Northern CPAR: Taxation – Estate Taxation

NORTHERN CPA REVIEW

4 Floor Pelizloy Centrum, Lower Session Road, Baguio City, Philippines
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Mobile Numbers: SMART 09294891758 & GLOBE 09272128204

E-mail Address: ncpar@yahoo.com
REX B. BANGGAWAN, CPA, MBA

TAXATION
TRANSFER TAXATION: ESTATE TAXATION

Succession – a mode of transmission of the ownership, rights, interests and obligations over property by reason of
death of the owner in favor of certain persons designated by the owner himself or by operation of law.
Elements:
1. Decedent – the person who died whose properties, rights and obligations are transmitted
2. Successor – the person to whom the property, rights and obligations of the decedent will pass
3. Estate – the properties, rights and obligations of the decedent (inheritance)
Kinds of succession:
1. Testate (Voluntary) – succession is carried out according to the wishes of the testator expressed in a will
executed in the form prescribed by law
2. Intestate (Involuntary) – succession without a will or with one invalid, succession will took effect by
operation of law
Estate Tax – tax on the privilege of the decedent to transmit his estate at death to his lawful heirs or beneficiaries
GROSS ESTATE
General Principles:
1. The properties of citizens and resident aliens located within or outside the Philippines shall be included in
gross estate
2. The properties of non-resident alien located within the Philippines shall be included in gross estate; however,
intangible properties within the Philippines shall be subject to reciprocity.
There is exemption reciprocity only when:
1. the foreign country of the non-resident alien do not impose estate tax
2. the foreign country of the non-resident alien to which he or she is a resident allows the same exemption for
intangible properties for non-residents
GROSS ESTATE COMPUTATION
Properties existing at the point of death XXX
Taxable transfers XXX
Exempt transfers (XXX
)
Exclusion by law (XXX
)
Gross estate XXX
Taxable Transfers – transfers with insufficient considerations
1. transfer in contemplation of death as distinguished from motives associated with life
2. revocable transfers
3. properties passing under a general power of appointment
Exempt Transfers – no title to property
1. the merger of usufruct in the owner of the naked title
2. the transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the fideicomissary
3. the transmission from the first heir, legatee, or donee in favor of another beneficiary, in accordance with the
desire of the predecessor (special power of appointment)
Exclusion in the gross estate of a citizen or resident alien decedent by law:
1. all bequest, devises, legacies or transfers to social welfare, cultural and charitable institution, no part of net
income of which inures to the benefit of any individual; provided, however, that not more than 30% of the
said bequest, devises, legacies or transfers shall be used by such institutions for administration purposes
2. separate property of the surviving spouse
3. proceed of irrevocable life insurance policy payable to beneficiary other than the estate, executor or
administrator
4. proceeds of group insurance taken out by a company for its employees
5. proceed of GSIS policy or benefits from GSIS
6. benefit received from SSS

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Valuation of the Estate:
1. Usufruct – consider into account the probable life of the beneficiary in accordance with the latest Basic
Standard Mortality Table. (same rule apply with annuity)
2. Properties – the estate shall be appraised at its fair value as at the time of death. However, the appraised value
of the property as of the time of death shall be whichever is higher of:
a. Fair market value as determined by Commissioner
b. Fair market value as shown in the schedule of values fixed by the Provincial or City Assessors
Fair Value – the price at which property would change hands between a willing seller and a willing buyer,
neither of whom is under compulsion to sell or to buy
MARRIED DECEDENTS
A. ABSOLUTE COMMUNITY OF PROPERTY
Exclusive Property:
1. property acquired before the marriage by either spouse who has legitimate descendants by a former
marriage, and the fruit of such property
2. property acquired during the marriage by gratuitous title by either spouse and the fruits thereof; unless, it
is expressly provided by the donor or testator that they shall form part of the community property
3. property for personal and exclusive use of either spouse, except jewelry.
Community Property - all other properties owned by the spouses after marriage or acquired thereafter
B. CONJUGAL PARTNERSHIP OF GAINS
Exclusive Property:
1. that which one already owns before his or her marriage, except fruit of such property
2. that which one acquired after the marriage by gratuitous title ( e.g. donation or inheritance) or by
exchange with an exclusive property, except the fruits of such property.
Conjugal Property – all other properties are presumed to be conjugal (gains from labor and fruits of exclusive
property)

DEDUCTIONS FROM GROSS ESTATE

1. Expenses, Losses, Indebtedness and Taxes (ELIT)
a. citizen or resident alien – deductible fully
b. non-resident alien – the deductible amount shall be the prorated total world ELIT by which the Philippine
gross estate bears with the total world gross estate
2. transfer for public purpose (government or any political subdivisions)
3. deductions for properties previously taxed (vanishing deductions)
4. family home with maximum value deductible not to exceed P1,000,000.00
5. standard deduction for citizen or resident alien decedent only of P1,000,000.00
6. retirement benefit received by employees of private firms form private pension plan approved by the BIR
under RA 4917
7. medical expenses paid or incurred within 1 year prior to decedent death duly substantiated with receipts but
not to exceed P500,000.00 for citizen or resident alien
8. net share of the surviving spouse in the conjugal partnership property or community property as diminished
by the expenses properly chargeable to such property shall be deducted from the estate
Deductible Amount of Expenses, Losses, Indebtedness, and Taxes:
1. Funeral expenses – Limit: 5% of the gross estate but not exceeding P200,000
2. Judicial expenses for the testamentary or intestate proceeding – unlimited
3. Losses due to fire, storm, shipwreck or other casualty
4. Losses due to theft, robbery, or embezzlement
Requisites for deductibility of losses:
a. the loss is not compensated by insurance or otherwise
b. the loss is not claimed as a deduction in the estate income tax return
c. the loss must occur not later than the last day for payment of the estate tax (6 months from the decedent’s
death)
5. claims of the decedent against insolvent person, where the value of the decedent’s interest therein is included
in gross estate
6. claims against the estate:
Debt instrument – notarization at the time of incurrence; if contracted within three years before the death of
the decedent, a statement showing the disposition of the proceed must accompany the estate tax return.
7. unpaid mortgage, where the value of the decedent’s interest, undiminished by the mortgage, is included in the
gross estate
8. income tax on income prior to the death of the decedent
9. property taxes which have accrued prior to death of decedent

Vanishing Deduction

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Requisites:
1. property is part of the gross estate of the present decedent situated in the Philippines
2. the present decedent acquired the property by inheritance or donation within 5 years prior to his death;
3. the property subject to vanishing deduction can be identified as the one received from the prior decedent, or
from the donor, or can be identified as having been acquired in exchange for the property so received;
4. the property acquired form part of the gross estate of the prior decedent, or of the taxable gift of the donor;
5. the estate tax on the prior transfer or the gift tax on the gift must have been paid; and
6. the estate of the prior decedent has not previously availed of the vanishing deductions
Percentage of Vanishing Deduction:
- based on the interval of the death of the present decedent and the time of death of the prior decedent or
the date of gift whichever is relevant
More than Not more than Percentage
- 1 year 100%
1 year 2 year 80%
2 year 3 year 60%
3 year 4 year 40%
4 year 5 year 20%
5 year - 0%
How to compute Vanishing Deductions?
1. Determine the initial value which is whichever is lower between the fair market value of the property used in
computing the first transfer tax paid (estate or donor’s tax) and the fair market value of the property in the
present decedent.
2. Compute initial basis by deducting from initial value any encumbrances or liens on the property that are paid
by the present decedent where such lien or encumbrances are deductions on the prior decedents gross estate or
on the donor’s taxable gift.
3. Compute the final basis by reducing the initial basis by an amount representing what the initial basis bears
with the gross estate to the expenses, losses, indebtedness and taxes (ELIT) and transfer for public purpose.
To illustrate:
Initial Basis ELIT plus transfer for Prorated deduction
x public purpose =
Gross Estate to initial basis

4. Determine the vanishing deduction by multiplying the final basis by the corresponding rate that apply for
the time period from the point the property was transferred by the prior decedent (i.e.: point of death) or by
the donor (i.e.: date of gift).
Family Home
 composed of the land and the dwelling house to which the decedent and his family resides
 shall be included in gross estate at whichever is higher between its zonal value and assessed value at the point
of death of the decedent
Requisites:
1. death of the decedent shall be after July 28, 1992
2. total value of the family home must be included in gross income
3. the family home must be the actual residence of the decedent and his family at the time of death, as certified
by the Barangay Captain of the locality where the family home is situated
4. deduction cannot exceed whichever is higher between the zonal or assessed value at the time of death and
P1,000,000.00
5. it is a deduction from either common or personal property or separate properties of the decedent

NET TAXABLE ESTATE

Unmarried decedent
Real Properties P xx,xxx,xxx-
Personal Properties xx,xxx,xxx-
Gross Estate P xx,xxx,xxx-
Ordinary Deductions:
Funeral Expenses P xxx,xxx
Other Deductions xxx,xxx ( xxx,xxx)
Special Deductions:
Family Home P xxx,xxx
Standard Deductions 1,000,000
Medical Expenses xxx,xxx x,xxx,xxx-

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Net Taxable Estate P xx,xxx,xxx-

Married Decedent

Separate Common Total

Real property P x,xxx,xxx.xx P x,xxx,xxx.xx P xx,xxx,xxx.xx
Personal property xxx,xxx.xx xxx,xxx.xx xxx,xxx.xx
Gross Estate P x,xxx,xxx.xx P x,xxx,xxx.xx P x,xxx,xxx.xx

Ordinary Deductions:
Funeral Expenses xxx,xxx.xx
Other Deductions xxx,xxx.xx x,xxx,xxx.xx ( x,xxx,xxx.xx)
Net Estate after OD P x,xxx,xxx.xx P x,xxx,xxx.xx P x,xxx,xxx.xx
Special Deductions
Family Home ( xxx,xxx.xx)
Standard Deductions ( 1,000,000.00)
Medical Expenses ( xxx,xxx.xx)
Net Estate Px,xxx,xxx.xx
Less: Share of surviving spouse x½ ( x,xxx,xxx.xx)
Taxable net estate Px,xxx,xxx.xx

ESTATE TAX TABLE:

Plus x% of
Over Not Over excess over
- P 200,000 Exempt - -
P 200,000 500,000 P 0 5% P 200,000
500,000 2,000,000 15,000 8% 500,000
2,000,000 5,000,000 135,000 11% 2,000,000
5,000,000 10,000,000 465,000 15% 5,000,000
10,000,000 - 1,215,000 20% 10,000,000

Tax Credit for Estate Tax Paid to a Foreign Country:

- claimable only by individual whose taxable estate comprise of properties within and outside the Philippines
(citizens and resident alien)
- the deductible tax credit shall be whichever is lower of the amounts as computed by the following limits (A
and B) similar to deductible tax credit in income taxation:
A. Total tax credit per foreign country
The deductible amount per foreign country shall be whichever is lower between the actual estate tax paid to
the foreign country and the amount representing what the net foreign estate on that country bears to the total
net estate multiplied by the Philippine estate tax
To illustrate:
Net estate on a foreign country x Philippine estate tax due
Net world estate vs.
Actual amount paid
B. Total prorated tax credit for all foreign country
To illustrate: Total foreign net estate x Philippine estate tax
Net world estate

BIR Reporting and Filing Requirements:

Extrajudicial Settlement Judicial Settlement
Written Notice of Death 2 months after death 2 months after the time the executor
or administrator qualifies
Filing of Estate Tax Return 6 months after death 6 months after death
Payment of Tax Upon filing of the return Upon filing of the return
Where to file?
1. Authorized Agent Bank
2. Revenue District Office
3. Collection Agent

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4. Duly authorized Treasurer of the City of Municipality with which the decedent was domiciled at the time of
his death
5. Office of the Commissioner, if there is no legal residence in the Philippines
Notice of Death is required only when:
1. the transfer is subject to tax
2. the gross value of the estate exceeds P20,000, even if tax exempt
Filing of an Estate Tax Return is required only when:
1. the transfer is subject to tax
2. the gross value of the estate exceeds P200,000, even if exempt from tax
3. when gross estate consists of registered or registrable property, irregardless of the value of the gross estate –
clearance from the BIR is a condition precedent to the transfer of title to registrable property
Registrable Properties includes, but is not limited, to:
1. real property
2. motor vehicle
3. shares of stock
CPA Certification is required only when the value of the gross estate exceeds P2,000,000.00. Such certification
to include:
1. itemized asset of the decedent with valuation
2. itemized deductions
3. tax due and payable
Extension of Filing
 The Commissioner shall have authority to grant, in meritorious cases, a reasonable extension not exceeding
thirty (30) days for filing the return.
 When the Commissioner finds that the payment on the due date of the estate tax or of any part thereof would
impose undue hardship upon the estate or any of the heirs, he may extend the time for payment of such tax or
any part thereof not to exceed five (5) years, in case the estate is settled through the courts, or two (2) years in
case the estate is settled extrajudicially. In such case, the amount in respect of which the extension is granted
shall be paid on or before the date of the expiration of the period of the extension, and the running of the
Statute of Limitations for assessment as provided in Section 203 of this Code shall be suspended for the
period of any such extension.
 Where the taxes are assessed by reason of negligence, intentional disregard of rules and regulations, or fraud
on the part of the taxpayer, no extension will be granted by the Commissioner.
 If an extension is granted, the Commissioner may require the executor, or administrator, or beneficiary, as the
case may be, to furnish a bond in such amount, not exceeding double the amount of the tax and with such
sureties as the Commissioner deems necessary, conditioned upon the payment of the said tax in accordance
with the terms of the extension.
Beneficiary shall to the extent of his distributive share of the estate, be subsidiarily liable for the payment of such
portion of the estate tax as his distributive share bears to the value of the total net estate.
DRILL PROBLEMS:
1. A legatee, heir or devisee is also known as?
a. the estate b. successor c. administrator d. decedent
2. A decedent who died without a will or with an invalid one is called
a. testate b. intestate c. voluntary succession d. donor
3. The following transfers are taxable, except?
a. Transfer passing under special power of appointment
b. Transfers with a right to revoke but not exercised by the decedent to the time of his death
c. Transfer in contemplation of death
d. Properties passing under general power of appointment
4. Gross estate includes all his property, real or personal, tangible or intangible wherever situated, except
a. Resident citizen b. Non-resident alien c. Resident alien d. Non-resident citizen
5. The following transfers are exempt and hence excluded from gross estate, except?
a. Merger of the usufruct in the owner of the naked title
b. All bequest, devise, legacies and transfers to social welfare, cultural and charitable institution no part of
the income of which inures to the benefit any person and not more than 30% of such bequest, devise or
legacies or transfers are used for administration purposes
c. The transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the
fideicomissary
d. The transmission from the first heir, legatee, or donee in favor of another beneficiary, in accordance with
the desire of the predecessor

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6. I. In taxable transfers, the value to include in gross estate is the fair value of the property at the time of death,
any
consideration given by the counterparty is treated as an obligation deductible to gross estate
II. In taxable transfers, if the fair value at the time of death is lesser than the consideration given, no value is
included in gross estate
III. In taxable transfers, if at the date of transfer the fair value is higher than the consideration received, the
fair
value at the time of death is included in gross estate regardless of whether at the time of death the value of
the property is lower than the consideration given
Which is correct?
a. I only b. I and II only c. II and III only d. II only
7. The reciprocity on exemption of intangible properties located in the Philippines of non-resident aliens may
apply on the following conditions, except when the foreign country where the non-resident alien is a citizen
a. do not have an estate tax law.
b. has estate tax only to residents or citizens therein.
c. has estate tax only to properties of a citizen thereon regardless of nature.
d. has no income tax imposed on income earned by the estate but imposes transfer taxes.
8. Even if physically existing at the time of death, the following are not included in gross estate, except?
a. Properties arising from proceeds of a life insurance irrevocably designated to the wife
b. Benefits received from GSIS
c. Benefits claimed by the surviving spouse as arising from GSIS policy but no adequate documents could
be presented in support thereof
d. Separate properties of the surviving spouse
9. A made the following transfers inter – vivos to the following:
B C D E
Cost P 100,000 P 100,000 P 100,000 P 100,000
FMV, time of transfer 140,000 140,000 80,000 80,000
Consideration received 100,000 100,000 100,000 0
FMV, time of death of A 120,000 70,000 120,000 90,000
The amount to be included in the gross estate of A is
a. P410,000 b. P100,000 c. P130,000 d. P110,000
10. The gross estate of this decedent shall be comprised of properties situated in the Philippines only:
a. Filipino residing in the Philippines; c. Filipino residing in the US;
b. American residing in the Philippines; d. American residing in the US.
11. One of the following is not included in the gross estate of a citizen decedent:
a. Land situated outside the Philippines; c. Investment in stock in a Japanese corporation;
b. Car situated within the Philippines; d. Benefits received from group insurance.
12. For estate tax purposes, the rule of reciprocity applies:
I. When the decedent is a non-resident alien;
II. With respect to intangible personal properties situated in the Philippines;
a. Only I is correct; c. Both I and II are correct;
b. Only II is correct; d. Neither I nor II are correct.
13. One of the following is not an intangible personal property situated in the Philippines:
a. Shares, obligations or bonds issued by any corporation or sociedad anonima organized or constituted in
the Philippines in accordance with its laws;
b. Shares, obligations or bonds issued by any foreign corporation 85% of the business of which is located in
the Philippines;
c. Shares, obligations or bonds issued by any foreign corporation if such shares, obligations or bonds have
acquired business situs in the Philippines;
d. Shares, obligations or bonds issued by a non-resident foreign corporation.
14. For estate tax purposes, one of the following is not an intangible personal property.
a. Accounts receivable; c. Bank deposit;
b. Investment in stock; d. Livestock.
15. John Johnson, an American domiciled in South Africa, died in 2005. He left the following property:
a. Rest house in Hawaii;
b. A Villa in Switzerland;
c. Shares of stock in LA Corporation, USA;
d. Shares of stock in San Miguel Corporation, Philippines;
e. Shares of stock in Union Corp, a foreign corporation where 85% of its business is in the Philippines;
f. Time deposit, Philippine National Bank, Manila;
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g. Lease contract over his Manhattan, New York, USA apartment leased to the Philippine Consulate.
John Johnson’s Philippine gross estate shall consist of:
a. All property enumerated above; c. Only property a. b. and d.;
b. Only property d. e. and f.; d. None of the property enumerated above.
16. Using the same data in the preceding question, assuming there is reciprocity, John Johnson’s Philippine gross
estate shall consist of:
a. All properties enumerated above c. Only property f
b. Only properties d, e and f d. None of the properties enumerated above
17. Mr. Juan Cruz, Filipino citizen, died in the United States of America in 2005. He left the following properties:
a. House and lot, California, USA
b. Shares of stock in PLDT, domestic corporation
c. Bank deposit, First Bank of California, USA
d. Bank deposit, BPI-Manila
e. Tax-free long term Philippine government bonds
f. Car, registered in the name of his 21-year old son
The Philippine gross estate shall consist of:
a. All properties enumerated above c. All properties enumerated above except e and f
b. All properties enumerated above except f d. Only properties a and d
18. One of the following transfers is not included in gross estate
a. Transfer with reservation and retention of certain rights
b. Transfer passing under general power of appointment
c. Transfer for adequate and full consideration
d. Transfer in contemplation of death
19. Case I – X transfer shares of stock of Y on the condition that X shall receive or enjoy the dividends during
X’s lifetime, thereafter to Y or his estate.
Case II – B makes a transfer of property in trust, income payable to himself for six (6) years, thereafter to C or
his estate. B dies before the six (6) years lapsed.
a. Both transfers are with retention and reservation of certain rights, hence taxable
b. Both transfers are exempt from estate tax
c. The first transfer is taxable, the second is exempt
d. The first transfer is exempt, the second is taxable
20. One of the following is not included in the gross estate of a decedent
a. Cash dividend that accrued before death
b. Shares of stock transferred in contemplation of death
c. Land held in trust but in the decedent’s possession before death
d. Rent income on property that accrued before death
21. X, decedent, owns a property valued at P1,500,000 at the time of his death. The said property was sold by X
during his lifetime to Y for P700,000 when it was valued at P1,200,000. IT was agreed by X and Y that the
transfer of ownership will take after X’s death. For Philippine estate tax purposes, which of the following
statement is correct?
a. The transaction is a transfer for inadequate consideration, hence, the amount of P800,000 shall be
included in the gross estate
b. The transaction is a bona fide sale for adequate consideration, hence, no amount shall be included in gross
estate
c. The amount is a transfer in contemplation of death, hence, the amount of P1,500,000 shall be included in
the gross estate
d. The transaction is a transfer for insufficient consideration, hence, the amount of the P500,000 shall be
included in the gross estate.
22. One of the following is not a motive which precludes a transfer from category of one made in contemplation
of death.
a. To reward services rendered c. To settle family litigated and unlitigated disputes
b. To save on donor’s and estate tax d. To relieve the donor from burden of management
23. Which of the following proceeds shall be included in the taxable gross estate?
a. Insurance proceeds from SSS and GSIS
b. Amount receivable by any beneficiary, irrevocably designated in the policy by the insured
c. Amount receivable by any beneficiary designated in the insurance policy
d. Proceeds of group insurance taken out by a company for its employees
24. The widow and children of a passenger who died in an airplane crash were paid P3,500,000 by the airline.
This figure was released after negotiation between the heirs of the deceased and the insurer of the airline, the
latter having received indubitable evidence that the deceased had a net income of P350,000 at the time of his

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death and that 10 productive years would have insured financial stability for his family. Should the heirs
declare this amount in the estate tax return?
a. No, the heirs should not declare the P3,500,000 in the estate tax return because the amount is not part of
the decedent’s properties at the time of death.
b. No. the heirs should not declare the P3,500,000 in the estate tax return because it was a result of a
negotiation between the heir and the airline company.
c. Yes. The heirs should declare the P3,500,000 in the estate tax return because the designation of the
beneficiary is not known, hence, negotiable.
d. Yes. The heirs should declare the P3,500,000 in the estate tax return because the amount would have
earned by the decedent if he did not die.
25. The following are transactions and acquisitions exempt from transfer taxes, except
a. Transmission from the first heir or donee in favor of another beneficiary in accordance with the desire of
the predecessor
b. Transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the
fideicommissary
c. The merger of the usufruct in the owner of the naked title
d. All bequests, devises, legacies or transfers to social welfare, cultural and charitable institutions

26. Which of the following exempt transactions will still require the inclusion of the property in the gross estate?
a. Merger of the usufruct in the owner of the naked title
b. Bequest, devises, legacies or transfers to social welfare, cultural and charitable institutions the
administration expenses of which do not exceed 30% of such bequest, devises, legacies or transfers
c. Transfer from the first heir to a second heir designated by the decedent
d. Death benefits received from SSS and GSIS
27. Case I – Y devised in his will a piece of land; naked title to B and usufruct to C for as long as C lives,
thereafter to B. The transmission from Y to B and C is subject to estate tax but the merger of the usufruct and
the naked title in B upon the death of C is exempt.
Case II – Z devised in his will real property to his brother D who is entrusted with the obligations to preserve
and to transmit the property to E, a son of D, when he becomes of age. The transmission from D to his son E
is subject to tax.
a. Both statement as to the taxability and non-taxability of the transmissions are correct
b. Both statement as to the taxability and non-taxability of the transmissions are incorrect
c. Only the first statement as to the taxability and non-taxability of the transmissions is correct
d. Only the second statement as to the taxability and non-taxability of the transmission is correct
28. X died in 1990 leaving a will which directed all real estate owned by him not to be sold or disposed of for a
period of 10 years after his death and ordered that the property be given to Y upon the expiry of the 10-year
period. in 1990, the estate left by X had a fair market value of P1,000,000. In 2002, the fair market value of
said estate increased to P3,000,000 and the Commissioner of Internal Revenue assessed thereon estate tax
based on P3,000,000. Is the Commissioner’s assessment based on P3,000,000 correct?
a. Yes. The assessment of the Commissioner is correct because on matters of assessment he has the
authority to determine the value to be assessed;
b. No. The assessment of the Commissioner is incorrect because the assessment should have been based on
the fair market value at the time of death which is P1,000,000;
c. Yes. The assessment of the Commissioner is correct because it was based on the value at the time of
assessment;
d. No. The assessment of the Commissioner is incorrect because estate tax is not subject to any assessment.
29. Which of the following value is not generally used for estate valuation purposes?
a. Fair market value at the time of death;
b. Fair market value at the time the return is filed;
c. Fair market value, assessed value o zonal value whichever is the highest in case of real property;
d. Book value, in case of shares of stock not traded in the local stock exchange.
30. Real properties owned by the decedent at the time of death shall be valued at:
a. Zonal value or value per tax declaration whichever is higher;
b. Book value or acquisition cost, whichever is clearly determinable;
c. Acquisition cost;
d. Acquisition cost or fair market value whichever is higher.
31. Mr. X died. He was survived by his wife and children. The couple had exclusive and common properties. The
gross estate of Mr. X would include:
a. Common and capital properties;
b. Common and paraphernal properties;
c. Common, capital and paraphernal properties;
d. Common properties only.
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32. In the absence of a marriage settlement, or when the regime agreed upon is void, the property relations of the
spouses who married on or after August 3, 1988 shall be governed by:
a. Conjugal partnership of gains; c. Complete separation of properties;
b. Absolute community of properties; d. None of the choices.
33. Properties owned before marriage and brought into the marriage are generally classified as:
I. Conjugal properties under conjugal partnership of gains;
II. Exclusive properties under absolute community of properties
a. Only I is correct; c. Both I and II are correct;
b. Only II is correct; d. Both I and II are incorrect.
34. The net fruits as well as the income received during the marriage from the exclusive properties of the spouses
are classified as:
I. Conjugal properties under conjugal partnership of gains;
II. Exclusive properties under absolute community of properties
a. Only I is correct; c. Both I and II are correct;
b. Only II is correct; d. Both I and II are incorrect.
35. The community properties shall include all properties owned by the spouses at the time of the celebration of
the marriage or acquired thereafter. One of the following, however, is not a community property.
a. Properties inherited by the spouses before the marriage;
b. Properties acquired by the spouses as donation before the marriage;
c. Properties acquired using the salary of either spouse earned before the marriage;
d. Properties acquired before marriage by either spouse who had legitimate descendants by a former
marriage.
36. During their last anniversary, the wife bought an expensive coat for his husband using her salary earned
during the marriage. Shortly thereafter, the husband died. For Philippine estate tax purposes, the expensive
coat shall be classified as:
a. Common property;
b. Exclusive property of the husband-decedent;
c. Exclusive property of the wife-surviving spouse;
d. Exclusion from the gross estate.
37. During the engagement ceremony before their marriage, the man gifted his woman an expensive diamond
necklace. The necklace was for the exclusive use of the woman. How would this necklace be classified for
Philippine estate tax purpose, assuming the man died and was survived by the woman and they were under
absolute community of properties?
a. Communal property;
b. Exclusive property of the husband-decedent;
c. Exclusive property of the surviving spouse;
d. Excluded from the gross estate.
38. Which of the following is an exclusive property?
a. Properties acquired during the marriage using common fund for the exclusive use of one of the spouses;
b. Properties acquired through occupation such as fishing or hunting;
c. Properties acquired during the marriage by gratuitous title;
d. Properties acquired by change, such as winning from gambling or betting.
39. Are properties owned by the spouses at the time of marriage presumed common unless proven to be
exclusive?
A. Yes, under conjugal partnership of gains;
B. Yes, under absolute community of properties.
a. Both answers are correct; c. Only A is correct;
b. Both answers are incorrect; d. Only B is correct.
40. A decedent left the following properties:
Land in Italy (with 1M unpaid mortgage) P 2,000,000
Land in Laguna, Philippines 500,000
Franchise in USA 100,000
Receivable from debtor in Philippines 70,000
Receivable from debtor in USA 100,000
Bank deposit in USA 80,000
Shares of stocks of PLDT, Philippines 75,000
Shares of stocks of ABC, foreign corporation 75% of the business in the
Philippines 125,000
Other personal properties 300,000
Zonal value of the land in Laguna 750,000

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Northern CPAR: Taxation – Estate Taxation
If the decedent is a non – resident citizen, his gross estate is
a. P3,650,000 b. P3,600,000 c. P2,500,000 d. P2,650,000
41. Using the above data, if the decedent is a non – resident alien, his gross estate is
a. P1,195,000 b. P945,000 c. P1,320,000 d. P2,650,000
42. If the preceding number reciprocity law can be applied, the gross estate is
a. P1,050,000 b. P1,195,000 c. P1,250,000 d. P1,070,000
43. Based on the above problem but assuming that the PLDT shares of stocks are not listed in the local stock
exchange, and there are 1,000 shares at the time of death, the company’s outstanding shares were 10,000
shares. Its retained earnings was P2,000,000, par value per share was P50. The gross estate should show the
said shares at
a. Still at P75,000 b. P250,000 c. P200,000 d. P0
44. The estate should be valued at the time
a. The heirs are ascertained c. the estate is ready for distribution to the heirs
b. The estate tax is paid d. of the death of the decedent

For items 45 to 48, choose from the following choices:

a. Revocable c. whether revocable or irrevocable
b. Irrevocable d. partly revocable, partly irrevocable
Proceeds of life insurance shall be included in the gross estate if the beneficiary designated is:
45. The estate and the designation is __________
46. The executor and the designation is __________
47. The administrator and the designation is __________
48. A person other than the estate, executor or administrator and the designation is __________
49. The amount of funeral expense that may be deducted from the gross estate is
a. 5% of the gross estate or P200,000 whichever is lower
b. Actual funeral expense or P200,000 whichever is lower
c. 5% of the gross estate or the actual funeral expenses whichever is lower
d. 5% of the gross estate or the actual funeral expenses or P200,000 whichever is the lowest
Items 50 and 51 pertain to the following information
If it will cause undue hardship on the part of the estate, the estate tax may be paid within
50. In case the estate is settled through the courts
a. 2 years b. 3 years c. 4 years d. 5 years
51. In case the estate is settled without court’s intervention
a. 2 years b. 3 years c. 4 years d. 5 years
52. Written notice shall be given to the CIR if the gross estate exceeds
a. P20,000 b. P50,000 c. P100,000 d. P150,000
53. From the time of death, notice of death should be given within
a. One month b. Two months c. 3 months d. 6 months
54. As a rule, estate tax return should be filed under oath if the gross estate exceeds
a. P100,000 b. P200,000 c. P500,000 d. P1,000,000
55. This in not part of the gross estate of the decedent
a. Conjugal property c. share of the surviving spouse
b. Community property d. exclusive property of the surviving spouse
56. The following do not form part of the communal properties of the spouses, except?
a. Property acquired prior to the current marriage by either spouses who has dependents by a prior marriage
b. The fruits of the properties mentioned in a.
c. jewelries
d. properties for personal use of either spouses
57. The following are included in the community properties of the spouses, except?
a. Donation during the marriage by the parent of either spouses designated by the former for both the
spouses
b. Properties acquired before the marriage and the fruits thereof
c. Properties acquired during the marriage and the fruits thereof
d. Properties acquired by the surviving spouse under right of redemption using only his separate properties
58. Which of the following do not form part of the conjugal properties of the spouses?
a. Properties acquired before the marriage whether there are dependents in future marriage or not
b. Fruits of the properties in a. after marriage
c. Fruits of properties acquired after marriage by donation or gratuitous title
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Northern CPAR: Taxation – Estate Taxation
d. Properties acquired by either spouses under rights of redemption using conjugal properties
59. Which is correct concerning the property settlement of spouses?
a. Marriages before August 3, 1988 are presumed under the absolute community of property
b. Marriages after August 3, 1988 are presumed under the conjugal partnership of gains
c. Marriages after August 3, 1988 are conclusively presumed under the absolute community of property
d. The spouses can stipulate the conjugal partnership of gains even after August 3, 1988
60. This in not part of the conjugal property
a. Those acquired by onerous title during the marriage at the expense of the common fund
b. Those acquired by industry or work of either of them
c. The fruits, rents or interests received or due during the marriage coming from the conjugal
property or from the exclusive properties of the spouses
d. Those acquired during the marriage by gratuitous title
61. Under the absolute community of property, jewelry for personal and exlclusive use fo the wife shall belong to
the
a. a. wife b. husband c. husband and wife d. children
62. A. Taxation of the estate shall be governed by the statute or law in force at the time of distribution of the
estate to
their heirs
B. Succession takes place upon the determination of the respective share of the heirs in the estate of the
decedent
a. True, true b. True, false c. False, True d. False, False
63. A. The family home includes the house and the lot where the house stands
B. The value of the house and the lot where it stands, if a Family Home is deductible from the estate of the
decedent
a. True, true b. True, false c. False, True d. False, False
64. A. Property brought to the marriage by either spouse shall belong to both spouses
B. The share of the surviving spouse in the conjugal property is part of the gross estate of the decedent
a. True, true b. True, false c. False, True d. False, False
65. A. Fruits and income of exclusive property shall belong to the spouses
B. Donations made by the decedent during lifetime but to take effect upon his death shall be exempt from
estate tax
a. True, true b. True, false c. False, True d. False, False
66. A. When exclusive property is sold during the marriage, the proceeds become property of the spouses
B. The legal heirs of the decedent must be determined first before the correct estate tax can be ascertained
a. True, true b. True, false c. False, True d. False, False
67. A. Under the absolute community of property, property acquired before marriage by either spouse including
fruits
and income, if any shall belong to both spouses
B. The cost of burial plot, tombstone, monument or mausoleum, mourning apparel, expenses of the wake, and
notices are deductible from gross estate as funeral expenses
a. True, true b. True, false c. False, True d. False, False
68. A. Expenses incurred from the performance of the rites and ceremonies incident to interment and those
incurred
after interment, such as prayers, masses and entertainment are part of funeral expense
B. The administrator or executor shall submit a statement showing the disposition of the proceeds of the loan
if
the claims against the estate was contracted within five years before the death of the decedent
a. True, true b. True, false c. False, True d. False, False
69. A. If the property is inherited before marriage it will belong to both spouses while if it is inherited during
marriage
it is exclusive
B. Unless, stipulated, the property relations shall be governed by conjugal partnership of gains for marriages
celebrated on or before Aug 3, 1988
a. True, true b. True, false c. False, True d. False, False
70. A. Unless stipulated, the property relations shall be governed by absolute community of property for
marriages
celebrated on or after August 3, 1988
B. Under the regime of absolute community of property, property for personal and exclusive use of either
spouses except jewelry shall belong to both spouses

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Northern CPAR: Taxation – Estate Taxation
a. True, true b. True, false c. False, True d. False, False
71. A resident alien has a gross estate of P5,000,000. The following are its items of funeral expenses:
Cost of food and prayers services/masses during the decedents wake P 80,000
Payments for burial plot, casket and interment services of Eternal Gardens, 100,000
Inc.
Cost of publication of notice of decedent’s death to relatives 10,000
Cost of thanksgiving cards and newspaper thanksgiving publication 20,000
Cost of prayer services during the 30th and 40th day of the decedent 10,000
How much is the deductible funeral expenses of the decedent?
a. P190,000 b. P180,000 c. P200,000 d. P250,000
72. The estate may claim a standard deduction of
a. P1,000,000 b. P2,000,000 c. P200,000 d. P500,000
73. Medical expenses to be deductible, must be incurred by the decedent within
a. One year prior to his death c. two years prior to his death
b. One year after his death d. three years prior to his death
74. The medical expense shall in no case exceed
a. P200,000 b. P400,000 c. P500,000 d. P1,000,000
75. Statement 1 – The court may authorize the distribution of estate, to an heir if in its sound discretion it believes
that the heir badly needs his share
Statement 2 – The administrator or any of his heirs, may however upon authorization of BIR withdraw from
the decedents bank deposits P20,000 without the required certification that the estate tax has been paid
a. True, true b. True, false c. False, True d. False, False
76. Statement 1 – A died giving B power to appoint a person who will inherit A’s house and lot. B however can
only choose C, D, E and F. B decided to transfer the property to C, in B’s will when he was old already. The
transfer from B to C is subject to estate tax
Statement 2 – During A’s lifetime, he decided to give B as gift his car subject to the condition that if B does
not become a CPA within 3 years, A shall revoke the transfer. In the second year however, A died. The car no
longer form part of A’s gross estate
a. True, true b. True, false c. False, True d. False, False
77. A died leaving a farm land. In his will he transferred the ownership thereof to B but subject to the condition
that C will have the right to use the land for a period of ten years (usufruct). In the seventh year, however, C
died and in C’s will he surrendered his right over the land to B
a. The transfer is subject to donor’s tax c. The transfer is both an inclusion from the gross estate
b. The transfer is subject to estate tax d. The above is a tax exempt transfer

78. One of the following is not an exemption or exclusion from the gross estate
a. Capital or exclusive property of the surviving spouse
b. Properties outside the Philippines of a non-resident Chinese decedent
c. Shares of stock of San Miguel Corporation of a non-resident Mexican
d. The merger of usufruct in the owner of the naked title
79. Statement 1: Unpaid mortgage indebtedness is deductible from the gross estate provided the said property
subject to the indebtedness is included in the gross estate, net of the mortgage indebtedness
Statement 2: A donation inter – vivos by the decedent to the Philippine government few months before his
death is a deduction from the gross estate
a. True, true b. True, false c. False, True d. False, False
80. If the estate consists of registrable property, such as real property, motor vehicle, shares of stock or other
similar property from which a clearance from the BIR is required as a condition for the transfer of ownership,
an estate tax return should be filed under oath
a. if the gross estate exceeds P200,000. c. If the gross estate exceeds P1,000,000.
b. if the gross estate exceeds P500,000. d. regardless of the value of the gross estate.
81. The estate tax return shall be supported with a statement duly certified by a CPA. If the gross estate exceeds
a. P1,000,000 b. P2,000,000 c. P5,000,000 d. P10,000,000
82. From the decedent’s death, the estate tax return shall be filed within
a. 2 months b. 1 month c. 6 months d. 18 months
83. The CIR, in meritorious cases may grant a reasonable extension to file the return, not exceeding
a. 30 days b. 60 days c. 3 months d. 6 months
84. A, Filipino, widower, died leaving the following:
a Real properties PHP 4,000,000
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Driven for real excellence! TAX by Rex B. Banggawan, CPA, MBA TAX – 6 Batch – HQ11-1
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Northern CPAR: Taxation – Estate Taxation
b Family home 1,200,000
c Personal properties 2,000,000
d Paid medical expense 600,000
e Allowable deductions 800,000
Required: determine the:
a. net estate subject to tax b. net distributable estate
85. A, Filipino, married, died leaving the following
a Real properties-conjugal P 4,000,000
b Real properties - exclusive (A) 2,500,000
c Family home - exclusive (A) 1,200,000
d Unpaid medical expenses 600,000
e Allowable deductions – conjugal 1,400,000
Required: Determine the:
a. net estate subject to tax b. net distributable estate
86. C, Filipino, married to D, died leaving the following:
a Real properties-conjugal P 4,000,000
b Real properties - exclusive (C) 1,800,000
c Family home - exclusive (D) 1,400,000
d Allowable deductions - conjugal 1,200,000
Required: determine the net taxable estate
87. E, Filipino, married to F, died leaving the following:
a Real properties-conjugal P 5,000,000
b Real properties - exclusive (E) 1,200,000
Real property - exclusive (E) (Lot where the family home
c stands) 400,000
d Family home – conjugal 1,000,000
e Allowable deductions – conjugal 1,600,000
Required: determine the net taxable estate
88. G, Filipino, married to H, died leaving the following:
a Real properties-conjugal P 7,000,000
b Real properties - exclusive (G) 1,400,000
Real property - conjugal (Lot were the family home
c stands) 800,000
d Family home - exclusive (G) 1,800,000
e Allowable deductions – conjugal 2,400,000
Required: determine the net taxable estate
89. Mr. A, Filipino, married, died on January 1, 2007 leaving the following
1. Property inherited from his father who died January 2, 2006:
1. Agricultural land P1,800,000
2. Residential land 3,000,000
2. Property inherited from his mother who died on Nov. 1, 1995, one day after Mr. A’s marriage to Mrs. A
1. Fish pond P1,200,000
2. Jewelry 1,000,000
3. Property acquired thru Mr. A’s labor:
1. Residential house and lot used as family home P1,900,000
2. Motor vehicles 800,000
3. Commercial land 4,000,000
4. Cash 2,000,000
The agricultural land and residential land were previously mortgage for P800,000 when inherited where
P450,000 was paid by Mr. A during the lifetime. The commercial land has a mortgage of P1,000,000 of
which P600,000 was paid by Mr. A before his death. Mr. A by will bequeathed to the City of Manila for
exclusively public purpose the sum of P200,000.
The estate claimed the following expenses:
a. Funeral expenses P 250,000
b. Judicial expenses 100,000
c. Claims against the estate 150,000
d. Medical expense 400,000
Required: Compute the taxable net estate.

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Driven for real excellence! TAX by Rex B. Banggawan, CPA, MBA TAX – 6 Batch – HQ11-1
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Northern CPAR: Taxation – Estate Taxation
90. Mr. A, Filipino, married to B with whom he had two children died on Feb. 14, 2007. The inventory of the
properties of the spouses show the following
a House and lot in Manila owned by A before the marriage P 3,000,000
b Agricultural land owned by B before the marriage 1,200,000
c Real property acquired during marriage 2,000,000
d Family home acquired during marriage 2,200,000
e Personal property acquired during marriage 1,400,000
f Commercial building in Makati inherited by A during marriage
from his father who died on February 14, 1987 2,000,000
g Apartment house inherited by B during marriage from her mother who
died on February 14, 1998 4,000,000
h Proceeds of life insurance where the estate of A was designated as the
irrevocable beneficiary 1,000,000
i Proceeds of life insurance where the estate of B was designated as the
irrevocable beneficiary 2,000,000
Deductions claimed by the estate:
1 Legacy given in favor of Phils. Government is decedents will P 300,000
2 Claims against the estate 100,000
3 Unpaid mortgage on agricultural land (letter b above) 400,000
4 Funeral expenses 180,000
5 Judicial expenses 600,000
Required: Determine the estate tax due and payable
91. Mr. O, Filipino, married, died on Dec. 31, 2006, four years after his marriage to Mrs. O. He left the following:
a. Property inherited by Mr. O from his father who died February 14, 1995 P 3,000,000
b. Property inherited by Mrs. O from her father who died February 14, 1997 1,200,000
c. Property inherited by Mr. O from his mother who died February 14, 2005 1,800,000
d. Property inherited by Mrs. O from his mother who died February 14, 2006 1,400,000
e. Property acquired thru the labor of:
Mr. O 2,000,000
Mrs. O 1,500,000
Mr. and Mrs. O (family home) 2,400,000
f. Other personal property 1,200,000
Deductions claimed by the state:
a. Funeral expense 220,000
b. Unpaid mortgages on property in letters:
a. 500,000
b. 300,000
c. 180,000
d. 200,000
c. Claims against the estate 170,000
d. Accrued taxes (before the death of Mr. O) 80,000

Required: Determine the net taxable estate, assuming

1. Conjugal partnership of gains
2. Absolute community of property
3. Assume property (a) was inherited Feb 14, 2002
92. Mr Y. an American, single and residing in USA, died leaving the following:
Land in Makati P 2,000,000
Land in Manila 3,000,000
Gross estate, USA 5,000,000
Deductions claimed by the estate:
Actual funeral expense 200,000
Judicial expenses 100,000
Claims against the estate 120,000
Transfer of land in Makati to the Philippine government (in decedent's
will) 2,000,000
 The land in Manila when inherited 31/2 years ago had a value of P2,400,000 with a mortgage thereon of
P400,000 which was paid prior to Mr. Y’s death
 The land in Makati when inherited 41/2 years ago has a value of P1,500,000
Required: Determine the net estate subject to estate tax
93. Z, a resident citizen died leaving the following:
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Driven for real excellence! TAX by Rex B. Banggawan, CPA, MBA TAX – 6 Batch – HQ11-1
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Northern CPAR: Taxation – Estate Taxation
Net estate (before standard deduction):
Philippines P5,000,000
USA 3,000,000
Australia 2,000,000
Estate tax paid:
USA 280,000
Australia 220,000
Required: Determine the estate tax due after tax credit

----- End of handouts -----

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Driven for real excellence! TAX by Rex B. Banggawan, CPA, MBA TAX – 6 Batch – HQ11-1
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