Tax 2 Transfer Taxes Aly Gey Sebastian, CPA Bar Examinations Questions Answered under the TRAIN Law Estate Taxes Estate Tax Basic principles Are donations inter vivos and donations mortis causa subject to estate taxes? (1994) ¢ Donations inter vivos are subject to mage:ntps:/wwatikzcom/hotowS8751919@NOS/ERG07E5023, donor's tax (Section 91(a}, NIRC) while donations mortis causa are subject to estate tax (Section 77, NIRC). However, donations inter vivos, actually constituting taxable lifetime like transfers in contemplation of death or revocable transfers (Section 78 (b) & (c), NIRC) may be taxed for estate tax purposes, the theory being that the transferor's control thereon extends up to the time of his death. Alternative Answer: Donations inter vivos are not subject to estate taxes because the transfer of the property takes effect during the lifetime of the donor. The transfer is therefore subject to the donor's tax. On the other hand, donations mortis causa are subject to estate taxes since the transfer of the properties takes effect after the death of the decedent. Such donated properties, real or personal, tangible or intangible, shall form part of the gross estate. VCC is the administrator of the estate of his father NGC, in the estate proceedings pending before the MM Regional Trial Court. Last year, he received from the CIR a deficiency tax assessment for the estate in the amount of 1,000,000. But he ignored the notice. Last month, the BIR effected a levy on the real properties of the estate to pay the delinquent tax. VCC filed a motion with the probate court to stop the enforcement and collection of the tax on the ground that the BIR should have secured first the approval of the probate court, which had jurisdiction over the estate, before levying on its real properties. Is VCC's contention correct? (2004) ‘A: No. VOC's contention is not correct. The approval of the probate court is not necessary. Payment of estate taxes is a condition precedent for the distribution of the properties of the decedent and the collection of estate taxes is executive in nature for which the court Is devoid of any jurisdiction. Hence, the approval of the court, sitting in probate, or as a settlement tribunal is ot @ mandatory requirement in the collection of estate taxes (Marcos v. Court of Appeals, 273, SORA 47 (1997) Alternative Answer: VOC's contention is wrong. Under Section 218, NIRC and Section 11, Rep. ‘Act No. 1126 on *No Injunction Rule,” other than the Court of Tax Appeals, no court shall have the authority to grant an injunction to restrain the collection of any national internal revenue tax, fee or charge imposed by this Code. A court sitting in probate has no jurisdiction much less require its approval before taxes are collected. To impose such requirement is a violation of the “No Injunction Rule.” : Is the approval of the court, sitting as probate or estate settlement court, required in the enforcement and collection of estate tax? Explain. (2005) : No. Approval of the probate court is not a requirement. It is the probate or settlement court, under Section 84, NIAC, which is not allowed 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 a certification from the CIR that estate taxes have been paid is shown. (Marcos v. Court of Appeals, 278 SCRA 47 (1997).Estat acd Donors Taxes Page 2 @; Discuss the rule on situs of taxation with respect to the imposition of the estate tax on property left behind by a non-resident decedent. (2000) ‘A: The value of the gross estate of a non-resident decedent who is a Filipino citizen at the time of his death shall be determined by including the value at the time of his death of all property, real or Personal. tangible or intangible, wherever situated to the extent of the interest therein of the decadent at the time of his death (Section 85(A), NIRC). These properties shall have a situs of ‘taxation in the Philippines hence subject to Philippine estate taxes, ‘On the other hand, in the case of a non-resident decedent who at the time of his death was not a ctizen of the Philippines, only that part of the entire gross estate which is situated in the Philippines to the extent of the interest therein of the decedent at the time of his death shall be included in his taxable estate. Provided, that, with respect to intangible personal property, we apply the rule of reciprocity. (Section 85(4), NIRC) Q: Is the Bureau of Internal Revenue authorized to collect estate tax deficiencies 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? (1998) A: Yes. Tho BIR is authorized to collect estate tax deficiency through the summary remedy of levying upon and sale of real properties of a decedent, without the cognition and authority of the Court siting in probate over the supposed will of the deceased, because the collection of estate tax is executive in character. As such the estate tax is exempted from the application of the statute ‘of non-claims, and this is justified by the necessity of government funding, immortalized in the maxim that taxes are the lifeblood of the government (Marcos v. CIR, GR No. 120880, June 5, 1997) Alternative Answer: Yes, if the tax assessment has already become final, executory and enforceable, The approval of the court sitting in probate over the supposed will of the deceased is ot a mandatory requirement for the collection of the estate tax. The probate court is determining issues which are not against the property of the decedent, or a claim against the estate as such, but is against the interest or property right which the heir, legate, devisee, etc. has in the property formerly held by the decedent. (Marcos v. CIR, GR No. 120880, June 5, 1997), i While driving his car to Baguio last month, Pedro Asuncion, together with his wife Assunta, and only son, Jaime, met an accident that caused the instantaneous death of Jaime. The following day, Assunta also died in the hospital. The spouses and their son had the following assets and liabilities at the time of death: Assunta Jaime Exclusive Conjugal Exclusive = Cash P 10,000,000 P 1,200,000 » Cars P 2,000,000 500,000 «Land 5,000,000 2,000,000 * Residential House 4,000,000 *» Mortgage Payable 2,500,000 * Funeral Expense ‘300,000 a. Is the Estate of Jaime Asuncion liable for estate tax? Explain. b. Is vanishing deduction applicable to the Estate of Assunta Asuncion? Explain (2008) ¢. Is funeral expenses allowed as deduction from gross estate? Explain. (AGS 2019) d. Compute the Net Taxable Estate and Estate Taxes of Assunta Asuncion. (AGS 2019) {AGS Answers are under assumption that the Decedents die: 2019) . No. Rep, Act No. 10963 TRAIN Law increased the standard deduction from P1M to PSM without the benefit of substantiation, placing the net taxable estate at a negative. Since there is no net taxable estate, no estate tax is due. b. Yes. The cash amount of P1.2 milion transferred to his parents by his death is a property previously taxed in so far as that portion attributable to his mother who died a day later is concerned. As estate tax is considered to have been paid in the previous estate if a return was filed even if there was no tax due in that return. The filing of a return is a means employed for the payment of the tax under the pay- ax Waneler Toe ’Aty Gory Sebasian OPAEsato ard Donors Taos Pages as-you-file system. Considering that all the legal requirements of vanishing deduction are present, the estate of Assunta can validly claim the same. (Section 86, NIRC) ¢. No. Funeral expenses as deductions from gross estate under the NIRC has been deleted under Rep. Act No. 10963 TRAIN Law in favor of a larger standard deduction of PSM, G. The not taxable estate and 6% estate taxes imposed on the estate of Assunta Asuncion Is computed pursuant to Rev. Regs. No. 12-2018, as follows: Gross Estate Exclusive Conjugal Total Cash P 10,000,000 4,200,000 + Cars P 2,000,000 '500,000 «Cand 5,000,000 2,000,000 + Residential House 4,000,000 « Inheritance from Jaime Asuncion 4,200,000 Total Gross Estate P7,000;000 + P 17,700,000 = P-24,700,000 Less: Allowable Deductions Ordinary Deductions + Unpaid Mortgage P 2,500,000 + Vanishing Deduction 1,078,542 taba #1.200,000.00 Less Forma EL 2whea 7h ce2sM= 191 457.40 Base of Vanishing Dacucton P1.07e.542.51 1% Venshing Dodiction PLOTaSA251 “Total Ordinary Deductions OF P3576542 = 3,578,542 Net Estate i P 14,121,458 Special Deductions Family Home 2,000,000 Standard Deduction 5,000,000 Net Estate P 14,121,488 Less: Share of the Surviving Spouse (P14,121,458 + 2) 7,060,729 Net Taxable Estate P_7,060,729 Estate Taxes at 6% P 423,643.74 ‘The net taxable estate of Assunta Asuncion is 7,060,729 as computed above and the 6% estate taxes thereon is P423,643.74. The funeral expenses is not deductible expense from gross estate as Rep. Act No, 10963 TRAIN Law has deleted the item in favor of a larger standard deduction of POM, Fp] 2 Mr. X, a Filipino residing in Alabama, U.S.A. died on January 2, 2013 after undergoing a major heart surgery. He left behind to his wife and two (2) kids several Properties, to wit: (2014) (1) Family home in Makati City; (2) Condominium unit in Las Pifias City; (8) Proceeds of health insurance from ‘Take Care, a health maintenance organization in the Philippines; and (4) Land in Alabama, U.S.A. ‘The following expenses were pai (1) Funeral Expenses; 2) Medical Expenses; (8) Judicial expenses in the testate proceedings. {A) What are the items that must be considered as part of the gross estate of Mr. X? (8) What are the items that may be considered as deductions from the gross estate? A: (AGS Answers are under assumption that the Decedent died in 2019) (A) All the items of properties enumerated in the problem shall form part of the gross estate of Mr. X. The composition of the gross estate of a decedent who 's a Filipino citizen shall include all of his properties, real or personal, tangible or intangible, wherever situated (Section 85, NIRC). This includes the proceeds of health insurance which is considered part of gross estate under Proceeds of life insurance pursuant to Section 85(E), NIRC. Ta? Wanton Taxa 7 Gary Sebastian, CPAEstate and Donors Taxus Page 4 (8) Allof the items enumerated as expenses are all deleted under Rep. Act No. 10963 TRAIN Law in favor of a larger standard deduction in the amount of PSM without substantiation for residents or citizens. The decedent, as a non-resident citizen, may stil decluct the following special deductions. «Family Home in an amount not more than F°10M, + Standard deduction of PSM Estate Taxes Time and transfer of properties aged 90 years and suffering from incurable cancer, on August 1, 2001 wrote a will and, on the same day, made several inter-vivos gifts to his children. Ten days later, he died. In your opinion, are the inter-vivos gifts considered transters contemplation of death for purposes of determining properties to be included in his gross estate? Explain your answer. (2001) A Yes. When the donor makes his will within a short time of, or simultaneously with, the making of gifts, the gifts aro considered as having been made in contemplation of death. (Roces v. Posadas, $8 Phil, 108). Obviously, the intention of the donor in making the inter-vivos gifts is to avoid the imposition of the estate tax and since the donees are likewise his forced heirs who are called upon {0 inherit, it will create a presumption juris tantum' that said donations were made mortis causa, henee, the properties donated shall be included as part of A's gross estate, Ir. 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 therefore form part of the gross estate for estate tax purposes. Is the BIR correct? (2013) ‘A: No. The house and lot were not transferred in contemplation of death therefore, these properties should not form part of the decedent's gross estate. To qualify as a transfer in contemplation of Geath, the transfer must be either without consideration or for insuificient consideration, Since the house and lot were sold for valuable and sufficient consideration, there is no transfer in contemplation of death for estate tax purposes. (Sec 8518), NIC). Alternative Answer: No. The transfer, while it may be considered a transfer in contemplation of death as declared by the BIR, is nonetheless, not part of gross estate as it is accompanied by an ‘adequate and full consideration in money or money's worth, which is an exemption under Section 85(8), NIRC. @: Jennifer is the only daughter of Janina who was a resident in Los Angeles, California, U.S.A, Janina died in the U.S. leaving to Jennifer one million shares of Sun Life (Philippines), Inc., a corporation organized and existing under the laws of the Republic of the Philippines. Said shares were held in trust for Janina by the Corporate Secretary of Sun Life and the latter can vote the shares and receive dividends for Janina. The Internal Revenue Service (IRS) of the U.S. taxed the shares on the ground that Janina was domiciled in the U.S. at the time of her death. Gan the CIR of the Philippines also tax the same shares? Explain. (2016) A: Yes. Non-imposition of taxes by another country is not a requirement nor a prohibition for Purposes of imposition of internal revenue taxes under Philippine jurisdiction, Under. the assumption that Janina is a non-resident citizen, these shares shall be included in her gross estate, {or estate tax purposes. Any estate taxes imposed by a foreign government maybe used as a tax credit on Philippine estate taxes due, as computed in accordance with law. Alternative Answer: Yes. International juridical double taxation is the imposition of the same or similar taxes by different states on one and the same subject or objact of taxation. It is nether Prohibited nor is it a hindrance on the part of any state in the exercise of its power of taxation, Under Philippine jurisdiction, the Tax Code only mitigates its effect by providing tax credits, tax Geductions or exemptions in order to alleviate what would otherwise be a result of tax imposition by two or more countries on the same subject or object of taxation. **Otlaw and nothing mor.” A rebuttable logal presumption (Oxford erence Taxa Wareie Toe ‘ity, Gory Sebastian, PAEstato and Donors Taxes Page s Estate Taxes Determination of gross estate and net estate . Jose Cerna, Filipino citizen, married to Maria Cerna, died in a vehicular accident in NLEX on July 10, 2007. The spouses owned, among others, a 100-hectare agricultural land in Sta. Resa, Laguna with current fair market value of P20 million, which was subject to matter of a Joint Venture Agreement about to be implemented with Star Land Corporation (SLC), a well-known real estate development company. He bought the said real property for P2 million fifty years ago. On January 5, 2008, the administrator of the estate and SLC jointly announced their big plans to start conversion and development of the agricultural lands in Sta. Rosa, Laguna, into first-class residential and commercial centers, As a result, the prices of real properties in the locality have doubled, The administrator of the Estate of Jose Cernan filed the estate tax return on January 9, 2008, by including in the gross estate the real property at P2 million. After 9 months, the BIR issued deficiency estate tax assessment, by valuing the real property at P40 million, a. Is the BIR correct in valuing the real property at P40 million? Explain, b. Ifyou disagree, what is the correct value to used for estate tax purposes? Explain. (2008) a. No. The value of the property for estate tax purpose shall be the fair market value thereof at the time of death (Section 88(B) NIRC). The deficiency taxes are based on the fair market value at the time of the fling of the return which is not supported under the Tax Code, ©. The correct value to use for estate tax purposes is P20 Million which is the current fair ‘market value of the property at the time of the decedent's death (Section 88(8) NIC) Q: Remedios, a resident citizen, died on November 10, 2006. She died leaving three condominium units in Quezon City valued at P5 Million each. Rodolfo was her only heir. He reported her death on December 5, 2006 and filed the estate tax, he asked the CIR to give him one year to pay the estate tax due, The CIR approved the request for extension of time provided that the estate tax be computed on the basis of the value of the property at the time of payment of the tax. (2007) a. Does the CIR have the power to extend the payment of estate tax? If so, what are the requirements to allow such extension? b. Does the condition that the basis of the estate tax will be the value at the time of the payment have legal basis? Reason briefly. A: (AGS Answers are under assumption that the Decedent died in 2019) 8. Yes, the Commissioner may extend the payment, subject to the following conditions under the NIRC, as amended by Rep. Act No. 10963, under two scenarios: (1) Ifthe timely payment would impose undue hardship upon the estate or the heirs: +The CIR may extend the period of payment not exceeding 2 years in case of extrajudicial settlement of the estate or 5 years in case of judicial settlement, (Gection 91, NIRC) ‘+ The CIR's grant of extension may require the posting of a bond not exceeding double the amount of the tax. @2) In.case the available cash of the estate is insufficient to pay the total estate tax dus: * Payment by installment shall be allowed within 2 years from the statutory date for its Payment without civil penalty and interest. * The cash installments shall be made within 2 years from the date of fling of the estate tax return «+ The estate tax retum shall be fled within one year from the date of decedent's death. * The frequency (ie., monthly, quarterly, semi-annually or annually), deadline and amount of each installment shall be indicated in the estate tax return, subject to the prior approval by the BIR, ©, No. The value of the gross estate shall be determined at the time of Geath of the decedent. (Sections 8 & 90(A)(1), NIFC). Tax anster Tas ‘Ay Gory Sebastian, CFAsale and Donors Taxes Page & Estate Taxes Composition of gross estate @: Jose Ortiz owns 100 hectares of agricultural land planted to coconut trees. He died on May 30, 1994, Prior to his death, the government, by operation of law, acquired under the Comprehensive Agrarian Reform Law all his agricultural lands except five (5) hectares. Upon the death of Ortiz, his widow asked you how she will consider the 100 hectares of agricultural land in the preparation of the estate tax return. What advice will you give her? (1999) ‘A; The 100 hectares of land that Jose Ortiz owned but which prior to his death on May 30, 1994 were acquired by the government under CARP are no longer part of his taxable gross estate, with the exception of the remaining five (6) hectares which under Section 78(a) of the NIRC stil forms part of ‘decedent's interest Estate Taxes Items to be included in gross estate : Ralph Donald, an American citizen, was a top executive of a U.S. company in the Philippines until he retired in 1999. He came to like the Philippines so much that following his retirement, he decided to spend the rest of his life in the country. He applied for and was granted a permanent resident status the following year. In the spt ing of 2004, while vacationing in Orlando, Florida, USA, he suffered a heart attack and died. At the time of his death, he left the following properties: (a) bank deposits with Citibank Makati and Citibank Orlando, Florida; (b) a Rest house in Orlando, Florida; {c) a condominium unit (d) shares of stock in the Philippine subsidiary of the U.S. Company where he worked; {e) shares of stock in San Miguel Corp. and PLDT; (| shares of stock in Disney World in Florida; (9) U.S. treasury bonds; and {h) Proceeds from a life insurance policy issued by a U.S. corporation. Which of the foregoing assets shall be included in the taxable gross estate in the Philippines? Explain. (2005) A: All of the properties enumerated except the proceeds from life insurance, are included in the taxable gross estate in the Philippines under the definition of gross estate for decedent residents or citizens under Section 85, NIFC as Ralph Donald is a resident alien a the time of his death. The Value of the gross estate of a resident or citizen (which necessarily includes a resident alien) decedent is the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated (Section 85, NIRC). ‘The proceeds from a life insurance policy is also considered an inclusion to gross estate under Section 85(E), NIRC. Since the proceeds are left to the estate of the decedent and the designation should be considered revocable (as there is no express irrevocabilty), the Tax Code consider the proceeds as part of gross estate. Q: On 30 June 2000, X took out a life insurance policy on ‘of P2,000,000.00. He designated his wife, Y, as irrevocable beneficiary to P1,000,000.00 and his son, Z, to the balance of P1,000,000.00 but, in the latter designation, reserving his right to substitute him for another. On 01 September 2003, X died and his wife and son went to the insurer to collect the proceeds of X's life insurance Policy. Are the proceeds of the insurance to form part of the gross estate of X? Explain, (2003) own life in the amount ‘At Only the proceeds of P1,000,000.00 given to the son, Z, shall form part of the Gross Estate of X. Under the NIRC, proceeds of life insurance shall not form part of the gross estate only if the beneficiary designated is other than the decadent, his estate, executor or administrator and the designation of the beneficiary is irevocable. While both insurance policy designated a third person, only the policy with the wife as beneficiary is designated as irrevocable, Accordingly, the proceeds received by Y shall be excluded while the proceeds received by Z shall be included in the gross estate of X (Section 85(E), NIC), Ter anata Toss ‘Alt. Gem Sebastian, CPAEstate and Donors Taxes Pago 7 Q: Mr. Felix de ta Cruz, a bachelor resident citizen, suffered from a heart attack while on a business trip to the USA. He died intestate on June 15, 2000 in New York City, leaving behind real properties situated in New York; his family home in Valle Yerde, Pasig City; an office condominium in Makati City; shares of stocks in San Miguel Corporation; cash in bank; and personal belongings. The decedent is heavily insured with Insular Life. He had no known debts at the time of his death. As the sole heir and appointed Administrator, how would you determine the gross estate of the decedent? (2000) ‘A: Tho gross estate shall be determined by including the value at the time of his death all of the Properties montioned, to the extent of the interest he had at the time of his death because he is a Filipino citizen (Section 85(A), NIFC). With respect to the life insurance proceeds, the amount includible in tha gross estate for Philippine tax purposes would be to the extent of the amount receivable by the estate of the deceased, his executor, or administrator, under policies taken out by Gecedent upon his own life, imespective 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 expresely stipulated that the designation of the beneficiary is irrevocable (Section 85(6), NIRC). @ Cliff Robertson, an American citizen, was a permanent resident of the UB Philippines. He died in Miami, Florida. He left 10,000 shares of Meralco. ‘s condominium unit at the Twin Towers Building at Pasig, Metro Manila and a house and lot in Los Angeles, California. What assets shall be included in the Estate Tax Return to be filed with the BIR? (1994) ‘A: All of Mr. Robertson's assets consisting of 10,000 shares in the Meralco, a condominium unit in Pasig, and his house and lot in Los Angeles, California are taxable. The properties of a resident alien decedent like Mr. Robertson are taxable wherever situated (Sections 77, 78 & 98, NIRC). : In 1999, Xavier purchased from his friend, Yuri, a painting for P500,000.00, The fair market value (FMV) of the painting at the time of the purchase was P1-million. ‘Yuri paid all the corresponding taxes on the transaction. In 2001, Xavier died. In hi {ast will and testament, Xavier bequeathed the painting, already worth P1.5-million, to his only son, Zandro. The will also granted Zandro the power to appoint his wife, Wilma, as Successor to the painting in the event of Zandro's death. Zandro died in 2007, and Wilma succeeded to the property. @. Should the painting be included in the gross estate of Xavier in 2001 and thus, be subject to estate tax? Explain, ». Should the painting be included in the gross estate of Zandro in 2007 and thus, be subject to estate tax? Explain. ©. May a vanishing deduction be allowed in either or both of the estates? Expl (2009) Yes. The transmission of the property from Xavier to Zandro is subject to the estate tax because this is a property within Xavier's control to dispose upon his death, The composition of the gross estate pertains to properties owned and existing as of the time of Geath and to be transferred by the owner by death (Section 85 NIRC). No. This is transmission under a specific power of appointment. The transmission from the first heir, legates or donee in favor of another beneficiary, in accordance with the desire of the predecessor is an exempt transfer (Sec 87, NIRC). Zandro has no control over the Gisposition of the property at the time of his death, Hence, the estate tax which is imposed the privilege of transmitting properties upon his death will not apply. Alternative Answer: No. The properly passes from Zandro to Wilma by virtue of the special power of appointment granted by Xavier, The law includes as part of the gross estate of the decedent a property passing under general (not special) power of appointment. The grantee of the power to appoint, Zandro, has no control over the disposition of the property because it is the desire of the grantor of the power that the property will go to a specific person, This being so, the painting should not be included in the gross estate of Zandro. Hence, it is not subject to estate tax (Section 85(0), NIRC), Te arate Tos ‘Ay, Gary Sebastian, CPAEstate and Donors Taxes Pages ¢. Vanishing deduction shall be allowed to the estate of Xavier but only to the extent of 12 of the property which is the portion acquired by gift (Sec 100 NIRC). The donation took place within 8 years (1999-2001) from the death of Xavier, Hence, there is vanishing deduction. However, Zandro’s estate will not be entitled to claim vanishing deduction because, first and foremost, the property previously taxed is not includable in his gross estate and second, even if it is includable, the present decedent died more than 5 years from the Geath of the previous decedent, and that a vanishing deduction is already claimed by the Previous estate involving the same property. Don Sebastian, single but head of the family, Fil ied intestate on November 15, 2009. He left the follo\ House and lot (family home) in Pasig Pp Vacation house and lot in Florida, USA Agricultural land in Naic, Cavite which he inherited from his father Car which is being used by his brother in Cavite Proceeds of life insurance where he named his estate as irrevocable beneficiary 1,000,000 Household furnitures and appliances 4,000,000 Claims against a cousin who has assets ino, and resident of Pasig City, of P10,000 and liabilities of P100,000 100,000 Shares of stock in ABC. 100,000 ‘The expenses and charges on the estate are as follows: Funeral Expenses P 250,000 Legal fees for the settlement of the estate 500,000 Medical expenses of last illness 600,000 Claims against the estate 300,000 The compulsory heirs of Don Sebastian approach you and seek your assistance in the settlement of his estate for which they have agreed to the above- stated professional fees. Specifically, they request you to explain and discuss with them the following questions. You oblige: ‘a. What are the properties and interests that should be included in the computation of the gross estate of the decedent? Explain. b, Whats the net taxable estate of the decedent? Explain. ¢. When is the due date for filing and payment of the applicable tax return and tax? Are these dates extendible? If so, under what conditions or requirements? . IfX, one of the compulsory heirs, renounces his share in the inheritance in favor of the other co-heirs, is there any tax implication of X’s renunciation? What about the other coheirs? (2010) A: (AGS Answers are under assumption that the Decedents di in 2019) a. Al the properties and interests enumerated in the problem should be included in the gross estate of the decedent. The composition of the gross estate of a decedent who is a clizen of the Philippines includes all properties, real or personal, tangible or intangible, wherever situated and to the extent of the interest that he has thereon al the time of his death (Section 85, NIRC). b. The not taxable estate and 6% estate taxes imposed on the estate is computed pursuant to Rev. Regs. No. 12-2018. As computed below, the net taxable estate is P1,200,000 and the 6% estate taxes thereon is P72,000 under the following discussions: * The funeral expenses, judicial expenses and medical expenses are not deductible expense from gross estate as Rep. Act No. 10963 TRAIN Law has deleted these items in favor of a larger standard deduction of PM. «+ The claim against the cousin amounting to P100,000 although included in the gross estate, should be only claimed as a deduction upto the amount of uncollectibilty, Sinca only 10,000 can be collected, the rest may be considered as claims against insolvent debtors. Under Section 2(p), Rep. Act No. 10142, insolvent shall refer to the financial concition of a debtor that is generally unable to pay its or his liabilties as they fall due in the ordinary course of business or has liabilities that are greater than its or his assets. It need not be declared as such, + The inherited property cannot give rise to vanishing deduction for want of sufficient factual basis as it did not indicate any information that will qualify the same as property previously taxed. Tea Toner Taxes ‘ity. Gary Sebastian, CFAEstate and Donor’ Taxes Page 9 Gross Estate * House and lot (family home) in Pasig += Vacation house and lot in Florida, USA ‘+ Agricultural land in Nae, Cavite which he inherited from his father + Car which is being used by his brother in Cavite * Procaeds of life insurance where he named his estate as irrevocable beneficiary + Household furnitures and appliances * Claims against_a cousin who has assets of P 10,000 and liabilities of P100,000 * Shares of Stock in ABC. Total Gross Estate Less: Allowable Deductions Ordinary Deductions Claims against the Estate P 300,000 Claims against Insolvent Persons 90,000 P 390,000 Special Deductions Family Home P 800,000 Standard Deductions 5,000,000 __P_ 800,000 Net Taxable Estate P 1,200,000 Estate Tax at 6% P 72,000 &. The fling of return and payment of the tax is within 1 year from date of death following the Pay-as-you-file-conoept. The period to file the return is extendible for a maximum of 30 Gays under meritorious cases as may be determined by the Commissioner. The Commissioner may extend the payment, subject to the following conditions under the NIRC, as amended by Rep. Act No. 10963, under two scenarios: (1) Ifthe timely payment would impose undue hardship upon the estate or the heirs: +The CIR may extend the period of payment not exceeding 2 years in case of $itraluctcial settlement of the estate or 5 years in case of jucicial settlement, (Section » NIRC) + The CIR’ grant of extension may require the posting of a bond not exceeding double the amount of the tax. (2) In case the available cash of the estate is insufficient to pay the total estate tax due: * Payment by installment shall be allowed within 2 years from the statutory date for its payment without civil penalty and interest. + The cash installments shall be made within 2 years from the date of fling of the estate tax return «+ The estate tax return shall be fled within one year from the date of decedent's death, = The frequency (.e., monthly, quarterly, semi-annually or annually), deadline and amount of each installment shall be indicated in the estate tax return, subject to the Prior approval by the BIR, d. If the renunciation is general renunciation such that the share of the heir who waives his Fight to the inheritance goes to the other co-heirs in accordance with their respective interest in the inheritance, the law on acoretion applies and the property walved is considered to pass through the other co-heirs by inheritance; hence, it has not tax implication. Undoubtedly, when the compulsory hair renounced his share in the inheritance, he did not donate the property which had naver become his. Such being the case, the enunciation is not subject to the donor's tax. {fits not a general renunciation in favor of the other co-heirs, the heir renouncing his right |s considered to have made a donation and the renunciation is subject to donor's tax. In both cases, however, the renunciation has no tax implication to the other co-heirs (BI Ruling No. DA (DT-039) 396-09, dated July 23, 2009). Tong Siok, a Chinese billionaire and a Canadian resident, died and left assets in China valued at P80 billion and in the Philippines assets valued at P20 billion. For Philippine estate tax purposes the allowable deductions for expenses, losses, indebtedness, and taxes, property previously taxed, transfers for public use, and the share of his surviving spouse in their conjugal partnership amounted to fae billion. Tong's gross estate for Philippine estate tax purposes is: (2011) Tad Tae oes ‘ay. Gary Sebastian, CPAEstate ane Donors Taxes Page 10 (A) P20 billion (B) P5 billion (C) P100 billion (D) P85 billion Az Letter (A) P20 billion Alternative Answer: Since Tong Siok is a non-resident alien, his gross estate comprise of all Properties only situated in the Philippines, which is valued at P20 bilion. . While he was traveling with friends, Mr, Jose Francisco, resident Filipino citizen, died on January 20, 2011 in a California Hospital, USA, leaving personal and real Properties with market values as follows: House and Lot in Quezon City- P10 million; Gash in bank in California - US$10,000.00; Citibank in New York - US$5,000.00; Gash in BPI Makati - P4 million; Car in Quezon City - P1 million; Shares of stocks of Apple Corporation, US corporation listed in NY Stock Exchange - US $5,000.00, Funeral expenses paid - P2 million. Assume conversion rate of US$1=Php80. His gross estate for the Philippine estate tax purposes shall be: (2012) a) P13 b) P14 ©) P15 d) P16 Million. A: Lotter d) P16 Million Alternative Answer: Since Mr. Jose Francisco is a resident citizen, his gross estate comprise of all properties wherever situated, which includes all the properties mentioned above in the total ‘amount of P'16,000,000, as computed below: Gross Estate: House and Lot in Quezon City P 10,000,000 Cash in bank in California (US$10,000 x P50.00) ‘500,000 Citibank in New York (US$5,000 x P50.00) 250,000 Cash in BPI Makati 4,000,000 Gar in Quezon City 41,000,000 Shares of stocks of Apple Corporation, US corporation listed in NY Stock Exchange Total Gross Estate Pa ,000,000 Antonia Santos, 30 years old, gainfully employed, is the sister of Edgardo Santos. She died in an airplane crash. Edgardo is a lawyer and he negotiated with the airline company and insurance company and they were able to agree to a total settlement of P10 Miillion. This is what Antonia would have earned as somebody who was gainfully employed. Edgardo was her only heir. (2007) a. Is the P10 Million subject to estate tax? Reason briefly, Should Edgardo report the P10 Million as his income being Antonia’s only heir? Reason briefly. a. No. Under Section 85, NIRC, the reckoning point of the value of the gross estate of the decedent is the value of all properties at the time of his death. Since the P10 milion was. ‘compensation arising from the death of Antonia Santos, it will not be part of her gross estate, The said payment is in the nature of compensation for injuries or sickness resulting in the Geath of Antonio Santos which is excluded from gross income under Section 32(6)(4), NIC and which is not also inclucible as part of the gross estate under Section 85, NIRG without any express or specific provision to that effect, the reason being that the amount aid to the beneficiary or immediate heirs of the deceased did not yet exist at the time of his death but is contingent and dependent uport the successful prosecution of the claim or lawsuit for the payment of the said amount as death compensation. (See BIR Unnumbered Ruling dated 6 September 1974) b. No. While compensation or award for loss of earning capacity is taxable notwithstanding the fact that compensation for personal Tw Tawer oes ‘it, Gey Sebastian, CPA