Estate and Donor's Taxes

CHAPTER I
Estate Tax

SECTION 84. Rates of Estate Tax. — There shall be levied, assessed, collected and 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 Philippines, a tax based on the value of such net
estate, as computed in accordance with the following schedule:
If the net estate is:
Over But Not Over The Tax Shall Be Plus Of the Excess Over
P200,000 Exempt
P200,000 500,000 0 5% P200,000
500,000 2,000,000 P15,000 8% 500,000
2,000,000 5,000,000 135,000 11% 2,000,000
5,000,000 10,000,000 465,000 15% 5,000,000
10,000,000 And Over 1,215,000 20% 10,000,000
SECTION 85. Gross Estate. — The value of the gross estate of the decedent shall be determined
by including the value at the time of his death of all property, real or personal, tangible or
intangible, wherever situated: Provided, however, That in the case of a nonresident decedent who
at the time of his death was not a citizen of the Philippines, only that part of the entire gross
estate which is situated in the Philippines shall be included in his taxable estate.

ESTATE TAXATION
Q. Define estate.
Ans. ) Estate (inheritance) refers to all property, rights and obligations of a person which are
not extinguished by his death and also those which have accrued thereto since the opening of the
succession (See Arts. 776, 781, Civil Code)
Q. What is estate?
Ans. All the assets and liabilities of the decedent existing at the time of his death.

FUNDAMENTALS ON ESTATE TAX

Q. Give the concept of transfer taxes.

Ans. Transfer Taxes.- Private property that may be transferred by gratuitous disposition (i.e.
"donation" or "succession" of private property) is subject to transfer taxes; that is, the transmission
of the property from the decedent to his heirs is subject to estate tax and the transmission of
property to a donee is subject to a donor tax.
Q. Are estate and inheritance taxes in the nature of taxes on property or not?
Ans. A tax imposed upon the transfer of property ownership. It is a privilege tax which is
imposed on the act of passing ownership of property and not a tax on the property itself.
Q. Classify or state the kinds of transfer taxes. What are the different kinds of transfer
taxes imposed under the NIRC?
 Ans. Actually, there are two kinds of transfer taxes under the Tax Code, namely:
(1) Estate tax; and
(2) Donor's tax.
Q. Define estate tax.
Ans. Estate Tax, Meaning.- It is a tax which the state exacts where the property left by the
decedent considered as a unit departs from the dead on its way to the living (1 CSJ, 1595). Estate
tax is the tax on the right to transmit property at death and on certain transfer which are made by
the statute the equivalent of testamentary disposition (Alexander, Federal Tax Handbook, 1956,
ed. p. 581).
Note: Inheritance tax is an imposition created by law on the privilege to receive property. (Vera
v. Navarro, 79 SCRA 434). Presently, no more inheritance tax, only estate tax is being imposed.
Q. What is the distinction between the estate tax and inheritance tax? or Distinguish
estate tax from inheritance tax .
Ans. Estate tax is a tax on the privilege to transfer property upon one's death while inheritance
tax is a tax on the privilege to receive property from the deceased.
Q. Discuss the nature of the estate tax.
Ans. Nature. Estate tax is not a direct tax on property; it is not capitation tax; that is, the tax is
laid neither on the property nor on the transferor or the transferee 228 Am Jur. 12.
It is an excise tax and its object is to the shifting of economic benefits and enjoyment of property
from the dead to the living (Gregg v. Comm. 315 Mass. 704).
Q. What are the objectives of estate tax?
Ans. Objectives- The objectives of estate tax are as follows:
(1) Mainly, for preventing undue concentration of wealth [in the hands of the few] which others
called it as "limiting fortunes by taxation" or "Redistribution theory."
(2) Secondarily, it is also designed to give recognition to the principle that the State is a
continuing partner [i.e., providing protection,etc.] in ownership of property within its domain or
"State partnership theory."
Q. What are the reasons justifying the imposition of estate tax?
Ans. Justifying Reasons.- There are four theories justifying the imposition of death[estate]
taxation, namely:
(1) BENEFIT-RECEIVED THEORY- this theory considers the service of the government
rendered in the distribution of the estate of the decedent, either by law or in accordance with his
wishes. For the performance of these services and other benefits that accrue to the estate and the
heirs, the state collects the tax (De Leon, p. 12).
(2) PRIVILEGE THEORY/ STATE PARTNERSHIP THEORY- according to the exponents
of this theory: "inheritance is not a right but a privilege granted b the state, and large estates have
been acquired only with the protection of the State; consequently, the State as a passive and silent
partner, in the accumulation of property has the right to collect the share which is properly due to
it (5De Leon, p.22).
(3) ABILITY TO PAY THEORY- this theory espouses the view that receipt of inheritance
which is in the nature of an unearned wealth or windfall, place assets into the hands of the heirs
and beneficiaries hereby creating an ability to pay the tax and thus contribute to government
income. The exemption of a minimum amount of the inheritance from the tax can provide for cases
of need.
(4) REDISTRIBUTION OF WEALTH THEORY - the receipt of inheritance is a contributing
factor to the inequalities in wealth and income. The imposition of death tax reduces the property
received by the successor, thus, helping bring value of the property and the progressive scheme of
taxation is precisely motivated by the desire to mitigate the evils of inheritance in its present form
( De Leon ibid, p.12).
Q, Give the concept of succession.
Ans. Succession, Concept.- It is the mode of acquisition by virtue of which the property, rights
and obligations to the extent of the value of the inheritance, of a person are transmitted through
death to another or others by his will or by operation of law.
Q. What is meant by will?
Ans. Will is defined as "an act whereby a person is permitted with the formalities prescribed
by law to control to a certain degree the disposition of his estate, to take effect after his death."
Q. Classify succession.
Ans. Classifying it, we have:
(1) Testamentary succession or testate succession- is that which results where the deceased
has left a declaration in a form prescribed by law of his will as to who shall succeed to his
transmissible rights and/or liabilities.
(2) Intestate [legal] succession- is that form of succession which by reason of an invalid will,
or of the incapacity to succeed of the successor named in the will, takes place by operation of
law(Art. 960, Civil Code).
(3) Mixed succession- is that effected partly by will and partly by operation of law (Art.770,
Civil Code).
Q. What are the other terminologies connected with succession?
Ans. The Other Terms. worth explaining and defining are the following terms:
(1) Heir- is the person called to the succession either by the provisions of the will or by
operation of law (Art. 782, Civil Code).
(2) Devisee- is a person who takes realty [i.e. building/lands machineries] by virtue of a will.
(3) Legatee- is a person who takes personalty/personal property- i.e., money, jewelry, shares
of stocks] under the will.
(4) Inheritance- includes all property, rights and obligations of a person which are not
extinguished by death (Art. 776, Civil Code).
Q. Give the formula/ procedural steps in arriving the taxable estate tax.
Ans. The following steps are involved in the computation of an estate tax, namely:
First, Ascertain the total value of the gross estate of the decedent. Exclude the excluded items.
Second, Subtract from the gross estate the legal deductions to determine the net estate.
 Third, Divide the net estate [gross estate less allowable de ductions] into two if the properties
are "conjugal" so as to get one-half share of the surviving spouse and what remains shall be the
taxable estate of the decedent.
Fourth, Deduct from the taxable net estate the P200,000.00 exemption.
Fifth., Apply the new schedule of estate tax rates upon the balance and the result is the "Estate
Tax."
Q. Enumerate the Gross Estate of the resident (or Filipino citizen) decedent.
Ans. Resident Decedent.- The gross estate of resident deceased shall include to the extent of
his interest the value at the time of his death, of all:
(1) Real and personal property wherever situated;
(2) Tangible personal property;
(3) Intangible personal property wherever located (Sec. 85, Tax Code; Sec. 104).
Q. What constitutes the gross estate of the non-resident alien decedent?
Ans. The gross estate of a nonresident decedent shall include to the extent of his interest, the
value at the time of his death of all:
(1) Real or immovable property physically located in the Philippines;
(2) Tangible personal property physically located in the Philippines;
(3) Intangible personal property within a situs in the Philippines unless exempted on the basis
of reciprocity (Sec. 85, Sec. 104; Tax Code).
Q. Specifically, what are the matters or items to be included in gross estate:
Ans. Items Included.- The value of the gross estate of the decedent shall be determined by
including the value at the time of his death of all property, real or personal, tangible or intangible,
wherever situated-
(1) Decedent's interest;
(2) Transfer in contemplation of death;
(3) Revocable transfer where decedent has reserved the right to revoke;
(4) Property passing under general power of appointment;
(5) Proceeds of life insurance;
(6) Prior interest;
(7) Transfer for insufficient consideration [Sec. 85(A to (G), Tax Code].

NIRC Sec 85(A) Decedent's Interest. — To the extent of the interest therein of the decedent at
the time of his death;
(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 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 bona fide sale for an
adequate and full consideration in money or money's worth.
(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 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 exercisable) 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), to 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 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.
(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 for 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 deemed a part of his or her gross estate.

Q. What are the intangible property of a nonresident alien decedent considered as

situated in the Philippines?
Ans. They are:
(1) Intangible Personal property situated in the Philippines;
(2) Franchise which must be exercised in the Philippines.
(3) Shares, obligations, or bonds issued by any corporation or sociedad anonima organized or
constituted in the Philippines in accordance with its law;
(4) Shares, obligations, or bonds issued by any foreign corporation, 85% of the business of
which is located in the Philippines;
(5) Shares, obligations, or bonds issued by any foreign corporation if such shares, obligations
or bonds have acquired a business situs (i.e., they are used in furtherance of its business in the
Philippines by the foreign corporation) in the Philippines; and
(6) Shares or rights in any partnership, business or industry established within the
Philippines(Sec.104, Tax Code).
Q. What are those inter vivos transfers which are treated by the Tax Code as substitutes
for testamentary disposition?
Ans. These inter vivos transfers may be grouped as follows:
(1) Transfer in contemplation of death.
(2) Transfers with retention or reservation of certain rights;
(3) Revocable transfers;
(4) Transfers of property arising under a general power of appointment; and
(5) Transfer for insufficient consideration.
Q. When are the proceeds of a life insurance policy includible in the gross estate? Are
proceeds of a life insurance policy includible in the gross estate of the decedent
Ans. The proceeds of a life insurance policy are included in the gross estate under these
circumstances:
(1) If the decedent takes insurance policy on his own life:
(a) If the benefits/amounts are receivable by the estate of the deceased, his executor or
administrator irrespective whether insured (decedent) retained the power of revocation;
(b) The amounts are receivable by any beneficiary designated in the policy if
insurance as revocable beneficiary [Sec. 85 (E), Tax Code].
(2) Other person other than the decedent takes the insurance policy on the life of the decedent
and the beneficiary and/or amounts are receivable by the decedent estate or his executor or
administrator irrespective of whether or not the insured retained the power of revocation.
Q. What life insurance policy are excluded from the gross estate?
 Ans. The following insurance policies are not includible in the gross estate:
(1) Proceeds of insurance policy where the amount receivable by the irrevocably designated
in the policy is not to be included (Sec. 85(E), Tax Code).
(2) Proceeds of a group insurance policy taken out by the company for its employees not
included because the law is clear that it must be taken out by the decedent upon his own life."
(3) Accident insurance proceeds not includible in the gross estate; however, if one of the risks
insured against in a life insurance is an accident insurance, such insurance maybe considered as a
life insurance (Gallardo v. Morales, 107 Phil. 903; See Sec. 3(par. 3) 174, 1972, Insurance Code
of 1978 (PD NO. 1460).
(4) Where insurance was not taken by the decedent upon his own life and beneficiary is not
decedent's estate, his executor and administrator.
Q. Are donations inter vivos and donations mortis causa subject to estate tax?
Ans. No. Donations inter vivos are subject to donor's tax not estate tax; however, donations
mortis causa are not subject to donor’s tax but subject to estate tax being transfers in contemplation
of death, because they are intended to take effect in possession and enjoyment after donor's death
and therefore, for taxation purposes, they form part of the gross estate of the decedent/donor and
such imposition is intended to prevent evasion of estate tax.
Q. Explain the meaning of "transfer in contemplation of death" as used in estate
taxation.
Ans. The words mean that it is the thought of death, as a controlling motive, which induces the
disposition of the property for the purpose of avoiding applicable tax. Contemplation of death is
meant by the Tax Code , not "imminent death (US v. Wells, 283 US 102).
Q. What are the examples of circumstances that may be considered in determining
whether the transfer was made in contemplation of death?
Ans. The determinative factors are:
(1) Age and state of health of the decedent at the time of the gift/donation especially if he was
aware of the serious illness;
(2) Length of time between the gift and date of death (Dizon v. Posadas, 57 Phil. 465). Short
interval may mean that the thought of death was already in decedent's mind; however, a long
interval is contrariwise (Estate of Mary W. Aushman, 40 BTA 94).
(3) Concurrent making of a will or making a will within the short time after the transfer (Vidal
de Roces v. Posadas, 58 Phil. 108).
Q. What are examples of motives which preclude transfer a transfer from the category
of one made in contemplation of death?
Ans. The motives which preclude a transfer from the category of one made in contemplation
of death are:
(1) To relieve the donor from the burden of management;
(2) To save income or property taxes;
(3) To settle family litigated and unmitigated disputes;
(4) To provide independent income for dependents;
(5) To see the children enjoy the property while the donor is alive;
 (6) To protect family from hazards of business operations; and
(7) To reward services rendered (De Leon, pp 289-290).
Q. What transfers in contemplation of death are includible as part of the gross estate of
the decedent?
Ans. To the extent of any interest therein of which:
(1) 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 his death; or
(2) The decedent has at any time made a transfer, by trust or otherwise, under which he has
retained for his life or for a period not ascertainable without reference to his death or for any period
which does not in fact end before his death, the possession or enjoyment of, or the right to the
income from the property or the right either alone or in conjunction with any person to designate
the person who shall possess or enjoy the property or the income there from (Sec. 85(B) Tax
Code).
Q. What transfers in contemplation of death that are not to be included as part of the
decedent's gross estate?
Ans. In case of a bona fide sale for an adequate and full consideration in money or money's
worth (Sec. 104 Tax Code).
Q. Relative to revocable transfers what rules should be followed whether they are
includible or not to the gross estate?
Ans. The rules are:
(1) Revocable transfers when includible as part of the gross estate- to the extent of any interest
therein of which the decedent has at any time made a transfer, 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 exercisable) by the decedent alone or by the decedent in conjunction
with any other person (without regard to when and from what source the decedent acquired such
power), to alter, amend, revoke to terminate or when any such power is relinquished in
contemplation of the decedent's death (Sec. 85(C), (1) Tax Code).
(2) Revocable transfers not included as part of the gross estate- where the transfer is a bona
fide sale for an adequate and full consideration in money's worth [Sec. 85,(C) (3), Tax Code].
Q. In what cases the relinquishment of the reserved power to alter, amend or revoke, etc
considered to have been made in contemplation of death?
Ans. In two instances:
(1) Where it is admitted or shown to have been made in contemplation of death; or
(2) Where it is made -
(a) Within 3 years prior to the decedent’s death;
(b) Without full and adequate consideration; and
(c) It affects the interest or interests of any one beneficiary of a value, at the time of
such death, in excess of P2,000.00 then to the extent of such excess. It may, however, be
shown that the relinquishment was not the possession or enjoyment of, or the right to the
income of the property; or
 (d) The right, either alone or in conjunction with any person, to designate the persons,
who shall possess, or enjoy the property or the income there from [Sec. 85(D) Tax Code].
Q. What are the requisites in order that the property may be considered as passing under
a general power of appointment?
Ans. The following requisites:
(1) The existence of a general power of appointment;
(2) An exercise of such power by the decedent (donee or appointment) by will or by deed in
certain cases; and
(3) The passing of the property by virtue of such exercise(Warren and Surrey, Federal Estates
and Gift Taxation (1950) ed. p. 307).
Q. What is meant by power of appointment?
Ans. A power of appointment refers to a right to designate the person or persons who shall
enjoy or possess certain property from the estate of a prior decedent.
Q. What are the classes of the power of appointment ? Define or explain each of them.
Ans. There are two classes of power of appointment, namely:
(1) General power of appointment- when it authorizes the donee to appoint any person he
pleases, including himself, his spouse his estate, his executor or administrator, and his creditor thus
having as full dominion over the property as though he owned it.
(2) Special power of attorney- when the donee can appoint only among a restricted or
designated class of persons other than himself (Morgan v. Comm. 309 US 78).
Q. When is property passing under general power of appointment not included as part
of the gross estate?
Ans. When the transfer is a bona fide sale for an adequate and full consideration in money or
money's worth [Sec. 85(D) Tax Code].
Q. When is transfer for insufficient consideration includible as part of the decedent’s
estate?
Ans. Where the decedent's property is transferred in contemplation of death, revocable transfer
or passed under a general power of appointment for a consideration in money or money's wroth
but not for an adequate and full consideration in money or money's worth, the amount includible
as part of the decedent's gross estate should be the difference between the fair market value at the
time of the decedent's death and the actual consideration by the decedent [Sec. 85(G),Tax Code].
Thus, this formula:
Fair market value of property at decedent's death
Less: Actual consideration received by the decedent
Equal: Amount includible in decedent's gross estate.

D. EXCLUSIONS AND EXEMPTIONS

Q. What matters are generally excluded from the gross estate?
Ans. Matters to be excluded.- Under the Tax Code there are two groups of properties to be
excluded from the gross estate:
 (1) Those properties excluded expressly from the gross estate [(exclusion);
(2) Those properties exempted from the tax (exemptions).
Q. How is resident estate being distinguished from non-resident estate?
Ans. The distinguishable features of the two:
(1) As to character.- A resident estate is the estate of either a citizen or a resident alien; while
a nonresident estate is that of a nonresident alien;
(2) As to composition- A resident estate comprises property which are found anywhere in the
world while a nonresident estate comprises only property found in the Philippines or which have
obtained a business situs in the Philippines;
(3) As to deductions. Deduction as to the value of the family home, standard deduction, medical
expenses and amount received by heirs under RA No. 4917)retirement benefits) are allowable
deductions to resident estate; nonresident estates do not enjoy such allowable deductions.
Q. What should be excluded from the gross estate?
Ans. Excluded from the Gross Estate.- Excluded from the gross estate of the decedent are the
following items/matters, namely:
(1) Real property located outside the Philippines if belonging to non-resident decedent
(2) Proceeds of life insurance if payable to a designated beneficiary and it is irrevocable [Sec.
85(E), Tax Code].
(3) Property held in trust or in fiduciary capacity for others;
(4) Property belonging exclusively (capital or paraphernal property) to the surviving spouse
[Sec. 85(H), Tax Code].
Q. Are exclusive property of the spouses part of the gross estate?
Ans. Exclusive Property- Under the Tax Code the separate property of the surviving spouse
[capital of the husband or paraphernal property of the wife] is not deemed part of the gross estate
of the decent spouse [Sec. 85(H), Tax Code].
Q. What is a paraphernal property?
Ans. It refers to all property already owned by the wife prior to the marriage as well as all
property she acquires during the marriage which the law considers as her exclusive property.
Art. 109, Family Code; The following are considered exclusive property of each spouse:(1)
That which is brought to the marriage as his or her own; (2) That which each acquires during the
marriage by lucrative or gratuitous title (i.e., inheritance or donations); (3) That which is acquired
by right of redemption, or by barter or by exchange with other property belonging to only one of
the spouses. (4) That which is purchased with the exclusive money of the wife or the husband; (5)
Property brought on installments paid partly from exclusive funds of either or both spouses and
partly from conjugal funds belongs to the buyer or buyers if full ownership was vested before the
marriage (Art. 118, Family Code; (6) The sums collected by installments due during the marriage
from credit payable in a certain number of years belonging to either spouse (Art. 119, Family
Code).
Q. What is the meaning of husband/s capital?
Ans. It refers to the exclusive property of the husband brought by him to the marriage or
acquired by him during the marriage (as in the case of paraphernal property).
 Q. Under the Family Code what constitutes community of property of husband and wife?
Ans. Unless otherwise provided in the Family Code or in the marriage settlement, the
community property shall consist of all the property owned by the spouses at the time of the
celebration of marriage or acquired thereafter.
Art. 91, Family Code. Under the law, what are excluded from the community property: (1)
Unless it is expressly provided otherwise by the donor, testator or grantor, property acquired during
the marriage by gratuitous title by either spouse, so well as the fruits and income thereof.(2)
Property for personal and exclusive use of either spouse, except jewelry; and (3) Property acquired
before marriage by either spouse who has legitimate descendants by a former marriage, as well as
the fruits and income thereof (Sec. 92, Ibid).

Q . What are considered as conjugal partnership property?

Ans. The following are considered conjugal partnership property:
(1) Those acquired by onerous title during the marriage at the expense of the common fund,
whether the acquisition be for the conjugal partnership or for only one of the spouses.
(2) Those obtained by the industry or work or profession of the spouses or of either of them;
(3) The fruits, rents, or interests received or due during the marriage coming from the common
property or from the exclusive property of each spouse.
(4) The share of either spouse of the hidden treasure which the law awards to the finder or
proprietor.
(5) Those acquired by occupation such as fishing and hunting;
(6) Livestock existing upon the dissolution of the partnership in
excess of the number of each kind brought in the marriage by either spouse.
(7) Those acquired by chance, such as winnings from gambling or betting.
(8) In case of property under No. 5, if full ownership was vested during the marriage.
(9) Improvement made on separate property of the spouses at the expense of the conjugal
partnership or through the acts or efforts of either or both spouses shall pertain to the conjugal
partnership, or to the original owner-spouse subject to reimbursement of the value of the property
or the cost of the improvement as the case may be (Secs. 117, 118, 119, 120, ;see Family Code).
Q. What are the classes of exemptions?
Ans. Exemptions.- There are two classes of exemptions, namely:
(1) Exemption under the Tax Code
(2) Exemption under special laws
Q. What are the acquisitions and transmission which are not subject to estate tax under
the Tax Code?
Ans. The following:
(1) The merger of the usufruct in the owner of the naked title;
(2) The transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee
to the fideicommissary.
 (3) The transmission from the first heir, legatee or donee in favor of another beneficiary in
accordance with the desire of the predecessor;
(4) All bequests, devises, legacies, or transfers to social, welfare, cultural and charitable
institutions, no part of the net income of which inures to the benefit of any individual, provided
that no more than 30% of said bequests shall be used by such institutions for administration
purposes (Sec. 87, Tax Code).
Q. Give instances of properties or transfers which are exempt from estate tax under
special laws.
Ans. In the following cases:
(1) Benefits received by members from GSIS, and SSS by reason of death.
(2) Amounts received by beneficiaries residing in the Philippines under laws administered by
the US Veterans Administration.
(3) Bequest to social, welfare, cultural and charitable (not including educational and religious)
institutions no part of the net income of which insures to the benefit of any individual, provided
that no more than 30% of said bequests shall be used by the donee for administrative purposes(PD
NO. 507; see BIR ruling NO. 75-001, January 14, 1975; See Sec. 97, ibid).
Q. What is a net estate? How is the net estate determined?
Ans. Concept.- Net estate is the difference after deducting allowable deductions from the gross
estate: Thus,
Gross Estate
Less: allowable deductions
Equals Net Estate
Q. Classify deductions to the gross estate.
Ans. Classes of Deductions.- Allowable deductions from the gross estate may either be:
(1) Allowable deductions enjoyed by Filipino citizens or resident aliens; and
(2) Allowable deductions to non-resident aliens.
Q. What are the allowable deductions to Filipinos/resident aliens.
Ans. Allowable deductions to Filipinos/Resident Aliens.- The following are allowable
deductions in the computation of estate tax:
(1) Expenses, losses, indebtedness and taxes including
(a) Funeral expenses equal to 5% but not to exceed P200,000.00.[Sec. 86(A)(1)(a),
Tax Code].
(b) Judicial expenses of the testamentary or intestate proceeding;
(c) For claims against estate;
(d) For claims of the deceased against insolvent person;
(e) For unpaid mortgages [Sec. 86(A) (b)(c) and (d), Tax Code].
(2) Property previously taxed (vanishing deductions) [Sec. 86(A) (2), Tax Code].
(3) Transfer for public use.[Sec. 86(A)(3), Tax Code],
(4) Family home [Sec. 86(A) (4), Tax Code].
 (5) Standard deduction of P1 million .[Sec. 86(A)(5), Tax Code].
(6) Medical expenses incurred within 1 year by the decedent provided it is supported by
receipts but not more than P500,000.00.50
(7) Amount received by heirs under RA No. 4917.
Q. What are the allowable deductions for nonresident?
Ans. Allowable Deductions for Non-Resident.- The following deductions are recognized:
(1) Expenses, losses, indebtedness and taxes;
(2) Property previously taxed (vanishing deductions);
(3) Transfer for public use;
(4) Share in the conjugal property; and
(5) Tax credit [ Sec. 86(E) (1) (c) Tax Code].
However, "no deductions shall be allowed in the case of nonresident not a citizen of the
Philippines unless the educator, 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 non-resident not situated in the Philippines (Sec. 86(D), Tax Code).
NIRC 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 a 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;

Expenditures incurred for the individual benefit of the heirs, devisees or legatees are not
deductible
Judicial expenses are expenses of administration. Administration expenses, as an allowable
deduction from the gross estate of the decedent for purposes of arriving at the value of the net
estate, have been construed by the federal and state courts of the United States to include all
expenses "essential to the collection of the assets, payment of debts or the distribution of the
property to the persons entitled to it." In other words, the expenses must be essential to the
proper settlement of the estate. Expenditures incurred for the individual benefit of the heirs,
devisees or legatees are not deductible.
Commissioner of Internal Revenue vs. Court of Appeals, et al., G.R. No. 123206, March 22, 2000

Tax should be measured by the value of the estate at the time of decedent's death.
If death is the generating source from which the power of the state to impose inheritance taxes
takes its being and if, upon the death of the decedent, succession takes place and the right of the
state 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 affecting value of any
subsequent increase or decrease in value.
Pablo Lorenzo vs. Juan Posadas, Jr., G.R. No. 43082, June 18, 1937
Right of the state to inheritance tax accrues at the moment of death.
The right of the state to inheritance tax accrues at the moment of death, and hence is ordinarily
measured as to any beneficiary by the value at that time of such property as passes to him.
Subsequent appreciation or depreciation is immaterial.
Pablo Lorenzo vs. Juan Posadas, Jr., G.R. No. 43082, June 18, 1937
(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 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 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 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 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 therefore.
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 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, 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's employer 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.

Q. What are included in the term "judicial expenses."?

Ans. These include administration expenses and other expenses such as: executor fees,
administrator's fees, attorney’s fees accountant's fees, appraiser/s fees, cost of preserving and
distributing the estate and the like.
Q, In order that claims against estate may be deductible, what requisites must be
complied with?
Ans. The following must be complied with:
(1) They are contracted in good faith and with full consideration;
 (2) They must be existing against the estate;
(3) They must legally enforceable obligations;
(4) They must be reasonable and certain as to amount.
Note: Claims against insolvent persons and unpaid mortgage indebtedness and unpaid taxes
must comply certain requisites to make them deductible from the gross estate. The requisites for
deductibility of claims against insolvent persons are: (1) The amount of said claims has been
initially included as part of his gross estate; and (2) The incapacity of the debtors to pay their
obligations is proven not merely alleged (Moneseratt v. Coll. CTA Case No. 11, Dec. 28, 1955;
Sec. 86 (A) (1) (d) Tax Code;
The requisites to concur in order unpaid mortgage indebtedness be deductible from the
decedent's gross estate are: (1) The fair market value of the property mortgaged without deducting
the mortgage indebtedness has been initially included as part of the gross estate; and (2) The
mortgage indebtedness was contracted in good faith and for adequate and full consideration in
money or money's worth (Sec. 86 (A) (1) (e), Tax Code;
Taxes owed by the decedent and unpaid, being debts in favor of the government are also
deductible as a claim against estate but income taxes upon income received after the death of the
decedent, or property taxes not accrued before his death, or any estate tax ,are not because they are
chargeable to the income of the estate.
Q. What is meant by the term casualty losses?
Ans. Casualty losses include all losses incurred during the settlement of the estate arising from
fires, storms, shipwrecks or other casualties, or from robbery, theft or embezzlement. Certain
requisites must be complied with for its deductibility. The requisites for deductibility of casualty
losses are:(1) There must be loss arising from any causes given above; (2) Such is not compensated
by insurance or otherwise; (3) Not claim as deduction for income tax purposes; and (4) such loss
was incurred not later than the last day for the payment of the estate tax.

Q. What are vanishing deductions in estate succession?

Ans. Vanishing Deduction, Meaning.- This deduction is an amount allowed to reduce the taxable
estate of a decedent where property received by him from a prior decedent by gift bequest, devise
or inheritance or transferred to him by gift, has been the object of previous transfer taxation[Sec.
86((2(, Tax Code].
This deduction is known as "deduction for property previously taxed" and this deduction is
called vanishing deduction because the deduction allowed diminishes over the period of five years.
Q. When are vanishing deductions applicable?
Ans. Vanishing Deductions, When Applicable.- Certain requisites must be present to make
vanishing deductions deductible :
(1) Property received by gift or succession from prior decedent within five years of the death
of a second decedent;
(2) Property identified either as the same origin exchange for [property so received);
(3) Property formed part of the estate of prior decedent [or included in the total gifts of donor];
and
(4) Estate (or donor's) taxes actually paid by prior decedent; and
 (5) No previous vanishing deduction on the property.
The amount deductible under the "vanishing deductions" is the value of any property forming
part of the gross estate of the decedent acquired by him from another prior decedent to the death
of the second decedent [or if the property was transferred to him by gift within the same period
prior to his death;
(1) 100% of the value if the first decedent died within one year to the death of the second
decedent (of if the property was transferred to him by gift within the same period prior to his
death.
(2) 80% if more than one year but less than 2 years;
(3) 60% if more than 2 years but less than 3 years;
(4) 40% if more than 3 years but less than 4 years; and
(5) 20% if more than 4 years but less than 5 years [Sec. 86(A) (2) Tax Code].

Q. What is the applicable formula in vanishing deduction?

Ans. Applicable formula. The formula to compute vanishing deductions:
First, obtain initial basis-
Value taken of property previously taxed [PPT];
Less: Mortgage debt if any [First deduction];
Equals: Initial basis.
Then, determine the second deduction-
Second Deduction -
Expenses and transfer
Initial Basis x For public purpose
Gross Estate
Finally, compute vanishing deductions:
Initial basis
Less: Second Deduction
Equals: Second basis
Apply: Multiply: 100%/80%/60% /40% and 20%;
Result: Vanishing Deduction
Q, Discuss public use as deductible item from the gross estate.
Ans. The amount of all bequests, legacies, devices 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 [Sec. 86 (A) (3) and (B) (3), Tax Code].
Q. Discuss the deductions known as the value of the family home from the gross estate of
Filipino citizen or resident alien decedent..
Ans. The deductible value of the family home must:
(1) Be in the amount equivalent to the current market value of the decedent's family home;
 (2) Not exceed P1 million; if exceeding such amount, only the excess shall be subject to estate
tax.
(3) Be certified by the barangay captain of the locality as the decedent's family home [Sec.
86(A)(214), Tax Code].
(4) Not be enjoyed by nonresident estates for reasons they do not have family homes in the
Philippines.
Q. What must be required to make medical expenses deductible from the gross estate of
Filipino citizens or resident alien decedent?
Ans. The requisites are:
(1) Medical expenses must be incurred by the decedent;
(2) Must be incurred within 1 year prior to his death;
(3) Must be duly substantiated by receipts.
(4) Must not exceed P500,000.00 [Sec. 86(A) (6), Tax Code].
Note: Medical expenses not allowable deduction to nonresident estates.
Q. What are the limitations on tax credit or deductions from the amount of estate taxes
to be paid?
Ans. The basic rules on tax credit:
(1) The amount of the credit in respect to the tax paid to any country shall not exceed the same
proportion of the tax against which such credit is taken, which the decedent's net estate situated
within such country taxable under the Tax Code bears to his entire net estate; and
(2) 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 under the Tax
Code bears to his entire net estate [Sec. 86(E), Tax Code].

Q, What is the tax treatment of the net share of surviving spouse in the conjugal
property?
Ans. 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 computing the
net estate, be deducted from the net estate of the decedent [Sec. 86(C) Tax Code]. This deduction
is allowable irrespective of whether the decedent is a citizen, a resident alien or a nonresident alien;
The formula:
Add: Gross conjugal properties and exclusive properties
Equals: Gross Estate
Less: Deductions on conjugal properties
Deductions on exclusive properties
Standard deduction/Vanishing deduction, if any
Equals: Estate after deduction
Less: 1/2 conjugal share of surviving spouse
Equals: Net Estate before exemption.
 Q. 1233. Discuss the standard deduction from the gross estate of a Filipino citizen or a resident
alien decedent.
Ans. An amount equivalent to one million pesos (P1,000,000.00) [Sec. 86 (A), (5), Tax
Code]'shall be deductible from the gross estate. However, nonresident estates are not to enjoy this
P1 million standard deduction.
Q. What is the requirement for non-resident alien to avail of deduction?
Ans. No deduction shall be allowed in the case of nonresident not a citizen of the Philippines,
unless the executor, administrator or anyone of the heirs, as the case may be, includes in the estate
return, required to be filed the value at the time of his death, of that part of the gross estate of the
nonresident not situated in the Philippines [Sec.86 (D), Tax Code].
Note: In case of estates of nonresident aliens situated in the Philippines, the deductions for
expenses, losses, indebtedness, and taxes, the amount of the allowable deduction is limited to the
proportion of such deductions which the value of such part of his gross estate which at the time of
his death is situated in the Philippines, bears to the value of the entire gross estate wherever
situated. [Sec. 88 (A), Tax Code]. This formula to express:
Philippine Gross Estate
x Deductions Claimed = Allowable Deduction
Entire Gross Estate

Q. Discuss the appraisal and valuation of usufruct.

Ans. Usufruct.- To determine the value of the right of usufruct use or habitation as well as that
of annuity, there shall be taken in account the probable life of the beneficiary in accordance with
latest Basic Standard Mortality Table, to be approved by the Secretary of Finance upon
recommendation of the Secretary of Finance. [Sec. 88(A). Tax Code].
Q. Give the rule on valuation of property subject to estate tax.
Ans. Properties.- The estate shall be appraised at its fair market value as of the time of death.
However, the appraised value of property as of the time of death shall be whichever is the higher
of-
(1) The fair market value as determined by the Commissioner;
(2) The fair market value as shown in the zonal value or schedule as fixed by Provincial and
City Assessor [Sec. 88 (B) (1) and (2), Tax Code86(D), Tax Code].
Q. What is fair market value?
Ans. Fair market value is that price at which any seller will sell and any buyer will buy, both
willingly without any force or intimidation. Mortgage value may be considered as the fair market
value because this value (mortgage) is the value acceptable to both the mortgagee and mortgagor
(Dizon et. al. v. Commissioner of Internal Revenue ,CTA Case No. 5116, promulgated June 17,
1997).
Q. Who determines fair market value in estate tax?
Ans. For estate tax purposes the determination of the fair market value is lodged with the
Commissioner of Internal Revenue(Sec. 88 (B), Tax Code) in relation to his authority to prescribe
real estate values for internal revenue purposes (Sec. 6(E), Tax Code)
 E. COMPUTATION OF ESTATE TAX
Q. Upon which is the estate tax being imposed and computed?
Ans. It is imposed and computed upon the basis of the net estate which is treated as a unit.
Q. Is the entire net estate subject to the estate tax?
Ans. No, because the first P200,000.00 of the taxable net estate is exempt.
Q. Give the schedular rates of the estate tax.
Ans. Sec. 84, Rates of Estate Tax. -There shall be levied, assessed and collected and 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 Philippines, a tax based on the value of such net
estate, as computed in accordance with the following schedule:
If the net estate is
Over But Not Over The Tax shall be Plus Of the Excess Over
P 200,000 Exempt
P200.000 P 500.000 0% 5% P200,000
P 500 000 P 2,000,000 P15,000 8% P500,000
P2,000,000 P5,000.000 P135,000 11% P2,000.000
P5,000.000 P10,000.000 P 465,000 15% P5,000.000
P10,000.000 and Over P1,215,000 20% P10,000.000
Q. Mr. X died on July 5, 2012 without a last will and testament. He was survived by his
wife, Mrs. X and three children; X, Jr., Y and Z, He left a gross estate of P2,800,000.00.
Assume that the deductible items are P160,000.00 D's claims against Mr. X, P40,000.00
funeral expenses and the standard deduction. How much estate taxes is due to the
government (Hypothetical problem).
Ans. The solution is this:
GROSS ESTATE .......................................... ...P2,800,000.
Less: Deductible items:
D's claim .... P. 160,000
Funeral expenses P.. 40,000
Standard Deduction P1,000,000
Total deductions ...................................... .. .. P1,200,000
Net Estate..................................................... . .P1,600,000
Less: 1/2 share of Mrs. X [conjugal] ...... P 800.000
Taxable Estate............................... ... P 800.000
Tax Rates:
First, P200,000 0% = Exempt
Next, P300,000 5% = P 15,000
 Next, P300,000 8% = P 24,000
Tax Due...................................................... ....... .P 39,000

F. TAX RETURNS AND PENALTIES

Q. Is the BIR authorized to collect estate tax deficiency by the summary remedy of levy
upon and sale of real properties of the decedent without first securing the authority of the
court sitting in probate over the supposed will of the decedent?
Ans. Approval of the court where a probate/intestate proceeding is pending is not a mandatory
requirement in the collection of estate taxes. On the contrary, the probate/intestate court is
prohibited to deliver any distributive share to any party unless there is certification from the
Commissioner that the estate taxes are already paid (Marcos II v. Court of appeals, et. al. 273
SCRA 47).
Q. When and where notice of death be filed?
Ans. Notice of Death.-In all cases of transfers subject to tax, where though exempt from tax,
the gross value of the estate exceeds P20,000.00 the executor/administrator, or any of the legal
heirs as the case may be, within two months after the decedent's death or within a like period after
qualifying as such executor, or administrator [if there is judicial proceeding] shall give a written
notice thereof to the Commissioner( Sec. 89, Tax Code).
Q. Who are the persons to file the tax return?
Ans. Who Should File the Tax Return- The Estate tax return shall be filed by any of the
following: the executor, administrator or any of the heirs.
Q, What are the requirements imposed by law on the estate tax return.
Ans. Requirements. -As provided by the Tax Code the requirements are as follows:
(1) MANDATORY- all transfer subject to estate tax or where, though exempt if the value [less
than P200,000] if gross value of the estate exceeds P20,000.00 or even less if estate involved a
registered real property, registered motor vehicle, shares of stock where clearance from BIR is
required for registration of transfer [Sec . 90 (A), Tax Code];
(2) RETURN UNDER OATH- must be filed in duplicate by the executor, administrator or
any of the heirs.
(3) CONTENTS. The return must contain the following:
(a) Value of the gross estate
(b) Legal deductions;
(c) Other data to establish correct taxes;
(d) Estate with gross value of P2 million shall be accompanied by the following: a
statement duly certified by CPA showing itemized assets of the decedent situated within
and without the Philippines with their corresponding gross value at the time of the death
or in the case of nonresident alien those which are situated in the Philippines; itemized
deductions from the gross estate and amount due whether paid or still outstanding[Sec.
90(A) (a) and (b), Tax Code].
(e) Where a resident decedent owning properties abroad the following additional
documents: certified copy of the estate tax return abroad; receipts evidencing payment of
 estate tax or death duties paid to a foreign country; and certified copies of petition and
inventory filed in an ancillary proceeding or settlement of the estate abroad and copy of
notice of death.
Q. When is the time to file the estate tax return?
Ans. Time for Filing.- As a general rule, the estate tax return shall be filed within six months
from the decedent's death [Sec. 90(B), Tax Code.. A certified copy of schedule of partition and
order of the court approving the same shall be furnished the Commissioner within 30 days after
the promulgation of such order. On meritorious cases, the filing may be extended by the
Commissioner. However, no extension is given to two cases or instances:
(1) Where the taxes are assessed by reason of negligence or intentional disregard of rules and
regulations; and
(2) Where there is fraud on the part of the taxpayer.
Q. When and where to pay estate tax?
Ans. When and Where to Pay.- The return shall be filed with the authorized agent banks
(AABs), or Revenue District Officer, Collector 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 in the Office of the Commissioner[Sec. 90(D), Tax Code]. The estate
tax shall be paid at the time the return is filed by the executor, administrator or the heirs [Sec.
91(A), Tax Code]. Extension of time to pay may be given by the Commissioner- i.e., not more
than 2 years if extra judicially settled and not more than five (5) years if judicially settled[Sec.
91(B),Tax Code].
Q. Who are primarily liable for the payment of the estate taxes assessed against the estate
of a deceased person?
Ans. The executors or administrators are primarily liable for the payment of the estate tax
before delivery is made to any beneficiary of his distributive share of the estate [Sec. 91(C), Tax
Code).
Q. What is meant by estate planning?
Ans. The manner by which a person takes steps to conserve the property to be transmitted to
his heirs by decreasing the amount of the estate taxes to be paid upon his death. This is procedurally
lawful because the "legal right of the taxpayer to decrease the amount of what otherwise would be
his taxes or altogether avoid them by means which the law permits, cannot be doubted (Delpher
Trades Corporation v. IAC, 157 SCRA 349, 356; Liddel & co. Inc. v. The Collector of Internal
Revenue, 2 SCRA 632).
Q, What are the ways of the BIR in collecting estate taxes.
Ans. By going after all the heirs and collecting from each of them the amount or tax
proportionate to the estate received. Imposing the lien authorized by Sec. 219, Tax Code upon all
property and rights to property of the estate and subjecting such part which is in the hands of an
heir or transferee to the payment of tax due the estate (Marcos II v. Court of Appeals, et. al.273
SCRA 47; Commissioner of Internal Revenue v. Pineda ,21 SCRA 105).
NIRC 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.
 Approval of probate court is not a mandatory requirement in collection of estate taxes.
The approval of the court, sitting in probate, or as a settlement tribunal over the deceased is
not a mandatory requirement in the collection of estate taxes. 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.
Under the NIRC, it is the probate or settlement court which is bidden not to authorize the executor
or judicial administrator of the decedent's estate to deliver any distributive share to any party
interested in the estate, unless it is shown a Certification by the Commissioner of Internal Revenue
that the estate taxes have been paid. This provision disproves the contention that it is the probate
court which approves the assessment and collection of the estate tax.
Ferdinand R. Marcos II vs. Court of Appeals, et al., G.R. No. 120880, June 5, 1997

The delinquent taxpayer is the Estate of decedent and not the heirs of the deceased.
In the case of notices of levy issued to satisfy the delinquent estate tax, the delinquent taxpayer
is the Estate of the decedent, and not necessarily and exclusively, the petitioner as heir of the
deceased. In the same vein, in the matter of income tax delinquency of the late president and his
spouse, petitioner is not the taxpayer liable. Thus, it follows that service of notices of levy in
satisfaction of these tax delinquencies upon the petitioner is not required by law, as under Section
213 of the NIRC,
Ferdinand R. Marcos II vs. Court of Appeals, et al., G.R. No. 120880, June 5, 1997
NIRC 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 shown, 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 nonpayment 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 inter vivos 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.

Q. What are the sanctions and measures ensuring tax payment of estate taxes?
Ans. Sanctions and Measures.- To ensure payment of the estate taxes the Tax Code imposes
certain duties on certain officers and debtors of the deceased to ensure compliance of the provisions
of the Estate tax:
 (1) No judge shall authorize the executor or judicial administrator to deliver distributive share
to any party interested in the estate unless with a certification from the Commissioner that the tax
has been paid (Sec. 94, Tax Code).
(2) Register of Deeds are enjoined not to register any document by way of legacy or
inheritance, unless the tax paid;
(3) Notary public and government officer shall have the duty of furnishing the BIR with copies
of such documents he prepared or intervened;
(4) Debtors of the estate shall pay only if there is certification that the tax has been paid of
any are, obligation or bonds, unless shown with certification that taxes have been already paid(Sec.
95, Tax Code).
(5) Freezing of joint accounts in banks.
Q. What are the penal sanctions under the Tax Cede to ensure payment of the estate
taxes?
Ans. Penal Sanctions.- General and specified sanctions connected with the enforcement of the
estate are as follows:
(1) Civil liability-
(a) Payment of surcharges; and
(b) Payment of interest.
(2) Criminal Liability
(a) fine or imprisonment or both;
(b) Deportation in case of an alien.
Q. Under the Tax Code to ensure payment and enforcement of the estate tax, what are
the imposable civil penalties?
Ans. Civil Penalties- In addition to the tax, there shall be imposed and collected as part of the
tax:
(1) A surcharge of 25% for each of the following violations:
(a) Failure to file the return on time;
(b) Filing a return with a person or office other than those mentioned in the Tax Code
[Sec. 248 (B) Tax Code].
(2) A surcharge of 50% in case of willful neglect to file the return or a false/fraudulent return
is filed [Sec. 248 (B)Tax Code].
(3) Delinquency interest at the rate of 20% per annum on the unpaid amount on due date until
fully paid (Sec. 249,Tax Code).
Q. In connection with estate tax what are the other specific penalties provided by the Tax
Code?
Ans. Specific Penalties.- Penalties connected with estate tax are as follows:
(1) A fine of not less than P30,000.00 nor more than P100,000 or imprisonment for not less
than 2 years but not more than 4 years for evading and defeating taxes (Sec. 244 Tax Code) or a
fine of not more than P10,000 or imprisonment of not less than year but not more than 10 years
for those failing to file any return or give accurate information (Sec. 255, Tax Code).
 (2) If violator is not a citizen of the Philippines, he shall be immediately deported after serving
the sentence;
(3) If violator is a public officer or employee, the maximum penalty shall be imposed, and in
addition, he shall be dismissed from office, disqualified to hold office and participate in any
election(Sec. 269,Tax Code).

A. DONOR’S TAX
Q. What is donation?
Ans. Donation, Defined- Donation is an act of liberality where a person [known as donor]
disposes gratuitously a thing or right in favor of another [known as donee] who accepts it (Art.
725, Civil Code).
Q. What are the requisites of donation?
Ans. The essential requisites/characteristics of donation are as follows:
(1) Consent, subject matter and cause;
(2) Compliance with the necessary form (i.e writing); that is, donation requires the
simultaneous delivery of the thing or of the document representing the right donated. If the value
of the person property donated exceeds P5,000.00 the donation and acceptance shall be in writing.
Otherwise, the donation shall be void (Art. 748, Civil Code).. In order that donation of immovable
property ]buildings, land] may be valid, it must be made in a public instrument specifying therein
the property donated and the value of the charges which the donee must satisfy (Art. 748, Civil
Code).
(3) Consent or acceptance by the donee during the donor's lifetime (Art. 745, Civil Code).
(4) Irrevocability;
(5) Intent to benefit the donee (animus donandi); and
(6) The resultant increase in the assets or patrimony of the donee.
Q. What are the various classes of donations?
Ans.. Donations are classified according to various criteria. Using purpose, motive or cause
as the criterion, donation may be classified as:
(1) Simple donation- the cause is pure liberality;
(2) Remuneratory (of the first kind)- when the purpose is to reward past services with no
strings or conditions being attached;
(3) Remuneratory [as of the second kind)- when the purpose is toward future services or
because of future charges or burdens when the value of said services, burdens or charges is less
than the value of the donation (Art. 733, Civil Code).
(4) Onerous- the burden, charges or future services equal in value to that of the thing donated
(Art. 745, Civil Code)..
Using the time of taking effect as the basic criterion, donation may be further classified as:
(5) Donation inter vivos- to take effect during the lifetime of the donor; It is one made between
living persons and which is perfected from the moment the donor knows of the acceptance of the
donee (Art. 734, Civil Code); it is subject to donor’s tax.
 (6) Donation in praesenti- donation or gift to be delivered in the future. (Art. .728, Civil
Code).
(7) Donation mortis causa-it is one which is to take effect upon the death of the donor and
therefore, partakes of the nature of a
testamentary disposition.(Art. 728, Civil Code). It is subject to estate tax.
Finally, with object as basis for classifying donation, this may result in the following
classifications:
(8) Corporeal property- donation of real property and donation of personal property; and
(9) Incorporeal rights- donation of alienable rights.
Donor's Tax
NIRC SECTION 98 Imposition of Tax —
(A) There shall be levied, assessed, collected and paid upon the transfer by any person, resident
or nonresident, of the property by gift, a tax, computed as provided in Section 99.
(B) The tax shall apply whether the transfer is in trust or otherwise, whether the gift is direct
or indirect, and whether the property is real or personal, tangible or intangible.
SECTION 99 Rates of Tax Payable by Donor. —
(A) In General. — The tax for each calendar year shall be computed on the basis of the total
net gifts made during the calendar year in accordance with the following schedule:
If the net gift is:
"Over But Not Over The Tax Shall Be Plus Of the Excess Over
P100,000 Exempt
P100,000 200,000 0 2% P100,000
200,000 500,000 2,000 4% 200,000
500,000 1,000,000 14,000 6% 500,000
1,000,000 3,000,000 44,000 8% 1,000,000
3,000,000 5,000,000 204,000 10% 3,000,000
5,000,000 10,000,000 404,000 12% 5,000,000
10,000,000 1,004,000 15% 10,000,000
(B) Tax Payable by Donor if Donee is a Stranger — When the donee or beneficiary is a
stranger, the tax payable by the donor shall be thirty percent (30%) of the net gifts. For the purpose
of this tax, a 'stranger' is a person who is not a:
(1) Brother, sister (whether by whole or half-blood), spouse, ancestor and lineal descendant;
or
(2) Relative by consanguinity in the collateral line within the fourth degree of relationship.
(C) Any contribution in cash or in kind to any candidate, political party or coalition of parties
for campaign purposes shall be governed by the Election Code, as amended.

Q, Give the meaning of gift tax.

Ans. Meaning of Gift Tax.- It is defined as a tax imposed on the transfer without consideration
[gratuitous] of property between two or more persons who are living at the time the transfer is
made. Stated, otherwise, it is "an excise tax imposed on the transfer of property by gift inter vivos
without relation to the death of the donor (5 ALR, 1267; Lladoc v. Commissioner of Internal
Revenue 121 Phil. 1077).
Q. What is the nature of gift taxes?
 Ans. Nature.- Gift taxes like other transfer taxes are upon not taxes on property because its
imposition does not rest upon general ownership (Bromley v. McCaughn, 280 US 124) but upon
the privilege to give (and to receive). It is an excise tax imposed on the privilege of the donor to
give or the privilege of the donee to receive on the transfer by a living person of money or property
by gift.
Q. Classify gift taxes. What are the kinds of gift taxes?
Ans. Classes- Gift taxes are of two kinds, namely:
(1) Donor's gift tax (levied on the act of giving);
(2) Donee's gift tax (levied on the act of receiving):

Q. What are the purposes and objectives of the gift/donor tax?

Ans. Objectives/Purposes.- This tax has the following objectives, to wit:
(1) It has been intended to protect the estate tax from avoidance through transfer of property
between living persons;
(2) To protect income tax for high bracket taxpayer and minimize the tax by giving gifts within
the family (Paul "Taxation For Prosperity", p. 309).
Q. Distinguish between donor's tax from estate tax.
Ans. Distinctions.- Estate tax is distinguished from donor's tax through the following points:
(1) Estate tax has higher tax rates; donor's tax has lower rates;
(2) Estate tax is a tax on privilege to transmit it upon death; donor's tax is a tax on privilege to
transfer during one's lifetime;
(3) Estate tax payable within 6 months unless extended; pay as your file rule in the donor's
tax.
(4) Estate tax is based on fair market value or upon schedule of values; donor tax is based on
the same rule of valuation;
(5) Notice of death is necessary; no notice of donation is required.
Q. What are the requisites of a gift for purposes of the donor's tax?
Ans. they are:
(1) Capacity of the donor;
(2) Donative intent or intent on the part of the donor to make a gift; (3) Delivery, whether
actual or constructive, of the subject matter of the gift; and
(4) Acceptance of the gift by the donee ( Art. 746, Civil Code).
Q. What is the general rule on the imposition of the donor's tax?
Ans. There shall be levied, assessed, collected and paid upon the transfer by any person,
resident or non-resident, of property by gift, a tax computed as provided by Sec. 92, Tax Code,
infra. The tax shall apply whether the transfers in trust or otherwise, whether the gift is direct or
indirect (i.e. condonation) and whether the property is real or personal,tangible or intangible (Sec.
98(B), Tax Code).
Q. What are the elements of onerous donations subject to donor's taxes?
Ans. The following:
 (1) A person gives to another a thing or right; other than real property;
(2) The transfer is for les than an adequate and full consideration in money's worth; or the gift
imposes upon the donee a burden which is less than the value of the thing given;
(3) The excess of the fair market value of the property over the actual value of the
consideration shall be subject to donor's tax(Art. 726, Civil Code in relation to Sec. 100, Tax
Code).
Q. What are the basic features of the donor's tax?
Ans. Features. Noticeable features of the donor's tax are the following:
(1) A gift tax is levied upon any person, resident or non-resident;
(2) It covers properties, real or personal, tangible or intangible
(3) It covers transfers for insufficient consideration in the amount by which the value of
property exceeds the value of the consideration;
(4) Optional valuation date does not apply.
Q. What transfers of property are considered subject to the donor's tax?
Ans. The following:
(1) When the elements of donation are present.
(2) When the elements of remuneratory/onerous donations are present relative to the taxable
excess.

NIRC SECTION 100. Transfer for Less Than Adequate and Full Consideration. —
Where property, other than real property referred to in Section 24(D), is transferred for less than
an adequate and full consideration in money or money's worth, then the amount by which the fair
market value of the property exceeded the value of the consideration shall, for the purpose of the
tax imposed by this Chapter, be deemed a gift, and shall be included in computing the amount of
gifts made during the calendar year.

B. COMPUTING GIFT TAXES

Q. State the procedural steps to be followed in com, ascertain the amount of the total gifts
made during the putting gift/donor tax.
Ans. Steps.- The method of computing the donor's tax is simplified by applying it to the taxable
net gifts made during the year; hence, the following steps:
First year for which the return is being made;
Second, deduct the exemption allowable by law; and
Third, compute the tax upon the difference [taxable net gift] by the use of the prescribed
rates/schedule. Thus,
Total Gifts /Gross Gifts
Less: Exemptions/Deductions
Equals: Taxable Net Gift
Multiply Tax Rates –(2% to 15%)
 Result: Donor's Tax Payable.
Q. What is the coverage of the term "gifts? Or What constitute gross gifts?
Ans. Gift Included.- Gross gifts include real and personal property whether tangible or
intangible, or mixed wherever situated (Sec. 98, Tax Code). Thus,
(1) There shall be levied, assessed, collected and paid upon the transfer by any person, resident
or nonresident of the property by gift [Sec. 98(A), Tax Code].
(2) The gift tax shall apply whether the transfer is in trust or otherwise, whether the gift is
direct or indirect; and whether the property is real or personal, tangible or intangible [Sec. 98(B),
Tax Code].
Accordingly, the term "gifts" include the following:
(1) Real and tangible property or mixed, either physically located in the Philippines or
wherever situated;
(2) Franchises which must be exercised in the Philippines;
(3) Shares, obligations or bonds issued by any corporation or sociedad anonima organized or
constituted in the Philippines in accordance with its laws or those issued by the foreign corporation
85% of the business of which is located in the Philippines;
(4) Shares or gifts in partnership, business or industry established in the Philippines; and
(5) Any personal property, whether tangible or intangible located in the Philippines (Sec. 104,
Tax Code)..
Q. What are some of the excluded gifts under the Tax Code?
Ans. Gifts Excluded. The following gifts are not included:
(1) Real property located outside the Philippines if donor is nonresident alien;
(2) Tangible property located outside the Philippines belonging to nonresident aliens; and
(3) Intangible personal property located outside the Philippines if owned by non-residents
aliens.
Q. Enumerate at least three gifts which are not subject to donor's taxes.
Ans. The following gifts:
(1) Gifts made by a resident under Sec. 101 (A), Tax Code are exempt from donor's taxes.
(2) Gifts made by a nonresident alien under Sec. 101(B), Tax Code as amended by Rep. Act
No. 8424;
(3) Donations of intangible property under first par. Sec. 104, Tax Code;
(4) Athletes prizes and awards are exempt from donor taxes under certain conditions.
The donations must prizes and awards given to athletes in local and international sports
tournaments and competitions held in the Philippines or abroad, and sanctioned by their respective
national sports associations (Sec. 1, Rep. Act No. 7549).

NIRC SECTION 101. Exemption of Certain Gifts. — The following gifts or donations
shall be exempt from the tax provided for in this Chapter:
(A) In the Case of Gifts Made by a Resident. —
 (1) Dowries or gifts made on account of marriage and before its celebration or within one year
thereafter by parents to each of their legitimate, recognized natural, or adopted children to the
extent of the first Ten thousand pesos (P10,000);
(2) Gifts made to or for the use of the National Government or any entity created by any of its
agencies which is not conducted for profit, or to any political subdivision of the said Government;
and
(3) Gifts in favor of an educational and/or charitable, religious, cultural or social welfare
corporation, institution, accredited non government organization, trust or philanthropic
organization or research institution or organization: Provided, however, That not more than thirty
percent (30%) of said gifts shall be used by such donee for administration purposes.
For the purpose of this exemption, a 'non-profit educational and/or charitable corporation,
institution, accredited non government organization, trust or philanthropic organization and/or
research institution or organization' is a school, college or university and/or charitable corporation,
accredited non government organization, trust or philanthropic organization and/or research
institution or organization, incorporated as a non stock entity, paying no dividends, governed by
trustees who receive no compensation, and devoting all its income, whether students' fees or gifts,
donations, subsidies or other forms of philanthropy, to the accomplishment and promotion of the
purposes enumerated in its Articles of Incorporation.

Q. What is meant by net gifts?

Ans. Net Gifts, Defined.- For purposes of donor's tax the term net gift may refer to the totality
or aggregate of gifts for the calendar year for which the return is made .
Q, Who are the taxpayers being covered by the donor's taxes?
Ans. Covered Taxpayers.- Donor's (gift) tax shall be assessed, collected and paid upon the
transfer of the property by gift by any person, resident or nonresident of the Philippines.
Donation mortis causa (to take effect after death) is not covered by donor's tax only donation
inter vivos (to take effect during lifetime) for the former is covered by estate tax. Also, donation
between spouses are excluded from the donor's tax being void ab initio (Art. 183, Civil Code).
Q. What are the classes of exemptions and deductions deductible from the gift taxes?
Ans. Classes.- Deductions/exemptions deductible from the value of the property donated may
be categorized as follows:
(1) Those specifically mentioned in the Tax Code as deductible from the gifts of the residents
such as:
(a) Dowries or gifts made on account of marriage and before its celebration or within
one year thereafter by parents to each of their legitimate recogmnized natural and asdopted
children to the textendf of P10,000.00;
(b) Gifts made to or for the use of the national government or any political
subvdivision;
(c) Gifts in favor of educational, charitable. Religious,cultural or social welfare
corporation, institution, provided that not more than 30% of said gifts shall be used by
such donee for administration purposes [Sec. 101(A) (1) to (3), Tax Code];
 (2) Those specifically mentioned in the Tax Code as deductible to non-residents not a citizen
of the Philippines such as:
(a) Gifts made to or for the use of government or local political subdivision;
(b) Gifts in favor of an educational, charitable, religious cultural or social welfare
corporation, institutions provided that not more than 30% of said gifts shall be used by such
donee for administrative purposes.
(3) The tax credit for donor's taxes paid to a foreign country subject to certain limitations;
(4) Those exempted donations provided by special laws [IRRI, National Museum, National
Library, etc.];
(5) Other deductions from gifts such as:
5a) Encumbrance on the property donated if assumed by the donee;
5b) Those specially provided by the Code as a diminution from the property donated

Q. Give the rules being observed on the deductibility of the tax credit for the taxes paid
in foreign country in relation to gift taxes in the Philippines.
Ans. The observable rules on tax credit are:
First, general rule- The tax imposed upon a donor who was a citizen or a resident at the time
of donation shall be credited with the amount of any donor's taxes of any character and description
imposed by the foreign country.
Second, limitations on credit.- The amount of the credit taken shall be subject to each of the
following limitations:
(1) Donor's tax paid to one foreign country- The amount of the credit in respect to the tax paid
in any country shall not exceed the same proportion of the tax against which such credit is taken,
which the net gifts situated within such country taxable under our law, bears to his entire net
estate.Thus,this formula:
NET GIFTS SITUATED
IN FOREIGN COUNTRY
x PHIL. DONOR'S TAX = TAX CREDIT LIMIT
ENTIRE NET GIFTS
(2) For donor's taxes paid in two or more foreign countries- The total amount of the credit shall
not exceed the same proportion of the tax against which such credit is taken, which the donor's
net gift situated outside the Philippines taxable under our law, bears to his entire net gift.
Accordingly, this formula:
NET GIFTS SITUATED
OUTSIDE THE PHILIPPINES
x PHIL. DONOR'S TAX = TAX CREDIT LIMIT
ENTIRE NET GIFTS

Q. What is the rule on valuation?

 Ans. General Rule.- The principle of valuation used in estate taxation is applicable in the
determination of the value of the property subject to donor's tax.

Q. What are some specific rules on valuation of properties covered by donor's taxes?
Ans. Valuation of Particular Gifts.- The rules are:
(1) Personal property- fair market value at the time of making the gift.
(2) Real property- fair market value or as shown in the schedule values fixed by the Provincial
and City Assessors[Sec. 88(a)(b); Sec. 102, Tax Code].

Q. State the formula before applying the schedular rates.

Ans. Basis of schedule of Tax Rates. The donor's tax is computed on the basis of the total net
gifts made during the calendar year; that is, the total amount of gifts after deducting the exemptions
and the allowable deductions, following this formula:
Gross Gifts
Less: Allowable Deduction
Equals: Net Gifts
Less: P100,000.00 exemption
Equals: Taxable Net Gifts
Multiplied by the tax rates- 2% to 15%
Result: Donor's tax
Q. State the Schedule of Tax Rates.-
Ans. The tax for each calendar year shall be computed on the basis of the total net gifts made
during the calendar year in accordance with the following schedule:
If the net gift is:
Over But Not Over the Tax Shall be Plus Of the Excess over
P 100,000 Exempt
P 100,000 P200,000 02% P 100,000
P 200,000 P500,000 P 2,000 4% P 400,000
P500,000 P1,000,000 P14,000 6% P500,000
P1,000,000 P3,000,000 P44,000 8% P 1,000,000
P 3,000,000 P5,000,000 P204,000 10% P 3,000,000
P 5,000,000 P10,000,000 P 404,000 12% P 5,000,000
P10,000,000 P1,004,000 15% P 10,000,000

Q. Is there special rate for other types of donations?

Ans. Yes, this special schedule.- When the donee or beneficiary is a stranger, the tax payable
by the donor shall be thirty percent (30%) of the net gift. For the purpose of this tax, a "stranger"
is a person who is not a
 (1) Brother, sister (whether by whole or half-blood) spouse, ancestor and lineal descendant;
or
(2) Relative by consanguinity in the collateral line within the fourth civil degree [Sec. 99(B),
Tax Code]

Q. This illustrative case: Mr. Tan made on June 18, 2010 the following gifts to the
following persons: To his:
(1) son, Tan Jr., P30,000.00 cash and P180,000 worth of land; and (2) to his eldest brother,
Sonny Tan, P50,000.00 worth of appliances. Compute donor's tax.
Ans. Solution
Donor's tax for June 18, 2010
Tan Jr's gift...........................................................P210,000
Sonny Tan's gift...................... .................... . . P50,000
Net Gifts.............................................................. P260,000
Less: Exemption ..... P100,000
Taxable Net Gift....................................... ........P160,000
Apply Tax Rates:
Second P100,000 2% P2,000
Last P 60,000 4% P2,400
P4,400.00
Thus, Donor's Tax Due P4,400.00

Q. What is meant by gift splitting?

Ans. It is the practice of spreading the gift over numerous calendar years in order to avail of
lower donor's taxes. It is a scheme of tax avoidance.
Q. Under the Tax Code what are the requirements in the filing of the donor's tax return?
. Requirements.- Any individual who makes any transfer by gift [except those which under
Section 101, are exempt from the tax provided in this chapter] shall, for the purpose of said tax,
make a return under oath in duplicate. The return shall set forth the following:
(1) Each gift made during the calendar year which is to be included in computing net gifts;
(2) The deductions claimed and allowable;
(3) Any previous net gifts made during the same calendar year;
(4) The name of the donee;
(5) Such further information as may be required by rules and regulations made pursuant to law
(Sec. 103, Tax Code).

Q. When and where the donor's tax return be filed and the donor's taxes be paid?
Ans. Time and Place of Filing. and Payment-The return of the donor required in this section
shall be filed within 30 days after the date the gift is made and the tax due thereon shall be paid at
the time of filing. Except in cases where the Commissioner otherwise permits, the return shall be
filed and the tax paid to an authorized agent banks(AABs) the Revenue District Officer, Revenue
Collection Officer or duly authorized treasurer of the city or municipality where the donor was
domiciled at the time of the transfer, or if there be no legal residence in the Philippines with the
Office of the Commissioner. In the case of gifts made by a nonresident, the return may be filed
with the Philippine Embassy or Consulate in the country where he is domiciled at the time of the
transfer, or directly with the Office of the Commissioner[Sec. 103(B) Tax Code].

Q. Can donated properties be transferred without payment of the donor's tax?

Ans. No. The Register of Deeds shall not register in the Registry of property any document
transferring real property or real rights thereon on any chattel mortgage, by way of gifts inter vivos
or mortis causa, legacy or inheritance, unless upon a certification from the Commissioner of
Internal Revenue that the estate or donor's tax fixed and actually due thereon has been paid(Sec.
95, Tax Code).
Q. What are the duties of lawyers/notary public and other government officers relative
to documents subject to donor's taxes?
Ans. Any lawyer, notary public or any government officer, who by reason of his official duties,
intervenes in the preparation or acknowledgment of documents regarding the partition or
disposition of donation inter vivos or mortis causa, legacy or inheritance shall:
(1) have the duty of furnishing the Commissioner of Internal Revenue , Regional Director,
Revenue District Officer or Revenue Collection Officer of the place where he may have his
principal office;
(2) copies of such documents and any information whatsoever which may facilitate the
collection of the estate or donor's tax (35Sec. 95, Tax Code).

Q. Is notice of assessment or demand necessary before the donor's tax must be paid?
Ans. No, because the time for filing and payment is mandatory (BIR Ruling 1959).

Q. Are penalties and sanctions imposed upon the violators of estate tax applicable to
donor's taxes?
Ans. Rules. Penalties and sanctions imposed upon violators of estate taxes are likewise
applicable to the donor taxes.