Taxation Law 2

Based on Ignatius Ingles

ESTATE TAX III. GROSS ESTATE

I. PRINCIPLES AND DEFINITION Section 85. Gross Estate. - the value of the gross estate of the
decedent shall be determined by including the value at the time of
Def: Tax on the right to transmit property at death and on certain his death of all property, real or personal, tangible or intangible,
transfers by the decedent during his lifetime which are made by the wherever situated: Provided, however, that in the case of a
law equivalent of testamentary dispositions. 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
Note: situated in the Philippines shall be included in his taxable estate.
 Tax is measured by the value of the property transmitted at the
time of death, regardless of its appreciation or depreciation. (A) Decedent's Interest. - To the extent of the interest therein of the
 The accrual of the tax is distinct from the obligation to pay the decedent at the time of his death;
tax
Note:
II. RATES AND VALUE  For Estate Tax Purposes: Residence is the domicile of the
person. (CIR v De Lara)
RATES OF ESTATE TAX (Sec 84, NIRC)  For Residents and citizens – Gross Estate includes all properties,
“There shall be levied, assessed, collected and paid upon the transfer real or personal, tangible or intangible, wherever situated. (Sec
of the net estate as determined in accordance with Secs 85 and 86 of 85, NIRC)
every decedent, whether resident or non resident of the PH, a tax  For Non-Resident aliens:
rate of 6% based on the value of such net estate”  GR: Gross Estate includes only properties situated in the
: Philippines. (Sec 85, NIRC)
Rate: 6%  XPN: With respect to Intangible Personal Property (IPP) – its
Based on: Value of such net estate inclusion to the gross estate is the subject to the rule of
reciprocity. (Sec 104, NIRC)
DETERMINATION OF THE VALUE OF THE ESTATE (Sec 88, NIRC) o IPPs of the non-resident alien are exempt from the estate
(A) Usufruct. - To determine the value of the right of usufruct, use or tax, if the foreign country of the non-resident alien:
habitation, as well as that of annuity, there shall be taken into a) Does not impose a transfer tax of any character on the
account the probable life of the beneficiary in accordance with the IPP of Filipinos not residents of that foreign country; or
latest Basic Standard Mortality Table, to be approved by the b) Allows a similar exemption from transfer tax in respect
Secretary of Finance, upon recommendation of the Insurance of IPP owned by Filipinos not residents of that foreign
Commissioner. country.
 Rule of Reciprocity does not apply, if any of the two states
(B) Properties. - The estate shall be appraised at its fair market value or countries collects or imposes and does not exempt any
as of the time of death. However, the appraised value of real transfer, death, legacy, or succession tax of any character
property as of the time of death shall be, whichever is higher of - (CIR v Fisher)
 Reciprocity in exemption does not require the “foreign
(1) The fair market value as determined by the Commissioner, or country” to possess international personality (CIR v
Campos Rueda)
(2) The fair market value as shown in the schedule of values fixed by
the Provincial and City Assessors.  Gross estate includes: any interest or right in the nature of
property, but less than title, having value or capable of having
Note: value, like:
 Properties comprising the gross estate – valued based on the a) Dividends declared, but paid after the death
FMV as of the time of death. b) Partnership profits
 FAIR MARKET VALUE shall be: c) Right of usufruct
1) In case of Real Property:
a) FMV is determined by the Commissioner; or Intangible personal properties located in the PH: (Sec 104, NIRC)
b) FMV as shown in the schedule of values fixed by the a) Franchise, which must be exercised in the PH
Provincial and City Assessor b) Shares, obligations or bonds issued by any corporation or
 Whichever is higher sociedad anonima organized or constituted in the PH in
accordance with its laws
2) In case of Personal Property: c) Shares, obligations or bonds issued by any foreign corporation:
a) If recently acquired by the decedent – Purchase price may i. If 85% of the business of which is located in the PH.
indicate the FMV  Note: This is different from the 50% requirement in the situs
b) If not recently acquired by the decedent – There should be rules for dividends issued by foreign corp for income tax
some evidence of the FMV ii. If such shares, obligations or bonds have acquired a
business situs in the Ph
3) For Shares of Stock, FMV depends on whether the shares are d) Shares or rights in any partnership, business or industry in the
listed or unlisted in the stock exchange: Ph
a) If Unlisted:
i. Common Shares – based on their Book Value Properties not in the estate:
ii. Preferred Shares – based on their Par Value  There may be properties, which at the time of the decedent’s
death, are not in the estate because they were transferred by
b) If Listed: him during his lifetime
i. The mean between the hishest and lowest quotation
on the date of death;  These Transfers are:
ii. If none, the date nearest the death a) Transfers in contemplation of death;
b) Revocable transfers;
4) For use of usufruct c) Transfers under a general power of appointment;
 There shall be taken into account the probable life of the d) Transfers for an insufficient consideration;
beneficiary in accordance with the latest basic standard
mortality table, to be approved by the Secretary of Finance,  The value of these properties will be included in the
upon the recommendation of the Insurance Commissioner determination of the gross estate for estate tax purposes.

 Gross estate, for purposes of the estate tax, may exceed the
actual value of his assets at the time of his death as it includes
the value of transfers of property by him during his lifetime that
partake of the nature of testamentary dispositions.
 These kinds of transfer have the following in common:
a) They are ostensible transfers, usually with the purpose to
evade the estate tax
b) They are extension of interest; and
c) If the transfers are in fact for a bona fide consideration, then
they will not form part of the gross estate (this proviso is
present in all the provisions regarding these transfers)
 Note: As long as the transfers were for a bon a fide
consideration – You don’t have to add it anymore in
determining the gross estate.
(B) Transfer in Contemplation of Death.
 To the extent of any interest therein of which the decedent has
at any time made a transfer,
a. 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,
b. 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 bonafide sale for an adequate and full
consideration in money or money's worth.
Note:
 A transfer in contemplation of death – is a transfer motivated
by the thought of death, although death may not be imminent.
 The ff examples of circumstances which may be taken into
consideration in determining whether the transfer was made in
contemplation of death:
a) Look at the age and state of health of the decedent at the
time of the transfer (i.e. is he terminally ill)
b) Length of time between the transfer and the date of the
death
c) Concurrent making of a will or making f a will within a short
time after the transfer.
The following transfers in contemplation of death:
a) Transfers, by trust or otherwise, in contemplation or intended
to take effect (in possession or enjoyment) at or after death
b) Transfers, by trust or otherwise, under which the decedent has
retained for his life (or for any period which does not in fact end
before his death) the possession or enjoyment of or the right to
income from the property, or the right to designate the person
who shall possess or enjoy the property or the income
therefrom.
Ex. (Bar Exam 2013)
Facts: Mr. Mayuga donated his residential house and lot to his son
and duly paid the donor’s tax. In the Deed of Donation, Mr. Mayuga
expressly reserved for himself the usufruct over the property for as
long as he lived.
Issue: Will the house and lot form part of Mr. Mayuga’s Estate? YES
Ruling: Yes the donation is a transfer under which he has retained
for his life the possession or enjoyment of the property. This is
considered a transfer in contemplation of dean, and thus should
form part of his gross income
Note: in case of a bona fide sale for an adequate and full
consideration in money or money’s worth – the value of the property
transferred will not be considered in determining the gross estate
Taxation Law 2
Based on Ignatius Ingles
Ex. (Bar Exam 2013)
Facts: Mr. Agustin, 75 years old and suffering from an incurable
disease, decided to sell for valuable and sufficient consideration a
house and lot to his son. He died one year later.
In the settlement of Mr. Agustin’s estate, the BIR argued that the
house and lot were transferred in contemplation of death and
should form party of the gross estate for estate tax purposes.
ISSUE: is the BIR correct? NO
Ruling: No. The sale of the house and lot to his son was made for
valuable and sufficient consideration, and hence is not deemed a
transfer in contemplation of death. The tax code explicitly states
that the transfers for a valuable and sufficient consideration are not
considered transfers in contemplation of death.
(C) Revocable Transfer.
(1) To the extent of any interest therein, of which the decedent has
at any time made a transfer (except in case of a bona fide sale for an
adequate and full consideration in money or money's worth)
by trust or otherwise, where the enjoyment thereof was subject at
the date of his death to any change through the exercise of a power
(in whatever capacity exerciseable)
a. by the decedent alone or
b. 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.
Note:
 REVOCABLE TRANSFER – is a transfer where the terms of the
enjoyment of the property may be altered, amended, revoked
or terminated by the decedent.
 It is sufficient that the decedent had the power to revoke,
though he did not exercise the power to revoke.
 Bona fide sales applies.
(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.
 Taxation Law 2
Based on Ignatius Ingles

Note:
POWER OF APPOINTMENT – the right to designate the person/s
who will succeed the property of a prior decedent.
Kinds of Power of Appointment:
1. GENERAL POWER OF APPOINTMENT – one which may be
exercised in favour of anybody.
 In order that property passing under a power of appointment
may be included in the gross estate of the transferor, the power
of appointment must be a GENERAL POWER OF APPOINTMENT
Ex. Carles donated property to Andres, with a provision that Andres
can transfer the property to anyone. Andres transferred it to Iker.
 The property should be included in the gross estate of
Andres.
2. LIMITED POWER OF APPOINTMENT – one which may be
exercised only in favour of a certain person/s designated by the
prior descendant.
Ex. Carles donated property to Andres, with a provision that Andres
can transfer the property to anyone. Andres transferred it to Iker.
 The value of the property should not be included in the gross
estate of Andres
 Bona fide sales applies
(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.
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.
Except as otherwise specifically provided therein,
(G) Transfers of Insufficient Consideration.
If any one of the transfers, trusts, interests, rights or powers
enumerated and described in Subsections (B), (C) and (D) of this
Section is made, created, exercised or relinquished for a
consideration in money or money's worth, but is not a bona fide sale
for an adequate and full consideration in money or money's worth,
there shall be included in the gross estate only the excess of the fair
market value, at the time of death, of the property otherwise to be
included on account of such transaction, over the value of the
consideration received therefor by the decedent.
Note:
 In the transfers in contemplation of death, revocable transfer,
or transfer under a GPA – The value to include in the gross
estate will be determined under the following rules:
a) If the transferor was in the nature of a bona fide sale for an
adequate and full consideration in money or money’s worth
– No value will be included in the gross estate.
b) If the consideration received on the transfer was less than
adequate and full – the value to include in the gross estate
will be the excess of the FMV at the time of the decedent’s
death over the consideration received.
c) If there was no consideration received on the transfer
(Donation mortis causa) – the value to include in the gross
estate will be the FMV of the property at the time of the
decedent’s death

Note:  When look at the transaction, ask yourself, was the

 Proceeds of Life insurance under policies taken out by the consideration sufficient?
decedent upon his life – shall constitute part of the gross estate  If Yes – add the balance of the FMV at the time of death and
if the beneficiary is: the consideration.
a) The estate of the decedent, his executor or administrator as  If No – it was a bona sale. Don’t add the value to the gross
such; or estate.
 Here, it doesn’t matter if irrevocable or not. As long as the
beneficiary is the estate of the decedent, or his executor or (H) Capital of the Surviving Spouse.
administrator – you include that in the gross estate. 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.
b) A 3rd person (not in those in (a)), and the designation of the
beneficiary is revocable. Case: Transferee Time Was What did the SC say?
 Here, Life insurance proceeds are excluded, provided: (Voluntary between there a
or transfer will?
i. Irrevocable, and
Compulsary and death
ii. Payable to beneficiary other than estate, executor, Heir)
administrator Zapant Compulsory None Yes Not considered
a v advances.
 The Insurance Code states that the designation of a beneficiary Posada
is generally revocable. s Not part of the Gross
 Except when the policy states that the designation is Estate
irrevocable. In such cases, the proceeds are not considered Tuason Voluntary 3 years Yes Considered Advances
as part of the decedent’s estate. v because the donees
Posada became the legatees in
s the will.
 Life insurance proceeds must be taken out by the decedent.
 Not included in the computation of Gross income if the Part of the Gross
proceeds are from: Estate
a) Company Policy Dizon v Compulsory 1 day No Considered advances.
b) GSIS, or Posada The donee is a
c) SSS s compulsory heir.
 It must stem from life insurance to be included in the gross
Part of the Gross
estate.
Estate
 If Accident insurance, not included in the gross estate. Vidal de Voluntary 9 mos Yes Considered advances.
Roces v The donee were
Posada legatees in the will
s
Part of the Gross
Estate

 When it comes to transfers done during the lifetime of a
decedent, there is a disputable presumption that the transfers
are in contemplation of death if the recipients are compulsory
heirs
 The government presumes that one is transferring property
beforehand to escape the estate tax, and instead pay the
lower donor’s tax
 In Zapanta v Posadas, It showed that the presumption is
disputable.
 The court considered the gifts as not advances even if the
recipients are compulsory heirs.
 The reason was the condition imposed upon the
recipients by the decedent (they had to pay the decedent
a certain amount of rice and money during his lifetime).
 It showed that the transfer was not in contemplation of
death because the decedent in fact, would benefit from
the transfer
 The presence of a will also play a part.
 In cases of Tuason and Vidal de Roces, the court considered
the transfers as advances because a will was made making
the transferees legatees. This played a part in the courts
impression that there was an intention of the decedent to
minimize his gross estate.
 Thus, when looking at cases like these, the totality of all the
factors and facts must be taken into consideration.
 Does the govt always want to consider a transfer an advance
(to be covered by the estate tax)? Not necessarily. There are
instances where they will argue for it to be considered under
the donor’s tax.
In summary, Gross Estate is made up of:
a) The decedent’s interests at the time of his death
b) Transfers made during his lifetime (in contemplation of death,
revocable, and under a GPA)
c) Life insurance proceeds
d) Some other stuff required by law to be included in the gross
estate in order to allow deductions (claims against insolvent
persons, unpaid mortgage, value of the family home, and the
retirement benefits under RA 4917)
IV. COMPUTATION FOR NET ESTATE
Formula: Gross Estate – Deduction = Net Taxable Estate
DEDUCTIONS from Gross Estate are:
1. Ordinary Deductions
a) Expenses, Losses, Indebtedness, Taxes, etc:
i. Standard Deduction
ii. Claims against the estate
iii. Claims against the insolvent persons
iv. Unpaid mortgage or indebtedness on property
v. Taxes paid
vi. Losses
b) Transfer for public use
c) Vanishing Deductions
2. Special Deductions
a) Family Home
b) Standard deduction of P 1,000,000
c) Medical Expenses
d) Amounts received by heirs under RA 4917
Note: These deductions are allowed for a resident of the Ph. NRA are
not entitled to special deductions.
Sec. 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) Standard Deduction - An amount equivalent to (₱5,000,000).
Taxation Law 2
Based on Ignatius Ingles
(2) 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 (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.
Note:
CLAIMS – debts or demands of a pecuniary nature which could have
been enforced against the deceased in his lifetime and could have
been reduced to simple money judgments.
 If enforceable against him when he was alive – The
obligations will be claims against his estate when he dies.
 An obligation that has prescribed during his lifetime, or that
was unenforceable against him – will not be a claim against
his estate when he shall be dead.
REQUISITES:
a) The liability must represent a personal obligations of the
deceased at the time of his death (Except unpaid obligations
incurred incident to his death and unpaid medical expenses
classified as a deduction)
b) The liability was contracted in good faith and for adequate and
full consideration
c) The claim must be a debt or claim which is valid in law and
enforceable in court, and
d) The indebtedness must not have been condoned by the
creditor during the lifetime of the decedent, or the actions to
collect must not have prescribed.
 If the debts were condoned AFTER THE DECEDENT’S
DEATH – the deaths are deductible, following the date-of-
death- valuation rule
 If the claim arose out of a debt instrument – the debt
instrument must be notarized
 EXCEPT for loans granted by financial institutions where
notarization is not part of the business practice or policy of
the institution
 If the loan was contracted within 3 years before the death of
the decedent – the admin or executor must submit a statement
showing the disposition of the proceeds of the loan
 If a monetary claim against the decedent did not arise out of a
debt instrument – The requirement of a notarized debt does
not apply
 There is no requirement to add the amount to the gross estate
(as compared to claims against insolvent persons/mortgage)
This is a DIRECT DEDUCTION.
(3) 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.
Note:
 Claims against insolvent persons are deductions from the gross
estate
 Subject to the condition that the full amounts of the
receivables are first included in the gross estate.
 The deduction from the gross estate will be the uncollectible
portion
(4) 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.

Note:
 The mortgage or indebtedness will be claimed as a deduction
from the gross estate
 If the loan is merely an accommodation loan, where the
proceeds of the loan went to another person – the value of the
unpaid loan must be included in the receivable of the estate
 In the cases of claims against insolvent persons and unpaid
mortgage/indebtedness on property – it is imperative that the
values of each are first added to the gross estate.
 These are called ZERO-SUM COMPUTATIONS. They do not
really benefit the heirs because these transactions were
not supposed to be part of the gross estate.
Ex. Pique died leaving real property with a FMW of P 1M, subject to
a mortgage in the amount of P 600K.
 Before he can deduct the P 600K, he has to include the
total FMV of his property to the gross income.
TAXES
 Taxes are deductions from thegross estate if such taxes accrued
prior to the decedent’s death (RR 2-2003)
 Those that accrued after the decedent’s death are not
deductions from gross estate
 These taxes cannot be deducted:
a) Income tax on income received after death
b) Property taxes not accrued before death
c) Estate Tax
LOSSES
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 the income tax purposes in an income tax return, and provided
that such losses were incurred not later than the last day for the
payment of the estate tax as prescribed in Subsection (A) of Section
91.
Note:
LOSSES are deductible from the gross estate if:
a) Arising from fire, storm, shipwreck, or other casualty, robbery,
theft or embezzlement
b) Not compensated by insurance or otherwise
c) Not claimed as a deduction in an income tax return of the
estate subject to income tax
d) Occurring during the settlement of the estate; and
e) Occurring before the last day for the payment of the estate tax
(6mos after the decedent’s death, or the allowed extension)
Ex.
Leo Mhessi died Jan 1, 2010. A fire razed his mansion on March 1,
2010. His estate was settled Jan 1, 2012
 He can claim a deduction (within 6mos)
Luis Shuarez died Jan 1, 2010. A fire razed his shanty on Jan 1, 2011.
 He cannot claim a deduction.
(6) 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.
Note:
TRANSFERS FOR PUBLIC USE – dispositions in a last will and
testament, or a transfer to take effect after death, in favour of the
Government of the Philippines, or any political subdivision thereof,
for exclusively public purposes.
 You can deduct the value of the property transferred to the
government
Taxation Law 2
Based on Ignatius Ingles
VANISHING DEDUCTIONS
(5) Property Previously Taxed.
An amount equal to the value specified below of any property
forming part of the gross estate situated in the Philippines of any
person who died within (5) years prior to the death of the decedent,
or transferred to the decedent by gift within (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:
"(100%) of the value, if the prior decedent died within (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;
"(80%) of the value, if the prior decedent died more than (1) year but
not more than (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;
" (60%) of the value, if the prior decedent died more than (2) years
but not more than (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;
"(40%) of the value, if the prior decedent died more than (3) years
but not more than (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
"(20%) of the value, if the prior decedent died more than (4) years
but not more than (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 (5) in respect of the
property or properties given in exchange therefor.
Where a deduction was allowed of any mortgage or other lien in
determining the donor’s tax, or the estate tax of the prior decedent,
which was paid in whole or in part prior to the decedent’s death,
then the deduction allowable under said Subsection shall be reduced
by the amount so paid. Such deduction allowable shall be reduced by
an amount which bears the same ratio to the amounts allowed as
deductions under paragraphs (2), (3), (4), and (6) of this Subsection
as the amount otherwise deductible under said paragraph (5) 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.
Note:
 Property may change hands within a very short period of time
by reason fo the early death of the owner who received it by
inheritance or by donation (gift)
 To provide relief to the burdened taxpayer – vanishing
deductions are allowed to reduce the gross estate.
 Vanishing deductions are allowed when:
a) The present decedent died within 5 years from receipt of the
property from a prior decedent or donor
b) The property on which the vanishing deduction is being
claimed must be located in the Ph
 Taxation Law 2
Based on Ignatius Ingles
c) The property must have formed part of the taxable estate of
the prior decedent, or of the taxable gift of the donor
V. SPECIAL DEDUCTIONS
VI. NET ESTATE COMPUTATION OF MARRIED PERSONS
d) The estate tax on the prior succession or the donor’s tax on VII. GROSS ESTATE
the gift must have been finally determined and paid VIII. EXEMPTION FROM ESTATE TAX
e) The property must be identified as the one received from the IX. NOTICE OF DEATH
prior decedent or donor, or something acquired in exchange X. ESTATE TAX RETURNS
f) No vanishing deduction on the property was allowable to the XI. PAYMENT OF TAX
estate of the prior decedent XII. MISCELLANEOUS PROVISIONS

(7) 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 (₱10,000,000), the
excess shall be subject to estate tax.

(8) Amount Received by Heirs Under RA 4917 - Any amount

received by the heirs from the decedent’s employee as a
consequence of the death of the decedent-employee in accordance
with RA 4917: Provided, That such amount is included in the gross
estate of the decedent.

"(B) Deductions Allowed to Nonresident Estates - In the case of a

nonresident not a citizen of the Philippines, by deducting from the
value of that part of his gross estate which at the time of his death is
situated in the Philippines:

"(1) Standard Deduction - An amount equivalent to Five hundred

thousand pesos (₱500,000);

"(2) That proportion of the deductions specified in paragraphs (2),

(3), and (4) of Subsection (A) of this Section which the value of such
part bears to the value of his entire gross estate wherever situated;

"(3) Property Previously Taxed - x x x

"(4) Transfers for Public Use - The amount of all bequests, legacies,
devises or transfers to or for the use of the Government of the
Republic of the Philippines or any political subdivision thereof, for
exclusively public purposes.

"(C) Share in the Conjugal Property - The net share of the surviving
spouse in the conjugal partnership property as diminished by the
obligations properly chargeable to such property shall, for the
purpose of this Section, be deducted from the net estate of the
decedent.

"(D) Tax Credit for Estate Taxes Paid to a Foreign Country -

"(1) In General - The tax imposed by this Title shall be credited with
the amounts of any estate tax imposed by the authority of a foreign
country.

"(2) Limitations on Credit. - The amount of the credit taken under

this Section shall be subject to each of the following limitations:

"(a) The amount of the credit in respect to the tax paid to any
country shall not exceed the same proportion of the tax against
which such credit is taken, which the decedent’s net estate situated
within such country taxable under this Title bears to his entire net
estate; and

"(b) The total amount of the credit shall not exceed the same
proportion of the tax against which such credit is taken, which the
decedent’s net estate situated outside the Philippines taxable under
this Title bears to his entire net estate."