1. FERDINAND R. MARCOS II vs.

COURT OF APPEALS, THE COMMISSIONER OF THE

BUREAU OF INTERNAL REVENUE and HERMINIA D. DE GUZMAN
FACTS:
The Commissioner of Internal Revenue caused the preparation and filing of the Estate Tax
Return for the estate of the late president, the Income Tax Returns of the Spouses Marcos for
the years 1985 to 1986, and the Income Tax Returns of petitioner Ferdinand "Bongbong"
Marcos II for the years 1982 to 1985.
On July 26, 1991, the BIR issued deficiency tax assessments which were not protested
administratively, by Mrs. Marcos and the other heirs of the late president, within 30 days from
service of said assessments.
The BIR Commissioner issued more that twenty-two notices of levy on real property against
certain parcels of land owned by the Marcoses — to satisfy the alleged estate tax and
deficiency income taxes of Spouses Marcos.
Petitioner posits that notices of levy, notices of sale, and subsequent sale of properties of the
late President Marcos effected by the BIR are null and void for disregarding the established
procedure for the enforcement of taxes due upon the estate of the deceased. The case of
Domingo vs. Garlitos is specifically cited that "the ordinary procedure by which to settle
claims of indebtedness against the estate of a deceased, person, as in an inheritance
(estate) tax, is for the claimant to present a claim before the probate court so that said
court may order the administrator to pay the amount therefor."
On the other hand, it is argued by the BIR, that the state's authority to collect internal revenue
taxes is paramount. Thus, the pendency of probate proceedings over the estate of the
deceased does not preclude the assessment and collection, through summary remedies, of
estate taxes over the same.
ISSUE: Whether or not the BIR may collect estate tax by levying upon, and sale of real
properties of the decedent, without the authority of the probate court.
RULING:
YES. The failure to file an Estate Tax Return, and the subsequent failure to contest or appeal
the assessment made by the BIR is fatal to the petitioner's cause. Under Section 223 of the
NIRC, in case of failure to file a return, the tax may be assessed at any time within 10 years
after the omission, and any tax so assessed may be collected by levy upon real property within
3 years (now 5 years) following the assessment of the tax. Since the estate tax assessment had
become final and unappealable by the petitioner's default as regards protesting the validity of
the said assessment, there is no reason why the BIR cannot continue with the collection of the
said tax.
The Government has two ways of collecting the taxes:
(1) by going after all the heirs and collecting from each one of them the amount of the tax
proportionate to the inheritance received; or
(2) by subjecting said property of the estate which is in the hands of an heir or transferee to
the payment of the tax due the estate pursuant to the lien created by Section 315 of the
 Tax Code upon all property and rights to property belong to the taxpayer for unpaid
income tax.
2. COMMISSIONER OF INTERNAL REVENUE vs. MANUEL B. PINEDA, as one of the
heirs of deceased ATANASIO PINEDA
FACTS:
On May 23, 1945, Atanasio Pineda died, survived by his wife, Felicisima Bagtas, and 15
children, the eldest of whom is Manuel B. Pineda, a lawyer. The estate was divided among and
awarded to the heirs and the proceedings terminated on June 8, 1948. Manuel B. Pineda's
share amounted to about P2,500.00.
After the estate proceedings were closed, the Bureau of Internal Revenue (BIR) investigated the
income tax liability of the estate for the years 1945, 1946, 1947 and 1948 and it found that the
corresponding income tax returns were not filed. Thereupon, the representative of the Collector
of Internal Revenue filed said returns for the estate. Manuel B. Pineda opposes the proposition
on the ground that as an heir he is liable for unpaid income tax due the estate only up to the
extent of and in proportion to any share he received.
ISSUES:
(1) What are the two modes of collecting taxes?
(2) Can the BIR collect the entire amount of tax from Manuel Pineda?

HELD:
1. The Government has two ways of collecting the tax in question.
a. One, by going after all the heirs and collecting from each one of them the amount of the
tax proportionate to the inheritance received. This action rests on the concept that
hereditary property consists only of that part which remains after the settlement of all
lawful claims against the estate, for the settlement of which the entire estate is first
liable. The reason why in case suit is filed against all the heirs the tax due from the
estate is levied proportionately against them is to achieve thereby two results: first,
payment of the tax; and second, adjustment of the shares of each heir in the distributed
estate as lessened by the tax.
b. Another remedy, pursuant to the lien created by Section 315 of the Tax Code upon all
property and rights to property belonging to the taxpayer for unpaid income tax, is by
subjecting said property of the estate which is in the hands of an heir or transferee to the
payment of the tax due, the estate. This second remedy is the very avenue the
Government took in this case to collect the tax. The Bureau of Internal Revenue should
be given, in instances like the case at bar, the necessary discretion to avail itself of
the most expeditious way to collect the tax as may be envisioned in the particular
provision of the Tax Code above quoted, because taxes are the lifeblood of
government, and their prompt and certain availability is an imperious need. And as
afore-stated in this case the suit seeks to achieve only one objective: payment of the tax.
The adjustment of the respective shares due to the heirs from the inheritance, as
lessened by the tax, is left to await the suit for contribution by the heir from whom the
Government recovered said tax.
2. YES. The Government can require Manuel B. Pineda to pay the full amount of the taxes
assessed. Pineda is liable for the assessment as an heir and as a holder-transferee of
property belonging to the estate/taxpayer. As an heir he is individually answerable for the
part of the tax proportionate to the share he received from the inheritance. His liability,
however, cannot exceed the amount of his share.
If any person liable to pay the income tax, neglects or refuses to pay the same after
demand, the amount shall be a lien in favor of the Government of the Philippines from
the time when the assessment was made by the Commissioner of Internal Revenue
until paid with interest, penalties, and costs that may accrue in addition thereto upon
all property and rights to property belonging to the taxpayer: . . .
By virtue of such lien, the Government has the right to subject the property in Pineda's
possession, i.e., the P2,500.00, to satisfy the income tax assessment in the sum of
P760.28. After such payment, Pineda will have a right of contribution from his co-heirs, to
achieve an adjustment of the proper share of each heir in the distributable estate.
3. PABLO LORENZO, as trustee of the estate of Thomas Hanley, deceased, vs. JUAN
POSADAS, JR., Collector of Internal Revenue

FACTS:
Thomas Hanley died in Zamboanga, Zamboanga, leaving a will and considerable amount of real
and personal properties. The will was admitted to probate by the Court of First Instance of
Zamboanga (CFI).
During the incumbency of Lorenzo as trustee, the defendant Juan Posadas, Collector of Internal
Revenue, alleged that the estate left by the deceased at the time of his death consisted of realty
valued at P27,920 and personally valued at P1,465, and allowed a deduction of P480.81. He
assessed against the estate an inheritance tax in the amount of P1,434.24. Together with the
penalties for delinquency in payment (1%monthly interest and a surcharge of 25% on the tax),
the total assessment amounted to P2,052.74.
Lorenzo paid said amount under protest, notifying the Posadas at the same time that unless the
amount was promptly refunded suit would be brought for its recovery. Posadas overruled the
plaintiff's protest and refused to refund the said amount.
ISSUES and RULINGS:
1. When does the inheritance tax accrue and when must it be satisfied?

It accrues at the time of death of the decedent. Here, it must be satisfied before the
properties were delivered to Moore. The accrual of the inheritance tax is distinct from the
obligation to pay the same.

According to article 657 of the Civil Code, "the rights to the succession of a person are
transmitted from the moment of his death."

2. Should the inheritance tax be computed on the basis of the value of the estate at the time of
the testator's death, or on its value ten years later?

If death is the generating source from which the power of the estate to impose inheritance
taxes takes its being and if, upon the death of the decedent, succession takes place and the
right of the estate to tax vests instantly, the tax should be measured by the value of the
estate as it stood at the time of the decedent's death, regardless of any subsequent
contingency value of any subsequent increase or decrease in value.

The right of the state to an 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."
3. In determining the net value of the estate subject to tax, is it proper to deduct the
compensation due to trustees?

NO. A trustee, no doubt, is entitled to receive a fair compensation for his. But from
this, it does not follow that the compensation due him may lawfully be deducted in
arriving at the net value of the estate subject to tax. There is no statute in the Philippines
which requires trustees' commissions to be deducted in determining the net value of the
estate subject to inheritance tax.

4. What law governs the case? Should the provisions of Act No. 3606 favorable to the tax-
payer be given retroactive effect?

*Act 3606 - AN ACT TO AMEND CERTAIN SECTIONS OF THE ADMINISTRATIVE CODE

* Act 3031 - AN ACT TO AMEND CERTAIN SECTIONS OF THE ADMINISTRATIVE CODE
RELATIVE TO THE TAXES ON INHERITANCES, AND FOR OTHER PURPOSES

The law at the time was section 1544 above-mentioned, as amended by Act No. 3031,
which took effect on March 9, 1922. It is well-settled that inheritance taxation is governed
by the statute in force at the time of the death of the decedent

The delinquency in payment occurred on March 10, 1924, the date when Moore became
trustee. The interest due should be computed from that date and it is error on the part of the
Posadas to compute it one month later. Neither the Collector of Internal Revenue or the
court may remit or decrease such interest, no matter how heavily it may burden the
taxpayer.
5. DIZON VS COURT OF TAX APPEALS
FACTS:
Jose Fernandez died and a petition for probate of his will was filed. Justice Arsenio Dizon and
Petitioner Atty. Rafael Arsenio Dizon were appointed as administrators thereof. The BIR
Regional Director issued certification that the taxes due on the transfer of the real and personal
properties of Jose Fernandez have been fully paid and said properties may be transferred to his
heirs.
Subsequently, Justice Arsenio Dizon died and Atty. Rafael Dizon was appointed as the
administrator. Petitioner Atty. Rafael Dizon requested from the probate court authority to sell
several properties of the estate to pay its creditors. However, he manifested that one of the
creditors, Manila Bank, was not included as creditor since it did not file a claim in the probate
court and since it had security over several properties of the estate.
However, the assistant Commissioner for collection of the BIR issued an Estate Tax
Assessment Notice demanding Deficiency Estate Tax amounting to 66 million pesos. The CTA
ruled a different computation as to Deficiency Estate Tax amounting to 37 million pesos and the
CA adopted the former’s ruling in full.
The petitioner claims that there were compromise agreements entered into between the
creditors and the estate of Jose after the Estate’s liability was settled by filing its estate tax
return and issuance of the certification by BIR Regional Director. Further he claims that the
reckoning date of the claims against the estate and settlement of the estate tax due should be at
the time the estate tax return was filed and certification was issued and not at the time
aforementioned compromise agreements were entered into the estate’s creditors.
ISSUE: Should the actual claims of creditors be fully allowed as deductions from the gross
estate of Jose despite the fact that the said claims were reduced or condoned through
compromise agreements between the estate and its creditors?
RULING:
At the outset, it was admitted that the claims of creditors have been condoned in the
compromise. Section 79 of the NIRC at the time provides for “claims against the estate” as
allowable deduction.
In Propstra case, the US Court applied the date-of-death valuation rule which the PH SC
concurs. Further, it was ruled therein that where a lien claimed against the estate was
certain and enforceable on the date of the decedent's death, the fact that the claimant
subsequently settled for lesser amount did not preclude the estate from deducting the
entire amount of the claim for estate tax purposes. These pronouncements essentially
confirm the general principle that post-death developments are not material in
determining the amount of the deduction.
The PH SC agrees on the date-of-death valuation rule. First. There is no law, nor do we discern
any legislative intent in our tax laws, which disregard the date-of-death valuation principle and
particularly provide that post-death developments must be considered in determining the net
value of the estate. It bears emphasis that tax burdens are not to be imposed, nor presumed to
be imposed, beyond what the statute expressly and clearly imports, tax statutes being
construed strictissimi juris against the government. Any doubt on whether a person, article
or activity is taxable is generally resolved against taxation.