (30) days for filing the return.
(D) Place of Filing. - Except in cases where the Commissioner
otherwise permits, the return required under Subsection (A) shall be
filed with an authorized agent bank, or Revenue District Officer,
Collection Officer, or duly authorized Treasurer of the city or
municipality in which the decedent was domiciled at the time of his
death or if there be no legal residence in the Philippines, with the
Office of the Commissioner.
Section 91. Payment of Tax. -
(A) Time of Payment. - The estate tax imposed by Section 84 shall be
paid at the time the return is filed by the executor, administrator or
the heirs.
(B) Extension of Time. - When the Commissioner finds that the
payment on the due date of the estate tax or of any part thereof
would impose undue hardship upon the estate or any of the heirs, he
may extend the time for payment of such tax or any part thereof not
to exceed five (5) years, in case the estate is settled through the
courts, or two (2) years in case the estate is settled extrajudicially. In
such case, the amount in respect of which the extension is granted
shall be paid on or before the date of the expiration of the period of
the extension, and the running of the Statute of Limitations for
assessment as provided in Section 203 of this Code shall be
suspended for the period of any such extension.
Where the taxes are assessed by reason of negligence, intentional
disregard of rules and regulations, or fraud on the part of the
taxpayer, no extension will be granted by the Commissioner.
If an extension is granted, the Commissioner may require the
executor, or administrator, or beneficiary, as the case may be, to
furnish a bond in such amount, not exceeding double the amount of
TAXATION II
the tax and with such sureties as the Commissioner deems necessary,
conditioned upon the payment of the said tax in accordance with the
terms of the extension.
(C) Liability for Payment - The estate tax imposed by Section 84 shall
be paid by the executor or administrator before delivery to any
beneficiary of his distributive share of the estate. Such beneficiary
shall to the extent of his distributive share of the estate, be
subsidiarily liable for the payment of such portion of the estate tax as
his distributive share bears to the value of the total net estate.
For the purpose of this Chapter, the term 'executor' or 'administrator'
means the executor or administrator of the decedent, or if there is no
executor or administrator appointed, qualified, and acting within the
Philippines, then any person in actual or constructive possession of
any property of the decedent.
Section 92. Discharge of Executor or Administrator from Personal Liability. - If
the executor or administrator makes a written application to the
Commissioner for determination of the amount of the estate tax and
discharge from personal liability therefore, the Commissioner (as soon as
possible, and in any event within one (1) year after the making of such
application, or if the application is made before the return is filed, then within
one (1) year after the return is filed, but not after the expiration of the period
prescribed for the assessment of the tax in Section 203 shall not notify the
executor or administrator of the amount of the tax. The executor or
administrator, upon payment of the amount of which he is notified, shall be
discharged from personal liability for any deficiency in the tax thereafter
found to be due and shall be entitled to a receipt or writing showing such
discharge.
Section 93. Definition of Deficiency. - As used in this Chapter, the term
'deficiency' means:
(a) The amount by which the tax imposed by this Chapter exceeds the
amount shown as the tax by the executor, administrator or any of the
heirs upon his return; but the amounts so shown on the return shall
first be increased by the amounts previously assessed (or collected
without assessment) as a deficiency and decreased by the amount
previously abated, refunded or otherwise repaid in respect of such
tax; or
(b) If no amount is shown as the tax by the executor, administrator or
any of the heirs upon his return, or if no return is made by the
executor, administrator, or any heir, then the amount by which the tax
7
ATTY. DEBORAH S. ACOSTA-CAJUSTIN
exceeds the amounts previously assessed (or collected without
assessment) as a deficiency; but such amounts previously assessed
or collected without assessment shall first be decreased by the
amounts previously abated, refunded or otherwise repaid in respect
of such tax.
Section 94. Payment before Delivery by Executor or Administrator. - No judge
shall authorize the executor or judicial administrator to deliver a distributive
share to any party interested in the estate unless a certification from the
Commissioner that the estate tax has been paid is shown.
Section 95. Duties of Certain Officers and Debtors. - Registers of Deeds shall
not register in the Registry of Property any document transferring real
property or real rights therein or any chattel mortgage, by way of gifts inter
vivos or mortis causa, legacy or inheritance, unless a certification from the
Commissioner that the tax fixed in this Title and actually due thereon had
been paid is show, and they shall immediately notify the Commissioner,
Regional Director, Revenue District Officer, or Revenue Collection Officer or
Treasurer of the city or municipality where their offices are located, of the
non payment of the tax discovered by them. Any lawyer, notary public, or any
government officer who, by reason of his official duties, intervenes in the
preparation or acknowledgment of documents regarding partition or disposal
of donation intervivos or mortis causa, legacy or inheritance, shall have the
duty of furnishing the Commissioner, Regional Director, Revenue District
Officer or Revenue Collection Officer of the place where he may have his
principal office, with copies of such documents and any information
whatsoever which may facilitate the collection of the aforementioned tax.
Neither shall a debtor of the deceased pay his debts to the heirs, legatee,
executor or administrator of his creditor, unless the certification of the
Commissioner that the tax fixed in this Chapter had been paid is shown; but
he may pay the executor or judicial administrator without said certification if
the credit is included in the inventory of the estate of the deceased.
Section 96. Restitution of Tax Upon Satisfaction of Outstanding Obligations. - If
after the payment of the estate tax, new obligations of the decedent shall
appear, and the persons interested shall have satisfied them by order of the
court, they shall have a right to the restitution of the proportional part of the
tax paid.
Section 97. Payment of Tax Antecedent to the Transfer of Shares, Bonds or
Rights. - There shall not be transferred to any new owner in the books of any
corporation, sociedad anonima, partnership, business, or industry organized
or established in the Philippines any share, obligation, bond or right by way of
gift inter vivos or mortis causa, legacy or inheritance, unless a certification
TAXATION II ATTY. DEBORAH S. ACOSTA-CAJUSTIN
from the Commissioner that the taxes fixed in this Title and due thereon have Chapter exceeds the amount shown as the tax by the donor upon his return;
been paid is shown. but the amount so shown on the return shall first be increased by the amount
previously assessed (or Collected without assessment) as a deficiency, and
If a bank has knowledge of the death of a person, who maintained a bank
decreased by the amounts previously abated, refunded or otherwise repaid in
deposit account alone, or jointly with another, it shall not allow any
respect of such tax, or (b) if no amount is shown as the tax by the donor, then
withdrawal from the said deposit account, unless the Commissioner has
the amount by which the tax exceeds the amounts previously assessed, (or
certified that the taxes imposed thereon by this Title have been paid:
collected without assessment) as a deficiency, but such amounts previously
Provided, however, That the administrator of the estate or any one (1) of the
assessed, or collected without assessment, shall first be decreased by the
heirs of the decedent may, upon authorization by the Commissioner,
amount previously abated, refunded or otherwise repaid in respect of such
withdraw an amount not exceeding Twenty thousand pesos (P20,000)
tax.
without the said certification. For this purpose, all withdrawal slips shall
contain a statement to the effect that all of the joint depositors are still living
at the time of withdrawal by any one of the joint depositors and such
statement shall be under oath by the said depositors. RR 17-93, Estates Tax Regulation as amended by RR 2-2003, dated December
16, 2002

Section 104. Definitions. - For purposes of this Title, the terms 'gross estate' (see attached filed)
and 'gifts' include real and personal property, whether tangible or intangible,
or mixed, wherever situated: Provided, however, That where the decedent or
donor was a nonresident alien at the time of his death or donation, as the case
may be, his real and personal property so transferred but which are situated
outside the Philippines shall not be included as part of his 'gross estate' or
'gross gift': Provided, further, That franchise which must be exercised in the
Philippines; shares, obligations or bonds issued by any corporation or
sociedad anonima organized or constituted in the Philippines in accordance
with its laws; shares, obligations or bonds by any foreign corporation eighty-
five percent (85%) of the business of which is located in the Philippines;
shares, obligations or bonds issued by any foreign corporation if such shares,
obligations or bonds have acquired a business situs in the Philippines; shares
or rights in any partnership, business or industry established in the
Philippines, shall be considered as situated in the Philippines: Provided, still
further, 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 or the donor at
the time of the donation was a citizen and resident of a foreign country which
at the time of his death or donation did not impose a transfer tax of any
character, in respect of intangible personal property of citizens of the
Philippines not residing in that foreign country, or (b) if the laws of the
foreign country of which the decedent or donor was a citizen and resident at
the time of his death or donation allows a similar exemption from transfer or
death taxes of every character or description in respect of intangible personal
property owned by citizens of the Philippines not residing in that foreign
country.
The term 'deficiency' means: (a) the amount by which tax imposed by this

8
TAXATION II
CASES
1. Lorenzo v. Posadas, GR 43082, June 18, 1937
G.R. No. L-43082 June 18, 1937
PABLO LORENZO, as trustee of the estate of Thomas Hanley, deceased, vs.
JUAN POSADAS, JR., Collector of Internal Revenue
FACTS:
Thomas Hanley died, leaving a will and a considerable amount of real and
personal properties. Proceedings for the probate of his will and the
settlement and distribution of his estate were begun in the CFI of
Zamboanga. The will was admitted to probate.
The CFI considered it proper for the best interests of the estate to appoint a
trustee to administer the real properties which, under the will, were to pass
to nephew Matthew ten years after the two executors named in the will was
9
ATTY. DEBORAH S. ACOSTA-CAJUSTIN
appointed trustee. Moore acted as trustee until he resigned and the plaintiff
Lorenzo herein was appointed in his stead.
During the incumbency of the plaintiff as trustee, the defendant Collector of
Internal Revenue (Posadas) assessed against the estate an inheritance tax,
together with the penalties for deliquency in payment. Lorenzo paid said
amount under protest, notifying Posadas at the same time that unless the
amount was promptly refunded suit would be brought for its recovery.
Posadas overruled Lorenzo’s protest and refused to refund the said amount.
Plaintiff went to court. The CFI dismissed Lorenzo’s complaint and Posadas’
counterclaim. Both parties appealed to this court.
ISSUE:
(e) Has there been delinquency in the payment of the inheritance tax?
HELD:
The judgment of the lower court is accordingly modified, with costs against
the plaintiff in both instances
YES
The defendant maintains that it was the duty of the executor to pay the
inheritance tax before the delivery of the decedent’s property to the trustee.
Stated otherwise, the defendant contends that delivery to the trustee was
delivery to the cestui que trust, the beneficiary in this case, within the
meaning of the first paragraph of subsection (b) of section 1544 of the
Revised Administrative Code. This contention is well taken and is sustained.
A trustee is but an instrument or agent for the cestui que trust
The appointment of Moore as trustee was made by the trial court in
conformity with the wishes of the testator as expressed in his will. It is true
that the word “trust” is not mentioned or used in the will but the intention
to create one is clear. No particular or technical words are required to create
a testamentary trust. The words “trust” and “trustee”, though apt for the
purpose, are not necessary. In fact, the use of these two words is not
conclusive on the question that a trust is created. ” To constitute a valid
testamentary trust there must be a concurrence of three circumstances:
(1) Sufficient words to raise a trust;
(2) a definite subject;
(3) a certain or ascertain object; statutes in some jurisdictions expressly or
in effect so providing.”
There is no doubt that the testator intended to create a trust. He ordered in
his will that certain of his properties be kept together undisposed during a
TAXATION II
fixed period, for a stated purpose. The probate court certainly exercised
sound judgment in appointmening a trustee to carry into effect the
provisions of the will
As the existence of the trust was already proven, it results that the estate
which plaintiff represents has been delinquent in the payment of
inheritance tax and, therefore, liable for the payment of interest and
surcharge provided by law in such cases.
The delinquency in payment occurred on March 10, 1924, the date when
Moore became trustee. On that date trust estate vested in him. The interest
due should be computed from that date.
NOTES: Other issues:
(a) When does the inheritance tax accrue and when must it be satisfied?
The accrual of the inheritance tax is distinct from the obligation to pay the
same.
Acording to article 657 of the Civil Code, “the rights to the succession of a
person are transmitted from the moment of his death.” “In other words”,
said Arellano, C. J., “. . . the heirs succeed immediately to all of the property
of the deceased ancestor. The property belongs to the heirs at the moment
of the death of the ancestor as completely as if the ancestor had executed
and delivered to them a deed for the same before his death.”
Whatever may be the time when actual transmission of the inheritance
takes place, succession takes place in any event at the moment of the
decedent’s death. The time when the heirs legally succeed to the inheritance
may differ from the time when the heirs actually receive such inheritance. ”
Thomas Hanley having died on May 27, 1922, the inheritance tax accrued as
of the date.
From the fact, however, that Thomas Hanley died on May 27, 1922, it does
not follow that the obligation to pay the tax arose as of the date. The time for
the payment on inheritance tax is clearly fixed by section 1544 of the
Revised Administrative Code as amended by Act No. 3031, in relation to
section 1543 of the same Code. The two sections follow:
SEC. 1543. Exemption of certain acquisitions and transmissions. — The
following shall not be taxed:
(a) The merger of the usufruct in the owner of the naked title.
(b) The transmission or delivery of the inheritance or legacy by the
fiduciary heir or legatee to the trustees.
(c) The transmission from the first heir, legatee, or donee in favor of another
beneficiary, in accordance with the desire of the predecessor. xx
SEC. 1544. When tax to be paid. — The tax fixed in this article shall be paid:
(a) In the second and third cases of the next preceding section, before
entrance into possession of the property.
10
ATTY. DEBORAH S. ACOSTA-CAJUSTIN
(b) In other cases, within the six months subsequent to the death of the
predecessor; but if judicial testamentary or intestate proceedings shall be
instituted prior to the expiration of said period, the payment shall be made
by the executor or administrator before delivering to each beneficiary his
share.
The instant case does[not] fall under subsection (a), but under subsection
(b), of section 1544 above-quoted, as there is here no fiduciary heirs, first
heirs, legatee or donee. Under the subsection, the tax should have been paid
before the delivery of the properties in question to Moore as trustee.
(b) Should the inheritance tax be computed on the basis of the value of the
estate at the time of the testator’s death, or on its value ten years later?
If death is the generating source from which the power of the estate to
impose inheritance taxes takes its being and if, upon the death of the
decedent, succession takes place and the right of the estate to tax vests
instantly, the tax should be measured by the value of the estate as it stood at
the time of the decedent’s death, regardless of any subsequent contingency
value of any subsequent increase or decrease in value
(c) In determining the net value of the estate subject to tax, is it proper to
deduct the compensation due to trustees?
A trustee, no doubt, is entitled to receive a fair compensation for his
services. But from this it does not follow that the compensation due him
may lawfully be deducted in arriving at the net value of the estate subject to
tax. There is no statute in the Philippines which requires trustees’
commissions to be deducted in determining the net value of the estate
subject to inheritance tax
(d) What law governs the case at bar? Should the provisions of Act No. 3606
favorable to the tax-payer be given retroactive effect?
A statute should be considered as prospective in its operation, whether it
enacts, amends, or repeals an inheritance tax, unless the language of the
statute clearly demands or expresses that it shall have a retroactive
effect, . . . .” Act No. 3606 itself contains no provisions indicating legislative
intent to give it retroactive effect. No such effect can be given the statute by
this court.
Facts:
On 27 May 1922, Thomas Hanley died in Zamboanga, leaving a will and
considerable amount of real and personal properties. Hanley’s will provides
the following: his money will be given to his nephew, Matthew Hanley, as
TAXATION II
well as the real estate owned by him. It further provided that the property
will only be given ten years after Thomas Hanley’s death. Thus, in the
testamentary proceedings, the Court of First Instance of Zamboanga
appointed P.J.M. Moore as trustee of the estate. Moore took oath of office on
March 10, 1924, and resigned on Feb. 29, 1932. Pablo Lorenzo was
appointed in his stead. Juan Posadas, Collector of Internal Revenue, assessed
inheritance tax against the estate amounting to P2,057.74 which includes
penalty and surcharge. He filed a motion in the testamentary proceedings so
that Lorenzo will be ordered to pay the amount due. Lorenzo paid the
amount in protest after CFI granted Posadas’ motion. He claimed that the
inheritance tax should have been assessed after 10 years. He asked for a
refund but Posadas declined to do so. The latter counterclaimed for the
additional amount of P1,191.27 which represents interest due on the tax
and which was not included in the original assessment. However, CFI
dismissed this counterclaim. It also denied Lorenzo’s claim for refund
against Posadas. Hence, both appealed.
Issue: Whether the estate was delinquent in paying the inheritance tax and
therefore liable for the P1,191.27 that Posadas is asking for?
Held: Yes. It was delinquent because according to Sec. 1544 (b) of the
Revised Administrative Code, payment of the inheritance tax shall be made
before delivering to each beneficiary his share. This payment should have
been made before March 10, 1924, the date when P.J.M. Moore formally
assumed the function of trustee.
Although the property was only to be given after 10 years from the death of
Hanley, the court considered that delivery to the trustee is delivery to cestui
que trust, the beneficiary within the meaning of Sec. 1544 (b).
Even though there was no express mention of the word “trust” in the will,
the court of first instance was correct in appointing a trustee because no
particular or technical words are required to create a testamentary trust
(69 C.J.,p. 711). The requisites of a valid testamentary trust are: 1) sufficient
words to raise a trust, 2) a definite subject, 3) a certain or ascertained
object. There is no doubt that Hanley intended to create a trust since he
ordered in his will that certain of his properties be kept together
undisposed during a fixed period or for a stated purpose.
ATTY. DEBORAH S. ACOSTA-CAJUSTIN
On March 14, 1976, Warren Taylor Graham, an American national, formerly
resident of the Philippines, died in Oregon, USA. As certain shares of stock
are left in the Philippines, his son Ward Graham filed an estate tax return.
[Meanwhile, W. Graham designated executor, appointed Ildefonso Elegado
as his attorney-in-fact for the allowance of the will in the Philippines.]
On the basis of such return, the Commission of Internal Revenue (CIR)
assessed the descendant’s estate in the amount of P96,509.35. The
assessment was protested by the law firm of Bump, Yang, and Walker on
behalf of the estate which was denied by the CIR.
Elegado as an ancillary administrator filed a second estate tax return. The
Commissioner imposed an assessment on the estate in the amount of
P72,948.87 based on the SEC return, which was protested by the Agrava
Law Office on behalf of the estate. While the protest was pending, the
petitioner filed a motion for the allowance of the basic estate tax of
P96,509.35. He said that this liability had not yet been paid although the
assessment had long become final and executory. Petitioner was denied
contending that the first assessment is not binding on him because it was
based on a return filed for by lawyers.
ISSUE: Whether or not the first assessment is binding being filed for by
lawyers.
HELD: The Supreme Court held that Elegado’s contention is flimsy.
Elegado cannot be serious when he argues that the first assessment was
invalid because the foreign lawyers who filed the return on which it was
based were not familiar with our tax laws and procedure. If our own
lawyers and taxpayers cannot claim similar preferences, it follows that
foreigners cannot be any less bound by laws in our country.

2. Elegado v. CTA, GR L-68385, May 12, 1989

G.R. No. L-68385 May 12, 1989

ILDEFONSO O. ELEGADO, as Ancillary Administrator of the Testate Estate of
the late WARREN TAYLOR GRAHAM, petitioner
vs.
CTA and COMMISSIONER OF INTERNAL REVENUE

11
TAXATION II
3. Dizon v. CTA, GR140944, April 30, 2008
GR 140944 April 30, 2008
RAFAEL ARSENIO S. DIZON, in his capacity as the Judicial Administrator of
the Estate of the deceased JOSE P. FERNANDEZ, VS COURT OF TAX APPEALS
and COMMISSIONER OF INTERNAL REVENUE
FACTS:
On November 7, 1987, Jose P. Fernandez (Jose) died. Thereafter, a petition
for the probate of his will was filed with Branch 51 of the Regional Trial
Court (RTC) of Manila (probate court). The probate court then appointed
retired Supreme Court Justice Arsenio P. Dizon (Justice Dizon) and
petitioner, Atty. Rafael Arsenio P. Dizon (petitioner) as Special and Assistant
Special Administrator, respectively, of the Estate of Jose (Estate). Petitioner
alleged that several requests for extension of the period to file the required
estate tax return were granted by the BIR since the assets of the estate, as
well as the claims against it, had yet to be collated, determined and
identified.
ISSUES:
1. Whether or not the CTA and the CA gravely erred in allowing the
admission of the pieces of evidence which were not formally offered by the
BIR; and
2. Whether the actual claims of the aforementioned creditors may be fully
12
ATTY. DEBORAH S. ACOSTA-CAJUSTIN
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 Or Whether or not the CA erred
in affirming the CTA in the latter's determination of the deficiency estate tax
imposed against the Estate.
RULING:
1. Yes. While the CTA is not governed strictly by technical rules of evidence,
as rules of procedure are not ends in themselves and are primarily intended
as tools in the administration of justice, the presentation of the BIR's
evidence is not a mere procedural technicality which may be disregarded
considering that it is the only means by which the CTA may ascertain and
verify the truth of BIR's claims against the Estate. The BIR's failure to
formally offer these pieces of evidence, despite CTA's directives, is fatal to its
cause
2. Yes. The claims existing at the time of death are significant to, and should
be made the basis of, the determination of allowable deductions. 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. This
is called the date-of-death valuation rule.
4. Aznar v. CTA, GR L-20569, August 23, 1974
G.R. No. L-20569 August 23, 1974
JOSE B. AZNAR, in his capacity as Administrator of the Estate of the
deceased, Matias H. Aznar, petitioner, vs.
CTA and COLLECTOR OF INTERNAL REVENUE, respondents
Facts:
Petitioner, as administrator of the estate of the deceased, Matias H. Aznar,
seeks a review and nullification of the decision of the Court of Tax Appeals
ordering the petitioner to pay the government the sum of P227,691.77
representing deficiency income taxes for the years 1946 to 1951. An
investigation by the Commissioner of Internal Revenue (CIR) ascertained
the assets and liabilities of the taxpayer and it was discovered that from
1946 to 1951, his net worth had increased every year, which increases in
net worth was very much more than the income reported during said years.
The findings clearly indicated that the taxpayer did not declare correctly the
income reported in his income tax returns for the aforesaid years. Petitioner
avers that according to the NIRC, the right of the CIR to assess deficiency
income taxes of the late Aznar for the years 1946, 1947, and 1948 had
already prescribed at the time the assessment was made on November 28,
1952; there being a five year limitation upon assessment and collection
TAXATION II
from the filing of the returns. Meanwhile, respondents believe that the
prescription period in the case at bar that is applicable is under Sec. 332 of
the NIRC which provides that: "(a) In the case of a false or fraudulent return
with intent to evade tax or of a failure to file a return, the tax may be
assessed, or a proceeding in court for the collection of such tax may be
begun without assessment, at any time within ten years after the discovery
of the falsity, fraud or omission". Petitioner argues said provision does not
apply because the taxpayer did not file false and fraudulent returns with
intent to evade tax.
Issue:
Whether or not the deceased Aznar filed false or fraudulent income tax
returns and subsequently, whether the action has not prescribed.
Held:
The petition is without merit.
The respondent CTA concluded that the very "substantial under
declarations of income for six consecutive years eloquently demonstrate the
falsity or fraudulence of the income tax returns with an intent to evade the
payment of tax." The ordinary period of prescription of 5 years within which
to assess tax liabilities under Sec. 331 of the NIRC should be applicable to
normal circumstances, but whenever the government is placed at a
disadvantage so as to prevent its lawful agents from proper assessment of
tax liabilities due to false returns, fraudulent return intended to evade
payment of tax, or failure to file returns, the period of ten years from the
time of the discovery of the falsity, fraud or omission even seems to be
inadequate. There being undoubtedly false tax returns in this case, We
affirm the conclusion of the respondent Court of Tax Appeals that Sec. 332
(a) of the NIRC should apply and that the period of ten years within which to
assess petitioner's tax liability had not expired at the time said assessment
was made.
mtycong@accralaw.com
Copyright 2014. ACCRALAW. All Rights Reserved.
What constitutes “falsity of returns”?
In the landmark case of Aznar vs. Court of Tax Appeals, the Supreme Court
defined a false return as a deviation from the truth or fact, whether
intentional or not. There being substantial under-declaration of income
ranging from 170% to 4,370% of the reported income for six years, Aznar
was found to have filed false returns.
13
ATTY. DEBORAH S. ACOSTA-CAJUSTIN
The definition of false returns becomes vital and relevant in determining the
application of the 10-year prescriptive period to assess under Section 222 of
the Tax Code, and the 50% surcharge under Section 248 of the same law.
In general, the Commissioner of Internal Revenue is given three years to
assess deficiency taxes. However, when the assessment involves false
returns, the assessment period is extended to 10 years from its discovery.
Also, the normal surcharge imposed under the Tax Code is 25%. The higher
rate of 50% is applied only when there is willful neglect to file returns or
when false or fraudulent returns are filed. Clearly, the filing of false returns
is heavily penalized under the law.
Jurisprudence is not replete with cases concerning falsity of returns. Other
than the Aznar case, the issue of false returns was only discussed by the
Supreme Court in Samar-I Electric Cooperative vs Commissioner of Internal
Revenue. Here, there was substantial under-declaration of withholding tax
on compensation for three years, which was considered by the Supreme
Court to constitute falsity in returns.
With the factual milieu of these cases and given the grave penalties imposed
by law, one would think that a return is false only when the deviation is
highly inordinate or when the return falsified pertains to several years.
The Court of Tax Appeals (CTA), however, has differing views. In the most
recent case of Next Mobile, Inc. vs. Commissioner of Internal Revenue, the
CTA, applying the Aznar ruling, interpreted that any deviation from the
truth, even a 5% under-declaration of the reported gross revenues, already
constitutes a false return and warrants the application of the 10-year
prescriptive period to assess.
However, in Commissioner of Internal Revenue vs. Ayala Hotels, Inc., the
CTA ruled against the sweeping application of the Aznar ruling. The CTA
reasoned that otherwise, any mistake, however slight in a return filed by a
taxpayer in good faith, would justify the application of the 10-year
prescriptive period for assessment. The CTA held that only false returns
which are filed by a taxpayer with intent to evade tax should warrant an
application of the 10-year prescriptive period.
Also, in San Miguel Corporation vs. Commissioner of Internal Revenue, the
CTA acknowledged that there is nothing in the Aznar case which establishes
TAXATION II
a hard and fast rule that every deviation from the truth necessarily brings a
particular return under the coverage of Section 222.
Thus, there appears to be no concrete and consistent rule as to what
constitutes false returns. A strict interpretation of the definition in the
Aznar case would make a mere deviation from the truth, such as a P1
difference, a “false return.” If that were the case, the three-year prescriptive
period will be rendered nugatory, as every deviation from the truth, which is
always present in a deficiency tax assessment, will result in a falsity in the
return. Effectively, the exception under Section 222 of the Tax Code becomes
the general rule, and the general rule of three years the exception. This
interpretation clearly runs counter to what Congress intended when these
provisions were drafted.
Section 248 (b) of the Tax Code even provides that substantial under-
declaration of taxable sales, receipts or income is required to constitute a
prima facie evidence of false returns, wherein under-declared receipts must
be in an amount exceeding 30% of the receipts declared per return to
constitute substantial under-declaration.
Moreover, the issue of whether a design to mislead or deceive on the part of
the taxpayer, or at least culpable negligence, comes to fore in interpreting
what renders a return “false.”
In Section 222 of the Tax Code, the phrase “with intent to evade tax”
qualifies both the “false” and “fraudulent” as it is grouped under one
category.
As pronounced by the CTA in the Ayala Hotels case, following the rules of
statutory construction as well as the rules on grammatical construction, the
qualifying words “with intent to evade tax” should refer to both the words
“false” and “fraudulent” since these words are not separated by a comma. If
it was the intent of the lawmakers to qualify only the word “fraudulent,”
then this should have been treated separately or, at the very least, the words
“false” and “fraudulent” should have been separated by a comma to show
separate treatment of the two.
It appears, therefore, that applying the rules of statutory construction
contradicts the definition of false returns laid by the Supreme Court in the Aznar
case, wherein intent is not relevant to constitute false returns. However, since
the latest case of Samar-I Electric adopts the same definition held in Aznar, the
question as to the conclusiveness of the meaning of false returns still stays.
14
ATTY. DEBORAH S. ACOSTA-CAJUSTIN
When the law has not specified and the Supreme Court has not extensively
discussed or clarified the parameters of the meaning of false returns, more than
ever, the taxpayer should ensure that each and every item stated in a return is
correct. Any discrepancy or deviation from the truth may already render a
return false and subject the taxpayer to the heavy penalties provided by law.
To prevent inconsistent interpretation, which may open the floodgates of
assessments issued beyond the normal three-year period and unduly prejudice
the taxpayer, Congress should revise the law and clearly define what constitutes
false returns.
5. San Agustin v. CIR, GR 138485, September 10, 2011
G.R. No. 138485. September 10, 2001
DR . FELISA L. VDA. DE SAN AGUSTIN, in substitution of JOSE Y. FERIA, in his
capacity as Executor of the Estate of JOSE SAN AGUSTIN, petitioner, vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.
Taxation; Actions; Tax Refunds; To hold that the taxpayer has lost the right
to appeal from the ruling on the disputed assessment but must prosecute
his appeal under Section 306 of the Tax Code, which requires a taxpayer to file a claim for
refund of the taxes paid as a condition precedent to his right to appeal,
would in effect require of him to go through a useless and needless ceremony that would
only delay the disposition of the case—the law should not be interpreted as
to result in absurdities.—The case has a striking resemblance to the controversy in
Roman Catholic Archbishop of Cebu vs. Collector of Internal Revenue. The petitioner in that
case paid under protest the sum of P5,201.52 by way of income tax, surcharge and interest
and, forthwith, filed a petition for review before the Court of Tax Appeals. Then respondent
Collector (now Commissioner) of Internal Revenue set up several defenses, one of which was
that petitioner had failed to first file a written claim for refund, pursuant to Section 306 of the
Tax Code, of the amounts paid. Convinced that the lack of a written claim for refund was fatal
to petitioner’s recourse to it, the Court of Tax Appeal
Facts:
“Atty. Jose San died on June 27, 1990 leaving his wife Dra. Felisa L. San
Agustin as sole heir. He left a holographic will executed on April 21, 1980
giving all his estate to his widow, and naming retired Justice Jose Y. Feria as
Executor thereof. On September 1990, an estate tax return reporting an
estate tax due of P1,676,432.00 was filed on behalf of the estate, with a
request for an extension of two years for the payment of the tax, inasmuch
as the decedent’s widow (did) not personally have sufficient funds, and that
the payment (would) have to come from the estate. BIR Deputy
Commissioner Victor A. Deoferio, Jr., granted the heirs an extension of only
six (6) months, subject to the imposition of penalties and interests under
TAXATION II
Sections 248 and 249 of the National Internal Revenue Code, as amended. In
the probate proceedings, the RTC allowed the will and appointed Jose Feria
as Executor of the estate. On December 5, 1990, the executor submitted to
the probate court an inventory of the estate with a motion for authority to
withdraw funds for the payment of the estate tax. Such authority was
granted by the probate court on March 5, 1991. Thereafter, the executor
paid the estate tax in the amount of P1,676,432 as reported in the Tax
Return filed with the BIR. This was well within the six (6) months extension
period granted by the BIR. On September 23, 1991, the widow of the
deceased, Felisa L. San Agustin, received a Pre-Assessment Notice from the
BIR, dated August 29, 1991, showing a deficiency estate tax of P538,509.50,
which, including surcharge, interest and penalties, amounted to
P976,540.00. On October 1, 1991, within the ten-day period given in the
pre-assessment notice, the executor filed a letter with the petitioner
Commissioner expressing readiness to pay the basic deficiency estate tax of
P538,509.50 as soon as the Regional Trial Court approves withdrawal
thereof, but, requesting that the surcharge, interest, and other penalties,
amounting to P438,040.38 be waived, considering that the assessed
deficiency arose only on account of the difference in zonal valuation used by
the Estate and the BIR, and that the estate tax due per return of
P1,676,432.00 was already paid in due time within the extension period.
“In a letter, dated October 31, 1991, the executor requested the
Commissioner a reconsideration of the assessment of P976,549.00 and
waiver of the surcharge, interest, etc. “On December 18, 1991, the
Commissioner accepted payment of the basic deficiency tax in the amount
of P538,509.50. “The request for reconsideration was not acted upon until
January 21, 1993, when the executor received a letter, dated September 21,
1992, signed by the Commissioner, stating that there is no legal justification
for the waiver of the interests, surcharge and compromise penalty in this
case, and requiring full payment of P438,040.38 representing such charges
within ten (10) days from receipt thereof. In view thereof, the respondent
estate paid the amount of P438,040.38 under protest on January 25, 1993.
On February 18, 1993, a Petition for Review was filed by the executor with
the CTA with the prayer that the Commissioner’s letter/decision, dated
September 21, 1992 be reversed and that a refund of the amount of
P438,040.38 be ordered. The Commissioner opposed the said petition,
alleging that the CTA’s jurisdiction was not properly invoked inasmuch as no
claim for a tax refund of the deficiency tax collected was filed with the
Bureau of Internal Revenue before the petition was filed, in violation of
Sections 204 and 230 of the National Internal Revenue Code.
6. CIR v. Reyes, GR 159694, January 27, 2006
15
ATTY. DEBORAH S. ACOSTA-CAJUSTIN
G.R. No. 159694 January 27, 2006
COMMISSIONER OF INTERNAL REVENUE, Petitioner,
vs.
AZUCENA T. REYES, Respondent.
x -- -- -- -- -- -- -- -- -- -- -- -- -- x
G.R. No. 163581 January 27, 2006
AZUCENA T. REYES, Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
[G.R. No. 120880. June 5, 1997]
In 1993, Maria Tancino died leaving behind an estate worth P32 million. In
1997, a tax audit was conducted on the estate. Meanwhile, the National
Internal Revenue Code (NIRC) of 1997 was passed. Eventually in 1998, the
estate was issued a final assessment notice (FAN) demanding the estate to
pay P14.9 million in taxes inclusive of surcharge and interest; the estate’s
liability was based on Section 229 of the [old] Tax Code. Azucena Reyes, one
of the heirs, protested the FAN. The Commissioner of Internal Revenue (CIR)
nevertheless issued a warrant of distraint and/or levy. Reyes again
protested the warrant but in March 1999, she offered a compromise and
was willing to pay P1 million in taxes. Her offer was denied. She continued
to work on another compromise but was eventually denied. The case
reached the Court of Tax Appeals where Reyes was also denied. In the Court
of Appeals, Reyes received a favorable judgment.
ISSUE: Whether or not the formal assessment notice is valid.
HELD: No. The NIRC of 1997 was already in effect when the FAN was issued.
Under Section 228 of the NIRC, taxpayers shall be informed in writing of the
law and the facts on which the assessment is made: otherwise, the
assessment shall be void. In the case at bar, the FAN merely stated the
amount of liability to be shouldered by the estate and the law upon which
such liability is based. However, the estate was not informed in writing of
the facts on which the assessment of estate taxes had been made. The estate
was merely informed of the findings of the CIR. Section 228 of the NIRC
being remedial in nature can be applied retroactively even though the tax
investigation was conducted prior to the law’s passage. Consequently, the
invalid FAN cannot be a basis of a compromise, any proceeding emanating
from the invalid FAN is void including the issuance of the warrant of
distraint and/or levy.
7.
8. Marcos v. CA, GR 120880, June 5, 1997
TAXATION II
GR 120880 June 5, 1997
FERDINAND R. MARCOS II, petitioner, vs. COURT OF APPEALS, THE
COMMISSIONER OF THE BUREAU OF INTERNAL REVENUE and HERMINIA
D. DE GUZMAN, respondents.
Facts:
following the death of former Pres. Marcos in 1989, a Special Tax Audit
Team was created on june 27, 1990 to conduct investigations and
examination of tax liabilities of the late president, his family, associates and
cronies. The investigation disclosed that the Marcoses failed to file a written
of death of the decedent, estate tax return and income tax returns for the
years 1982 to 1986, all in violation of the Tax Code. Criminal charges were
filed against Mrs. Marcos for the violation of Secs. 82, 83 and 84, NIRC.
The commissioner of Internal Revenue thereby caused the preparation of
the estate tax return for the late president, the income returns of the Marcos
spouses for the 1985 and 1986, and the income tax returns of the petitioner
Marcos II for the 1982 10 1985. on July 26,1991, the BIR issued deficiency
estate tax assessment and the corresponding deficiency income tax
assessments. Copies of said deficiency estate and income tax assessments
were served personally and constructively on august 26.1991 and
September 12, 1991 upon Mrs. Marcos at her last known address through
her caretaker. Likewise, copies of the deficiency income tax assessments
against petitioner Marcos II were personally and constructively served at
his last known address. Formal assessment notices were served upon Mrs.
Marcos c/o petitioner at his office in the house of representatives on Oct. 20,
1992, as well as a notice of tax payer to attend a conference furnished
through her counsel.
The deficiency tax assessments were not administratively protested by the
Marcoses w/ in 30 days from service thereof. subsequently., a commissioner
issued a total of 30 notices to levy on real property against certain parcels of
land and other real property owned by the Marcoses, pursuant to Secs. 205
and 213, NIRC. In response to a letter dated March 12, 1993 of the marcoses
new counsel, copies of the afore said notices were serve on April 7, 1993
and June 10.1993 upon the Marcoses on their counsel of record.
Ferdinand R. Marcos II assailed the decision of the Court of Appeals
declaring the deficiency income tax assessments and estate tax assessments
upon the estate and properties of his late father despite the pendency of the
probate proceedings of the will of the late President. On the other hand, the
BIR argued that the State’s authority to collect internal revenue taxes is
paramount.
16
ATTY. DEBORAH S. ACOSTA-CAJUSTIN
Petitioner further argues that "the numerous pending court cases
questioning the late president's ownership or interests in several properties
(both real and personal) make the total value of his estate, and the
consequent estate tax due, incapable of exact pecuniary determination at
this time. Thus, respondents' assessment of the estate tax and their
issuance of the Notices of Levy and sale are premature and oppressive." He
points out the pendency of Sandiganbayan Civil Case Nos. 0001-0034 and
0141, which were filed by the government to question the ownership and
interests of the late President in real and personal properties located within
and outside the Philippines. Petitioner, however, omits to allege whether
the properties levied upon by the BIR in the collection of estate taxes upon
the decedent's estate were among those involved in the said cases pending
in the Sandiganbayan. Indeed, the court is at a loss as to how these cases
are relevant to the matter at issue. The mere fact that the decedent has
pending cases involving ill-gotten wealth does not affect the enforcement of
tax assessments over the properties indubitably included in his estate.
Issue:
Is the contention of Marcos correct?
Held:
No. The approval of the court, sitting in probate or as a settlement tribunal
over the deceased’s estate, is not a mandatory requirement in the collection
of estate taxes.
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.
The enforcement of tax laws and the collection of taxes are of paramount
importance for the sustenance of government. Taxes are the lifeblood of
government and should be collected without unnecessary hindrance.
However, such collection should be made in accordance with law as any
arbitrariness will negate the existence of government itself.
It is not the Department of Justice which is the government agency tasked to
determine the amount of taxes due upon the subject estate, but the Bureau
of Internal Revenue whose determinations and assessments are presumed
correct and made in good faith. The taxpayer has the duty of proving
otherwise. In the absence of proof of any irregularities in the performance
of official duties, an assessment will not be disturbed. Even an assessment
TAXATION II
based on estimates is prima facie valid and lawful where it does not appear
to have been arrived at arbitrarily or capriciously. The burden of proof is
upon the complaining party to show clearly that the assessment is
erroneous. Failure to present proof of error in the assessment will justify
the judicial affirmance of said assessment. In this instance, petitioner has
not pointed out one single provision in the Memorandum of the Special
Audit Team which gave rise to the questioned assessment, which bears a
trace of falsity. Indeed, the petitioner's attack on the assessment bears
mainly on the alleged improbable and unconscionable amount of the taxes
charged. But mere rhetoric cannot supply the basis for the charge of
impropriety of the assessments made.
9. PNB v. Santos, GR 208293, December 10, 2014
G.R. No. 208293, December 10, 2014
PHILIPPINE NATIONAL BANK, PETITIONER, VS. CARMELITA S. SANTOS, REYME
L. SANTOS, ANGEL L. SANTOS, NONENG S. DIANCO, ET AL., RESPONDENTS.
Respondents, heirs of Angel C. Santos, who died on March 21, 1991, discovered
that their father had a premium savings account (P1,759,082.634), and a time
deposit (P1,000,000.00) with the Philippine National Bank Sta. Elena,-Marikina
City branch. They tried to withdraw the deposits but were required to submit
the necessary documents. It was only after two years that they were able to
complete the required documents, but were shocked to discover that the money
was released to a certain Bernardito Manimbo, who submitted the following
documents: (a) an affidavit of self-adjudication purportedly executed by one of
the respondents, Reyme L. Santos; (b) a certificate of time deposit dated
December 14, 1989 amounting to P1,000,000.00; and (c) the death certificate of
Angel C. Santos, among others, and a special power of attorney purportedly
executed by Reyme L. Santos in favor of Manimbo and a certain Angel P. Santos
for purposes of withdrawing and receiving the proceeds of the certificate of time
deposit. Thus, the respondents filed a complaint for sum of money against PNB,
Lina Aguilar, and a certain John Doe, to compel them to pay the premium deposit
amount; the certificate of time deposit, and moral and exemplary damages. In
their answer, PNB denied liability, maintaing that Santos only had one deposit
with the bank, a time deposit that was converted into a premium savings
account upon maturity; that they did not know of Angel’s death in 1991; and
Manimbo was able to submit documents which appeared to be regular. They
also filed third-party complaints against Manimbo, Angel Santos and Capital
Insurance and Surety Co; Angel denied knowing about the SPA; Capital
Insurance on the other hand denied liability for PNB’s negligence, as its
17
ATTY. DEBORAH S. ACOSTA-CAJUSTIN
undertaking was only to persons who were unduly deprived of their
participation in the estate.
The RTC after trial held PNM and Aguilar jointly and severally liable; it ruled
that Santos only had one account with PNB, a time deposit which
was converted into a premium savings account. Further, it found
PNB and Aguilar negligent in releasing the proceeds of the deposit,
and its failure to notify the depositor about the maturity of the time
deposit and its conversion into a savings deposit. It also failed to
require the production of birth certificates to prove the claimant
relationship to the depositor, and its reliance on the affidavit of self-
adjudication when several claimants had already approached them
beforehand. Both PNB and Aguilar appealed to the Court of Appeals,
which also affirmed the decision of the RTC. PNB was negligent
when it did not require all the documents from Manimbo,
particularly the BIR certification that estate taxes had been paid. On
the other hand, Aguilar cannot point her finger at the Legal
Department of the PNB to whom she should have provided all the
necessary documents as Branch Manager. Dissatisfied with the CA
ruling, both PNB and Aguilar appealed to the Supreme Court.
The Issue:
Whether or not PNB and Aguilar were negligent is releasing the proceeds of the
savings deposit to a person other than the heirs of the depositor
The Ruling:
We rule for the respondents.
The trial court and the Court of Appeals correctly found that petitioners PNB
and Aguilar were negligent in handling the deposit of Angel C. Santos.
The contractual relationship between banks and their depositors is governed by
the Civil Code provisions on simple loan.1 Once a person makes a deposit of his
or her money to the bank, he or she is considered to have lent the bank that
money.2 The bank becomes his or her debtor, and he or she becomes the creditor
of the bank, which is obligated to pay him or her on demand.3
The default standard of diligence in the performance of obligations is “diligence
of a good father of a family.” Thus, the Civil Code provides:
ART. 1163. Every person obliged to give something is also obliged to take care of it
with the proper diligence of a good father of a family, unless the law or the
stipulation of the parties requires another standard of care.
ART. 1173. The fault or negligence of the obligor consists in the omission of that
diligence which is required by the nature of the obligation and corresponds with
TAXATION II
the circumstances of the persons, of the time and of the place. When negligence
shows bad faith, the provisions of articles 1171 and 2201, paragraph 2, shall
apply.
If the law or contract does not state the diligence which is to be observed in the
performance, that which is expected of a good father of a family shall be required.
(Emphasis supplied)
“Diligence of a good father of a family” is the standard of diligence expected of,
among others, usufructuaries,4 passengers of common carriers,5 agents,6
depositaries,7 pledgees,8 officious managers,9 and persons deemed by law as
responsible for the acts of others.10 “The diligence of a good father of a family
requires only that diligence which an ordinary prudent man would exercise with
regard to his own property.”11
Other industries, because of their nature, are bound by law to observe higher
standards of diligence. Common carriers, for example, must observe
“extraordinary diligence in the vigilance over the goods and for the safety of
[their] passengers”12 because it is considered a business affected with public
interest. “Extraordinary diligence” with respect to passenger safety is further
qualified as “carrying the passengers safely as far as human care and foresight
can provide, using the utmost diligence of very cautious persons, with a due
regard for all the circumstances.”13
Similar to common carriers, banking is a business that is impressed with public
interest. It affects economies and plays a significant role in businesses and
commerce.14 The public reposes its faith and confidence upon banks, such that
“even the humble wage-earner has not hesitated to entrust his life’s savings to
the bank of his choice, knowing that they will be safe in its custody and will even
earn some interest for him.”15 This is why we have recognized the fiduciary
nature of the banks’ functions, and attached a special standard of diligence for
the exercise of their functions.
18
ATTY. DEBORAH S. ACOSTA-CAJUSTIN
In Simex International (Manila), Inc. v. Court of Appeals,16 this court described
the nature of banks’ functions and the attitude expected of banks in
handling their depositors’ accounts, thus:
In every case, the depositor expects the bank to treat his account with the
utmost fidelity, whether such account consists only of a few hundred
pesos or of millions. . . .
The point is that as a business affected with public interest and because of the
nature of its functions, the bank is under obligation to treat the
accounts of its depositors with meticulous care, always having in
mind the fiduciary nature of their relationship.17 (Emphasis supplied)
The fiduciary nature of banking is affirmed in Republic Act No. 8791 or The
General Banking Law, thus:
SEC. 2. Declaration of Policy. — The State recognizes the vital role of banks in
providing an environment conducive to the sustained development
of the national economy and the fiduciary nature of banking that
requires high standards of integrity and performance. In furtherance
thereof, the State shall promote and maintain a stable and efficient
banking and financial system that is globally competitive, dynamic
and responsive to the demands of a developing economy. (Emphasis
supplied)
In The Consolidated Bank and Trust Corporation v. Court of Appeals,18 this court
explained the meaning of fiduciary relationship and the standard of
diligence assumed by banks:
This fiduciary relationship means that the bank’s obligation to observe “high
standards of integrity and performance” is deemed written into every
deposit agreement between a bank and its depositor. The fiduciary
nature of banking requires banks to assume a degree of diligence
higher than that of a good father of a family. Article 1172 of the Civil
Code states that the degree of diligence required of an obligor is that
prescribed by law or contract, and absent such stipulation then the
diligence of a good father of a family. 19 (Emphasis supplied, citation
omitted)
Petitioners PNB and Aguilar’s treatment of Angel C. Santos’ account is
inconsistent with the high standard of diligence required of banks.
They accepted Manimbo’s representations despite knowledge of the
existence of circumstances that should have raised doubts on such
representations. As a result, Angel C. Santos’ deposit was given to a
person stranger to him.
TAXATION II
Petitioner PNB pointed out that since petitioner Aguilar assumed office as PNB-
Sta. Elena-Marikina City Branch Manager only five (5) years from
Angel C. Santos’ death, she was not in the position to know that
respondents were the heirs of Angel C. Santos. 20 She could not have
accepted the unsigned and unnotarized extrajudicial settlement
deed that respondents had first showed her. She was not competent
to make a conclusion whether that deed was genuine. 22 Neither
could petitioners PNB and Aguilar pass judgment on a letter from
respondents’ lawyer stating that respondents were the nine heirs of
Angel C. Santos.23
Petitioners PNB and Aguilar’s negligence is not based on their failure to accept
respondents’ documents as evidence of their right to claim Angel C.
Santos’ deposit. Rather, it is based on their failure to exercise the
diligence required of banks when they accepted the fraudulent
representations of Manimbo.
Petitioners PNB and Aguilar disregarded their own requirements for the release
of the deposit to persons claiming to be heirs of a deceased
depositor. When respondents asked for the release of Angel C.
Santos’ deposit, they were required to present the following: “(1)
original or certified true copy of the Death Certificate of Angel C.
Santos; (2) certificate of payment of, or exemption from, estate tax
issued by the Bureau of Internal Revenue (BIR); (3) Deed of
Extrajudicial Settlement; (4) Publisher’s Affidavit of publication of
the Deed of Extrajudicial Settlement; and (5) Surety bond effective
for two (2) years and in an amount equal to the balance of the
deposit to be withdrawn.”24
Petitioners PNB and Aguilar, however, accepted Manimbo’s representations, and
they released Angel C. Santos’ deposit based on only the following
documents:
Death certificate of Angel C. Santos;
Birth certificate of Reyme L. Santos;
Affidavit of self-adjudication of Reyme L. Santos;
Affidavit of publication;
Special power of attorney that Reyme L. Santos executed in favor of Bernardito
Manimbo and Angel P. Santos;
Personal items of Angel C. Santos, such as photocopies or originals of passport,
residence certificate for year 1990, SSS I.D., etc.;
Surety good for two (2) years; and
Certificate of Time Deposit No. 341306
19
ATTY. DEBORAH S. ACOSTA-CAJUSTIN
Based on these enumerations, petitioners PNB and Aguilar either have no fixed
standards for the release of their deceased clients’ deposits or they
have standards that they disregard for convenience, favor, or upon
exercise of discretion. Both are inconsistent with the required
diligence of banks. These threaten the safety of the depositors’
accounts as they provide avenues for fraudulent practices by third
persons or by bank officers themselves.
In this case, petitioners PNB and Aguilar released Angel C. Santos’ deposit to
Manimbo without having been presented the BIR-issued certificate
of payment of, or exception from, estate tax. This is a legal
requirement before the deposit of a decedent is released.
Presidential Decree No. 1158,26 the tax code applicable when Angel
C. Santos died in 1991, provides:
SEC. 118. Payment of tax antecedent to the transfer of shares, bonds, or rights. —
There shall not be transferred to any new owner in the books of any
corporation, sociedad anonima, partnership, business, or industry
organized or established in the Philippines, any shares, obligations,
bonds or rights by way of gift inter vivos or mortis causa, legacy, or
inheritance unless a certification from the Commissioner that the
taxes fixed in this Title and due thereon have been paid is shown.
If a bank has knowledge of the death of a person who maintained a hank deposit
account alone, or jointly with another, it shall not allow any
withdrawal from the said deposit account, unless the Commissioner
has certified that the taxes imposed thereon by this Title have been
paid; Provided, however, That the administrator of the estate or any
one of the heirs of the decedent may upon authorization by the
Commissioner of Internal Revenue, withdraw an amount not
exceeding P10,000 without the said certification. For this purpose,
all withdrawal slips shall contain a statement to the effect that all of
the joint depositors are still living at the time of withdrawal by any
one of the joint depositors and such statement shall be under oath
by the said depositors.27 (Emphasis supplied)
This provision was reproduced in Section 97 of the 1997 National Internal
Revenue Code, thus:
SEC. 97. Payment of Tax Antecedent to the Transfer of Shares, Bonds or Rights.
— There shall not be transferred to any new owner in the books of
any corporation, sociedad anonima, partnership, business, or
industry organized or established in the Philippines any share,
obligation, bond or right by way of gift inter vivos or mortis causa,
legacy or inheritance, unless a certification from the Commissioner
that the taxes fixed in this Title and due thereon have been paid is
shown.
TAXATION II
If a bank has knowledge of the death of a person, who maintained a bank deposit
account alone, or jointly with another, it shall not allow any
withdrawal from the said deposit account, unless the Commissioner
has certified that the taxes imposed thereon by this Title have been
paid: Provided, however, That the administrator of the estate or any
one (1) of the heirs of the decedent may, upon authorization by the
Commissioner, withdraw an amount not exceeding Twenty thousand
pesos (P20,000) without the said certification. For this purpose, all
withdrawal slips shall contain a statement to the effect that all of the
joint depositors are still living at the time of withdrawal by any one
of the joint depositors and such statement shall be under oath by the
said depositors. (Emphasis supplied)
Taxes are created primarily to generate revenues for the maintenance of the
government. However, this particular tax may also serve as guard
against the release of deposits to persons who have no sufficient and
valid claim over the deposits. Based on the assumption that only
those with sufficient and valid claim to the deposit will pay the taxes
for it, requiring the certificate from the BIR increases the chance
that the deposit will be released only to them.
In their compulsory counterclaim,28 petitioners PNB and Aguilar claimed that
Manimbo presented a certificate of payment of estate tax. 29 During
trial, however, it turned out that this certificate was instead an
authority to accept payment, which is not the certificate required for
the release of bank deposits.30 It appears that Manimbo was not even
required to submit the BIR certificate 31. He, thus, failed to present
such certificate. Petitioners PNB and Aguilar provided no
satisfactory explanation why Angel C. Santos’ deposit was released
without it.
Petitioners PNB and Aguilar’s negligence is also clear when they accepted as
bases for the release of the deposit to Manimbo: (a) a mere
photocopy of Angel C. Santos’ death certificate; 32 (b) the falsified
affidavit of self-adjudication and special power of attorney
purportedly executed by Reyme L. Santos; 33 and (c) the certificate of
time deposit.34
20
ATTY. DEBORAH S. ACOSTA-CAJUSTIN
Petitioner Aguilar was aware that there were other claimants to Angel C. Santos’
deposit. Respondents had already communicated with petitioner
Aguilar regarding Angel C. Santos’ account before Manimbo
appeared. Petitioner Aguilar even gave respondents the updated
passbook of Angel C. Santos’ account. 35 Yet, petitioners PNB and
Aguilar did not think twice before they released the deposit to
Manimbo. They did not doubt why no original death certificate could
be submitted. They did not doubt why Reyme L. Santos would
execute an affidavit of self-adjudication when he, together with
others, had previously asked for the release of Angel C. Santos’
deposit. They also relied on the certificate of time deposit and on
Manimbo’s representation that the passbook was lost when the
passbook had just been previously presented to Aguilar for
updating.36
During the trial, petitioner PNB’s counsel only reasoned that the photocopy of
the death certificate was also submitted with other documents,
which led him to no other conclusion than that Angel C. Santos was
already dead.37 On petitioners PNB and Aguilar’s reliance special
power of attorney allegedly executed by Reyme L. Santos, Aguilar
admitted that she did not contact Reyme L. Santos for verification.
Her reason was that Reyme L. Santos was not their client. Therefore,
they had no obligation to do so.38
Given the circumstances, “diligence of a good father of a family” would have
required petitioners PNB and Aguilar to verify. A prudent man
would have inquired why Reyme L. Santos would issue an affidavit
of self-adjudication when others had also claimed to be heirs of
Angel C. Santos. Contrary to petitioner Aguilar’s reasoning, the fact
that Reyme L. Santos was not petitioner PNB’s client should have
moved her to take measures to ensure the veracity of Manimbo’s
documents and representations. This is because she had no previous
knowledge of Reyme L. Santos his representatives, and his signature.
Petitioner PNB is a bank from which a degree of diligence higher than that of a
good father of a family is expected. Petitioner PNB and its manager,
petitioner Aguilar, failed to meet even the standard of diligence of a
good father of a family. Their actions and inactions constitute gross
negligence. It is for this reason that we sustain the trial court’s and
the Court of Appeals’ rulings that petitioners PNB and Aguilar are
solidarity liable with each other.39
TAXATION II ATTY. DEBORAH S. ACOSTA-CAJUSTIN
For the same reason, we sustain the award for moral damages. Petitioners PNB
and Aguilar’s gross negligence deprived Angel C. Santos’ heirs what WHEREFORE, the Court of Appeals’ decision dated July 25, 2013 is AFFIRMED
is rightfully theirs. Respondents also testified that they experienced with the MODIFICATIONS in that petitioners Philippine National
anger and embarrassment when petitioners PNB and Aguilar Bank and Lina B. Aguilar are ordered solidarity liable to pay
refused to release Angel C. Santos’ deposit. 40 “The bank’s negligence respondents P100,000.00 as exemplary damages. Further, the
was the result of lack of due care and caution required of managers interest rate for the amount of P1,882,002.05, representing the face
and employees of a firm engaged in so sensitive and demanding value of PNB Manager’s Check No. AF-974686B is modified to 12%
business as banking.”41 from April 26, 1998 until June 30, 2013, and 6% from July 1, 2013
Exemplary damages should also be awarded. “The law allows the grant of until satisfaction. All monetary awards shall then earn interest at the
exemplary damages by way of example for the public good. The rate of 6% per annum from finality of the decision until full
public relies on the banks’ sworn profession of diligence and satisfaction.
meticulousness in giving irreproachable service. The level of SO ORDERED.
meticulousness must be maintained at all times by the banking
sector.”42
Since exemplary damages are awarded and since respondents were compelled
to litigate to protect their interests, 43 the award of attorney’s fees is
also proper.
The Court of Appeals’ award of interest should be modified to 12% from
demand on April 26, 1998 until June 30, 2013, and 6% from July 1,
2013 until fully paid. In Nacar v. Gallery Frames:44
Thus, from the foregoing, in the absence of an express stipulation as to the rate
of interest that would govern the parties, the rate of legal interest for
loans or forbearance of any money. . . shall no longer be twelve
percent (12%) per annum. . . but will now be six percent (6%) per
annum effective July 1, 2013. It should be noted, nonetheless, that. . .
the twelve percent (12%) per annum legal interest shall apply only
until June 30, 2013. Come July 1, 2013 the new rate of six percent
(6%) per annum shall be the prevailing rate of interest when
applicable.
….
When the obligation is breached, and it consists in the payment of a sum of
money, i.e., a loan or forbearance of money, the interest due should be that
which may have been stipulated in writing. Furthermore, the interest due
shall itself earn legal interest from the time it is judicially demanded. In the
absence of stipulation, the rate of interest shall be 6% per annum to be
computed from default, i.e., from judicial or extrajudicial demand. . .
….
When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph
1 or paragraph 2, above, shall be 6% per annum from such finality until its
satisfaction, this interim period being deemed to be by then an equivalent
to a forbearance of credit.

21
TAXATION II ATTY. DEBORAH S. ACOSTA-CAJUSTIN
APPLICABLE higher (5% - 20%) (2%-15%) or 30% (if
donee is a stranger)
AS TO AMOUNT P200,000 and below P100,000 and below
EXEMPT
AS TO GRANT OF Yes (Tax Code Sec 86) None
DEDUCTION
AS TO REQUIREMENT  Transfer subject to All transfers by gift
OF FILING A RETURN estate tax except those which
 Exempt from tax under Sec 101 of the tax
but gross value of code are exempt from
the estate exceeds tax
P200,000
 Estate consists of
registrable property
regardless of the
value of the gross
estate
 (Tax code sec 90)
AS TO TIME OF FILING Within 6 months from Within 30 days after
OF RETURN death (Tax code sec date of gift (Tax code
90[b]) sec 103[b])
AS TO EXTENSION OF Not exceeding 30 days, None
FILING RETURN in meritorious cases
((Tax code sec 90[c])
AS TO TIME OF As the time the return is At the time the return is
GROSS ESTATE – Rule for imposition
PAYMENT filed by the executor, filed, that is within 30
administrator or the days after the date of
SEC. 85. Gross Estate. - the value of the gross estate of the decedent shall be
heirs, that is within 6 gift (Tax code sec
determined by including the value at the time of his death of all property, real
months from death (Tax 103[b])
or personal, tangible or intangible, wherever situated: Provided, however, that
code sec 91[a])
in the case of a nonresident decedent who at the time of his death was not a
AS TO EXTENSION OF Allowed (Tax code sec Not allowed
citizen of the Philippines, only that part of the entire gross estate which is
TIME FOR PAYMENT 91[b])
situated in the Philippines shall be included in his taxable estate.
SEC. 3. THE LAW THAT GOVERNS THE IMPOSITION OF ESTATE TAX. – It is
ESTATE TAX DONORS TAX
a well-settled rule that estate taxation is governed by the statute in force at
AS TO THE NATURE OF Tax on privilege to Tax on privilege to
the time of death of the decedent. The estate tax accrues as of the death of the
THE TRANSFER transfer property upon transfer property
decedent and the accrual of the tax is distinct from the obligation to pay the
one’s death during one’s lifetime
same. Upon the death of the decedent, succession takes place and the right of
AS TO PERSON’S Individuals only Individuals and the State to tax the privilege to transmit the estate vests instantly upon death.
LIABLE corporations
AS TO TYPE OF Imposed on donation Imposed on donation The application of the rates herein prescribed and the procedures in
DONATION mortis cause inter vivos determining the estate tax due shall apply to estate taxes falling due or have
AS TO RATES Tax rates are relatively Tax rates are lower accrued beginning January 1, 1998, the effectivity date of Republic Act No.
22
TAXATION II
8424, otherwise known as “The Tax Reform Act of 1997”. (REVENUE
REGULATIONS NO. 2-2003)
TRANSFER TAX
1. ESTATE TAX – donation mortis cause
- Tax levied on the transmission of properties from a decedent to
his heirs.
- Estate tax is that tax on the privilege to transmit property at
death and on certain transfers which are made the equivalent
of testamentary dispositions by the statute
2. DONOR’S TAX – donation inter vivos
- Tax levied on the transmission of properties from a living
person (donor) to another living person (donee)
3. Resident, non-resident alien
Net Estate Gross estate
Refers to the value of the gross estate Refers to the value of all the property,
less the ordinary and special real or personal, tangible or
deductions intangible, of the decedent wherever
situated (except for non-resident
alien), to the extent of his interest at
the time of his death, as well as other
items includible in the gross estate
(Tax Code Sec 86)
If resident
 All properties: real or
personal, intangible or
tangible (wherever situated
 Plus items includible in gross
estate
INTANGIBLE PROPERTIES IN PH:
 Franchise which must be
exercised in the PH
 Shares, obligations or bonds
issued by corporations
organized or constituted in
the Philippines
 Shares, obligations or bonds
issued by a foreign
corporation (85%) of the
business of which is located
23
ATTY. DEBORAH S. ACOSTA-CAJUSTIN
in the PH
 Shares, obligations or bonds
issued by a foreign
corporation if such shares,
obligations or bonds have
acquired a business situs in
the Philippines
 Shares, right in any
partnership, business or
industry established in the
Philippines
SEC. 4. COMPOSITION OF THE GROSS ESTATE. – The gross estate of
a decedent shall be comprised of the following properties and
interest therein at the time of his death, including revocable transfers
and transfers for insufficient consideration, etc.:
A) Residents and citizens – all properties, real or personal, tangible
or intangible, wherever situated.
B) Non-resident aliens – only properties situated in the Philippines
provided, that, with respect to intangible personal property, its
inclusion in the gross estate is subject to the rule of reciprocity
provided for under Section 104 of the Code.
- RESIDENT: refers to the permanent home, the place to which
whenever absent, for business or pleasure, one intents to
return, and depends on facts and circumstances, in the sense
that disclose intent. Not necessarily the actual place of
residence
- Transfer of the net estate if every decedent, whether resident
or non-resident of the Philippines, as determined in accordance
with the Code shall be subject to the estate tax.
- ESTATE TAX is imposed upon the basis of the NET ESTATE
considered as a unit
TAXATION II ATTY. DEBORAH S. ACOSTA-CAJUSTIN
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."

- A decedent’s intangible personal property may be subject to transfer

DETERMINATION OF THE NET ESTATE
IF THE DECEDENT IS A RESIDENT /
NON-RESIDENT CITIZEN OR A
RESIDENT ALIEN
Net estate is equal to gross estate
less:
 ordinary deductions
 special deductions and
 exclusions allowed by law
IF THE DECEDENT IS A NON
RESIDENT ALIEN
Net estate is equal to gross estate
less:
 ordinary deductions and
 exclusions allowed by law
taxes both in his place of domicile or residence and in the place where
such property has a situs or is located.
- Prevent multiplicity of taxation? The tax code provides that the tax
imposed by this title shall be credited with the amounts of any estate
tax imposed by the authority of a foreign country
1. When the foreign country does not impose transfer tax
of any character in respect of intangible personal property of citizens of
the Philippines not residing in that foreign country or,
2. When the foreign country imposes transfer taxes but
grants similar exemption from transfer taxes in respect of intangible
personal property owned by citizens of the Philippines not residing in
that foreign country
- FOREIGN COUNTRY  may refer to federal government or to the
individual states of the US (Collector vs Norton)
- Reciprocity in exemption does not require the foreign country to
possess international personality in the traditional sense
5. Valuation of gross estate
SEC. 5. VALUATION OF THE GROSS ESTATE. – The properties
comprising the gross estate shall be valued based on their fair market
value as of the time of death.

4. Reciprocity of exemption (Collector v Fisher, 1 SCRA 93)
Section 122 of our National Internal Revenue Code, in pertinent part,
provides:
... And, provided, further, 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 of tax or death tax of any character in respect of
intangible personal property of citizens 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
24
If the property is a real property, the fair market value shall be the
fair market value as determined by the Commissioner or the fair
market value as shown in the schedule of values fixed by the
provincial and city assessors, whichever is higher. For purposes of
prescribing real property values, the Commissioner is authorized to
divide the Philippines into different zones or areas and shall, upon
consultation with competent appraisers, both from the private and
public sectors, determine the fair market value of real properties
located in each zone or area.
In the case of shares of stocks, the fair market value shall depend on
whether the shares are listed or unlisted in the stock exchanges.
Unlisted common shares are valued based on their book value while
unlisted preferred shares are valued at par value. In determining the
TAXATION II
book value of common shares, appraisal surplus shall not be
considered as well as the value assigned to preferred shares, if there
are any.
For shares which are listed in the stock exchanges, the fair market
value shall be the arithmetic mean between the highest and lowest
quotation at a date nearest the date of death, if none is available on
the date of death itself
To determine the value of the right to usufruct, use or habitation, as
well as that of annuity, there shall be taken into account the probable
life of the beneficiary in accordance with the latest basic standard
mortality table, to be approved by the Secretary of Finance, upon
recommendation of the Insurance Commissioner.
REAL PROPERTY Whichever is higher between the FMV:
1. As determined by the Commissioner / Zonal
Value or
2. As shown in the schedule of values fixed by
the provincial and city assessors
PERSONAL GENERAL RULE: FMV at the time of death
PROPERTY EXCEPTION: shares of stocks
a. If listed – FMV is the arithmetic mean between
the highest and lowest quotation at the date of
death, or the date nearest the date of death, if
none is available on the date of death itself
b. If unlisted – FMV is the par value in case of
preferred shares, and book value in case of
common shares
Common shares: following not considered
a. Appraisal surplus
b. The value assigned to preferred shares, if there
are any
RIGHT TO The probable life of the beneficiary in accordance with
USUFRUCT, USE the latest basic standard mortality table is to be taken
OR HABITATION, into account, to be approved by the Secretary of Finance,
AND ANNUITY upon recommendation of the Insurance Commissioner.
IMPROVEMENT The construction cost per building permit or the FMV
per latest tax declaration
25
ATTY. DEBORAH S. ACOSTA-CAJUSTIN
6. DECEDENT’S GROSS ESTATE
- Inclusions on the gross estate:
1. Decedents interest at the time of his death
2. Transfer in contemplation of death
3. Revocable transfer
4. Property passing under a general power of
appointment
5. Proceeds of a life insurance taken out by the decedent
upon his own life, where the beneficiary is the estate, his executor or
administrator irrespective of whether or no the insured retained the
power of revocation or any beneficiary designated as revocable; and
6. Property transfers for insufficient consideration
a. Decedent’s interest
Section 85. Gross Estate.
(A) Decedent’s Interest. – To the extent of the interest therein
of the decedent at the time of his death;
 Kinds of property embraced under decedent’s interest
1.1. Property owned – decedent possesses all the
attributes of ownership
1.2. Interest in property possessed – the law
contemplates any interest or right in the nature of property, but less
than title having value or capable or capable of being valued,
transferred by the decedent at his death. If the decedent owns only a
proportionate share in property, only the value of such share has to be
included in the gross estate. If he is entitled only to the use of the
property, it is the value of that use that has to be included.
1.3. Property or interest transferred
b. Transfer in contemplation of death
Section 85. Gross Estate.
(B) Transfer in Contemplation of Death. – To the extent of any
interest therein of which the decedent has at any time made
a transfer, by trust or otherwise, in contemplation of or
intended to take effect in possession or enjoyment at or after
death, or of which he has at any time made a transfer, by
trust or otherwise, under which he has retained for his life or
TAXATION II
for any period which does not in fact end before his death
(1) the possession or enjoyment of, or the right to the
income from the property, or (2) the right, either alone or in
conjunction with any person, to designate the person who
shall possess or enjoy the property or the income therefrom;
except in case of a bonafide sale for an adequate and full
consideration in money or money’s worth.
 GENERAL RULE: the transfer shall be considered as transfer in
contemplation of death if, during the lifetime of the decedent, he still
retained in the property any of the following:
o Possessions or enjoyment thereof
o Receipt of the income or the fruits notwithstanding the transfer; or
o Right either alone or in conjunction with any person, to designate
person who shall possess or enjoy the said property or income
therefrom.
 EXCEPTION: bona fide sale for an adequate and full consideration in
money or in money’s worth
 This is not mere transfer but the retention of some type off control over
the property transferred. In effect, there no full transfer of all interests
in the property inter vivos.
c. Revocable transfers
Section 85. Gross Estate.
(C) Revocable Transfer. –
(1) To the extent of any interest therein, of which the
decedent has at any time made a transfer (except in case of a
bona fide sale for an adequate and full consideration in
money or money’s worth) by trust or otherwise, where the
enjoyment thereof was subject at the date of his death to any
change through the exercise of a power (in whatever
capacity exerciseable) by the decedent alone or by the
decedent in conjunction with any other person (without
regard to when or from what source the decedent acquired
such power), t o alter, amend, revoke, or terminate, or where
any such power is relinquished in contemplation of the
decedent’s death.
(2) For the purpose of this Subsection, the power to alter,
amend or revoke shall be considered to exist on the date of
26
ATTY. DEBORAH S. ACOSTA-CAJUSTIN
the decedent’s death even though the exercise of the power
is subject to a precedent giving of notice or even though the
alteration, amendment or revocation takes effect only on the
expiration of a stated period after the exercise of the power,
whether or not on or before the date of the decedent’s death
notice has been given or the power has been exercised. In
such cases, proper adjustment shall be made representing
the interests which would have been excluded from the
power if the decedent had lived, and for such purpose if the
notice has not been given or the power has not been
exercised on or before the date of his
death, such notice shall be considered to have been given, or
the power exercised, on the date of his death.
- GENERAL RULE:
1. There is a transfer by trust or otherwise and
2. The enjoyment thereof was subject at the date of his
death to any change through the exercise of a power (in whatever
capacity):
2.1. The decedent alone
2.2. The decedent in conjunction with any other
person without regard to when or from what source the decedent
acquired such power, to alter, amend, revoke, terminate or
2.3. Where any such power is relinquished in
contemplation of the decedent’s death
- EXCEPTION: bona fide sale for an adequate and full consideration in
money or money’s worth
d. Property passing under general appointment
Section 85. Gross Estate.
(D) Property Passing Under General Power of Appointment. –
To the extent of any property passing under a general power
of appointment exercised by the decedent: (1) by will, or (2)
by deed executed in contemplation of, or intended to take
effect in possession or enjoyment at, or after his death, or (3)
by deed under which he has retained for his life or any
period not ascertainable without reference to his death or
for any period which does not in fact end before his death (a)
the possession or enjoyment of, or the right to the income
TAXATION II
from, the property, or (b) the right, either alone or in
conjunction with any person, to designate the persons who
shall possess or enjoy the property or the income therefrom;
except in case of a bona fide sale for an adequate and full
consideration in money or money’s worth.
- Power of appointment : the right to designate the peron or persons who
shall enjoy and possess certain property from the estate of a prior
decedent
- Requisites for Taxability
1. Existence of a general power of appointment
2. Exercise of such power by the decedent by will or by
deed in certain cases
3. The passing of the property by virtue of such exercise
- GENERAL RULE: Property over which the decedent held a power of
appointment is not includible in his gross estate unless such power is
general
1. GENERAL POWER : when it authorizes the donee to
appoint any person he pleases, including himself, thus having full
dominion over the property as though he owned it
2. SPECIFIC : when the donee can appoint only among a
restricted or designated class of persons other than himself
- EXCEPTION: bona fide sale for an adequate and full consideration in
money or money’s worth
- HOW EXERCISED?
1. By will
2. Deed executed in contemplation of, or intended to take
effect in possession or enjoyment at, or after his death
3. By deed under which he has retained for his life or any
person not ascertainable without reference to his death or for any
period which does in fact end before his death:
3.1. The possession or enjoyment or the right to
the income from the property
3.2. The right, either alone or in conjunction with
any person, to designate the persons who shall possess or enjoy the
property or the income
e. Proceeds of life insurance
Section 85. Gross Estate.
(E) Proceeds of Life Insurance. – To the extent of the amount
27
ATTY. DEBORAH S. ACOSTA-CAJUSTIN
receivable by the estate of the deceased, his executor, or
administrator, as insurance under policies taken out by the
decedent upon his own life, irrespective of whether or not
the insured retained the power of revocation, or to the
extent of the amount receivable by any beneficiary
designated in the policy of insurance, except when it is
expressly stipulated that the designation of the beneficiary is
irrevocable.
- Requisites to be included in the gross estate:
1. The decedent takes an insurance policy on his life
2. The amounts are receivable by:
2.1. The estate, his executor, or administrator
irrespective of whether or not insured retained the power of revocation
2.2. Any beneficiary designated as revocable
- Life insurance are not included in decedent’s gross estate thus not
subject to tax when:
1. Beneficiary is other than the estate, his executor or
administrator
2. Designation is irrevocable
f. Prior interest
Section 85. Gross Estate.
(F) Prior Interests. – Except as otherwise specifically
provided therein, Subsections (B), (C) and (E) of this Section
shall apply to the transfers, trusts, estates, interests, rights,
powers and relinquishment of powers, as severally
enumerated and described therein, whether made, created,
arising, existing, exercised or relinquished before or after the
effectivity of this Code.
- Transfer, trusts, interest, rights or powers (denominated as
transfer in contemplation of death, revocable transfer and
property passing under general power of appointment) made,
created, exercised or relinquished for a consideration in money
or money’s worth.
- EXCEPTION: a bona fide sale for an adequate and full
consideration in money or money’s worth
FMV of the property at the date of decedent’s death
LESS: actual consideration received by the decedent
TAXATION II ATTY. DEBORAH S. ACOSTA-CAJUSTIN
Net share of the Surviving
= Amount includible in decedents gross estate Spouse in the Conjugal
Community Property
g. Transfer for insufficient consideration
Deduction from gross estate for Citizens and Resident Aliens
Section 85. Gross Estate. - Expenses, losses, indebtedness and taxes
(G) Transfers of Insufficient Consideration. – If any one of the  Funeral expenses
transfers, trusts, interests, rights or powers enumerated and  Judicial expenses
described in Subsections (B), (C) and (D) of this Section is  Claims against the estate
made, created, exercised or relinquished for a consideration  Claims against insolvent persons
in money or money’s worth, but is not a bona fide sale for an  Unpaid mortgages
adequate and full consideration in money or money’s worth,  Unpaid taxes
there shall be included in the gross estate only the excess of  Losses
the fair market value, at the time of death, of the property - Vanishing deduction (property previously taxed)
otherwise to be included on account of such transaction, - Transfer of Public Use
over the value of the consideration received therefor by the - Family home
decedent. - Standard deduction
- Medical expenses
- Amounts received by heirs under RA 4917
7. Exclusion from gross estate: capital of surviving spouse
- Net share of the Surviving Spouse in the Conjugal Community
Section 85. Gross Estate. Property
(E) Proceeds of Life Insurance. – (H) Capital of the Surviving
Spouse. – The capital of the surviving spouse of a decedent Deductions for Non Resident Aliens
shall not, for the purpose of this Chapter, be deemed a pjart - Expenses, Losses, Indebtedness and taxes
of his or her gross estate. 1. Allowable deduction = (Philippine gross estate / world
gross estate) X (Expenses, Losses, Indebtedness and
Deduction from gross estate for taxes
ORDINARY DEDUCTIONS SPECIAL DEDUCTIONS - Vanishing Deductions for property in the Philippines
Expenses, losses, indebtedness  Family Home - Transfer for public used and
and taxes  Standard Deduction - Net share of the surviving spouse in the conjugal property
 Funeral expenses  Medical Expenses - NOT ALLOWED DEDUCTIONS:
 Judicial expenses  Amount received by 1. Family home
 Claims against the estate heirs under RA 4916 2. Standard deduction
 Claims against insolvent 3. Medical expenses
persons 4. Amounts received by heirs under RA 4917
 Unpaid mortgages
 Unpaid taxes SEC. 6. COMPUTATION OF THE NET ESTATE OF A DECEDENT WHO IS
 Losses EITHER A CITIZEN OR RESIDENT OF THE PHILIPPINES. - The value of
Vanishing deduction (property the net estate of a citizen or resident alien of the Philippines shall be
previously taxed) determined by deducting from the value of the gross estate the following
items of deduction :
Transfer of Public Use
(A) Expenses, losses, indebtedness, and taxes- Such amounts
28
TAXATION II
for:
(1) Actual funeral expenses (whether paid or
unpaid) up to the time of interment, or an amount
equal to five percent (5%) of the gross estate,
whichever is lower, but in no case to exceed
P200,000.
Any amount of funeral expenses in excess of the
P200,000 threshold, whether the same had actually
been paid or still payable, shall not be allowed as a
deduction under this Subsection. Neither shall the
unpaid portion of the funeral expenses incurred which is
in excess of the P200,000 threshold be allowed to be
claimed as a deduction under “claims against the estate”
provided under Subsection (C) hereof.
The term "FUNERAL EXPENSES" is not confined to its
ordinary or usual meaning. They include:
(a) The mourning apparel of the surviving
spouse and unmarried minor children of the
deceased bought and used on the occasion of
the burial;
(b) Expenses for the deceased’s wake, including
food and drinks;
(c) Publication charges for death notices;
(d) Telecommunication expenses incurred in
informing relatives of the deceased;
(e) Cost of burial plot, tombstones, monument
or mausoleum but not their upkeep. In case the
deceased owns a family estate or several burial
lots, only the value corresponding to the plot
where he is buried is deductible;
(f) Interment and/or cremation fees and
charges; and
(g) All other expenses incurred for the
performance of the rites and ceremonies
incident to interment.
Expenses incurred after the interment, such as for
prayers, masses, entertainment, or the like are not
deductible. Any portion of the funeral and burial
29
ATTY. DEBORAH S. ACOSTA-CAJUSTIN
expenses borne or defrayed by relatives and friends of
the deceased are not deductible.
Medical expenses as of the last illness will not form part
of funeral expenses but should be claimed under
subsection (F) of this section.
Actual funeral expenses shall mean those which are
actually incurred in connection with the interment or
burial of the deceased. The expenses must be duly
supported by receipts or invoices or other evidence to
show that they were actually incurred.
Illustrations on how to determine the amount of
allowable funeral expenses –
(a) If five percent (5%) of the gross estate is
P70,000 and the amount actually incurred is
P50,000, only P50,000 will be allowed as
deduction;
(b) If the expenses actually incurred amount to
P90,000 and five percent (5%) of the gross
estate is P70,000, only P70,000 will be allowed
as deduction;.
(c) If five percent (5%) of the gross estate is
P220,000 and the amount actually incurred
is P215,000, the maximum amount that may
be deducted is only P200,000;
(d) If five percent (5%) of the gross estate is
P 100,000 and the total amount incurred is
P150,000 where P20,000 thereof is still
unpaid, the only amount that can be claimed
as deduction for funeral expenses is
P100,000. The entire P50,000 excess
amount consisting of P30,000 paid amount
and P20,000 unpaid amount can no longer
be claimed as FUNERAL EXPENSES. Neither
can the P20,000 unpaid portion be deducted
from the gross estate as CLAIMS AGAINST
THE ESTATE under Subsection (C) hereof.
(2) Judicial expenses of the testamentary or
intestate proceedings. - Expenses allowed as deduction
TAXATION II
under this category are those incurred in the inventory-
taking of assets comprising the gross estate, their
administration, the payment of debts of the estate, as
well as the distribution of the estate among the heirs. In
short, these deductible items are expenses incurred
during the settlement of the estate but not beyond the
last day prescribed by law, or the extension thereof, for
the filing of the estate tax return. Judicial expenses may
include:
(a) Fees of executor or administrator;
(b) Attorney’s fees;
(c) Court fees;
(d) Accountant’s fees;
(e) Appraiser’s fees;
(f) Clerk hire;
(g) Costs of preserving and distributing the
estate;
(h) Costs of storing or maintaining property of
the estate; and
(i) Brokerage fees for selling property of the
estate.
Any unpaid amount for the aforementioned cost and
expenses claimed under “Judicial Expenses” should be
supported by a sworn statement of account issued and
signed by the creditor.
(3) Claims against the estate. – The word “claims” is
generally construed to mean debts or demands of a
pecuniary nature which could have been enforced
against the deceased in his lifetime and could have been
reduced to simple money judgements. Claims against the
estate or indebtedness in respect of property may arise
out of : (1) Contract; (2) Tort; or (3) Operation of Law.
(i) Requisites for Deductibility of Claims Against the
Estate –
(a) The liability represents a personal
obligation of the deceased existing at the time of
his death except unpaid obligations incurred
incident to his death such as unpaid funeral
expenses (i.e., expenses incurred up to the time
of interment) and unpaid medical expenses
which are classified under a different category
30
ATTY. DEBORAH S. ACOSTA-CAJUSTIN
of deductions pursuant to these Regulations;
(b) The liability was contracted in good faith
and for adequate and full consideration in
money or money’s worth;
(c) The claim must be a debt or claim which is
valid in law and enforceable in court;
(d) The indebtedness must not have been
condoned by the creditor or the action to collect
from the decedent must not have prescribed.
(ii) Substantiation Requirements. - All unpaid
obligations and liabilities of the decedent at the time of
his death (except unpaid funeral or medical expenses
which are deductible under a different category) are
allowed as deductions from gross estate. Provided,
however, that the following requirements/documents
are complied with/submitted :
(a) In case of simple loan (including advances):
(1) The debt instrument must be duly
notarized at the time the indebtedness
was incurred, such as promissory note
or contract of loan, except for loans
granted by financial institutions where
notarization is not part of the business
practice/policy of the financial
institution-lender;
(2) Duly notarized Certification from
the creditor as to the unpaid balance of
the debt, including interest as of the
time of death. If the creditor is a
corporation, the sworn certification
should be signed by the President, or
Vice-President, or other principal
officer of the corporation. If the
creditor is a partnership, the sworn
certification should be signed by any of
the general partners. In case the
creditor is a bank or other financial
institutions, the Certification shall be
executed by the branch manager of the
bank/financial institution which
monitors and manages the loan of the
TAXATION II
decedent-debtor. If the creditor is an
individual, the sworn certification
should be signed by him. In any of these
cases, the one who should certify must
not be a relative of the borrower within
the fourth civil degree, either by
consanguinity or affinity, except when
the requirement below is complied
with.
When the lender, or the President/Vice-
president /principal officer of the
creditor-corporation, or the general
partner of the creditor-partnership is a
relative of the debtor in the degree
mentioned above, a copy of the
promissory note or other evidence of
the indebtedness must be filed with the
RDO having jurisdiction over the
borrower within fifteen days from the
execution thereof.
(3) In accordance with the
requirements as prescribed in existing
or prevailing internal revenue
issuances, proof of financial capacity of
the creditor to lend the amount at the
time the loan was granted, as well as its
latest audited balance sheet with a
detailed schedule of its receivable
showing the unpaid balance of the
decedent-debtor. In case the creditor is
an individual who is no longer required
to file income tax returns with the
Bureau, a duly notarized Declaration by
the creditor of his capacity to lend at
the time when the loan was granted
without prejudice to verification that
may be made by the BIR to substantiate
such declaration of the creditor. If the
creditor is a non-resident, the
executor/ administrator or any of the
31
ATTY. DEBORAH S. ACOSTA-CAJUSTIN
legal heirs must submit a duly
notarized declaration by the creditor of
his capacity to lend at the time when
the loan was granted, authenticated or
certified to as such by the tax authority
of the country where the non-resident
creditor is a resident;
(4) A statement under oath executed by
the administrator or executor of the
estate reflecting the disposition of the
proceeds of the loan if said loan was
contracted within three (3) years prior
to the death of the decedent;
(b) If the unpaid obligation arose from purchase
of goods or services:
(1) Pertinent documents evidencing the
purchase of goods or service, such as
sales invoice/delivery receipt (for sale
of goods), or contract for the services
agreed to be rendered (for sale of
service), as duly acknowledged,
executed and signed by decedentdebtor
and creditor, and statement of account
given by the creditor as duly received
by the decedentdebtor;
(2) Duly notarized Certification from
the creditor as to the unpaid balance of
the debt, including interest as of the
time of death. If the creditor is a
corporation, the sworn Certification
should be signed by the President, or
Vice-President, or other principal
officer of the corporation. If the
creditor is a partnership, the sworn
certification should be signed by any of
the general partners. If the creditor is a
sole proprietorship, the sworn
certification should be signed by the
owner of the business. In any of these
TAXATION II
cases, the one who issues the
certification must not be a relative of
the decedent-debtor within the fourth
civil degree, either by consanguinity or
affinity, except when the requirement
below is complied with.
When the lender, or the
President/VicePresident/principal
officer of the creditor-corporation, or
the general partner of the creditor-
partnership is a relative of the debtor in
the degree mentioned above, a copy of
the promissory note or other evidence
of the indebtedness must be filed with
the RDO having jurisdiction over the
borrower within fifteen days from the
execution thereof.
(3) Certified true copy of the latest
audited balance sheet of the creditor
with a detailed schedule of its
receivable showing the unpaid balance
of the decedent-debtor. Moreover, a
certified true copy of the updated latest
subsidiary ledger/records of the debt
of the debtor-decedent, (certified by
the creditor, i.e., the officers mentioned
in the preceding paragraphs) should
likewise be submitted.
(4) Claims of the deceased against insolvent persons
where the value of the decedent’s interest therein is
included in the value of the gross estate; and,
(5) Unpaid mortgages, taxes and casualty losses –
(a) Unpaid mortgages upon, or any
indebtedness in respect to, property where the
value of the decedent’s interest therein,
undiminished by such mortgage or
indebtedness, is included in the value of the
gross estate. The deduction herein allowed in
the case of claims against the estate, unpaid
mortgages or any indebtedness shall, when
32
ATTY. DEBORAH S. ACOSTA-CAJUSTIN
founded upon a promise or agreement, be
limited to the extent that they were contracted
bona fide and for an adequate and full
consideration in money or money’s worth.
(b) Taxes which have accrued as of the death of
the decedent which were unpaid as of the time
of death. This deduction will not include income
tax upon income received after death, or
property taxes not accrued before his death, or
the estate tax due from the transmission of his
estate.
(c) There shall also be deducted losses incurred
during the settlement of the estate arising from
fires, storms, shipwreck, or other casualties, or
from robbery, theft or embezzlement, when
such losses are not compensated for by
insurance or otherwise, and if at the time of the
filing of the return such losses have not been
claimed as a deduction for income tax purposes
in an income tax return, and provided that such
losses were incurred not later than the last day
for the payment of the estate tax as prescribed
in Subsections (A) and (B) of Section 91.
In case unpaid mortgage payable is being claimed by
the estate, verification must be made as to who was
the beneficiary of the loan proceeds. If the loan is
found to be merely an accommodation loan where
the loan proceeds went to another person, the value
of the unpaid loan must be included as a receivable
of the estate. If there is a legal impediment to
recognize the same as receivable of the estate, said
unpaid obligation/mortgage payable shall not be
allowed as a deduction from the gross estate. In all
instances, the mortgaged property, TO THE EXTENT
OF THE DECEDENT’S INTEREST THEREIN, should
always form part of the gross taxable estate
“(B) Property previously taxed - xxx xxx
xxx
“(C) Transfers for public use - xxx xxx xxx
TAXATION II
“(D) The family home - An amount equivalent to the
current fair market value of the decedent’s family home:
Provided, however, That if the said current fair market
value exceeds One million pesos (P1,000,000), the
excess shall be subject to estate tax. As a sine qua non
condition for the exemption or deduction, said family
home must have been the decedent’s family home as
certified by the barangay captain of the locality.
a) Definition of terms
Family home – The dwelling house,
including the land on which it is
situated, where the husband and wife,
or a head of the family, and members of
their family reside, as certified to by the
Barangay Captain of the locality. The
family home is deemed constituted on
the house and lot from the time it is
actually occupied as a family residence
and is considered as such for as long as
any of its beneficiaries actually resides
therein. (Arts. 152 and 153, Family
Code)
For purposes of these regulations,
however, actual occupancy of the house
or house and lot as the family residence
shall not be considered interrupted or
abandoned in such cases as the
temporary absence from the
constituted family home due to travel
or studies or work abroad, etc.
In other words, the family home is
generally characterized by permanency,
that is, the place to which, whenever
absent for business or pleasure, one
still intends to return.
The family home must be part of the
properties of the absolute community
or of the conjugal partnership, or of the
33
ATTY. DEBORAH S. ACOSTA-CAJUSTIN
exclusive properties of either spouse
depending upon the classification of
the property (family home) and the
property relations prevailing on the
properties of the husband and wife. It
may also be constituted by an
unmarried head of a family on his or
her own property. (Art. 156, Ibid)
For purposes of availing of a family
home deduction to the extent
allowable, a person may constitute only
one family home. (Art. 161, Ibid)
Husband and Wife – Legally
married man and woman
Unmarried Head of a Family –
An unmarried or legally
separated man or woman with
one or both parents, or with
one or more brothers or
sisters, or with one or more
legitimate, recognized natural
or legally adopted children
living with and dependent
upon him or her for their chief
support, where such brothers
or sisters or children are not
more than twenty one (21)
years of age, unmarried and
not gainfully employed or
where such children, brothers
or sisters, regardless of age are
incapable of self-support
because of mental or physical
defect, or any of the
beneficiaries mentioned in
Article 154 of the Family Code
who is living in the family
home and dependent upon the
head of the family for legal
TAXATION II
support.
The beneficiaries of a family
home are:
(1) The husband and wife, or
the head of a family; and
(2) Their parents, ascendants,
descendants including legally
adopted children, brothers and
sisters, whether the
relationship be legitimate or
illegitimate, who are living in
the family home and who
depend upon the head of the
family for legal support. (Art.
154, Ibid)
b) Conditions for the allowance of FAMILY
HOME as deduction from the gross estate-
1. The family home must be the actual
residential home of the decedent and
his family at the time of his death, as
certified by the Barangay Captain of the
locality where the family home is
situated;
2. The total value of the family home
must be included as part of the gross
estate of the decedent; and
3. Allowable deduction must be in an
amount equivalent to the current fair
market value of the family home as
declared or included in the gross estate,
or the extent of the decedent’s interest
(whether conjugal/community or
exclusive property), whichever is lower,
but not exceeding P1,000,000.
(E) Standard deduction. - A deduction in the amount of
One Million Pesos (P1,000,000) shall be allowed as an
additional deduction without need of substantiation.
The full amount of P1,000,000 shall be allowed as
deduction for the benefit of the decedent. The
presentation of such deduction in the computation of
the net taxable estate of the decedent is properly
34
ATTY. DEBORAH S. ACOSTA-CAJUSTIN
illustrated in these Regulations.
(F) Medical expenses. - All medical expenses (cost of
medicines, hospital bills, doctors’ fees, etc.) incurred
(whether paid or unpaid) within one (1) year before the
death of the decedent shall be allowed as a deduction
provided that the same are duly substantiated with
official receipts for services rendered by the decedent’s
attending physicians, invoices, statements of account
duly certified by the hospital, and such other documents
in support thereof and provided, further, that the total
amount thereof, whether paid or unpaid, does not
exceed Five Hundred Thousand Pesos (P500,000).
Any amount of medical expenses incurred within one
year from death in excess of Five Hundred Thousand
Pesos (P500,000) shall no longer be allowed as a
deduction under this subsection. Neither can any unpaid
amount thereof in excess of the P500,000 threshold nor
any unpaid amount for medical expenses incurred prior
to the one-year period from date of death be allowed to
be deducted from the gross estate as claim against the
estate.
Illustrations on how to determine the amount of
allowable medical expenses given the P500,000
threshold amount
a. If the actual amount of medical expenses
incurred is P250,000, then only P250,000 shall
be allowed as deduction and not to the extent of
the P500,000 threshold amount;
b. If the actual amount of medical expenses
incurred within the year prior to decedent’s
death is P600,000, only the maximum amount
of P500,000 shall be allowed as deduction. If in
case the excess of P100,000 (P600,000-
500,000) is still unpaid, such amount shall not
be allowed to be deducted from the gross estate
as “claims against the estate”.
(G) Amount received by heirs under Republic Act No.
4917. - Any amount received by the heirs from the
decedent’s employer as a consequence of the death of
TAXATION II
the decedent-employee in accordance with Republic Act
No. 4917 is allowed as a deduction provided that the
amount of the separation benefit is included as part of
the gross estate of the decedent.
(8) Net share of the surviving spouse in the conjugal
partnership or community property. - After deducting
the allowable deductions appertaining to the conjugal or
community properties included in the gross estate, the
share of the surviving spouse must be removed to
ensure that only the decedent’s interest in the estate is
taxed.
a. Funeral expenses
 Whichever is lower of : actual funeral expense or 5% of
the gross estate (not exceeding P200,000)
 Actual Funeral Expenses – actually incurred in
connection with the interment or burial of the
deceased
o Mourning apparel of surviving spouse
o Wake expenses
o Publication charges for death notices
o Telecommunication expenses – relatives
o Cost of burial plot, tombstones, monument or
mausoleum but not their upkeep
o Interment and/or cremation fees and charges
o Other expenses incurred for the performance
of the rites and ceremonies incident to the
interment
 Non deductible
o Expenses after interment
o Those expenses defrayed by relatives or
friends of deceased
o Medical expenses as of the last illness
b. Judicial expenses
 Nature of expenses that may be deducted
o Incurred in payment of debts of the estate
o Incurred in the administration of the estate
o Incurred in inventory- taking of assets comprising the gross estate
35
ATTY. DEBORAH S. ACOSTA-CAJUSTIN
o Incurred in the distribution of the estate among the heirs
 Must be incurred during the settlement of the estate
 Deductible Expenses
o Fees of executor / administrator
o Attorneys fees
o Court fees
o Accountants fees
o Appraisers fees
o Clerk hire
o Cost of preserving and distributing the estate
o Costs of storing or maintaining property of the estate and
o Brokerage fees for selling property of the estate
 Extrajudicial expenses : not under the law, but based on the US law
which we copied from, it is considered as a deduction provided this is in
relation to settlement of the estate
 Non deductible
o Expenditures incurred for the individual benefit of the heirs, devisees
or legatees
o Compensation paid to a trustee of the decedent’s estate when it
appeared that such trustee was appointed for the purpose of managing
the decedent’s real property for the benefit of the testamentary heir;
o Premiums paid on the bond filed by the administrator as an expense of
administration since the giving of the bon is in the nature of a
qualification for the office and not necessary for the settlement of the
estate
o Attorney’s fees incident to litigation incurred by the heirs in asserting
their respective rights
c. Claims v. the estate
 This refers to debts or demands of a pecuniary nature which could have
been enforced against the deceased in his lifetime and could have been
reduced to simple money judgments. It may arise out of contract, tort or
under operation of law.
 Requisites for deductibility
o Must be personal obligation of the deceased existing at the time of
death, except unpaid obligations incurred incident to his death.
o Must be valid in law and enforceable in the court
o Must be incurred in good faith and for an adequate consideration in
money or money’s worth
TAXATION II ATTY. DEBORAH S. ACOSTA-CAJUSTIN
o Must have been condoned by the creditor or the action must not have SEC. 7. COMPUTATION OF THE NET ESTATE OF A DECEDENT WHO IS A
prescribed. NON-RESIDENT ALIEN OF THE PHILIPPINES. - The value of the net estate of
a decedent who is a non-resident alien in the Philippines shall be determined
by deducting from the value of that part of his gross estate which at the time
d. Claims v. insolvent persons of his death is situated in the Philippines the following items of deductions:
 Requisites for deductibility
o The amount thereof has been initially included as part of his gross (1) Expenses, losses, indebtedness, and taxes – That proportion of the total
estate expenses, losses, indebtedness, and taxes which the value of such part bears
o Incapacity of the debtors to pay their obligations is proved to the value of his entire gross estate wherever situated. The allowable
deduction under this subsection shall be computed using the following
e. Unpaid mortgages and losses formula:

 Requisites for deductibility

o Value of the decedents interest therein, undiminished by such mortgage
or indebtedness, is included in the value of the gross estate
o Mortgages were contracted bona fide and for an adequate and full
consideration in money or money’s worth
 Payable is claimed by the estate.

f. Property previously taxed – vanishing deductions

 Requisites No deduction shall be allowed in the case of a non-resident decedent not a
o Taxes which have accrued as of or before the death of the decedent and citizen of the Philippines, unless the executor, administrator, or anyone of
o Unpaid as of the time of his death, regardless of whether or not it was the heirs, as the case may be, includes in the return required to be filed
incurred in connection with trade or business under Section 90 of the Code the value at the time of the decedent’s death of
 Not include: that part of his gross estate not situated in the Philippines
o Income tax upon income received after death
o Property taxes not accrued before his death 8. Family home
o estate tax due from the transmission of his estate
“(D) The family home - An amount equivalent to
the current fair market value of the decedent’s
g. Transfer for public purpose family home: Provided, however, That if the said
current fair market value exceeds One million pesos
 The amount deductible shall be the entire amount of (P1,000,000), the excess shall be subject to estate
all bequest, legacies, devises or transfers to or for the tax. As a sine qua non condition for the exemption
use of the government or any political subdivision or deduction, said family home must have been the
thereof, exclusively for public purpose decedent’s family home as certified by the barangay
 Requisites captain of the locality.
o Disposition is in his last will
o Take effect after death a) Definition of terms
o In favor of the government Family home – The dwelling
o Exclusively for public purpose house, including the land on which
it is situated, where the husband
36
TAXATION II
and wife, or a head of the family,
and members of their family reside,
as certified to by the Barangay
Captain of the locality. The family
home is deemed constituted on the
house and lot from the time it is
actually occupied as a family
residence and is considered as such
for as long as any of its
beneficiaries actually resides
therein. (Arts. 152 and 153, Family
Code)
For purposes of these regulations,
however, actual occupancy of the
house or house and lot as the
family residence shall not be
considered interrupted or
abandoned in such cases as the
temporary absence from the
constituted family home due to
travel or studies or work abroad,
etc.
In other words, the family home is
generally characterized by
permanency, that is, the place to
which, whenever absent for
business or pleasure, one still
intends to return.
The family home must be part of
the properties of the absolute
community or of the conjugal
partnership, or of the exclusive
properties of either spouse
depending upon the classification
of the property (family home) and
the property relations prevailing
on the properties of the husband
and wife. It may also be constituted
by an unmarried head of a family
37
ATTY. DEBORAH S. ACOSTA-CAJUSTIN
on his or her own property. (Art.
156, Ibid)
For purposes of availing of a family
home deduction to the extent
allowable, a person may constitute
only one family home. (Art. 161,
Ibid)
Husband and Wife –
Legally married man and
woman
Unmarried Head of a
Family – An unmarried or
legally separated man or
woman with one or both
parents, or with one or
more brothers or sisters,
or with one or more
legitimate, recognized
natural or legally adopted
children living with and
dependent upon him or
her for their chief support,
where such brothers or
sisters or children are not
more than twenty one (21)
years of age, unmarried
and not gainfully
employed or where such
children, brothers or
sisters, regardless of age
are incapable of self-
support because of mental
or physical defect, or any
of the beneficiaries
mentioned in Article 154
of the Family Code who is
living in the family home
and dependent upon the
head of the family for legal
TAXATION II
support.
The beneficiaries of a
family home are:
(1) The husband and wife,
or the head of a family;
and
(2) Their parents,
ascendants, descendants
including legally adopted
children, brothers and
sisters, whether the
relationship be legitimate
or illegitimate, who are
living in the family home
and who depend upon the
head of the family for legal
support. (Art. 154, Ibid)
b) Conditions for the allowance of FAMILY
HOME as deduction from the gross estate-
1. The family home must be the
actual residential home of the
decedent and his family at the time
of his death, as certified by the
Barangay Captain of the locality
where the family home is situated;
2. The total value of the family
home must be included as part of
the gross estate of the decedent;
and
3. Allowable deduction must be in
an amount equivalent to the
current fair market value of the
family home as declared or
included in the gross estate, or the
extent of the decedent’s interest
(whether conjugal/community or
exclusive property), whichever is
lower, but not exceeding
P1,000,000.
Requisites
38
ATTY. DEBORAH S. ACOSTA-CAJUSTIN
 Family home must be an actual residence and his family,
certified by the barangay captain
 Total value of the family home must be included as part of the
gross estate of the decedent
 Allowable deduction must be in an amount equivalent to:
o The current FMV of the decedents family home
o Extent of the decedent’s interest
o Deduction must be exceed P1M
a. Share in the conjugal property
 Conjugal or Community Property – deducted is equivalent to ½ of the
FMV but shall not exceed P1M
 after deducting the allowable deductions appertaining to the conjugal
or community properties included in the gross estate  share of the
surviing spouse must be removed to ensure that only the decedent’s
share is taxed
9. Standard deduction
(E) Standard deduction. - A deduction in the amount of One Million
Pesos (P1,000,000) shall be allowed as an additional deduction
without need of substantiation. The full amount of P1,000,000 shall
be allowed as deduction for the benefit of the decedent. The
presentation of such deduction in the computation of the net taxable
estate of the decedent is properly illustrated in these Regulations
- A deduction in the amount of P1M shall be allowed as an
additional deduction without any need of substantiation. The
full amount of P1M shall be allowed as deduction for the
benefit of the decedent.
10. Tax credit for estate taxes
(E) Tax Credit for Estate Taxes paid to a Foreign Country. -
(1) In General. - The tax imposed by this Title shall be
credited with the amounts of any estate tax imposed by the
authority of a foreign country.
(2) Limitations on Credit. - The amount of the credit taken
under this Section shall be subject to each of the following
limitations:
(a) The amount of the credit in respect to the tax paid to
any country shall not exceed the same proportion of the
TAXATION II
tax against which such credit is taken, which the
decedent's net estate situated within such country
taxable under this Title bears to his entir net estate; and
(b) The total amount of the credit shall not exceed the
same proportion of the tax against which such credit is
taken, which the decedent's net estate situated outside
the Philippines taxable under this Title bears to his
entire net estate.
11. Exemption of certain acquisitions
Section 87. Exemption of Certain Acquisitions and Transmissions. -
The following shall not be taxed:
(A) The merger of usufruct in the owner of the naked title;
(B) The transmission or delivery of the inheritance or legacy by
the fiduciary heir or legatee to the fideicommissary;
(C) The transmission from the first heir, legatee or donee in favor
of another beneficiary, in accordance with the desire of the
predecessor; and
(D) All bequests, devises, legacies or transfers to social welfare,
cultural and charitable institutions, no part of the net income of
which insures to the benefit of any individual: Provided, however,
That not more than thirty percent (30%) of the said bequests,
devises, legacies or
12. Tax returns
a. Time to file and notice
REVENUE REGULATIONS NO. 2-2003
(A) Time for filing estate tax return. – For purposes of
determining the estate tax, the estate tax return shall be filed
within six (6) months from the decedent’s death. The Court
approving the project of partition shall furnish the
Commissioner with a certified copy thereof and its order
within thirty (30) days after promulgation of such order.
(B) Extension of time to file estate tax return. - The
Commissioner or any Revenue Officer authorized by him
pursuant to the Code shall have authority to grant, in
39
ATTY. DEBORAH S. ACOSTA-CAJUSTIN
meritorious cases, a reasonable extension, not exceeding
thirty (30) days, for filing the return. The application for the
extension of time to file the estate tax return must be filed
with the Revenue District Office (RDO) where the estate is
required to secure its Taxpayer Identification Number (TIN)
and file the tax returns of the estate, which RDO, likewise,
has jurisdiction over the donor’s tax return required to be
filed by any party as a result of the distribution of the assets
and liabilities of the decedent.
b. Payment of tax
REVENUE REGULATIONS NO. 2-2003
(C) Place of filing the return and payment of the tax. – In case
of a resident decedent, the administrator or executor shall
register the estate of the decedent and secure a new TIN
therefor from the Revenue District Office where the
decedent was domiciled at the time of his death and shall file
the estate tax return and pay the corresponding estate tax
with the Accredited Agent Bank (AAB), Revenue District
Officer, Collection Officer or duly authorized Treasurer of the
city or municipality where the decedent was domiciled at the
time of his death, whichever is applicable, following
prevailing collection rules and procedures.
In case of a non-resident decedent, whether non-resident
citizen or non-resident alien, with executor or administrator
in the Philippines, the estate tax return shall be filed with
and the TIN for the estate shall be secured from the Revenue
District Office where such executor or administrator is
registered: Provided, however, that in case the executor or
administrator is not registered, the estate tax return shall be
filed with and the TIN of the estate shall be secured from the
Revenue District Office having jurisdiction over the executor
or administrator’s legal residence. Nonetheless, in case the
non-resident decedent does not have an executor or
administrator in the Philippines, the estate tax return shall
be filed with and the TIN for the estate shall be secured from
the Office of the Commissioner through RDO No. 39 – South
Quezon City.
The foregoing provisions notwithstanding, the
TAXATION II
Commissioner of Internal Revenue may continue to exercise
his power to allow a different venue/place in the filing of tax
returns
(D) Time for payment of the estate tax. – As a general rule,
the estate tax imposed under the Code shall be paid at the
time the return is filed by the executor, administrator or the
heirs.
(E) Extension of time to pay estate tax. – When the
Commissioner finds that the payment of the estate tax or of
any part thereof would impose undue hardship upon the
estate or any of the heirs, he may extend the time for
payment of such tax or any part thereof not to exceed five (5)
years in case the estate is settled through the courts, or two
(2) years in case the estate is settled extrajudicially. In such
case, the amount in respect of which the extension is granted
shall be paid on or before the date of the expiration of the
period of the extension, and the running of the statute of
limitations for deficiency assessment shall be suspended for
the period of any such extension.
For purposes of these Regulations, the application for
extension of time to file the return and extension of time to
pay estate tax shall be filed with the Revenue District Officer
(RDO) where the estate is required to secure its TIN and file
the estate tax return. This application shall be approved by
the Commissioner or his duly authorized representative.
Where the request for extension is by reason of negligence,
intentional disregard of rules and regulations, or fraud on
the part of the taxpayer, no extension will be granted by the
Commissioner.
If an extension is granted, the Commissioner or his duly
authorized representative may require the executor, or
administrator, or beneficiary, as the case may be, to furnish a
bond in such amount, not exceeding double the amount of
the tax and with such sureties as the Commissioner deems
necessary, conditioned upon the payment of the said tax in
accordance with the terms of the extension.
Any amount paid after the statutory due date of the tax, but
40
ATTY. DEBORAH S. ACOSTA-CAJUSTIN
within the extension period, shall be subject to interest but
not to surcharge.
(F) Payment of the estate tax by installment. – In case the
available cash of the estate is not sufficient to pay its total
estate tax liability, the estate may be allowed to pay the tax
by installment and a clearance shall be released only with
respect to the property the corresponding/computed tax on
which has been paid. There shall, therefore, be as many
clearances (Certificates Authorizing Registration) as there
are as many properties released because they have been
paid for by the installment payments of the estate tax. The
computation of the estate tax, however, shall always be on
the cumulative amount of the net taxable estate. Any amount
paid after the statutory due date of the tax shall be imposed
the corresponding applicable penalty thereto. However, if
the payment of the tax after the due date is approved by the
Commissioner or his duly authorized representative, the
imposable penalty thereon shall only be the interest.
Nothing in this paragraph, however, prevents the
Commissioner from executing enforcement action against
the estate after the due date of the estate tax provided that
all the applicable laws and required procedures are
followed/observed.
(G) Liability for payment – The estate tax imposed under the
Code shall be paid by the executor or administrator before
the delivery of the distributive share in the inheritance to
any heir or beneficiary. Where there are two or more
executors or administrators, all of them are severally liable
for the payment of the tax. The estate tax clearance issued by
the Commissioner or the Revenue District Officer (RDO)
having jurisdiction over the estate, will serve as the
authority to distribute the remaining/distributable
properties/share in the inheritance to the heir or
beneficiary.
The executor or administrator of an estate has the primary
obligation to pay the estate tax but the heir or beneficiary
has subsidiary liability for the payment of that portion of the
estate which his distributive share bears to the value of the
total net estate. The extent of his liability, however, shall in
no case exceed the value of his share in the inheritance.
TAXATION II
c. Obligations of executor, administrator, officers, others
Section 92. Discharge of Executor or Administrator from
Personal Liability. – If the executor or administrator makes a
written application to the Commissioner for determination
of the amount of the estate tax and discharge from personal
liability therefore, the Commissioner (as soon as possible,
and in any event within one (1) year after the making of such
application, or if the application is made before the return is
filed, then within one (1) year after the return is filed, but
not after the expiration of the period prescribed for the
assessment of the tax in Section 203 shall not notify the
executor or administrator of the amount of the tax. The
executor or administrator, upon payment of the amount of
which he is notified, shall be discharged from personal
liability for any deficiency in the tax thereafter found to be
due and shall be entitled to a receipt or writing showing
such discharge.
Section 93. Definition of Deficiency. – As used in this Chapter,
the term ‘deficiency’ means:
(a) The amount by which the tax imposed by this
Chapter exceeds the amount shown as the tax by the
executor, administrator or any of the heirs upon his
return; but the amounts so shown on the return
shall first be increased by the amounts previously
assessed (or collected without assessment) as a
deficiency and decreased by the amount previously
abated, refunded or otherwise repaid in respect of
such tax; or
(b) If no amount is shown as the tax by the executor,
administrator or any of the heirs upon his return, or
if no return is made by the executor, administrator,
or any heir, then the amount by which the tax
exceeds the amounts previously assessed (or
collected without assessment) as a deficiency; but
such amounts previously assessed or collected
without assessment shall first be decreased by the
amounts previously abated, refunded or otherwise
repaid in respect of such tax.
41
ATTY. DEBORAH S. ACOSTA-CAJUSTIN
Section 94. Payment before Delivery by Executor or
Administrator. – No judge shall authorize the executor or
judicial administrator to deliver a distributive share to any
party interested in the estate unless a certification from the
Commissioner that the estate tax has been paid is shown.
Section 95. Duties of Certain Officers and Debtors. – Registers
of Deeds shall not register in the Registry of Property any
document transferring real property or real rights therein or
any chattel mortgage, by way of gifts inter vivos or mortis
causa, legacy or inheritance, unless a certification from the
Commissioner that the tax fixed in this Title and actually due
thereon had been paid is show, and they shall immediately
notify the Commissioner, Regional Director, Revenue District
Officer, or Revenue Collection Officer or Treasurer of the city
or municipality where their offices are located, of the non
payment of the tax discovered by them. Any lawyer, notary
public, or any government officer who, by reason of his
official duties, intervenes in the preparation or
acknowledgment of documents regarding partition or
disposal of donation intervivos or mortis causa, legacy or
inheritance, shall have the duty of furnishing the
Commissioner, Regional Director, Revenue District Officer or
Revenue Collection Officer of the place where he may have
his principal office, with copies of such documents and any
information whatsoever which may facilitate the collection
of the aforementioned tax. Neither shall a debtor of the
deceased pay his debts to the heirs, legatee, executor or
administrator of his creditor, unless the certification of the
Commissioner that the tax fixed in this Chapter had been
paid is shown; but he may pay the executor or judicial
administrator without said certification if the credit is
included in the inventory of the estate of the deceased.
Section 96. Restitution of Tax Upon Satisfaction of
Outstanding Obligations. – If after the payment of the estate
tax, new obligations of the decedent shall appear, and the
persons interested shall have satisfied them by order of the
court, they shall have a right to the restitution of the
proportional part of the tax paid.
DUTIES OF CERTAIN OFFICERS / DEBTORS
TAXATION II ATTY. DEBORAH S. ACOSTA-CAJUSTIN
EXECUTOR OR Must ensure that payment shall be made of the amount
ADMINISTRATOR of which he is notified before he shall be discharged
from personal liablity
JUDGE Will not issue authorization to deliver distributive
share until certification of payment is shown
REGISTER OF Shall not register in the registry of property any
DEEDS document transferring real property or real rights
therein without certification from the Commissioner
that the tax actually due thereon had been paid
LAWYER, NOTARY intervenes in the preparation or acknowledgment of
PUBLIC OR ANY documents regarding partition or disposal of donation
GOVERNMENT intervivos or mortis causa, legacy or inheritance, shall
OFFICER have the duty of furnishing the Commissioner,
Regional Director, Revenue District Officer or Revenue
Collection Officer of the place where he may have his
principal office, with copies of such documents
DEBTOR of the deceased pay his debts to the heirs, legatee,
executor or administrator of his creditor, unless the
certification of the Commissioner that the tax fixed in
this Chapter had been paid is shown; but he may pay
the executor or judicial administrator without said
certification if the credit is included in the inventory of
the estate of the deceased.
CORPORATION Will not transfer to new owners of shares, bonds,
obligations or rights wihout certification from the
Commissioner that the tax actually due thereon had
been paid
BANK Has knowledge of the death of a person who
maintained a joint account, it shall not allow any
withdrawal by the surviving depositor without the
above certification

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