ReSA - THE REVIEW SCHOOL OF ACCOUNTANCY TAX-101 (CPA Review Batch 44 + October 2022 CPA Licensure Examination TAXATION TAMAYO +E BUEN © GAGA SO UM i MANUEL ESTATE TAX (with COMPARISONS of TRANSFER TAXES) A.__BIRFormNo. Estate Tax ‘Donors Tax Tax Return GR Fom No. 1601 ‘BIR Form No, 1800 B._Effectivity of Transfer Estate Tax Donors Tax Effectivity of transer Mortis causa Tinker vivos c Taxrate Estate Tax Donors Tax Tax rate ‘Thereshall be levied, assessed, collected | The tax fa each calendar year shall be and paid upon the transferofthenet | six percent (696) computed on the ‘estateof everydecedent, whether basis ofthe total gifts in excess of resident or nonresident of te Philippines, a tax at therateofsix “Two huncred fity thousand pesos percent | (P250,000)exemptgiftmadecuring (6%) basedonthevalueofsuch net the calendaryea estate.” D. composition of Gross Estate/Gross Gift Estate Tax Donor's Tax ResiGk Decodont_| NRA Decedont ReaiCkDoner___[ NRA Donor Real properties Wherever siusted | Situated in the Phils | | [Wherever situated | Situated in the Pris. Personal properties Wherever situated | Situated in the Phils. | | [Wherever situated | Situsted in the Phs. “Taxable transfers Wherever situated | Situated inthe Phils. | | [Not applicable Not applicable E. DEDUCTIONS ALLOWED. Estate Tax, Donors Tax Daduetions allowed | Ordinary deducions Found in the Tax Code Under TRAIN 4, Losses* {Gifts made to or for the use of the National 2. Indebtedness (Claims against the estate)* 3. Taxes 4. Caims against insolvent debtor* ‘Government or any entity created by any ofits ‘agencies whichis net conducted for prof, oF to any political subdivision ofthe said Government 5. Unpaid morigage* 2.. Gifts in favor of an educational and/or charitable, 6. Vanishing deduction 7. Transfer for public use Special deductions 4. Family home religous, cultural or social welfare corporation, institution, accredited nongoveriment organization, {ust or philanthropic organization or research institution or organization. 2. Standarrd deduction ‘Not found in the Tax Code 3. Amount receved under RA 4917 Other deduction 1. Share inthe conjugal property Nove: When decedent is NRA: PRULGE x LITE” World GE ‘1. Encumbrance on the property donated assumed by done 2 Those epectically provided by donor as a diminution tom the propery dorated F._ Administrative Provisions Estate Tax Donors Tax TT Notice required Notice oF Death Under TRAIN (ECVE January 1, 2018) ~ No longer required ‘The donor engage in busness sal GN= @ Nowe ‘of donation on every donation worth at east 750,000 the RDO which has jurisdiction aver his place of business within 30 days after receipt ofthe ualfed dovee institution’ duly ssued Certificate (of Donation, which shal be attacned tothe said Notice of Donation stating that rot more than 30% ofthe said donations/gifts forthe taxable year shall bbe used for administration purposes. 7 Tax Returns Filed ‘In al cases OF wanster subject b tax "Any person who makes any transfer by git (@cept 2) Where the sald esate consists of regisered | thase which are exempt from donor's tax) sal for cr registrable property (regardless of the | the purpose of donor's tax, make a retum under value ofthe gross estate) ‘ath at least in duplicate (triplicate per BIR Form ‘No, 1800) 3. Persons to file TD) Beeaitor 4) Denor returns 2) Administrator oF 2) Aurhorized representative 3) Any of the legal heirs Page 1 of (0915-2308213 - www.resacpareview.comReSA ~ THE REVIEW SCHOOL OF ACCOUNTANCY ESTATE TAX (with COMPARISONS of TRANSFER TAXES) TAX-101 [i The execute or administrator ofan estate has the primary obligation to pay the estate ‘tae but the heir or beneficiary has subsidiary labifty forthe payment of that portion of ‘te estate tax which his distributive share Deals to the value of the total net asset. fi Paymentin installment T) In case the available cash ofthe estat= 1S insufficient to pay the teal estate tax due, payment ty installment shall be allowed ‘within two (2) years from statutory date for Irs payment without ci penalty and. interest. Tin case of lapse of two years without the payment cf the entire tax due, the remaining balance thereof shall be due and. ‘demandable subject to me appicable Peralties and interest reckonec from the Prescribed deadiine for fling the return and payment cf the estate tax. No civ penaties or interest may be imposed ‘on estates permed to pay the estate tax ‘due by installment. Nothing, however, prevents the Commissioner from executing ‘enforcement action aganst the estate after the due date of the estate tax provide that fall the applicable lens and required procedures are felowedjobsenved. 2 No spactic provision 7, Modes of payment 1) Payment through Authorized Agent Bank (we) (2) Over-the-counter cash payment — Maximum emount per tax payment not to exceed 10,000.00, (©) Bank debit system ~ taxpayer has bank account with AB (9 Chedks ~ indicate "PAY TO THE ‘ORDER 2)FAO (for account of) Bureau or intemal Revenue 25 payee; and '3)Under the “ACCOUNT NAME” of the ‘taxpayer identification number mn) Notes: i. Accommodtion checks, ‘second endorsed checks, stale checks, postdated checks, unsigned checks and checks ‘th ateratens/erasures are not accepeable. 4 Checis to cover ane tax type for ‘ne reium period only 2) Payment through Tax Debit Memo (TDM) (net acceptable as payments for ‘withholding taxes, fringe benefit tax, and. for taxes, fees and charges collected under ‘special schemes or procedures or programs of the Government or BIR) 3) Payinent through E-Payment System 4) Payment crecty to the 8IR Payment through creditable withholding tas, 1) Payment throuch Authorized Agent Bank (RAB) (@) Over-the-counter cash payment ~ Maximum ‘amount per tax payment rot to exceed 10,000.00 (P)Bank debit system ~ taxpayer has bank ‘account with AB (©) Checks ~ indicate “PAY TO THE ORDER OF: 1) Presenting/collecing bank or the bank where the payment isto be coursed and 2) FAO (for account of) Bureau of Internal Revenue as payee; and '3) Under the “ACCOUNT NAME” of the taxpayer identfication number (TIN) Notes i, Accommodation checks, second ‘endorsed checks, stale checks, (postdiated checks unsigned ‘checks and checks with atteration/erasures are not ‘acceptable. 4. Checks to cover one tax type for one ‘return period only 2) Payment through Tax Debit Memo (TDM) (nat ‘acceptatie as payments for withholding taxes, fringe benefit tar, and for taxes, fees and charges collected under special schemes or procedures or programs of the Goverment or BIR) 3) Payment through E-Payment System 44) Payment directy to the BIR Payment through ceditable withholding taxes H._ Accomplishing Tax Returns ‘sate Tar Donors Tax ‘2 BIR Form No. and number ‘of copies. BIR Form No, 1801 shal be fled in Wipcate (Ger the BIR form.) ‘BIR Form No, 1800 sal be fled in tipicate (oer BIR Form) 1) A separate return shall be filed by each doner for ‘ach git (donation) made on diferent datas during the year reflecting therein any rewous net gifs ‘mae in the same calendar year. 2) Onyy one return sta be Med for sever gts (donations) by a donor tothe diferent donees on the same date. > Page 3 ofl (0m5-2305218- wuw.esacpareviwcem os)ReSA ~ THE REVIEW SCHOOL OF ACCOUNTANCY ESTATE TAX (with COMPARISONS of TRANSFER TAXES) (FAN atthe time of death). TAX-101 (© Exercise: ‘The decedent was married atthe Une of death. Me was survived by his wife and cldren. Determine the tarable gross estate BOL CO Se ruv | cepos | cos | acop CORN ‘ACO? ‘Gach cued by the decedent before the mariage 5,000,500. Real pope inherited by ie deusdent duing the maiTinge 6,000,000 Personal property received by the vife as aft before the mariage 400,000. Property acaured by decedent with cash owned before the marrage: ‘600,000 Personal effets ofthe decedent purchased with the exclusive money ofthe wife| 500,000 Jewelry purchased with cash ofthe surviving spouse earned before mariage 7,000,000. Property unidentified when and by whom sequired 1,200,000 (Cash representing income received during the mariage fom exdusive property —| 2,000,000 Property acquired before marrage bythe decedert who has leghimate \descendarts by a former marrage 3,000,000 Tata i. Exercises: Conjugal orahary deductions (including F200,000 Funeral Using BIR Form 1801 compute the fllowit 2. Line 34 page 2 (Gross estate) b. Line 35 page? (Ordinary deductions) Line 370 page 2 (Total special deductions d.Line 49 page? (Net taxable estate) Line 18 page 1 (Estate tax due) "The decedent, resident ctzen, Isa martiad man wit a suviving spouse with te folowing dala Ges on January 1, 2021: ‘Conjugal realand personal propertis 14,900,000, Conjugal family home | 9,000,000, Exclusive pronerties 5,000,000 ‘expenses and P100000 judicial expenses) 2,300,000 Medical expenses 500,000 L,_RULE OF RECIPROCITY (NON RESIDENT ALIEN DECEDENT/DONOR) reciprocity | decedent/éanor ‘T-Properties covered by | Intangible personal property skuated im the Phlipphes owned by ron-vesdent len Philippines are not included in the gross estate. ‘the Phuippines are included n the gross estate. Z Basie rules When there iz recprociy ~ The Wetangible personal propery oF non-resident alen ciated in the When there is no reciprocity ~ The intangible personal property of non-esident alien situated in situated in the Philippines ‘Faanchice which must be exercised inthe Philippines; and constituted in the Philipines in accordance with ts lw; ‘hich is located in the Philippines; or bonds have acguifed a business stusin the Phiippines; 3 Properties considered |The olowrg shallbe considera as stated nthe Pilopres (among Ge) © Stares, oblgatons or bonds \ssued by any corporation or socedad anonima organized 4. Shares, cotgacons or Bonds sued by any Toregn corporation 85% ofthe business of Shares. ablgations or bonds ssed by any foreign corporation i such shares, obligations {Shares or rights in any partnership, business or industry establshed inthe Phiippnes. 4: Exercise: A decedent ora doncr ahs the folowing properties. Check the appropriate boxf included in the gross estate Resident | WRA-No | _WRA-WER decedent | Reciprocty | Reciprocity House and let, USA ‘Condominium unt, Piipphnes: Furniture and appliances, Philipines, Car, USA, recently purchased, ‘Bonds, Philipines (Comin shares of stock not traded in the local stock exchange, Phiippine Corp. Preferred shares of stock, foreign corporation, £5% of the business n the Philppines, Proceeds of Ife insurance, Philippines (administrator ofthe estate is rrevocable beneficiary M._TAXABLE TRANSFERS. 1. amples of taxable ‘wranster ' Transfer in contemplation of death ~ motivated by thought of death alfhough death may not be imminent; » Revocabie transfer ~ the enjoyment of the property may be altered, amended, revoked or terminated by the decedent; Transfer passing under general power of appointment; d. Transfer with retention or reservation of cetan rights; fe. Transfer for insufficient consideration. 2 Motives that preclude a ‘transfer from the ‘category of one made in contemplation of death '. To relieve donor from the burden of management, b. To save income or property taxes; Tosettle family itigated and un-itigeted disputes; d. Te provide independert income for dependents; fe. To see the chikren enjoy the property while the donor is ave; f To protect the family from hazards of business operations; and 9. To reward services rendered. Page 5 of (0915-2505213 - war resacpareiew.com “asReSA — THE Review SCHOOL OF ACCOUNTANCY ESTATE TAX (with COMPARISONS of TRANSFER TAXES) TAX-101 P._EXEMPTIONS/ EXCLUSIONS. 1 Exemptions ofcertain —|-a. The merger of usufruct the over of the nated tte; acauisitions and 1. The transmission or dalvery of the inheritance or legacy by the fiduciary heir or legate to the ‘transmissions fidetcommissary, The transmission from the first heir, egatee or donee in favor of another benefiary in accordance with the desire ofthe predecessor; and 4. All bequest, devises, legacies or transfer to sical welfare, cultural and charitable institutions, no part ‘ofthe net income of which inues to the benefit of any individual: Provided, however, that not more ‘tran 30% of the said bequest, devises, legacies oF transfers shal De used Dy suc insutons for administration purposes. 7 Exclusions from gross ‘Amount received as war dama0ss ‘estate/gross gift under | b. Amount received from US Veterans Adminstration; ‘special laws, . Bevefis fiom GSIS and SSS. _Q._ DETERMINATION OF THE VALUE OF THE ESTATE/GIFT. Estate Tax ‘Donors Tax, 1 Uaatrak Th accerdance with the latest Baste Standard Noralty Tab, to be | Nowpeatieproveon ‘approved by the Secretary of Finance, upon the recommendation | lof the Insurance Commissioner. Properties ‘2. Generaly ~ Fair merket vaue athe Une oT ‘a Generally ~ Far maria value atthe ime ‘decedent's death; of the ait (assessed vale); propety «Pessina properties ~ Recently puchased~ Purchase pee 4. Persna property tot recently purchased ~ Pawn value x3 4. Secures (shares of sock) 1 Traded inte local Sock excrange ~ Mean benneen the highest and lowest quotations on valuation date or on a ote nearest the valation date: 2) Nottroded in te local Stok exchange '2) Corman (ordinary) shares ~ Book vale on valuation ste oven 9 date nearest the valuation dat 1b) Prefered (preference) shares “Par valle ». Real property ~ Hoher between fair market value, BIR (zonal | b. Real propery «Provisions inestate tax value) and fair market value, Provindal and Gty assessor | ” shall apply to the valuation of said real 3, Exercise: Determine the value to be included in the gross estate/gross gift ‘2. Real property, zral value, time of death/donaton, P,500,000; value er tax declaration, ume of death/danaton, 1,200,000 Rea property, Zonal value, 6 months Beare death/doration, FL 500,100; assessed value, Une OF Geath/aonston, 1,200,000 “Personal property, recent purchased, FMV, time of death/doration, 700/000; purchase pce, P00 000 Personal property, recenty purchased, purchase price, P800,000 e. Personal property, not recently purchased, pawn value, P80, 000 10,000 shares of stock, waded inthe local stock excharge, pa value, P20/share; mean bebveen highest and lowest ‘quotation, P15/share “G 5,000 cormmon shares, not vaded in the local stock exchange, FMV, Une of death P2/share; par value, PS/share fh. 5,000 common shares, not traded inthe local stock exchange. par value, PS[share; book value, Pé/share_ I. 10,000 preferred shares, not traded in the local stock exchange par value, PL0/share; book value, P15/Share R. Deductions Amplified (Estate Tax) ‘ORDINARY DEDUCTIONS 2. Losses Requisites for <2) Incared during the stiement of the estate; ‘Achal amount of oss ‘deduction and Arising from fires, storms, sipwreck, or other casualties, or from ‘amount deductible | robbery, thet or embezzlement; ‘¢) Not campensatad for by insurance or othenvise; 0) Not caimed as deduction for income tax ‘purposes in an income tax return; «Incurred no ater than the last day forthe payment of the estate tax. ‘Indebtedness (Claims against the estate) Requisites for '2) The liability represents a personal obligation of the deceased | Debts or demands of pecuniary rature which ‘deduction and existing atthe time of his death; ‘could have been enforced agains: the ‘amount deductible | b) Thellablity was centractal in good faith and for adequate and | deceased in his Metime and could have boon full consideration in money oF maney's worth; reduced tosimple money terms (9) The claim must be 2 dett or cleim which Is valid in law and enforceable in court, 4) The indebeedness ‘must not have been condoned by the creator or the action to collect from the decedent must not have 7 €@) At the time the indebtedness was incurred the deb instrument ‘was duly notarized; and 1) If the loan was comtracted within three (3) years before the death of the decedent, the administrator or executor shall Submit statement showang the dspostion ofthe proceeds of theloan ewan onsaneas-wmesepiencm ©)ReSA — THE Review SCHOOL OF ACCOUNTANCY ESTATE TAK (with COMPARISONS of TRANSFER TAKES) TAX-101 _j. Exercise of deductions allowed to non-resident alien decedent “L Mr. Poh Ma Naw, a single and a non-resident alien, died ofa heart attack in 2021, leaving the folowing properties in favor of fis eit: (Gross estate within the Philippines P 30,000,000 Gross estate outside ofthe Philipines 20,000,000 Funeral expense 00,000 “Judeial and administrative expenses 2,000,000, Cams against tne estate 3,000,000, Loss due to theft 1,000,000 Medical expences 's00,000 His gross estate includes family home valued at 8,000,000, ‘Compute the folowing using BIR Form No. 1801: 2. Line 34 page 2 (Gross estate) b.Line 35 page? (Ordinary deductions) Line 370 page 2 (Total special deductions d.Line 40 page? (Net taxable estate) Line 18 page i (Estate taxdue) ‘SPECIAL DEDUCTIONS. 1. Family Home - The family home, corstituted jointly by the husband and the wife or by an unmarried head ofthe family, isthe _dweling house where they and their family reside and the land on which itis situated. Conditions for the allowance of family home deduction. deductible, 1) The family home must be the actual residential home of the |[T)Excusie property | Full value indudedin the decedent and his family at the time of his death, 25 certifed by the gross estate Barangay Captain of the locality the family home is situated; corjugaycommunity — | One-alt (4/2) af he value 2) The total value ofthe family home must be included as part of the || “property included in the gross estate dross estate of the decedent; and Pari exclave ‘Exclusive part (ull valve) 3) Alpwable deduction must be in an amount equivalent tothe property, partly Conjugal/communty part current fair market value of the family home as dedared cr included || Conjugalfcommunity | (1/2 x value) in the gross estate, orto the extent ofthe decedert’s interest property (whether conju or exclsve whichever is | Note: In all vee (3) cases, the maximum amount OF lower, but not exceeding P10,000,000 (old deduction was family home deduction is P10,000,000. 1,000,000.) 4) Exercise: For year 2021, determine the amount to be included in the GE, decedent's interest and the FH deduction ‘Gross estate Decedents interest [Family home deduction Case I~ Family home is conjugal preperty, 13,000,000 2 Family home i conjugal propery, 25,000,000 3 — Family home is exclusive property, 12,000,000 4 = Femily home Benclusive property, 8,000,000 5 = Family home is party common, party exclusive ‘Exclusive ot — PS, 000,000 ‘Conjugal house ~ PS,000,000 2. Standard Deduction Under TRAIN (effective January 1, 2018) Resident /citizen decedent “Amount deductible 5,000,000, 500,000, |3,_Amount Received by Heirs Under R.A. No. 4917 ‘Requisite for deduction. ‘Amount deductible “The amount of the separation benefit is included as part ofthe | Any amount recaived by the heirs from decodes employer as 8 cross estate of the decedent consequence ofthe death ofthe employee decedent 4. Charges Against Exclusive or Conjugal/Communal Property Under the Family Code '2|_ Support of spouses, their common cuidren and legitimate chien of ether spouse CONICOMM '. Al debts and cbigatiens contracted during the marrage by the desigrated adminisvator spouse for the benefit ofthe conjugal partnership of gain or community, or by both spouses, or by one spouse with the ‘consent ofthe other ‘CONYCOMM © _Debis and obligations contracied by ether spouse without the consent of the lher to the extent Hat the family may have been benefited ‘CONYCOMM _Alltaxes, lens, charges and expenses, induding major and minor repars, upan the conjugal/community property ‘CONYCOMM _Altaxes and expenses for mere preservation made during the marriage upon the separate property of efter ‘spouse used by the family ‘conycomm [Expenses to enable either spouse to Commence or compete a professional or vocational course, or other |__ activity for seltsmorovement. ‘CONUCOMM ‘g. Ante nuptial debts of ether spouse insofar as they have redounded to the benefit of the famiy CONYCOMM Page 9 of 1 (0915-2303213 - wwwresacpareview.comReSA — THE Review SCHOOL OF ACCOUNTANCY ESTATE TAX (with COMPARISONS of TRANSFER TAXES) TAX-101 [Estate Tax 1. The resident decedent @ marred man with a surviving spouse withthe folowing data died on January 15, 2021: Conjucal real properties 6,000,000 ‘Conjugal family house 11000,000, Exclusive famly lot 400,000 (Other exclusive properties 4,500,000 Conjucal ordinary deductions (Incuting P200,000 funeral expenses and 'P300,000 judicial expenses) 1,300,000, Exclusive ordinary deductions ‘500,000 Medica exerses 600,000 Compute the following using BIR Form No. 1801: 2. Line 34 page 2 (Gross estate) b.Line 35 page? (Ordinary deductions) ‘c Line 37D page 2 (Total special deductions dd. Line 40 page 2 (Net taxable estate) Line 18 page 1 (Estate tax due) 2. The ctizen decedent Is unmarried head ofthe family withthe folowing data died an March 1, 2021: ‘Real and personal properties (Incuding P1,S09,000 bank depost,P500,000 of wich was withdrewn and subjected to 6% witnnoling tay) Family hme (Crdinary deductons (induding P100,000 funeral expenses and P200,000 judicial exnenses) Medical expenses Compute the following using BIR Form No. 1801: a. Line 34 page 2 (Gross estate) b.Line 35 page? (Ordinary deductions) ‘CLine 37D page 2 (Total Special deductions) dd. Line 40 page 2 (Net taxable estate) Line 18 page 1 (Estato tax due) ‘Estate Tax: A nonresident alen decedent, ingle, died on January 1, 2018 let the folning properties: Car, Manila (inherited 4 years before he died, FMV, date of inheritance was P1,700,000) 500,000 Car, USA 21800,009, ‘Shares of stock, USA ‘900,000 ‘Shares of stock, Manila 300,000 House and let, USA 400,00 ‘Bank depos, PNE-Manila 1,000, (Other tangible personal properties, Mania 300,000 ‘The administrator claimed the following deductions: ‘Actual funeral expenses 40,000 Suaical expenses 30,000 |Loss of certain tangible personal properties 25,000 CCiaims against the estate 20,000 Unpaid taxes, accrued before death 415,000 Claims against insolent person 410,009 “Transfer for public we 110,000 Medical expenses 50,009 Compute the fllowing using BIR Form No. 1801: 2. Line 34 page 2 (Gross estate) Line 35 page 2 (Ordinary deductions) Line 37D pace 2 (Total special deductions d Line 40 page 2 (Net taxabie estate) Line 18 page 1 (Estate tax due) “Never underestimate your ability to achieve your goal. You are mace to succeed.” - Tamthenise een ons. waco