BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS) 8

SUGGESTED ANSWERS
Chapter 3: GROSS ESTATE

CHAPTER 3
GROSS ESTATE
Problem 3-1
1. False – should be including revocable transfers and transfers for insufficient consideration.
2. False – depending on the citizenship and residency of the decedent.
3. True
4. False – common stock only; preferred stock is measured at its par value.
5. False – resident alien = properties within and without
6. True
7. True
8. False – donation mortis causa is subject to estate tax.
9. True
10. False – only revocable transfer is taxable.

Problem 3-2
1. False – the relationship must be one degree of generation.
2. True – If he is a nonresident alien.
3. False – the other way around
4. True
5. False – it will depend on how the jewelry was acquired.
6. True
7. False – revocable designation.
8. True
9. False – exclusively to wife
10. False – surviving spouse capital is not included.

Problem 3-3
1. C 6. A
2. A 7. D
3. C 8. A
4. D 9. C
5. B 10. B, C & D

Problem 3-4

1. The reportable gross estate is P2,000,000.

2. Reportable gross estate is P600,000. As a rule, property donated by the decedent to a

nonprofit and nonstock educational institution shall not be considered in the computation of
gross estate.

3. The reportable estate of A in the Philippines is P5,000,000. Even if A is a nonresident Filipino,

his properties located outside the Philippines are reportable in the Philippines because he is a
Filipino citizen.

4. P10,000,000. The properties left by a resident alien which are located within and outside the
Philippines are required to be reported for Philippine estate tax purposes.

5. At market value of P750,000. The law provides that the valuation should be at the market
value of the property at the time of the owner’s death. The book value is irrelevant because
the properties left by the decedent are considered under liquidating concern.
BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS) 9
SUGGESTED ANSWERS
Chapter 3: GROSS ESTATE

6. Only the market value of P500,000 is the reportable gross estate. The rule is to report the
market value of the property at the time of the decedent’s death. The compensatory damages
of P900,000 is nontaxable and besides the accrued to the decedent’s heirs after death.

7. If the cash dividend accrued to X before his death but received only after death, then the
additional gross estate would be P2,000,000. But if cash dividend accrued only after death,
then there is no addition to the gross estate.

Note: If the problem is silent as to the par value of the shares of stock, it is assumed that the
cost is the par value per share.

The market value of the shares of stock shall be the reportable amount of the gross estate,
not the acquisition cost of the shares of stock.

8. A has 20% in the book value of U Corporation. The book value of U Corp. is P2,000,000.
Therefore the reportable gross estate of A would be P400,000 or (P2,000,000 x 20%).

9. Zero. The beneficiary is irrevocable. Therefore, the P5,000,000 proceeds of life insurance
should be excluded from the gross estate.

10. Property brought into marriage before August 3, 1988 shall be classified as an exclusive
property but its fruits shall be classified as part of the conjugal property. The exclusive gross
estate of Mr. X is P8,000,000.

11. Marriage on or after August 3, 1988 shall be governed by the absolute community regime of
property relation. Therefore, the exclusive gross estate of Mr. X is zero because his property
brought into marriage including its fruits shall be classified as part of the absolute
community property.

12. Reportable gross estate is P6,000,000, but the entire amount shall be allowed as deductions
from the gross estate as transfer for public use.

13. Reportable gross estate is P4,000,000. The claims against insolvent person should still be
reported in the gross estate but allowed as deductions from the gross estate.

14. Since M is a resident alien, all of his properties within and outside the Philippines should be
reported as part of the gross estate for Philippine estate tax purposes. The reportable gross
estate should be P11,000,000.

15. No amount is allowed as exemption because the rule of reciprocity is applied only on the
intangibles of nonresident alien.

16. Since Mr. T is a nonresident alien in this case, the gross estate is zero because the rule of
reciprocity can now be applied.
BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS) 10
SUGGESTED ANSWERS
Chapter 3: GROSS ESTATE

Problem 3 – 5 A
House and lot, Daly City P10,000,000
Mansion, Boracay, Philippines 50,000,000
Cars, Philippines 2,000,000
Shares of stock, Hongkong 5,000,000
Accounts receivable 3,000,000
Gross estate of Molina P70,000,000

Problem 3-6 C
Real property in the Philippines P1,000,000
Personal properties in foreign country 300,000
Amount to be included in the gross estate P1,300,000

Problem 3-7 D
Since the alien is nonresident all of his properties outside the Philippines are reportable for
Philippine estate tax purposes.

Problem 3-8
1. A
Real properties – Philippines P1,000,000
Car – Philippines 500,000
Collectibles – Taiwan 500,000
Taxable gross estate P2,000,000

2. D
Real properties – Philippines P1,000,000
Car – Philippines 500,000
Taxable gross estate P1,500,000

Problem 3-9 A
The gross estate shall be valued at its fair market value at the time of death.

Problem 3-10 C
Amount to be included in the gross estate [(P120+P150)/2] x 1,000 P135,000

Problem 3-11 D
Properties acquired and brought into marriage on or before August 3, 1988 is governed by
absolute community of property ownership.

Problem 3-12 A
Equity in SMC book value (P1,250,000,000 x 40%) P500,000,000
Investment income (P100,000,000 x 40%) 40,000,000
Amount to be included in the gross estate P540,000,000
Note: Investment income is considered because there is significant controlling interest.

Problem 3-13 B
Proceeds to revocable life insurance P 800,000

Problem 3-14 D
The proceeds of life insurance is not reportable because the beneficiary is irrevocable.

Problem 3-15 C
Fair market value – date of death P3,000,000
Less: Selling price paid by the son 100,000
Amount included in the gross estate P2,900,000
BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS) 11
SUGGESTED ANSWERS
Chapter 3: GROSS ESTATE

Problem 3-16 C
Fair market value – date of death P2,000,000
Less: Selling price received by Singsong 1,300,000
Amount included in the gross estate P 700,000

Problem 3-17 C
The entire amount of receivable, irrespective whether collectible or not, shall be included as part
of the gross estate.

Problem 3-18 A
Revocable donation to the Ramon Magsaysay Foundation P1,000,000
Family home 1,000,000
Benefits under R.A. 4917 500,000
Transfers in contemplation of death 2,000,000
Donation to the government 1,000,000
Total reportable gross estate P5,500,000

Problem 3-19 B
Condominium in Makati as a fiduciary heir P5,000,000
Cash as bequest to the University of the Philippines 2,000,000
Amount to be excluded from reportable gross estate P7,000,000

Problem 3-20 A
Only nonresident alien shall be subject to reciprocity.

Problem 3-21
1. Conjugal partnership of gains = A
Conjugal properties:
Accum. income from boarding house P3,000,000
Personal properties acquired during marriage 5,000,000 P 8,000,000
Exclusive property – boarding house inherited from his parents before marriage 4,000,000
Total gross estate P12,000,000

2. Absolute community of property = D

Absolute communal properties:
Accum. income from boarding house P 3,000,000
Personal properties acquired during marriage 5,000,000
Boarding house inherited from his parents before marriage 4,000,000
Total gross estate P12,000,000

Problem 3-22
1. Resident citizen
Real estate – Philippines P 5,000,000
Real properties – Taiwan 10,000,000
Personal properties – Philippines 500,000
Gross estate P15,500,000

2. Resident alien
Real estate – Philippines P 5,000,000
Real properties – Taiwan 10,000,000
Personal properties – Philippines 500,000
Gross estate P15,500,000
3. Nonresident alien
Real estate – Philippines P 5,000,000
Personal properties – Philippines 500,000
Gross estate P 5,500,000
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SUGGESTED ANSWERS
Chapter 3: GROSS ESTATE

Problem 3-23
Real properties in the Philippines P2,000,000
Car in the Philippines 800,000
Collectibles 500,000
Time deposit 300,000
Accrued interest on time deposit (P300,000 x 12% x 5/12) 15,000
Gross estate P3,615,000

Problem 3-24
Shares of stock – Japanese Corporation – 85% of business in the Philippines P120,000,000
Time deposit in Equitable-PCI Bank 500,000,000
Investments in bonds in Jollibee Corporation 4,000,000
Gross estate P624,000,000

Problem 3-25
House and lot P6,000,000
Investment in property 2,000,000
Car 600,000
Furniture 300,000
Gross estate P8,900,000

Problem 3-26
1. Listed in the local exchange
Common (P190/2) x 10,000 shares P 950,000

2. Not listed in the local exchange

Total stockholders’ equity P15,000,000
Less: Liquidating value of preferred stock
(P110 x 60,000 shares) 6,600,000
Revaluation surplus 200,000
Total book value to common shares P 8,200,000
Divided by outstanding common shares 100,000
Book value per share P 82
Multiplied by number of Mr. Tulog’s
investment in common shares 10,000
Value of securities as part of gross estate P 820,000

Problem 3-27
Real estate properties P 3,000,000
Time deposit – principal amount 2,000,000
Accrued interest on time deposit (P2,000,000 x 12% x 8/12) 160,000
Tangible personal properties 1,000,000
Other intangible properties 500,000
Gross estate P 6,660,000

Problem 3-28
Proceeds of life insurance – revocable P1,000,000
Donation to take effect upon her death 500,000
Diamond necklace 500,000
Gross estate P2,000,000
BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS) 13
SUGGESTED ANSWERS
Chapter 3: GROSS ESTATE

Problem 3-29
1. Accrued interest (P1,000,000 x 6% x 9/12) P 45,000
Transfers in contemplation of death 1,500,000
Additions to the reportable gross estate P1,545,000

2. Family home P2,000,000

Time deposit 1,000,000
Proceeds of life insurance received by his wife 500,000
Claims against insolvent person 200,000
Additions to the reportable gross estate (see 1) 1,545,000
Total gross estate P5,245,000

Problem 3-30
Conjugal Absolute
Partnership Community
Properties:
Acquired by decedent prior to marriage P600,000 P600,000
Acquired by surviving spouse prior to marriage 700,000
Inherited by decedent during the marriage 800,000 800,000
Acquired during the marriage 1,000,000 1,000,000
Income derived from property inherited by surviving
spouse during the marriage 450,000
Time deposit 850,000 850,000
Accrued interest 90,000 90,000
Total gross estate of the decedent P3,790,000 P4,040,000