I. Transfer Taxes Estate & Donor’s Tax Regulations & Other BIR Issuances Rev.

BIR ISSUANCES ON TRANSFER TAXES

BASIS: RR 12-2018

ESTATE

1. Estate Tax Rate – 6% (Effectivity of TRAIN onwards)

2. What comprises the gross estate and valuation
3. Gross Estate exceeding 5M – CPA Cert (itemized assets with gross value, itemized deductions, tax
due)
4. When to file: 1yr from decedent’s death (reasonable extension not exceeding 30 days upon filing of
request for extension in RDO).
- RMC 34-2013: All subject to tax or exempt byt gross estate exceeds 20K (Notice of death w/in
2mo from death) Sec.89 NIRC
- RMC 34-2013: Required to File (Subject to tax, Exempt but estate gross exceeds 200k, regardless
of value if estate comprises registerable property
5. Pay upon filing estate tax return. (extension: not exceeding 5yrs (judicial settlement); 2yrs (ejs)
- RR 8-2019: Cash installment made within 2yrs from filing
o Use 0605 in succeeding payments after the first payment made upon filing
- RR 8-2019: Bank may allow withdrawal from deposit account of decedent but must subject the
same to Final Withholding Tax of 6%. (withdrawal must be within 1yr from death of decedent)
6. Where to file:
- Resident: RDO having jurisdiction of domicile of decedent (Sec 90D)
- Non Resident with executor/administrator – RDO where excutor/administrator is registered or
domiciled if not yet registered
- Non Resident without executor/administrator – RDO 39

DONOR

1. Donor’s Tax Rate – 6% in excess of 250k

2. When to File – within 30 calendar days after the gift was made or completed
3. Claim exemption on donations given to qualified donee institutions duly accredited
- Give notice of donation (at least 50k) to rdo within 30 days from issuance of cert of donation
which shall be attached to the notice.
4. Transfer for less than adequate consideration, diff with the FMV is deemed gift.
- RMC 30-2019: XPN on deem gift in Sec 100 of NIRC.
o Sale of non-listed shares less than FMV, difference is deemed gift EXCEPT when sold in the
ordinary course of business
5. Exempt: Gift to NGA (non-profit only); Gifts to Educ/Char/Religious/ Cultural/ Social Welfare/
Accredited NGO provided that not more than 30% of gift shall be used for admin purposes.
6. RMC 94-2021: RENUNCIATION OF HEIR
- General Renunciation – Not subject to DONOR’s TAX
- Partial Renunciation – If heirs would settle the estate and decides which property would be their
part, should there be difference is value of the property obtained than what should be share,
there is donation.
 7. RR 17-2018: Merely correct the reference of valuation of gifts made. In RR 12-2018, it was incorrectly
referred to sec.6 so RR 17-2018 corrected the reference to be Sec.5 of RR 12-2018.

A. Estate Tax
1. General Principles & Determination of the Estate Tax
Sections 84 & 88, Tax Code (as amended by Republic Act 10963)

SEC. 84. Rates of Estate Tax. - There shall be levied, assessed, collected and paid upon the transfer of
the net estate as determined in accordance with Sections 85 and 86 of every decedent, whether
resident or nonresident of the Philippines, a tax based on the value of such net estate, as computed
in accordance with the following schedule:

SEC. 88. Determination of the Value of the Estate. -

(A) Usufruct. - To determine the value of the right of usufruct, use or habitation, as well as that of
annuity, there shall be taken into account the probable life of the beneficiary in accordance with the
latest Basic Standard Mortality Table, to be approved by the Secretary of Finance, upon
recommendation of the Insurance Commissioner.cralaw

(B) Properties. - The estate shall be appraised at its fair market value as of the time of death.
However, the appraised value of real property as of the time of death shall be, whichever is higher of:

 (1) The fair market value as determined by the Commissioner, or

(2) The fair market value as shown in the schedule of values fixed by the Provincial and City
Assessors.

Lorenzo vs. Posadas (June 18, 1937)

PABLO LORENZO, as trustee of the estate of Thomas Hanley, deceased, plaintiff and appellant, vs.
JUAN POSADAS, JR., Collector of Internal Revenue, defendant and appellant. 64 Phil. 353, June 18,
1937
Doctrine of the Case:
 The accrual of the inheritance tax is distinct from the obligation to pay the same. Section 1536
as amended, of the Administrative Code, imposes the tax upon "every transmission by virtue
of inheritance, devise, bequest, gift mortis causa, or advance in anticipation of inheritance,
devise, or bequest." The tax therefore is upon transmission or the transfer or devolution of
property of a decedent, made effective by his death.
 "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." (Ross, Inheritance Taxation,
p. 72.)
Facts:
 On October 4, 1932, the plaintiff Pablo Lorenzo, in his capacity as trustee of the estate of
Thomas Hanley, deceased, brought this action in the Court of First Instance of Zamboanga against
the defendant, Juan Posadas, Jr., then the Collector of Internal Revenue, for the refund of the
amount of P2,052.74, paid by the plaintiff as inheritance tax on the estate of the deceased, and for
the collection of interst thereon at the rate of 6 per cent per annum, computed from September 15,
1932, the date when the aforesaid tax was paid under protest. The defendant set up a counterclaim
for P1,191.27 alleged to be interest due on the tax in question and which was not included in the
original assessment. From the decision of the Court of First Instance of Zamboanga dismissing both
the plaintiff's complaint and the defendant's counterclaim, both parties appealed to this court.
- It appears that on May 27, 1922, one Thomas Hanley died in Zamboanga, Zamboanga,
leaving a will and considerable amount of real and personal properties. On June 14, 1922,
proceedings for the probate of his will and the settlement and distribution of his estate were begun
in the Court of First Instance of Zamboanga. The will was admitted to probate. 
The Court of First Instance of Zamboanga considered it proper for the best interests of ther
estate to appoint a trustee to administer the real properties which, under the will, were to pass to
Matthew Hanley ten years after the two executors named in the will, was, on March 8, 1924,
appointed trustee. Moore took his oath of office and gave bond on March 10, 1924. He acted as
trustee until February 29, 1932, when he resigned and the plaintiff herein was appointed in his stead.
During the incumbency of the plaintiff as trustee, the defendant Collector of Internal
Revenue, alleging that the estate left by the deceased at the time of his death consisted of realty
valued at P27,920 and personalty valued at P1,465, and allowing a deduction of P480.81, assessed
against the estate an inheritance tax in the amount of P1,434.24 which, together with the penalties
for deliquency in payment consisting of a 1 per cent monthly interest from July 1, 1931 to the date of
payment and a surcharge of 25 per cent on the tax, amounted to P2,052.74. On March 15, 1932, the
defendant filed a motion in the testamentary proceedings pending before the Court of First Instance
of Zamboanga (Special proceedings No. 302) praying that the trustee, plaintiff herein, be ordered to
pay to the Government the said sum of P2,052.74. The motion was granted. On September 15, 1932,
the plaintiff paid said amount under protest, notifying the defendant at the same time that unless
the amount was promptly refunded suit would be brought for its recovery. The defendant overruled
the plaintiff's protest and refused to refund the said amount hausted, plaintiff went to court with the
result herein above indicated.

Issue:
Whether 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 when the instituted heir becomes the owner thereof. 
Ruling:
The inheritance tax must be computed on the basis of the value of the estate at the time of
the testator’s death. 
The Supreme Court ruled through Justices Laurel and Villareal that if death is the generating
source from which the power of the state to impose inheritance taxes takes it being and if, upon the
death of the decedent, succession takes place atht the right of the state 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 affecting the value or any subsequent increase or decrease
in value. 
Here, the accrual of the inheritance tax is distinct from the obligation to pay the same.
Section 1536 as amended, of the Administrative Code, imposes the tax upon "every transmission by
virtue of inheritance, devise, bequest, gift mortis causa, or advance in anticipation of inheritance,
devise, or bequest." The tax therefore is upon transmission or the transfer or devolution of property
of a decedent, made effective by his death.
Furthermore, the Court ruled that "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."
Therefore, the inheritance tax must be computed at the time of death of the testator. 
Dispositive Portion: 
The judgment of the lower court is accordingly modified, with costs against the plaintiff in
both instances. So ordered.

PABLO LORENZO v. JUAN POSADAS, JR.

June 18, 1937 | Laurel, J. | PALN
Benefits Received Theory

DOCTRINE: The obligation to pay taxes rests not upon the privileges enjoyed by, or the
protection afforded to, a citizen by the government, but upon the necessity of money for the
support of the state (Dobbins vs. Erie County). For this reason, no one is allowed to object to
or resist the payment of taxes solely because no personal benefit to him can be pointed out.
(Thomas vs. Gay).
CASE SUMMARY: Lorenzo, a trustee to Thomas’ estate, filed with the CFI to recover
2052.74 in Inheritance Tax paid to the CIR Posadas. Posadas claims that the estate being
included in the trust does not exempt it from paying inheritance tax. The court ruled that in
agreement with Posadas, Sec. 1544 (b) it is stated that the executor must pay the tax prior to
transferring the estate to the beneficiary, in other words delivery to the trustee is delivery to
the cestui que trust, the trustee cannot deny that when he accepted he therefore
acknowledged that the estate is not his. In addition, the court discussed that delaying
collection due to a trust formed will lead to the abuse of the length prior to turnover and
[DOCTRINE].

FACTS:
 Lorenzo is the Trustee of the Estate of Thomas Hanley (Deceased).
 Posadas is the Collector of Internal Revenue
 Thomas Hanley died in Zamboanga in the year 1992; PJM Moore was the original
Trustee appointed by the court before turning it over to Lorenzo in Feb. 1932.
o The Will stated the Estate will pass to Matthew Hanley (Nephew) 10 years after the
death of Thomas.
 Posadas as CIR assessed that the estate valued P27,920 in Real Estate and P1465 in
Personality
o P480.81 was the allowed deduction.
o P1434.24 was the assessment + Penalties for delinquency in payment (1%/Mo)
from July 1, 1931.
= P2052.74.
 In Oct. 15, 1932, Posadas filed a motion during the testamentary proceedings praying
that Lorenzo pay the amount.  GRANTED.
o Lorenzo pays under protest, stating that if not refunded he will institute action for
recovery  Posadas refuses to refund.
o Lorenzo filed with the CFI of Zamboanga against Posadas for the refund of
P2052.74 inheritance tax he paid plus 6% interest per annum starting Sep. 15, 1932
(Date he paid under protest).
 Posadas filed a Counter claim of 1191.27 for alleged interest due, not part of the original
assessment.
o Both were dismissed by the CFI and both appealed.

MAIN ISSUE: W/N There is Delinquency of Payment? – YES.

MAIN RULING: [YES]

a. Posadas maintains that it was the duty of the executor to pay the tax before the delivery
of the decedent's property to the trustee. He cites Section 1544 (b):
i. "(b) In other cases, within the six months subsequent to the death of the predecessor;
but if judicial testamentary or intestate proceedings shall be instituted prior to the
expiration of said period, the payment shall be made by the executor or
administrator before delivering to each beneficiary his share…”
b. Placing a Property in Trust does not remove it from the operation of Inheritance Tax Law
or exempt it from paying Inheritance Tax.
i. Delivery of the estate to the trustee was in esse delivery of the same estate to the
cestui que trust, the beneficiary in this case. When Moore accepted the trust and took
possession of the trust estate, he thereby admitted that the estate belonged not to him
but to his cestui que trust.
ii. Public Policy also justifies the conclusion; delaying collection due to a trust being
created can lead to abuse by testators that may place similar conditions as this case,
essentially making collection of tax at the will of the private individual. The above
result is a sufficient warning against the acceptance of the contention of the plaintiff
ITCAB. Taxes are essential to the very existence of government.
c. The obligation to pay taxes rests not upon the privileges enjoyed by, or the
protection afforded to, a citizen by the government, but upon the necessity of
 money for the support of the state (Dobbins vs. Erie County). For this reason, no
one is allowed to object to or resist the payment of taxes solely because no
personal benefit to him can be pointed out. (Thomas vs. Gay)
d. That taxes must be collected promptly is a policy deeply intrenched in our tax system.
Thus, no court is allowed to grant injunction to restrain the collection of any internal
revenue tax (sec. 1578, Revised Administrative Code; Sarasola vs. Trinidad).

OTHER ISSUES:
a) W/N – The Inheritance tax be computed based on the value at time of death or Value at
turnover?
b) When does Inheritance Tax Accrue and When is it Satisfied?
c) W/N The compensation of Trustee should be deducted to get the net value of the
property? – NO.
d) W/N Act. No. 3606 should retroactively apply? – NO.

OTHER RULINGS:

A) [TIME OF DEATH]
Lorenzo contends that the estate of Thomas [Real P.], did not and could not legally pass
to the instituted heir, Matthew, until after the expiration of 10Y from death.
a. The Tax should be based on the value of the estate in 1932, or 10Y after the
testator's death. He showed that in 1932 the real properties in question had a
reasonable value of only P5,787.
b. This amount would generate an inheritance tax which, excluding deductions, interest
and surcharge, would amount only to about P169.52.
SC ruled that since the state derives its power to tax on the death of the decedent:
c. Succession takes place and the right of the state 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 affecting value or any
subsequent increase or decrease in value.
d. Ross Insurance p. 72 (Cited by SC): 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.

B) [ACCRUES UPON TRANSMISSION OF PROPERTY]

a. Section 1536 as amended, of the Administrative code, imposes the tax upon "every
transmission by virtue of inheritance, devise, bequest, gift mortis causa, or advance
in anticipation of inheritance, devise, or bequest."
b. The tax therefore is upon transmission or the transfer or devolution of property of a
decedent, made effective by his death.
 c. It is separate from obligation to pay which is fixed by Sec. 1544 in rel. 1543 of the
Admin Code.
C) [NO.]
a. The plaintiff contends that the compensation and fees of the trustees, which
aggregate P1,187.28 should also be deducted under Sec. 1539 of the RAC which
says: "In order to determine the net sum which must bear the tax, when an
inheritance is concerned, there shall be deducted, in case of a resident, . . . the
judicial expenses of the testamentary or intestate proceedings, . . .."
b. A trustee is entitled to receive a fair compensation for his services (Barney vs.
Saunders).
i. But from this it does not follow that the compensation may lawfully be deducted in
arriving at the net value of the estate subject to tax.
ii. 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
D) [NO]
a. Settled rule: Inheritance Taxation is governed by the statute in force at the time of the
death of the decedent.
b. Though the Regulations No. 65 of the DoF makes Sec. 3 of Act No. 3606, amending
Sec. 1544 of the RAC, is applicable to all estates the inheritance taxes due from
which have not been paid, the Act itself contains no provisions indicating legislative
intent to give it retroactive effect. No Such effect can be given the statute by this
court.
FINAL CALCULATION:
Net Value of Property: P28,904.19
Primary Tax: [1% of first 10K + 2% of value above 10K but below 30K] + 200% of []
[100 + 378.08] + 956.16 = P1,434.24
Additional Sums Collectible:
- Interest (12%/YR) = P1,465.31 PAID: P2052.74
- Surcharge (25%) = P724.88 BALANCE: P1,581.69
- Compromise Sum = P10
- Total: P3,634.43

Defendant only claims P1191.27 – This is what will be granted

DISPOSITION: LOWER COURT MODIFIED (Cost against Plaintiff)

NOTES:

2. Gross Estate
Sections 85 & 104, Tax Code

SEC. 85. Gross Estate. - the value of the gross estate of the decedent shall be determined by
including the value at the time of his death of all property, real or personal, tangible or intangible,
wherever situated: Provided, however, that in the case of a nonresident decedent who at the time of
his death was not a citizen of the Philippines, only that part of the entire gross estate which is
situated in the Philippines shall be included in his taxable estate.

SEC. 104. Definitions. - For purposes of this Title, the terms 'gross estate' and 'gifts' include real and
personal property, whether tangible or intangible, or mixed, wherever situated: Provided, however,
That where the decedent or donor was a nonresident alien at the time of his death or donation, as the
case may be, his real and personal property so transferred but which are situated outside the
Philippines shall not be included as part of his 'gross estate' or 'gross gift’: Provided, further, That
franchise which must be exercised in the Philippines; shares, obligations or bonds issued by any
corporation or sociedad anonima organized or constituted in the Philippines in accordance with its
laws; shares, obligations or bonds by any foreign corporation eighty-five percent (85%) of the business
of which is located in the Philippines; shares, obligations or bonds issued by any foreign corporation if
such shares, obligations or bonds have acquired a business situs in the Philippines; shares or rights in
any partnership, business or industry established in the Philippines, shall be considered as situated in
the Philippines: Provided, still further, that no tax shall be collected under this Title in respect of
intangible personal property:

(a) if the decedent at the time of his death or the donor at the time of the donation was a citizen and
resident of a foreign country which at the time of his death or donation did not impose a transfer tax of
any character, in respect of intangible personal property of citizens of the Philippines not residing in
that foreign country, or

(b) if the laws of the foreign country of which the decedent or donor was a citizen and resident at the
time of his death or donation allows a similar exemption from transfer or death taxes of every
character or description in respect of intangible personal property owned by citizens of the Philippines
not residing in that foreign country.

The term 'deficiency' means:

(a) the amount by which tax imposed by this Chapter exceeds the amount shown as the tax by the
donor upon his return; but the amount so shown on the return shall first be increased by the amount
previously assessed (or Collected without assessment) as a deficiency, and decreased by the amounts
previously abated, refunded or otherwise repaid in respect of such tax, or

(b) if no amount is shown as the tax by the donor, then the amount by which the tax exceeds the
amounts previously assessed, (or collected without assessment) as a deficiency, but such amounts
previously assessed, or collected without assessment, shall first be decreased by the amount previously
abated, refunded or otherwise repaid in respect of such tax.

Collector of Internal Revenue vs. Fisher (January 28, 1961)

 DOCTRINE: “Reciprocity must be total. If any of the two states collects or imposes or does not exempt
any transfer, death, legacy or succession tax of any character, the reciprocity does not work.”

COLLECTOR OF INTERNAL REVENUE V. DOUGLAS FISHER, G.R. No. L-

11622 and L-11668, January 28, 1961
TOPIC Property Relations between Husband and Wife; General Provisions ; Marriage
Settlement

PARTIES G.R. No. L-11622:

1. Petitioner: THE COLLECTOR OF INTERNAL REVENUE
2. Respondents: DOUGLAS FISHER AND BETTINA FISHER, and the COURT
OF TAX APPEALS

G.R. No. L-11668

1. Petitioners: DOUGLAS FISHER AND BETTINA FISHER
2. Respondents: THE COLLECTOR OF INTERNAL REVENUE, and the COURT
OF TAX APPEALS

NATURE Petitions for review by certiorari of a decision of the Court of Tax Appeals
DISPUTE Determination and settlement of the hereditary estate left by the deceased
Walter G. Stevenson, and the laws applicable thereto

ANTECEDENTS 1. Decedent is Walter G. Stevenson

- born in the Philippines in 1874 by British parents
- got married in in the Philippines in 1909 to another British, Beatrice
- established residence with wife in California since 1945
- died in 1951
2. Decedent, in his will executed in 1947 in California, designate his wife as
the sole heiress of all the properties acquired by them while they are in
the Philippines
3. On May 1951, settlement of the estate was instituted in the Manila CFI
and a preliminary return was filed by Ian Murray Statt (to secure waiver
on the inheritance tax on the shares of stock which the estate decided to
dispose in the US) where the Collector of Revenue prepared an
assessment for estate and inheritance tax which was subsequently paid
by the estate
4. On September 1952, Statt filed an amended return for the purpose of
availing the right granted by Sec. 91 of the NIRC (there was a reduction
in the price of the shares of stock and additional deductions were being
claimed)
5. Beatrice assigned all her rights and interests in the estate to Douglas and
Bettina Fisher, respondents
- On September 1953, a second amended return was filed by Statt
which contained new claims for additional exemption and deduction
COLLECTOR OF INTERNAL REVENUE V. DOUGLAS FISHER, G.R. No. L-
11622 and L-11668, January 28, 1961
pursuant to the reciprocity granted by Section 122 of the NIRC
- There was an overpayment in the first return which the estate
requested for a refund;
- The Collector denied the claim
6. Assignees of the estate commenced an action in the Manila CFI which
was forwarded to the CTA

CTA Decision:
In fine, we are of the opinion and so hold that: (a) the one-half (½) share of the
surviving spouse in the conjugal partnership property as diminished by the
obligations properly chargeable to such property should be deducted from the
net estate of the deceased Walter G. Stevenson, pursuant to Section 89-C of the
National Internal Revenue Code; (b) the intangible personal property belonging
to the estate of said Stevenson is exempt from inheritance tax, pursuant to the
provision of section 122 of the National Internal Revenue Code in relation to the
California Inheritance Tax Law but decedent's estate is not entitled to an
exemption of P4,000.00 in the computation of the estate tax; (c) for purposes of
estate and inheritance taxation the Baguio real estate of the spouses should be
valued at P52,200.00, and 210,000 shares of stock in the Mindanao Mother
Lode Mines, Inc. should be appraised at P0.38 per share; and (d) the estate shall
be entitled to a deduction of P2,000.00 for funeral expenses and judicial
expenses of P8,604.39.

7. Both parties appealed the CTA decision.

ISSUE(S) RATIO/LEGAL
SC DECISION BASIS/DOCTRIN
ES
1. Whether or The application of this doctrine to the instant case is being In deciding the
not, in disputed, however, by petitioner Collector of Internal Revenue, first issue, the
determining who contends that pursuant to Article 124 of the New Civil Code, lower court
the taxable the property relation of the spouses Stevensons ought not to be applied a well-
net estate of determined by the Philippine law, but by the national law of the known doctrine
the decedent husband, in this case, the law of England. It is alleged by in our civil law
decedent, petitioner that English laws do not recognize legal partnership that in the
one-half (½) between spouses, and that what obtains in that jurisdiction is absence of any
of the net another regime of property relation, wherein all properties ante-nuptial
estate should acquired during the marriage pertain and belong Exclusively to the agreement, the
be deducted husband. In further support of his stand, petitioner cites Article 16 contracting
therefrom as of the New Civil Code (Art. 10 of the old) to the effect that in parties are
the share of testate and intestate proceedings, the amount of successional presumed to
tile surviving rights, among others, is to be determined by the national law of have adopted
ISSUE(S) RATIO/LEGAL
SC DECISION BASIS/DOCTRIN
ES
spouse in the decedent. the system of
accordance conjugal
with our law In this connection, let it be noted that since the mariage of the partnership as to
on conjugal Stevensons in the Philippines took place in 1909, the applicable the properties
partnership law is Article 1325 of the old Civil Code and not Article 124 of the acquired during
and in New Civil Code which became effective only in 1950. It is true that their marriage. 
relation to both articles adhere to the so-called nationality theory of
section 89 (c) determining the property relation of spouses where one of them is
of the a foreigner and they have made no prior agreement as to the
National administration disposition, and ownership of their conjugal
Internal properties. In such a case, the national law of the husband
revenue becomes the dominant law in determining the property relation of
Code; the spouses. There is, however, a difference between the two
articles in that Article 1241 of the new Civil Code expressly provides
that it shall be applicable regardless of whether the marriage was
celebrated in the Philippines or abroad while Article 1325 2 of the
old Civil Code is limited to marriages contracted in a foreign land.

It must be noted, however, that what has just been said refers to
mixed marriages between a Filipino citizen and a foreigner. In the
instant case, both spouses are foreigners who married in the
Philippines. Manresa,3 in his Commentaries, has this to say on this
point:

La regla establecida en el art. 1.315, se refiere a las

capitulaciones otorgadas en Espana y entre espanoles. El
1.325, a las celebradas en el extranjero cuando alguno de
los conyuges es espanol. En cuanto a la regla procedente
cuando dos extranjeros se casan en Espana, o dos
espanoles en el extranjero hay que atender en el primer
caso a la legislacion de pais a que aquellos pertenezean, y
en el segundo, a las reglas generales consignadas en los
articulos 9 y 10 de nuestro Codigo. (Emphasis supplied.)

If we adopt the view of Manresa, the law determinative of the

property relation of the Stevensons, married in 1909, would be the
English law even if the marriage was celebrated in the Philippines,
both of them being foreigners. But, as correctly observed by the
Tax Court, the pertinent English law that allegedly vests in the
decedent husband full ownership of the properties acquired during
the marriage has not been proven by petitioner. Except for a mere
allegation in his answer, which is not sufficient, the record is bereft
 ISSUE(S) RATIO/LEGAL
SC DECISION BASIS/DOCTRIN
ES

of any evidence as to what English law says on the matter. In the

absence of proof, the Court is justified, therefore, in indulging in
what Wharton calls "processual presumption," in presuming that
the law of England on this matter is the same as our law.4

Nor do we believe petitioner can make use of Article 16 of the New

Civil Code (art. 10, old Civil Code) to bolster his stand. A reading of
Article 10 of the old Civil Code, which incidentally is the one
applicable, shows that it does not encompass or contemplate to
govern the question of property relation between spouses. Said
article distinctly speaks of amount of successional rights and this
term, in speaks in our opinion, properly refers to the extent or
amount of property that each heir is legally entitled to inherit from
the estate available for distribution. It needs to be pointed out that
the property relation of spouses, as distinguished from their
successional rights, is governed differently by the specific and
express provisions of Title VI, Chapter I of our new Civil Code (Title
III, Chapter I of the old Civil Code.) We, therefore, find that the
lower court correctly deducted the half of the conjugal property in
determining the hereditary estate left by the deceased Stevenson.

2. Whether or On the second issue, petitioner disputes the action of the Tax It is well-settled
not the Court in the exempting the respondents from paying inheritance that foreign laws
estate can tax on the 210,000 shares of stock in the Mindanao Mother Lode do not prove
avail itself of Mines, Inc. in virtue of the reciprocity proviso of Section 122 of the themselves in
the National Internal Revenue Code, in relation to Section 13851 of the our jurisdiction
reciprocity California Revenue and Taxation Code, on the ground that: (1) the and our courts
proviso said proviso of the California Revenue and Taxation Code has not are not
embodied in been duly proven by the respondents; (2) the reciprocity authorized to
Section 122 exemptions granted by section 122 of the National Internal take judicial
of the Revenue Code can only be availed of by residents of foreign notice of
National countries and not of residents of a state in the United States; and them.5 Like any
Internal (3) there is no "total" reciprocity between the Philippines and the other fact, they
Revenue state of California in that while the former exempts payment of must be alleged
Code both estate and inheritance taxes on intangible personal and proved.6
granting properties, the latter only exempts the payment of inheritance
exemption tax..
from the
payment of To prove the pertinent California law, Attorney Allison Gibbs,
estate and counsel for herein respondents, testified that as an active member
ISSUE(S) RATIO/LEGAL
SC DECISION BASIS/DOCTRIN
ES
inheritance
taxes on the of the California Bar since 1931, he is familiar with the revenue and
210,000 taxation laws of the State of California. When asked by the lower
shares of court to state the pertinent California law as regards exemption of
stock in the intangible personal properties, the witness cited article 4, section
Mindanao 13851 (a) and (b) of the California Internal and Revenue Code as
Mother Lode published in Derring's California Code, a publication of the
Mines Inc.; Bancroft-Whitney Company inc. And as part of his testimony, a full
quotation of the cited section was offered in evidence as Exhibits
"V-2" by the respondents.

Section 41, Rule 123 of our Rules of Court prescribes the manner
of proving foreign laws before our tribunals. However, although
we believe it desirable that these laws be proved in accordance
with said rule, we held in the case of Willamette Iron and Steel
Works v. Muzzal, 61 Phil. 471, that "a reading of sections 300 and
301 of our Code of Civil Procedure (now section 41, Rule 123) will
convince one that these sections do not exclude the presentation
of other competent evidence to prove the existence of a foreign
law." In that case, we considered the testimony of an attorney-at-
law of San Francisco, California who quoted verbatim a section of
California Civil Code and who stated that the same was in force at
the time the obligations were contracted, as sufficient evidence to
establish the existence of said law. In line with this view, we find
no error, therefore, on the part of the Tax Court in considering the
pertinent California law as proved by respondents' witness.

We now take up the question of reciprocity in exemption from

transfer or death taxes, between the State of California and the
Philippines.

Section 122 of our National Internal Revenue Code, in pertinent

part, provides:

... And, provided, further, That no tax shall be collected

under this Title in respect of intangible personal property
(a) if the decedent at the time of his death was a resident
of a foreign country which at the time of his death did not
impose a transfer of tax or death tax of any character in
respect of intangible personal property of citizens of the
Philippines not residing in that foreign country, or (b) if the
laws of the foreign country of which the decedent was a
ISSUE(S) RATIO/LEGAL
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resident at the time of his death allow a similar exemption

from transfer taxes or death taxes of every character in
respect of intangible personal property owned by citizens
of the Philippines not residing in that foreign country."
(Emphasis supplied).

On the other hand, Section 13851 of the California Inheritance Tax

Law, insofar as pertinent, reads:.

"SEC. 13851, Intangibles of nonresident: Conditions.

Intangible personal property is exempt from the tax
imposed by this part if the decedent at the time of his
death was a resident of a territory or another State of the
United States or of a foreign state or country which then
imposed a legacy, succession, or death tax in respect to
intangible personal property of its own residents, but
either:.

(a) Did not impose a legacy, succession, or death tax of any

character in respect to intangible personal property of
residents of this State, or

(b) Had in its laws a reciprocal provision under which

intangible personal property of a non-resident was exempt
from legacy, succession, or death taxes of every character if
the Territory or other State of the United States or foreign
state or country in which the nonresident resided allowed a
similar exemption in respect to intangible personal
property of residents of the Territory or State of the United
States or foreign state or country of residence of the
decedent." (Id.)

It is clear from both these quoted provisions that the reciprocity

must be total, that is, with respect to transfer or death taxes of any
and every character, in the case of the Philippine law, and to
legacy, succession, or death taxes of any and every character, in
the case of the California law. Therefore, if any of the two states
collects or imposes and does not exempt any transfer, death,
legacy, or succession tax of any character, the reciprocity does not
work. This is the underlying principle of the reciprocity clauses in
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both laws.

In the Philippines, upon the death of any citizen or resident, or

non-resident with properties therein, there are imposed upon his
estate and its settlement, both an estate and an inheritance tax.
Under the laws of California, only inheritance tax is imposed. On
the other hand, the Federal Internal Revenue Code imposes an
estate tax on non-residents not citizens of the United States, but
does not provide for any exemption on the basis of reciprocity.
Applying these laws in the manner the Court of Tax Appeals did in
the instant case, we will have a situation where a Californian, who
is non-resident in the Philippines but has intangible personal
properties here, will the subject to the payment of an estate tax,
although exempt from the payment of the inheritance tax. This
being the case, will a Filipino, non-resident of California, but with
intangible personal properties there, be entitled to the exemption
clause of the California law, since the Californian has not been
exempted from every character of legacy, succession, or death tax
because he is, under our law, under obligation to pay an estate
tax? Upon the other hand, if we exempt the Californian from
paying the estate tax, we do not thereby entitle a Filipino to be
exempt from a similar estate tax in California because under the
Federal Law, which is equally enforceable in California he is bound
to pay the same, there being no reciprocity recognized in respect
thereto. In both instances, the Filipino citizen is always at a
disadvantage. We do not believe that our legislature has intended
such an unfair situation to the detriment of our own government
and people. We, therefore, find and declare that the lower court
erred in exempting the estate in question from payment of the
inheritance tax.

We are not unaware of our ruling in the case of Collector of

Internal Revenue vs. Lara (G.R. Nos. L-9456 & L-9481, prom.
January 6, 1958, 54 O.G. 2881) exempting the estate of the
deceased Hugo H. Miller from payment of the inheritance tax
imposed by the Collector of Internal Revenue. It will be noted,
however, that the issue of reciprocity between the pertinent
provisions of our tax law and that of the State of California was not
there squarely raised, and the ruling therein cannot control the
determination of the case at bar. Be that as it may, we now declare
that in view of the express provisions of both the Philippine and
 ISSUE(S) RATIO/LEGAL
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California laws that the exemption would apply only if the law of
the other grants an exemption from legacy, succession, or death
taxes of every character, there could not be partial reciprocity. It
would have to be total or none at all.

3. Whether or With respect to the question of deduction or reduction in the

not the amount of P4,000.00 based on the U.S. Federal Estate Tax Law
estate is which is also being claimed by respondents, we uphold and adhere
entitled to to our ruling in the Lara case (supra) that the amount of $2,000.00
the allowed under the Federal Estate Tax Law is in the nature of a
deduction of deduction and not of an exemption regarding which reciprocity
P4,000.00 cannot be claimed under the provision of Section 122 of our
allowed by National Internal Revenue Code. Nor is reciprocity authorized
Section 861, under the Federal Law. .
U.S. Internal
Revenue
Code in
relation to
section 122
of the
National
Internal
Revenue
Code;
4. Whether or On the issue of the correctness of the appraisal of the two parcels
not the real of land situated in Baguio City, it is contended that their assessed
estate values, as appearing in the tax rolls 6 months after the death of
properties of Stevenson, ought to have been considered by petitioner as their
the decedent fair market value, pursuant to section 91 of the National Internal
located in Revenue Code. It should be pointed out, however, that in
Baguio City accordance with said proviso the properties are required to be
and the appraised at their fair market value and the assessed value thereof
210,000 shall be considered as the fair market value only when evidence to
shares of the contrary has not been shown. After all review of the record,
stock in the we are satisfied that such evidence exists to justify the valuation
Mindanao made by petitioner which was sustained by the tax court, for as
Mother Lode the tax court aptly observed:
Mines, Inc.,
were "The two parcels of land containing 36,264 square meters
correctly were valued by the administrator of the estate in the Estate
ISSUE(S) RATIO/LEGAL
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appraised by
the lower and Inheritance tax returns filed by him at P43,500.00
court; which is the assessed value of said properties. On the other
hand, defendant appraised the same at P52,200.00. It is of
common knowledge, and this Court can take judicial notice
of it, that assessments for real estate taxation purposes are
very much lower than the true and fair market value of the
properties at a given time and place. In fact one year after
decedent's death or in 1952 the said properties were sold
for a price of P72,000.00 and there is no showing that
special or extraordinary circumstances caused the sudden
increase from the price of P43,500.00, if we were to accept
this value as a fair and reasonable one as of 1951. Even
more, the counsel for plaintiffs himself admitted in open
court that he was willing to purchase the said properties at
P2.00 per square meter. In the light of these facts we
believe and therefore hold that the valuation of P52,200.00
of the real estate in Baguio made by defendant is fair,
reasonable and justified in the premises." (Decision, p. 19).

In respect to the valuation of the 210,000 shares of stock in the

Mindanao Mother Lode Mines, Inc., (a domestic corporation),
respondents contend that their value should be fixed on the basis
of the market quotation obtaining at the San Francisco (California)
Stock Exchange, on the theory that the certificates of stocks were
then held in that place and registered with the said stock
exchange. We cannot agree with respondents' argument. The situs
of the shares of stock, for purposes of taxation, being located here
in the Philippines, as respondents themselves concede and
considering that they are sought to be taxed in this jurisdiction,
consistent with the exercise of our government's taxing authority,
their fair market value should be taxed on the basis of the price
prevailing in our country.

Upon the other hand, we find merit in respondents' other

contention that the said shares of stock commanded a lesser value
at the Manila Stock Exchange six months after the death of
Stevenson. Through Atty. Allison Gibbs, respondents have shown
that at that time a share of said stock was bid for at only P.325 (p.
103, t.s.n.). Significantly, the testimony of Atty. Gibbs in this
respect has never been questioned nor refuted by petitioner either
before this court or in the court below. In the absence of evidence
ISSUE(S) RATIO/LEGAL
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to the contrary, we are, therefore, constrained to reverse the Tax

Court on this point and to hold that the value of a share in the said
mining company on August 22, 1951 in the Philippine market was
P.325 as claimed by respondents.

It should be noted that the petitioner and the Tax Court valued
each share of stock of P.38 on the basis of the declaration made by
the estate in its preliminary return. Patently, this should not have
been the case, in view of the fact that the ancillary administrator
had reserved and availed of his legal right to have the properties of
the estate declared at their fair market value as of six months from
the time the decedent died.

On the fifth issue, we shall consider the various deductions, from

the allowance or disallowance of which by the Tax Court, both
petitioner and respondents have appealed.

Petitioner, in this regard, contends that no evidence of record

exists to support the allowance of the sum of P8,604.39 for the
following expenses:.

P1,204.34
1) Administrator's fee
2) Attorney's fee 6,000.00
3) Judicial and Administrative expenses   2,052.55
            Total Deductions P8,604.39
An examination of the record discloses, however, that the
foregoing items were considered deductible by the Tax Court on
the basis of their approval by the probate court to which said
expenses, we may presume, had also been presented for
consideration. It is to be supposed that the probate court would
not have approved said items were they not supported by
evidence presented by the estate. In allowing the items in
question, the Tax Court had before it the pertinent order of the
probate court which was submitted in evidence by respondents.
(Exh. "AA-2", p. 100, record). As the Tax Court said, it found no
basis for departing from the findings of the probate court, as it
must have been satisfied that those expenses were actually
incurred. Under the circumstances, we see no ground to reverse
this finding of fact which, under Republic Act of California National
 ISSUE(S) RATIO/LEGAL
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Association, which it would appear, that while still living, Walter G.
Stevenson obtained we are not inclined to pass upon the claim of
respondents in respect to the additional amount of P86.52 for
funeral expenses which was disapproved by the court a quo for
lack of evidence.

5. Whether or  In connection with the deduction of P652.50 representing

not the the amount of realty taxes paid in 1951 on the decedent's
estate is two parcels of land in Baguio City, which respondents claim
entitled to was disallowed by the Tax Court, we find that this claim has
the following in fact been allowed. What happened here, which a careful
deductions: review of the record will reveal, was that the Tax Court, in
P8,604.39 for itemizing the liabilities of the estate, viz:
judicial and
administratio
n expenses; 1) Administrator's fee P1,204.34
P2,086.52 for 2) Attorney's fee 6,000.00
funeral
expenses; 3) Judicial and Administration expenses as of
P652.50 for August 9, 1952   2,052.55
real estate             Total P9,256.89
taxes; and added the P652.50 for realty taxes as a liability of the estate, to the
P10,0,22.47 P1,400.05 for judicial and administration expenses approved by
representing the court, making a total of P2,052.55, exactly the same figure
the amount which was arrived at by the Tax Court for judicial and
of administration expenses. Hence, the difference between the total
indebtedness of P9,256.98 allowed by the Tax Court as deductions, and the
allegedly P8,604.39 as found by the probate court, which is P652.50, the
incurred by same amount allowed for realty taxes. An evident oversight has
the decedent involuntarily been made in omitting the P2,000.00 for funeral
during his expenses in the final computation. This amount has been expressly
lifetime; and allowed by the lower court and there is no reason why it should
not be. .

We come now to the other claim of respondents that pursuant to

section 89(b) (1) in relation to section 89(a) (1) (E) and section
89(d), National Internal Revenue Code, the amount of P10,022.47
should have been allowed the estate as a deduction, because it
represented an indebtedness of the decedent incurred during his
lifetime. In support thereof, they offered in evidence a duly
certified claim, presented to the probate court in California by the
ISSUE(S) RATIO/LEGAL
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Bank of California National Association, which it would appear,

that while still living, Walter G. Stevenson obtained a loan of
$5,000.00 secured by pledge on 140,000 of his shares of stock in
the Mindanao Mother Lode Mines, Inc. (Exhs. "Q-Q4", pp. 53-59,
record). The Tax Court disallowed this item on the ground that the
local probate court had not approved the same as a valid claim
against the estate and because it constituted an indebtedness in
respect to intangible personal property which the Tax Court held
to be exempt from inheritance tax.

For two reasons, we uphold the action of the lower court in

disallowing the deduction.

Firstly, we believe that the approval of the Philippine probate

court of this particular indebtedness of the decedent is necessary.
This is so although the same, it is averred has been already
admitted and approved by the corresponding probate court in
California, situs of the principal or domiciliary administration. It is
true that we have here in the Philippines only an ancillary
administration in this case, but, it has been held, the distinction
between domiciliary or principal administration and ancillary
administration serves only to distinguish one administration from
the other, for the two proceedings are separate and
independent.8 The reason for the ancillary administration is that, a
grant of administration does not ex proprio vigore, have any effect
beyond the limits of the country in which it was granted. Hence,
we have the requirement that before a will duly probated outside
of the Philippines can have effect here, it must first be proved and
allowed before our courts, in much the same manner as wills
originally presented for allowance therein.9 And the estate shall be
administered under letters testamentary, or letters of
administration granted by the court, and disposed of according to
the will as probated, after payment of just debts and expenses of
administration.10 In other words, there is a regular administration
under the control of the court, where claims must be presented
and approved, and expenses of administration allowed before
deductions from the estate can be authorized. Otherwise, we
would have the actuations of our own probate court, in the
settlement and distribution of the estate situated here, subject to
the proceedings before the foreign court over which our courts
have no control. We do not believe such a procedure is
ISSUE(S) RATIO/LEGAL
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countenanced or contemplated in the Rules of Court.

Another reason for the disallowance of this indebtedness as a

deduction, springs from the provisions of Section 89, letter (d),
number (1), of the National Internal Revenue Code which reads:

(d) Miscellaneous provisions — (1) No deductions shall be

allowed in the case of a non-resident not a citizen of the
Philippines unless the executor, administrator or anyone of
the heirs, as the case may be, includes in the return
required to be filed under section ninety-three the value at
the time of his death of that part of the gross estate of the
non-resident not situated in the Philippines."

In the case at bar, no such statement of the gross estate of the

non-resident Stevenson not situated in the Philippines appears in
the three returns submitted to the court or to the office of the
petitioner Collector of Internal Revenue. The purpose of this
requirement is to enable the revenue officer to determine how
much of the indebtedness may be allowed to be deducted,
pursuant to (b), number (1) of the same section 89 of the Internal
Revenue Code which provides:

(b) Deductions allowed to non-resident estates. — In the

case of a non-resident not a citizen of the Philippines, by
deducting from the value of that part of his gross estate
which at the time of his death is situated in the Philippines
—

(1) Expenses, losses, indebtedness, and taxes. — That

proportion of the deductions specified in paragraph (1) of
subjection (a) of this section11 which the value of such part
bears the value of his entire gross estate wherever
situated;"

In other words, the allowable deduction is only to the extent of

the portion of the indebtedness which is equivalent to the
proportion that the estate in the Philippines bears to the total
estate wherever situated. Stated differently, if the properties in
the Philippines constitute but 1/5 of the entire assets wherever
situated, then only 1/5 of the indebtedness may be deducted. But
 ISSUE(S) RATIO/LEGAL
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since, as heretofore adverted to, there is no statement of the value

of the estate situated outside the Philippines, no part of the
indebtedness can be allowed to be deducted, pursuant to Section
89, letter (d), number (1) of the Internal Revenue Code.

For the reasons thus stated, we affirm the ruling of the lower court
disallowing the deduction of the alleged indebtedness in the sum
of P10,022.47.

6. Whether or 7. Respondent's claim for interest on the amount allegedly

not the overpaid, if any actually results after a recomputation on the
estate is basis of this decision is hereby denied in line with our recent
entitled to decision in Collector of Internal Revenue v. St. Paul's
the payment Hospital (G.R. No. L-12127, May 29, 1959) wherein we held
of interest on that, "in the absence of a statutory provision clearly or
the amount expressly directing or authorizing such payment, and none has
it claims to been cited by respondents, the National Government cannot
have be required to pay interest."
overpaid the
government
and to be
refundable
to it.

1. SUMMARY a) only the one-half (1/2) share of the decedent Stevenson in

the conjugal partnership property constitutes his hereditary
estate subject to the estate and inheritance taxes;

(b) the intangible personal property is not exempt from

inheritance tax, there existing no complete total reciprocity
as required in section 122 of the National Internal Revenue
Code, nor is the decedent's estate entitled to an exemption
of P4,000.00 in the computation of the estate tax;

(c) for the purpose of the estate and inheritance taxes, the
210,000 shares of stock in the Mindanao Mother Lode
Mines, Inc. are to be appraised at P0.325 per share; and

(d) the P2,000.00 for funeral expenses should be deducted in

the determination of the net asset of the deceased
 Stevenson.

In all other respects, the decision of the Court of Tax Appeals is

affirmed.

Zapanta vs. Posadas (December 29, 1928)

Zapanta v. Posadas
December 29, 1928

Facts:

1. Father Braulio Pineda died in January 1925 without any ascendants or descendants
leaving a will in which he instituted his sister Irene Pineda as his sole heiress.

2. During his lifetime Father Braulio donated some of his property by the instruments to
the six plaintifffs, severally, with the condition that some of them would pay him a
certain amount of rice, and others of money every year, and with the express
provision that failure to fulfill this condition would revoke the donations ipso facto.

3. These six plaintiff-donees are relatives, and some of them brothers of Father Braulio
Pineda. The donations contained another clause that they would take effect upon
acceptance. They were accepted during Father Braulio's lifetime by every one of the
donees.

4. Every one of the six plaintiffs filed a separate action against the Collector of Internal
Revenue and his deputy for the sums of which each of them paid, under protest, as
inheritance tax on the property donated to them, in accordance with section 1536 of
the Administrative Code, as amended by section 10 of Act No. 2835, and by section 1
of Act No. 3031. Section 1536 of the Administrative Code reads:

Every transmission by virtue of inheritance, devise, bequest, gift mortis causa or

advance in anticipation of inheritance, devise, or bequest of real property located in the
Philippine Islands and real rights in such property; . . .

5. RTC’s Decision: Donations inter vivos, and therefore, not subject to the inheritance tax,
and ordered the defendants to return to each of the plaintiffs the sums paid by the
latter.
The defendants appealed from this judgment.
Issue:
Whether the donations made by Father Braulio Pineda to each of the plaintiffs are
donations inter vivos, or mortis causa, for it is the latter upon which the Administrative Code
imposes inheritance tax. 

Ruling:
Yes.
In our opinion, said donations are inter vivos. It is so expressly stated in the instruments in
which they appear. They were made in consideration of the donor's affection for the donees,
and of the services they had rendered him, but he has charged them with the obligation to
pay him a certain amount of rice and money, respectively, each year during his lifetime, the
donations to become effective upon acceptance. They are therefore not in the nature of
donations mortis causa but inter vivos.
The principal characteristics of a donation mortis causa, which distinguish it essentially from
a donation inter vivos, are that in the former it is the donor's death that determines the
acquisition of, or the right to, the property, and that it is revocable at the will of the donor. 
In the donations in question, their effect, that is, the acquisition of, or the right to, the
property, was produced while the donor was still alive, for according to their expressed
terms they were to have this effect upon acceptance, and this took place during the donor's
lifetime. 
In relation to the donor's will alone, these donations are irrevocable. On the other hand, this
condition, in so far as it renders the donation onerous, takes it further away from the
disposition mortis causa and brings it nearer to contract. In this sense, by virtue of this
condition imposed, they are not donations throughout their full extent, but only so far as
they exceed the incumbrance imposed, for so far as concerns the portion equivalent to or less
than said incumbrance, it has the nature of a real contract and is governed by the rule on
contracts (Art. 622 of the Civil Code).
Besides, if the donations made by the plaintiffs are, as the appellants contended, mortis causa,
then they must be governed by the law on testate succession (Art. 620 of the Civil Code). In
such a case, the documents in which these donations appear, being instruments which do not
contain the requisites of a will, are not valid to transmit the property to the donees (Sec. 618,
Code of Civil Procedure.) Then the defendants are not justified in collecting from the donees
the inheritance tax, on property which has not been legally transferred to them, and in which
they acquired no right.
Disposition:
For these reasons the judgment appealed from is affirmed, without special pronouncement
as to costs. So ordered.
 

Tuason vs. Posadas (January 23, 1930)

Topic: Gross Estate
Relevant Laws: Sec. 85 & 104 NIRC

G.R. No. L-30885

January 23, 1930
AVANCEÑA, C.J.:

Petitioners: ALFONSO TUASON Y ANGELES and MARIANO TUASON Y ANGELES

Respondents: JUAN POSADAS, JR., Collector of Internal Revenue

Facts:
 On September 15, 1922, Esperanza Tuason y Chuajap made a donation inter vivos of certain
property to plaintiff Mariano Tuason y Angeles. On April 30, 1923, she made another
donation inter vivos to Alfonso Tuason y Angeles, the other plaintiff. On January 5, 1926, she
died of senile weakness at the age of 73, leaving a will bequeathing of P5,025 to Mariano
Tuason y Angeles. Her judicial administratrix paid the prescribed inheritance tax on these two
bequests. 
Issues:
1. Are the donations inter vivos made in anticipation of death part of Gross Estate? - YES

Held:
 Petition DISMISSED.
 Decision of lower court REVERSED.

Ratio:
1. When the law say all gifts, it doubtless refers to gifts inter vivos, and not mortis causa. Both
the letter and the spirit of the law leave no room for any other interpretation. Such, clearly, is
the tenor of the language which refers to donation that took effect before the donor's death,
and not to mortis causa donations, which can only be made with the formalities of a will, and
can only take effect after the donor's death. When such gifts have been made in anticipation
of inheritance, devise, bequest, or gift mortis causa, when the donee, after the death of the
donor proves to be his heir, devisee or donee mortis causa, for the purpose of evading the
tax, and it is to prevent this that it provides that they shall be added to the resulting amount.

This being so, and it appearing that the appellees after the death of Esperanza Tuason y
Chuajap, were found to be legatees under her will, the donation inter vivos she had made to
them in 1922 and 1923, must be added to the net amount that is to be taxed.

STREET, J., dissenting:

The two plaintiffs in this case are suing to recover two several sums of money, the payment of
which has been exacted from them in the character of taxes upon inheritance, and it is very
manifest to me that the taxes in question were imposed, and have been collected, in violation
of that portion of section 3 of the Autonomy Act (Jones Law) which declares that the rule of
taxation in these Islands shall be uniform. To demonstrate this conclusion it is desirable to fix
in the mind the exact state of fact upon which the decision should turn. In this connection we
note that the plaintiffs are not persons who would have inherited any part of the estate of
Esperanza Tuason y Chuajap, if she had died intestate. It is clear therefore that the donations
made to the two plaintiffs in 1922 and 1923, respectively, were not made "in anticipation of
 inheritance," and they are therefore not taxable in that character. The gifts in question were
donations inter vivos, and as such they should be free from the inheritance tax.

Further to illustrate this, let it be supposed that a person, desirous of conferring a benefit
upon two persons held in about equal esteem, makes a gift of P10,000 to one and P9,900 to
the other. In a subsequent will, in order to equalize the gifts, the same benefactor gives a
legacy of P100 to the second donee. Under the statute, as interpreted by the court, the first
donee is not liable to any inheritance tax, but the second is liable upon the entire amount first
given to him. This shows the lack of logical relation between the incidence of the tax and the
fact taken as a basis for its imposition.

It will be noted that we do not here question the proposition that section 1540 of the
Administrative Code might lawfully operate upon a donee who at the time of receiving the
gift inter vivos belongs to the class who could take by intestate succession, in the absence of a
will, for in this case the donation may be made in anticipation of inheritance (sec. 1536, Adm.
Code). It was for this very reason that the undersigned sustained the position in Zapanta vs.
Posadas (52 Phil., 557), that the gifts there made were taxable. But section 1540 of the
Administrative Code cannot, in my opinion, properly be interpreted to extend to gifts inter
vivos made to a person not in a position to take as heir of the donor dying intestate.

In closing I wish to point out that the vital difference between this case and that under
consideration in Zapanta vs. Posadas, supra, is that in the latter case the donees were persons
who would have been heirs of the donor if the latter had died intestate, while in this case the
donees are not in such position.

Dison vs. Posadas (November 4, 1932)

G.R. No. L-36770             November 4, 1932
LUIS W. DISON, plaintiff-appellant,
vs.
JUAN POSADAS, JR., Collector of Internal Revenue, defendant-appellant.
BUTTE, J.:
FACTS:
The plaintiff is the legitimate and only child of Don Felix Dison. Before the latter died on April
21, 1928, he made a gift inter vivos in favor of the plaintiff of all his property according to a
deed of gift, acknowledged before a notary public on April, 1928.  The plaintiff formally
accepted the gift on April 17, 1928 and acknowledge the same before a notary public on April
20, 1928. The defendant assessed an collected an inheritance tax in the amount of P
2,808.73. The plaintiff paid the said tax under protest.
In a suit filed before the CFI Pampanga, the plaintiff seeks to recover the inheritance tax
paid, alleging that the tax was illegal because he received the property, which was the basis
of the tax, from his father before the latter’s death via deed of gift inter vivos, which was duly
accepted and registered before his father’s death.  The Court ruled in favor of the defendant.
Thus, this appeal, where the plaintiff argues that he received and holds the property by a
consummated gift and that Act No. 2601, being the inheritance statute, does not tax gifts. 

ISSUE:
Whether section 1540 of the Administrative Code subject the plaintiff to inheritance tax.

RULING:
Yes. 
The facts of the case warrant the inference that the transfer was an advancement upon the
inheritance which the donee, as the sole and forced heir of the donor, would be entitled to
receive upon the death of the donor. Contradictory to the argument raised by the plaintiff that
he is not an heir of his deceased father, there being no more property left to be inherited, the
Civil Code confers upon him the status of a forced heir.
The expression of “any of those who, after his death, shall prove to be his heirs" in section
1540 includes those, who by our law, are given the status and rights of heirs, regardless of
the quantity of property they may receive as such heirs. That the appellant in this case
occupies the status of heir to his deceased father cannot be questioned. Construing the
conveyance here in question, under the facts presented, as an advance made by Felix Dison
to his only child, we hold section 1540 to be applicable and the tax to have been properly
assessed by the Collector of Internal Revenue.

Vidal de Roces vs. Posadas (March 13, 1933)

Vidal de Roces vs. Posadas (NM)
Topic: imposition of inheritance tax on donations inter vivos in consideration of death
Relevant Laws:
Section 1540 of the Administrative Code (Act No. 2061) – Inheritance Tax Statute

G.R. No. L-34937            

March 13, 1933
Imperial, J.

Plaintiff-appellants: Concepcion Vidal De Roces and her husband, Marcos Roces, and Elvira Vidal
De Richards
Defendant-apellee: Juan Posadas, Jr. and CIR

Facts:
 Tuazon donated certain parcels of land to De Roces and De Richards, who accepted them in
the same public documents, and which were duly recorded in the registry of deeds. By virtue of
said donations, they took possession of the said lands, received the fruits thereof and obtained
the corresponding TCTs.
 Tuazon died without leaving any forced heir and her will which was admitted to probate, she
bequeathed to each of the donees the sum of P5,000.
 After the estate had been distributed among the instituted legatees and before delivery of their
respective shares, CIR ruled that the donees and legatees should pay as inheritance tax the
sums of P16,673 and P13,951.45, respectively. Of these sums P15,191.48 was levied as tax on
the donation to De Roces and P1,481.52 on her legacy, and, likewise, P12,388.95 was imposed
upon the donation made to De Richards and P1,462.50 on her legacy.
  De Roces's argument:
- Sec. 1540 of the Administrative Code does NOT include donations inter vivos and if it
does, it is unconstitutional, null and void because the Legislature has no authority to
impose inheritance tax on donations inter vivos and it contravenes the fundamental rule of
uniformity of taxation.
 CIR’s argument:
- The words "all gifts" refer clearly to donations inter vivos.
- Citing the doctrine in Tuason: "all gifts" refers to gifts inter vivos, because the law
considers them as advances in anticipation of inheritance in the sense that they are gifts
inter vivos made in consideration of death.

Issues:
Whether or not Sec. 1540 of the Administrative Code includes donation inter vivos and, thus, subject
De Roces, and De Richards to the payment of an inheritance tax? - YES

Held:
 Judgment appealed from is AFFIRMED.

Ratio:
 Section 1536 of the Administrative Code provides that every transmission by virtue of
inheritance, devise, bequest, gift mortis causa, or advance in anticipation of inheritance, devise,
or bequest shall be subject to tax.
 Section 1540 then provides that after deductions have been made, there shall be added to the
resulting amount the value of all gifts or advances made by the predecessor to any of those
who, after his death, shall prove to be his heirs, devisees, legatees, or donees mortis causa.
 The gifts referred to in section 1540 are, obviously, those donations inter vivos that take
effect immediately or during the lifetime of the donor but are made in consideration or in
contemplation of death. Gifts inter vivos, the transmission of which is NOT made in
contemplation of the donor's death should NOT be understood as included within the said
legal provision for the reason that it would amount to imposing a direct tax on property and
not on the transmission thereof.
 The language refers to donation that took effect before the donor's death, and not to mortis
causa donations, which can only be made with the formalities of a will, and can only take
effect after the donor's death. HOWEVER, if the donee inter vivos was found to be legatees,
heirs, devisees OR donees mortis causa of the decedent, then they would have to pay the
inheritance tax. The reason for this is because the donation inter vivos is deemed to be a
transfer in anticipation of inheritance/death, meaning that it is a scheme to evade
payment of taxes.
 It be may be inferred from the allegations of De Roces and De Richards that said
donations inter vivos were made in consideration of the donor's death. We refer to the
allegations that such transmissions were effected in the month of March, 1925, that the
donor died in January, 1926, and that the donees were instituted legatees in the donor's will
which was admitted to probate. It is from these allegations, especially the last, that we infer a
presumption juris tantum that said donations were made mortis causa and, as such, are
subject to the payment of inheritance tax. The law considers such transmissions in the
form of gifts inter vivos, as advances on inheritance.
  Such interpretation of the law is not in conflict with the rule laid down in the case of Tuason
wherein it was said that the expression "all gifts" refers to gifts inter vivos, because the law
considers them as advances in anticipation of inheritance in the sense that they are gifts
inter vivos made in consideration of death. In that case, it was not held that that kind of gifts
consisted in those made completely independent of death or without regard to it.
 Section 1540 did not violate the constitutional provision regarding uniformity of taxation. It
cannot be null and void on this ground because it equally subjects to the same tax all of those
donees who later become heirs, legatees or donees mortis causa by the will of the donor.
 In a nutshell: Even if a donation is made inter vivos, it is presumed as made mortis causa if it is
made in consideration of donor’s death and therefore, it is subject to inheritance tax.

DISSENTING OPINION OF JUSTICE VILLAREAL: Donations inter vivos made to persons who

are not forced heirs, but who are instituted legatees in the donor's will, should be presumed as not
made mortis causa, unless the contrary is proven. In the case under consideration, the burden of the
proof rests with the person who contends that the donation inter vivos has been made mortis causa.

Revenue Regulations 12-18 (January 25, 2018)

3. Deductions
Section 86, Tax Code (as amended by Republic Act 10963)

SEC. 86. Computation of Net Estate. [70] - For the purpose of the tax imposed in this Chapter, the
value of the net estate shall be determined:

(A) Deductions Allowed to the Estate of Citizen or a Resident. [71]- In the case of a citizen or resident
of the Philippines, by deducting from the value of the gross estate -

(1)  Standard Deduction. – An amount equivalent to Five million pesos (P5,000,000.00).[72]

(2) For claims against the estate: Provided, That at the time of indebtedness was incurred that debt
instrument was duly notarized and, if the loan was contracted within three (3) years before the death of
the decedent, the administrator or executor shall submit a statement showing the disposition of the
proceeds of the loan.

(3) For claims of the deceased against the insolvent persons where the value of decedent’s interest
therein is included in the value of the gross estate.

(4) For unpaid mortgages upon, or any indebtedness in respect to, property where the value of
decedent’s interest therein, undiminished by such mortgage or indebtedness, is included in the value of
the gross estate, but not including any income tax upon income received after the death of the
decedent, or property taxes not accrued before his death, or any estate tax. The deduction herein
allowed in the case of claims against the estate, unpaid mortgages or any indebtedness shall, when
founded upon a promise or agreement, be limited to the extent that they were contracted bona fide and
for an adequate and full consideration in money or money’s worth. There shall also de deducted losses
incurred during the settlement of the estate arising from fires, storms, shipwreck, or other casualties, or
from robbery, theft, or embezzlement, when such losses are not compensated for by insurance or
otherwise, and if at the time of the filing of the return such losses have not been claimed as deduction
for the income tax purposes in an income tax return, and provided that such losses were incurred not
later than the last day for the payment of the estate tax as prescribed in Subsection (A) of Section 91.

(5) Property Previously Taxed. - An amount equal to the value specified below of any property
forming part of the gross estate situated in the Philippines of any person who died within five (5) years
prior to the death of the decedent, or transferred to the decedent by gift within five (5) years prior to
his death, where such property can be identified as having been received by the decedent from the
donor by gift, or from such prior decedent by gift, bequest, devise or inheritance, or which can be
identified as having been acquired in exchange for property so received:

One hundred percent (100%) of the value, if the prior decedent died within one (1) year prior to the
death of the decedent, or if the property was transferred to him by gift, within the same period prior to
his death;

Eighty percent (80%) of the value, if the prior decedent died more than one (1) year but not more than
two (2) years prior to the death of the decedent, or if the property was transferred to him by gift within
the same period prior to his death;

Sixty percent (60%) of the value, if the prior decedent died more than two (2) years but not more than
three (3) years prior to the death of the decedent, or if the property was transferred to him by gift
within the same period prior to his death;

Forty percent (40%) of the value, if the prior decedent died more than three (3) years but not more
than four (4) years prior to the death of the decedent, or if the property was transferred to him by gift
within the same period prior to his death;

Twenty percent (20%) of the value, if the prior decedent died more than four (4) years but not more
than five (5) years prior to the death of the decedent, or if the property was transferred to him by gift
within the same period prior to his death;

These deductions shall be allowed only where a donor's tax or estate tax imposed under this Title was
finally determined and paid by or on behalf of such donor, or the estate of such prior decedent, as the
case may be, and only in the amount finally determined as the value of such property in determining
the value of the gift, or the gross estate of such prior decedent, and only to the extent that the value of
such property is included in the decedent's gross estate, and only to the extent that the value of such
property is included in the decedent’s gross estate, and only if in determining the value of the estate of
the prior decedent, no deduction was allowable under paragraph (5) in respect of the property or
properties given in exchange therefor. Where a deduction was allowed of any mortgage or other lien in
determining the donor's tax, or the estate tax of the prior decedent, which was paid in whole or in part
prior to the decedent's death, then the deduction allowable under said Subsection shall be reduced by
the amount so paid. Such deduction allowable shall be reduced by an amount which bears the same
ratio to the amounts allowed as deductions under paragraphs (2), (3), (4) and (6) of this Subsection as
the amount otherwise deductible under said paragraph (5) bears to the value of the decedent's estate.
Where the property referred to consists of two or more items, the aggregate value of such items shall
be used for the purpose of computing the deduction. [4]

(6) Transfers for Public Use. - The amount of all the bequests, legacies, devises or transfers to or for
the use of the Government of the Republic of the Philippines, or any political subdivision thereof, for
exclusively public purposes.

(7) The Family Home. - An amount equivalent to the current fair market value of the decedent's
family home: Provided, however, That if the said current fair market value exceeds Ten million pesos
(P10, 000,000),[72] the excess shall be subject to estate tax.

(8) Amount Received by Heirs Under Republic Act No. 4917. – Any amount received by the heirs
from the decedent’s employee as a consequence of the death of the decedent-employee in accordance
with Republic Act No. 4917: Provided, That such amount is included in the gross estate of the
decedent.

(B) Deductions Allowed to Nonresident Estates. - In the case of a nonresident not a citizen of the
Philippines, by deducting from the value of that part of his gross estate which at the time of his death
is situated in the Philippines:

(1)  Standard Deduction. – An amount equivalent to Five hundred thousand pesos (P500,000.00); [73]

(2) That proportion of the deductions specified in paragraphs (2), (3), (4) of Subsection (A) of this
Section which the value of such part bears to the value of his entire gross estate wherever situated;[74]

(3) Property Previously Taxed.- An amount equal to the value specified below of any property
forming part of the gross estate situated in the Philippines of any person who died within five (5) years
prior to the death of the decedent, or transferred to the decedent by gift within five (5) years prior to
his death, where such property can be identified as having been received by the decedent from the
donor by gift, or from such prior decedent by gift, bequest, devise or inheritance, or which can be
identified as having been acquired in exchange for property so received:

One hundred percent (100%) of the value if the prior decedent died within one (1) year prior to the
death of the decedent, or if the property was transferred to him by gift, within the same period prior to
his death;

Eighty percent (80%) of the value, if the prior decedent died more than one (1) year but not more than
two (2) years prior to the death of the decedent, or if the property was transferred to him by gift within
the same period prior to his death;

Sixty percent (60%) of the value, if the prior decedent died more than two (2) years but not more than
three (3) years prior to the death of the decedent, or if the property was transferred to him by gift
within the same period prior to his death;

Forty percent (40%) of the value, if the prior decedent died more than three (3) years but not more
than four (4) years prior to the death of the decedent, or if the property was transferred to him by gift
within the same period prior to his death; and
Twenty percent (20%) of the value, if the prior decedent died more than four (4) years but not more
than five (5) years prior to the death of the decedent, or if the property was transferred to him by gift
within the same period prior to his death.

These deductions shall be allowed only where a donor's tax, or estate tax imposed under this Title is
finally determined and paid by or on behalf of such donor, or the estate of such prior decedent, as the
case may be, and only in the amount finally determined as the value of such property in determining
the value of the gift, or the gross estate of such prior decedent, and only to the extent that the value of
such property is included in that part of the decedent's gross estate which at the time of his death is
situated in the Philippines; and only if, in determining the value of the net estate of the prior decedent,
no deduction is allowable under paragraph (2) of Subsection (B) of this Section, in respect of the
property or properties given in exchange therefore. Where a deduction was allowed of any mortgage
or other lien in determining the donor's tax, or the estate tax of the prior decedent, which was paid in
whole or in part prior to the decedent's death, then the deduction allowable under said paragraph shall
be reduced by the amount so paid. Such deduction allowable shall be reduced by an amount which
bears the same ratio to the amounts allowed as deductions under paragraphs (1) and (3) of this
Subsection as the amount otherwise deductible under paragraph (2) bears to the value of that part of
the decedent's gross estate which at the time of his death is situated in the Philippines. Where the
property referred to consists of two (2) or more items, the aggregate value of such items shall be used
for the purpose of computing the deduction.

(4) Transfers for Public Use. - The amount of all bequests, legacies, devises or transfers to or for the
use of the Government of the Republic of the Philippines or any political subdivision thereof, for
exclusively public purposes.

(C) Share in the Conjugal Property. - The net share of the surviving spouse in the conjugal
partnership property as diminished by the obligations properly chargeable to such property shall, for
the purpose of this Section, be deducted from the net estate of the decedent.

(D) Tax Credit for Estate Taxes paid to a Foreign Country. -

(1) In General. - The tax imposed by this Title shall be credited with the amounts of any estate tax
imposed by the authority of a foreign country.

(2) Limitations on Credit. - The amount of the credit taken under this Section shall be subject to each
of the following limitations:

(a) The amount of the credit in respect to the tax paid to any country shall not exceed the same
proportion of the tax against which such credit is taken, which the decedent's net estate situated within
such country taxable under this Title bears to his entire net estate; and

(b) The total amount of the credit shall not exceed the same proportion of the tax against which such
credit is taken, which the decedent's net estate situated outside the Philippines taxable under this Title
bears to his entire net estate.

Commissioner of Internal Revenue vs. Court of Appeals and Pajonar (March 22, 2000)
CIR v. CA and Pajonar
G.R. No. 123206
March 22, 2000

Doctrine: [Judicial Expenses] Expenses on extrajudicial settlement of the estate are allowed
as deductions. They come within the meaning of administration expenses.

Petitioner: Commissioner of Internal Revenue

Respondents: Court Of Appeals, Court Of Tax Appeals & Josefina P. Pajonar (as
Administratrix Of The Estate Of Pedro P. Pajonar)
Ponente: J. Gonzaga-Reyes

Nature of the Case: Petition for Review on Certiorari on the Decision of the Court of
Appeals affirming the Resolution of the Court of Tax Appeals granting Josefina P. Pajonar, as
administratrix of the estate of Pedro P. Pajonar, a tax refund in the amount of P76,502.42,
representing erroneously paid estate taxes for the year 1988.

Summary:
By reason of the Bataan Death March during World War II, Pedro Pajonar became insane.
His property was placed under the guardianship of PNB, while his sister Josefina became the
guardian over his person, and eventually the administratrix of his estate when he died. After
his death, his heirs executed an extrajudicial settlement and paid the estate tax. Thereafter,
BIR assessed the estate of Pedro deficiency taxes. The estate paid under protest and filed a
case with the CTA, which in turn allowed P60,753 representing the notarial fee for the
Extrajudicial Settlement and P50,000 attorney's fees for guardianship proceedings as among
the allowed deductions from the gross estate.

Issue is WON the notarial fee and attorney's fees allowed as deductions from the gross
estate. – YES.

The notarial fee paid for the extrajudicial settlement is a deductible expense since such
settlement effected a distribution of Pedro’s estate to his lawful heirs. Similarly, attorney's
fees paid to PNB for acting as the guardian of Pedro’s property during his lifetime should also
be considered as a deductible administration expense. This is because PNB provided a
detailed accounting of decedent's property and gave advice as to the proper settlement of
the latter's estate, acts which contributed towards the collection of decedent's assets and the
subsequent settlement of the estate.

FACTS:
 Pedro Pajonar was a member of the Philippine Scout, Bataan Contingent, during World
War II and was a part of the infamous Death March by reason of which he suffered shock
and became insane. His sister Josefina became the guardian over his person, while his
property was placed under the guardianship of the Philippine National Bank (PNB) by RTC
of Dumaguete.
 After his death, PNB filed an accounting of his property under guardianship valued at
P3,037,672.09 in a Special Proceeding. However, PNB did NOT file an estate tax return,
instead it advised Pedro's heirs to execute an extrajudicial settlement and to pay the
taxes on his estate.
 Pursuant to the assessment by the BIR, the estate of Pedro paid taxes in the amount of
P2,557.
 Josefina then filed a petition with RTC of Dumaguete for the issuance in her favor of
letters of administration of the estate of her brother. This was granted and she was
appointed as the regular administratrix of Pedro’s estate.
 The BIR then made a second assessment for deficiency estate tax which Josefina, in her
capacity as administratrix and heir of Pedro’s estate, paid under protest. And without
waiting for her protest to be resolved by the BIR, she filed a petition for review with the
Court of Tax Appeals (CTA), praying for the refund of P1,527,790.98, or in the
alternative, P840,202.06, as erroneously paid estate tax.
 The CTA ordered the Commissioner of Internal Revenue to refund Josefina P252,585.59,
representing erroneously paid estate tax for the year 1988. Among the deductions from
the gross estate allowed by the CTA were P60,753 representing the notarial fee for the
Extrajudicial Settlement and the amount of P50,000 as the attorney's fees for
guardianship proceedings.
 CIR filed a MR which the CTA denied. It then filed with the CA a petition for review which
was also denied Hence, the present appeal.

ISSUE: WON the notarial fee paid for the extrajudicial settlement of P60,753 and the
attorney's fees in the guardianship proceedings of P50,000 may be allowed as deductions
from the gross estate of decedent in order to arrive at the value of the net estate. – YES.

RATIO

 Judicial expenses are expenses of administration.

o Administration expenses, as an allowable deduction from the gross estate
of the decedent for purposes of arriving at the value of the net estate, have been
construed by the federal and state courts of the United States to include all
expenses "essential to the collection of the assets, payment of debts or the
distribution of the property to the persons entitled to it." In other words, the
expenses must be essential to the proper settlement of the estate.
 This Court adopts the view under American jurisprudence that expenses incurred in the
extrajudicial settlement of the estate should be allowed as a deduction from the gross
estate. There is no requirement of formal administration. It is sufficient that the
expense be a necessary contribution toward the settlement of the case.
 Although the Tax Code specifies "judicial expenses of the testamentary or intestate
proceedings," there is no reason why expenses incurred in the administration and
settlement of an estate in extrajudicial proceedings should not be allowed.
o However, deduction is limited to such administration expenses as are actually
and necessarily incurred in the collection of the assets of the estate, payment of the
debts, and distribution of the remainder among those entitled thereto.
  Such expenses may include executor's or administrator's fees, attorney's fees,
court fees and charges, appraiser's fees, clerk hire, costs of preserving and
distributing the estate and storing or maintaining it, brokerage fees or
commissions for selling or disposing of the estate, and the like.
 Deductible attorney's fees are those incurred by the executor or administrator in
the settlement of the estate or in defending or prosecuting claims against or due
the estate.
 It is clear then that the extrajudicial settlement was for the purpose of payment of taxes
and the distribution of the estate to the heirs.
 The execution of the extrajudicial settlement necessitated the notarization of
the same. Hence the Contract of Legal Services entered into between Josefina and
counsel was presented in evidence for the purpose of showing that the amount of
P60,753.00 was for the notarization of the Extrajudicial Settlement.
o The notarial fee of P60,753.00 was incurred primarily to settle the estate of Pedro .
Said amount should then be considered an administration expenses actually and
necessarily incurred in the collection of the assets of the estate, payment of debts and
distribution of the remainder among those entitled thereto.
 Attorney's fees, on the other hand, in order to be deductible from the gross estate
must be essential to the collection of assets, payment of debts or the distribution of the
property to the persons entitled to it. The services for which the fees are charged must
relate to the proper settlement of the estate.
o The amount of P50,000.00 was incurred as attorney's fees in the guardianship
proceedings.
o The guardianship proceeding in this case was necessary for the distribution of the
property of the deceased Pedro. PNB was appointed guardian over the assets of the
deceased, and that necessarily the assets of the deceased formed part of his gross
estate.
 PNB provided a detailed accounting of decedent's property and gave advice as to
the proper settlement of the latter's estate, acts which contributed towards the
collection of decedent's assets and the subsequent settlement of the estate.

DECISION: WHEREFORE, the December 21, 1995 Decision of the Court of Appeals is
AFFIRMED.

Testate Estate of the late Felix de Guzman vs. de Guzman-Carillo (May 18, 1978)

Mopia, Charity

G.R. No. L-29276, May 18, 1978

Testate Estate of the Late Felix J. de Guzman. VICTORINO G. DE GUZMAN, Administrator-
appellee
vs.
CRISPINA DE GUZMAN-CARILLO, ARSENIO DE GUZMAN and HONORATA DE
GUZMAN-MENDIOLA, Oppositors-appellants
 AQUINO, J.:

PRINCIPLE IN SUM/ DOCTRINE:

Allowable administration expenses. An executor or administrator is allowed necessary

expenses as long as it is necessary for the payment of the debts and the expenses of
administration. In this case, expenses not related to the administration of the estate were
disallowed by the court.

Sec. 3, Rule 84, Secs. 1 and 7, Rule 85, Rules of Court

FACTS:

1. Deceased Felix De Guzman (testator) was survived by his eight (8) children and his will was
probated.
2. Letter of administration were issued to his son, Dr. Victorino G. de Guzman, pursuant to the
order of the CFI in a special proceeding.
3. Subject of the case is a residential house, adjudicated to the 8 children pro-indiviso, each being
a 1/8 share.
4. The project of partition was signed by all children and approved by the court order dated April
14, 1967, but without prejudice to the final outcome of the instant accounting incident. 
a. The administrator (Victotino) submitted four (4) accounting reports for the period from June
16, 1964, to September 1967. 
b. Three (3) of the heirs interposed objections to the administrator's disbursements. 
4. Probate court order of 1966 directed the administrator "to refrain from spending the assets of the
estate for reconstructing and remodeling the house of the deceased and not to spend any asset of
the estate without first securing authority of the court”.

It is from that order that the oppositors now appeal to the Supreme Court.

ISSUES: 

Whether the expenses made by the administrator were “necessary expenses in the care,
management and settlement of the estate”.  

RULING:

Yes and No. 

1. An executor or administrator is allowed the necessary expenses in the care, management, and
settlement of the estate. He is entitled to possess and manage the decedent's real and personal
estate as long as it is necessary for the payment of the debts and the expenses of
administration. 
 2. The administrator or executor is under obligation to render a true and just account of his
administration to the court.
3. A hearing is held before an administrator’s account is approved, especially if an interested
party raises objections to certain items in the accounting report.
4. At the hearing, the practice is for the administrator to take the witness stand, testify under oath
on his accounts and identify the receipts, vouchers and documents evidencing his
disbursements which are offered as exhibits.
5. He may be interrogated by the court and cross-examined by the oppositors’ counsel.
6. The oppositors may present proof to rebut the administrator’s evidence in support of his
accounts. 

With Respect to the Expenses:

1. Expenses for the renovation and improvement of the family residence – Allowed 
a. Lizarraga Hermanos vs. Abada: administration expenses should be those which are necessary
for the management of the estate, for protecting it against destruction or deterioration, and,
possibly, for the production of fruits. They are expenses entailed for the preservation and
productivity of the estate and its management for purposes of liquidation, payment of debts,
and distribution of the residue among the persons entitled thereto 
b. It should be noted that the family residence was partitioned pro-indiviso among the decedent's
eight children. Five of the eight co-owners consented to the use of the funds of the estate for
the repair and improvement of the family home. 
c. The expenses in question were incurred to preserve the family home and to maintain the
family's social standing in the community. 
d. The said expenses are redounded to the benefit of all the co-owners.

2. Expenses by Librada de Guzman as occupant of the family residence without paying rent –
Disallowed
a. Those expenses were personal expenses of Librada de Guzman, inuring mainly to her benefit
and not being reasonable administration expenses incurred by the administrator.
3. Other expenses – Allowed and Disallowed
a. Stenographic notes – Disallowed - As admitted by the administrator on his brief, it should be
disallowed.
b. Representation expenses – Disallowed - It was not explained what it was for
c. Expenses during the celebration of the first death anniversary of the deceased – Disallowed -
They have no connection with the care, management and settlement of the decedent's estate.
d. Lawyer's subsistence and cost of the gift to the physician who attended to the testator during his
last illness – Allowed.
4. Irrigation fee – Allowed
a. The administrator explained that it represented the farming expenses of their agricultural land.

Dizon in his capacity as Administrator of deceased Fernandez vs. Commissioner of Internal

Revenue (April 30, 2008)

RAFAEL S. DIZON, in his capacity as the Judicial Administrator of the Estate of the
deceased JOSE P. FERNANDEZ, vs. CIR; April 30, 2008  G.R. No. 140944         
FACTS 

Justice Arsenio P. Dizon and petitioner Rafael Dizon served as Special and Assistant Special
Administrators for the estate of decedent Jose P. Fernandez, respectively.  
 
 
Petitioner,  RAFAEL ARSENIO DIZON, in his capacity as the Judicial Administrator of the
Estate of the deceased JOSE P. FERNANDEZ,  requested an extension from the BIR to
determine and compile the estate's assets and claims,-which the BIR approved. 
 
 Arsenio's agent, Jesus Gonzales, filed the estate tax return with the same BIR Regional
Office, revealing a NIL estate tax liability. 
  
On April 27, 1990, Osmundo G. Umali, BIR Regional Director for San Pablo City, issued two
Certifications confirming that Jose's taxes due on the transfer of real and personal
properties had been entirely paid and can be transferred to the heirs of Jose. 
  
Justice Dizon died sometime in August 1990. As a result, on October 22, 1990, the probate
court appointed petitioner as the Estate's administrator. 
  
Petitioner sought permission from the probate court to sell certain properties owned by the
Estate in order to pay its creditors .

Petitioner stated that Manila Bank, a key creditor of the Estate, was not included because it
did not file a claim with the probate court since it had security over various real estate
properties included in the Estate. 
  
However, on November 26, 1991, Themistocles Montalban, the BIR's Assistant
Commissioner for Collection, issued an Estate Tax Assessment Notice
requesting P66,973,985.40as tax deficiency. 
  
Justice Dizon authorized Atty. Jesus M. Gonzales (Atty. Gonzales) to sign and file on behalf
of the Estate the required estate tax return and to represent the same in securing a Certificate
of Tax Clearance.  

On December 12, 1991, Atty. Gonzales requested that the estate tax assessment be moved for
reconsideration however the BIR Commissioner dismissed the plea. 
  
Petitioner filed a petition for review with CTA on June 2, 1994.  
 
The CTA's Ruling 

On June 17, 1997, the CTA denied the petition for review, concluding that the evidence
provided by the BIR was admissible in evidence. As a result, the CTA did not entirely adopt
the BIR's assessment and devised its own calculation of the deficient estate tax. 
 
Petitioner and/or Jose P. Fernandez's heirs are thus directed to pay respondent the sum
of P37, 419,493.71 plus 20% interest from the due date of payment to complete payment as
estate tax debt of Jose P. Fernandez's estate. 
 
Aggrieved, petitioner went to the CA via a petition for review.  
 
The CA's Ruling 

On April 30, 1999, the CA affirmed the CTA's ruling.  On May 31, 1999, petitioner filed a
Motion for Reconsideration which the CA denied. 

Issue:

Whether the actual claims of the creditors may 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 entered into by the Estate with its creditors 

Ruling: YES

"Claims against the estate", as allowable deductions from the gross estate under Section 79 of
the Tax Code, are basically a reproduction of the deductions allowed under Section 89 (a) (1)
(C) and (E) of CA No. 466 (CA 466), otherwise known as the NIRC of 1939, and which was
the first codification of Philippine tax laws. 

Philippine tax laws were, in turn, based on the federal tax laws of the US. Thus, pursuant to
established rules of statutory construction, the decisions of American courts construing the
federal tax code are entitled to great weight in the interpretation of our own tax laws.

As determined in Propstra v. United States, where a lien claimed against the estate was
certain and enforceable on the date of the decedent's death, the fact that the claimant later
settled for a lesser amount did not prevenet the estate from deducting the entire amount of
the claim for estate tax purposes. These decisions effectively confirm the general premise that
post-death changes have no bearing on the amount of the deduction. 

The court expresses its agreement with the case of Propstra vs. US  ruling also known as the
date-of-death valuation rule.  The followings are the reasons;

First. There is no statute that disregards the date-of-death valuation principle and
specifically states that post-death developments must be taken into account in
assessing the net value of the estate. 

Any doubt as to whether a person, article, or activity is taxable is generally resolved

against taxation. 
 Second. The term "claims" required to be presented against a decedent's estate is
generally construed to mean debts or demands of a pecuniary nature that could have
been enforced against the deceased in his lifetime or liability contracted by the
deceased before his death. As a result, the claims existing at the time of death are
significant to, and should be made the basis of, the decedent's estate. 

Therefore, the actual claims of the creditors at the time of death may be fully allowed as deductions
from the gross estate.

4. Exemptions
Section 87, Tax Code

SEC. 87 Exemption of Certain Acquisitions and Transmissions. –-The following shall not be taxed:

(A) The merger of usufruct in the owner of the naked title;

(B) The transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the
fideicommissary;

(C) The transmission from the first heir, legatee or donee in favor of another beneficiary, in
accordance with the desire of the predecessor; and

(D) All bequests, devises, legacies or transfers to social welfare, cultural and charitable institutions, no
part of the net income of which inures to the benefit of any individual: Provided, however, That not
more than thirty percent (30%) of the said bequests, devises, legacies or transfers shall be used by such
institutions for administration purposes.

5. Administrative Requirements
Sections 89-97, Tax Code (as amended by Republic Act 10963)

SEC. 89. REPEALED

Section 24. Section 89 of the NIRC, as amended, is hereby repealed.

SEC. 90. Estate Tax Returns. [4]-

(A) Requirements. - In all cases of transfers subject to the tax imposed herein, or regardless of the
gross value of the estate, [76] where the said estate consists of registered or registrable property such as
real property, motor vehicle, shares of stock or other similar property for which a clearance from the
Bureau of Internal Revenue is required as a condition precedent for the transfer of ownership thereof
in the name of the transferee, the executor, or the administrator, or any of the legal heirs, as the case
may be, shall file a return under oath in duplicate, setting forth:
(1) The value of the gross estate of the decedent at the time of his death, or in case of a nonresident,
not a citizen of the Philippines, of that part of his gross estate situated in the Philippines;

(2) The deductions allowed from gross estate in determining the estate as defined in Section 86; and

(3) Such part of such information as may at the time be ascertainable and such supplemental data as
may be necessary to establish the correct taxes.

Provided, however, That estate tax returns showing a gross value exceeding Five million pesos
(P5,000,000) [77] shall be supported with a statement duly certified to by a Certified Public Accountant
containing the following:

(a) Itemized assets of the decedent with their corresponding gross value at the time of his death, or in
the case of a nonresident, not a citizen of the Philippines, of that part of his gross estate situated in the
Philippines;

(b) Itemized deductions from gross estate allowed in Section 86; and

(c) The amount of tax due whether paid or still due and outstanding.

(B) Time for Filing. [4]- For the purpose of determining the estate tax provided for in Section 84 of this
Code, the estate tax return required under the preceding Subsection (A) shall be filed within one (1)
year [78] from the decedent's death.

A certified copy of the schedule of partition and the order of the court approving the same shall be
furnished the Commissioner within thirty (30) days after the promulgation of such order.

(C) Extension of Time. - The Commissioner shall have authority to grant, in meritorious cases, a
reasonable extension not exceeding thirty (30) days for filing the return.

(D) Place of Filing. - Except in cases where the Commissioner otherwise permits, the return required
under Subsection (A) shall be filed with an authorized agent bank, or Revenue District Officer,
Collection Officer, or duly authorized Treasurer of the city or municipality in which the decedent was
domiciled at the time of his death or if there be no legal residence in the Philippines, with the Office of
the Commissioner.

SEC. 91. Payment of Tax. -

(A) Time of Payment. - The estate tax imposed by Section 84 shall be paid at the time the return is
filed by the executor, administrator or the heirs.

(B) Extension of Time. - 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.

(C)  Payment by Installment. – In case the available cash of the estate is insufficient to pay the total
estate tax due, payment by installments shall be allowed within two (2) years from the statutory date
for its payment without civil penalty and interest. [79]

(D) Liability for Payment - The estate tax imposed by Section 84 shall be paid by the executor or
administrator before delivery to any beneficiary of his distributive share of the estate. Such 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.

For the purpose of this Chapter, the term 'executor' or 'administrator' means the executor or
administrator of the decedent, or if there is no executor or administrator appointed, qualified, and
acting within the Philippines, then any person in actual or constructive possession of any property of
the decedent.

SEC. 92. Discharge of Executor or Administrator from Personal Liability. - If the executor or
administrator makes a written application to the Commissioner for determination of the amount of the
estate tax and discharge from personal liability therefore, the Commissioner (as soon as possible, and
in any event within one (1) year after the making of such application, or if the application is made
before the return is filed, then within one (1) year after the return is filed, but not after the expiration of
the period prescribed for the assessment of the tax in Section 203 shall not notify the executor or
administrator of the amount of the tax. The executor or administrator, upon payment of the amount of
which he is notified, shall be discharged from personal liability for any deficiency in the tax thereafter
found to be due and shall be entitled to a receipt or writing showing such discharge.

SEC. 93. Definition of Deficiency. - As used in this Chapter, the term 'deficiency' means:

(a) The amount by which the tax imposed by this Chapter exceeds the amount shown as the tax by the
executor, administrator or any of the heirs upon his return; but the amounts so shown on the return
shall first be increased by the amounts previously assessed (or collected without assessment) as a
deficiency and decreased by the amount previously abated, refunded or otherwise repaid in respect of
such tax; or

(b) If no amount is shown as the tax by the executor, administrator or any of the heirs upon his return,
or if no return is made by the executor, administrator, or any heir, then the amount by which the tax
exceeds the amounts previously assessed (or collected without assessment) as a deficiency; but such
amounts previously assessed or collected without assessment shall first be decreased by the amounts
previously abated, refunded or otherwise repaid in respect of such tax.

SEC. 94. Payment before Delivery by Executor or Administrator. - No judge shall authorize the
executor or judicial administrator to deliver a distributive share to any party interested in the estate
unless a certification from the Commissioner that the estate tax has been paid is shown.

SEC. 95. Duties of Certain Officers and Debtors. - Registers of Deeds shall not register in the
Registry of Property any document transferring real property or real rights therein or any chattel
mortgage, by way of gifts inter vivos or mortis causa, legacy or inheritance, unless a certification from
the Commissioner that the tax fixed in this Title and actually due thereon had been paid is show, and
they shall immediately notify the Commissioner, Regional Director, Revenue District Officer, or
Revenue Collection Officer or Treasurer of the city or municipality where their offices are located, of
the nonpayment of the tax discovered by them. Any lawyer, notary public, or any government officer
who, by reason of his official duties, intervenes in the preparation or acknowledgment of documents
regarding partition or disposal of donation inter vivos or mortis causa, legacy or inheritance, shall have
the duty of furnishing the Commissioner, Regional Director, Revenue District Officer or Revenue
Collection Officer of the place where he may have his principal office, with copies of such documents
and any information whatsoever which may facilitate the collection of the aforementioned tax. Neither
shall a debtor of the deceased pay his debts to the heirs, legatee, executor or administrator of his
creditor, unless the certification of the Commissioner that the tax fixed in this Chapter had been paid is
shown; but he may pay the executor or judicial administrator without said certification if the credit is
included in the inventory of the estate of the deceased.

SEC. 96. Restitution of Tax Upon Satisfaction of Outstanding Obligations. - If after the payment of
the estate tax, new obligations of the decedent shall appear, and the persons interested shall have
satisfied them by order of the court, they shall have a right to the restitution of the proportional part of
the tax paid.

SEC. 97. Payment of Tax Antecedent to the Transfer of Shares, Bonds or Rights. [4]- There shall not
be transferred to any new owner in the books of any corporation, sociedad anonima, partnership,
business, or industry organized or established in the Philippines any share, obligation, bond or right by
way of gift inter vivos or mortis causa, legacy or inheritance, unless a certification from the
Commissioner that the taxes fixed in this Title and due thereon have been paid is shown.

If a bank has knowledge of the death of a person, who maintained a bank deposit account alone, or
jointly with another, it shall allow any withdrawal from the said deposit account, subject to a final
withholding tax of six percent (6%).[80] For this purpose, all withdrawal slips shall contain a statement
to the effect that all of the joint depositors are still living at the time of withdrawal by any one of the
joint depositors and such statement shall be under oath by the said depositors.

Government of the Philippines vs. Pamintuan (October 11, 1930)

Government of the Philippines vs. Pamintuan 
G.R. No. L-33139,  October 11, 1930
PRINCIPLE IN SUM/ DOCTRINE:
Heirs are not required to respond with their own property for the debts of their deceased
ancestors. But even after the partition of an estate, heirs and distributees are liable
individually for the payment of all lawful outstanding claims against the estate in proportion
to the amount or value of the property they have respectively received from the estate.

Facts:
This is an appeal taken by the Government of the Philippine Islands from the judgment of
the Court of First Instance of Manila dismissing its complaint and absolving the defendants,
without costs. 
"XI.  That subsequent to the distribution of the decedent's estate to the defendants herein,
that is, on February 16, 1927, the plaintiff discovered the fact that the deceased Florentino
Pamintuan has not paid the amount of four hundred and sixty-two pesos (P462) as
additional income tax and surcharge for the calendar year 1919, on account of the sale made
by him on November 14, 1919, of his house and lot located at 922 M. H. del Pilar, Manila,
from which sale he realized a net profit or income of Pl 1,000, which was not included in his
income-tax return filed for said year 1919.
"XII. That the defendants cannot disprove that the deceased Florentino Pamintuan made a
profit of P11,000 in the sale of the house referred to in paragraph XI hereof because they have
destroyed the voluminous records and evidences regarding the sale in question and other
similar transactions which might show repairs on the house, commissions, and other
expenses tending to reduce the profit obtained as mentioned above.
"XIII. That demand for the payment of the income tax referred to herein was made on
February 24, 1927, on the defendants but they refused and still refuse to pay the same either
in full or in part."
With regard to the first assignment of error, this court held in Pineda vs. Court of First
Instance of Tayabas and Collector of Internal Revenue (52 Phil, 803):
"To reply to these contentions in turn, we observe that, while there are a few courts that have
expressed themselves to the effect that a claim for taxes due to the Government, should be
presented like other claims to the committee appointed for the purpose of passing upon
claims, the clear weight of judicial authority is to the effect that claims for taxes and
assessments, whether assessed before or after the death of the decedent, are not required to
be presented to the committee. (24 C. J., 325; People vs. Olvera, 43 Cal., 492; Hancock vs.
Whittemore, 50 Cal., 522; Findley vs. Taylor, 97 Iowa, 420; Bogue vs. Laughlin, 149 Wis., 271;
40 L. R. A. [N. S.], 927; Ann. Cas. 1913 C., p. 1367.)" See also In re Estate of Frank H. Goulette
(G. R. No. 32361,  decided on September 22, 1930.
[1]

ISSUE: Whether Heirs are required to respond with their own property for the debts of
their deceased ancestors.

Held: The Court Ruled in Negative.

The administration proceedings of the late Florentino Pamintuan having been closed, and his
estate distributed among his heirs, the defendants herein, the latter are responsible for the
payment of the income tax here in question in proportion to the share of each in said estate,
in accordance with section 731 of the Code of Civil Procedure, and the doctrine of this court
laid down in Lopez vs. Enriquez (16 Phil, 336), as follows:
''Estate; Liability of Heirs and Distributees. Heirs are not required to respond with their own
property for the debts of their deceased ancestors. But even after the partition of an estate,
heirs and distributees are liable individually for the payment of all lawful outstanding claims
against the estate in proportion to the amount or value of the property they have respectively
received from the estate. The 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 heirs cannot, by any act of their own or by agreement among
themselves, reduce the creditors' security for the payment of their claims. (Pavia vs. De la
Rosa, 8 Phil., 70; sees. 731, 749, Code of Civil Procedure; art. 1257, Civil Code.)"
For the reasons stated, we are of opinion and so hold that claims for income taxes need not
be filed with the committee on claims and appraisals appointed in the course of testate
proceedings and may be collected even after the distribution of the decedent's estate among
his heirs, who shall be liable therefor in proportion to their share in the inheritance.
Wherefore, let the defendants pay the plaintiff the sum of P462, with 1 per centum monthly
interest from August 19,1927 until fully paid, as follows: Tomasa Centeno 0.0571 per cent,
and each one of the other defendants 0.0784 per cent, with costs against the appellees. So
ordered.

Commissioner of Internal Revenue vs. Pineda (September 15, 1967)

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. MANUEL B. PINEDA, as
one of the heirs of deceased ATANASIO PINEDA, respondent.
G.R. No. L-22734 September 15, 1967

FACTS:

Atanasio Pineda died, survived by his wife, Felicisima Bagtas, and 15 children, the eldest of
whom is Manuel B. Pineda, a lawyer. Estate proceedings were ensued wherein the surviving
widow was appointed administratrix. The estate was divided among and awarded to the
heirs. 

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 on the basis of information and
data obtained from the aforesaid estate proceedings.

Manuel B. Pineda, who received the assessment, contested the same, and appealed to the
Court of Tax Appeals alleging that he was appealing "only that proportionate part or portion
pertaining to him as one of the heirs”. However, the Court of Tax Appeals reversed the
decision of the Commissioner on the ground that his right to assess and collect the tax has
prescribed. The Commissioner appealed and this Court affirmed the findings of the Tax
Court in respect to the assessment for income tax for the year 1947 but held that the right to
assess and collect the taxes for 1945 and 1946 has not prescribed. 
In the Tax Court, the parties submitted the case for decision without additional evidence.
Subsequently, the Court of Tax Appeals rendered judgment holding Manuel B. Pineda liable
for the payment corresponding to his share.
ISSUE:
Whether the government can require Atty. Pineda to pay the full amount of the taxes
assessed?

RULING:
Yes. 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.
As a holder of property belonging to the estate, Pineda is liable for the tax up to the amount
of the property in his possession. The reason is that the Government has a lien on the
P2,500.00 received by him from the estate as his share in the inheritance, for unpaid income
taxes for which said estate is liable, pursuant to the last paragraph of Section 315 of the Tax
Code.
All told, the Government has two ways of collecting the tax in question. One, by going after
all the heirs and collecting from each one of them the amount of the tax proportionate to the
inheritance received. 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. 
WHEREFORE, the decision appealed from is modified. Manuel B. Pineda is hereby ordered
to pay to the CIR the sum of P760.28 as deficiency income tax for 1945 and 1946, and real
estate dealer's fixed tax for the fourth quarter of 1946 and for the whole year 1947, without
prejudice to his right of contribution for his co-heirs. 

Commissioner of Internal Revenue vs. Gonzales (November 24, 1966)

CIR V GONZALES NOV 24, 1966

DOCTRINE:

 REQUIREMENTS OF SUBSTANTIAL COMPLIANCE WITH THE LAW

 A return need not be complete in all particulars. It is sufficient if it complies substantially
with the law. There is substantial compliance (1) when the return is made in good faith and
is not false or fraudulent; (2) when it covers the entire period involved; and (3) when it
contains information as to the various items of income, deduction and credit with such
definiteness as to permit the computation and assessment of the tax. 

FACTS:
 Section 331 of the Tax Code gives the Commissioner five years within which to make
his assessment.15 Except, of course, if the taxpayer failed to observe the law, in which
 case Section 332 of the same Code grants the Commissioner a longer period. Non-
observance consists in filing a false or fraudulent return with intent to evade the tax or
in filing no return at all. 
 On May 11, 1949 Jose S. Yusay filed with the Bureau of Internal Revenue an estate and
inheritance tax return declaring that the gross estate of Matias Yusay was P187,204.00.
The return mentioned no heir. Upon investigation, however, the BIR found that
several properties were not included in the return filed by Jose Yusay and that the
total gross estate of the deceased should be P219,584.32. 
 Based on the foregoing findings, the Bureau of Internal Revenue assessed on October
29, 1953 estate and inheritance taxes in the sums of P6,849.78 and P16,970.63,
respectively. 
 On July 12, 1957, an agent of the Bureau of Internal Revenue apprised the
Commissioner of Internal Revenue of the existence of a reamended project of
partition. Whereupon, the Internal Revenue Commissioner caused the estate of Matias
Yusay to be reinvestigated for estate and inheritance tax liability. The CIR found a
huge underdeclaration of the gross estate of the deceased. 
 In view of the demise of Jose S. Yusay, said assessment was sent to his widow, Mrs.
Florencia Piccio Vda. de Yusay, who succeeded him in the administration of the estate
of Matias Yusay. 
 No payment having been made despite repeated demands, the Commissioner of
Internal Revenue filed a proof of claim for the estate and inheritance taxes due and a
motion for its allowance with the settlement court in voting priority of lien pursuant
to Section 315 of the Tax Code.
 On April 13, 1960 Lilia Yusay filed a petition for review in the Court of Tax Appeals
assailing the legality of the assessment dated February 13, 1958. After hearing the
parties, said Court declared the right of the Commissioner of Internal Revenue to
assess the estate and inheritance taxes in question to have prescribed. 
 Hence, this petition.

ISSUE: Whether the return filed by Yusay was sufficient to commence the prescriptive
period under Sec 331 of Tax code?

RULING: 
              No. 
 A return need not be complete in all particulars. It is sufficient if it complies
substantially with the law. There is substantial compliance (1) when the return is
made in good faith and is not false or fraudulent; (2) when it covers the entire period
involved; and (3) when it contains information as to the various items of income,
deduction and credit with such definiteness as to permit the computation and
assessment of the tax.

 There is no question that the state and inheritance tax return filed by Jose S. Yusay
was substantially defective. 
 First, it was incomplete. It declared only ninety-three parcels of land representing
about 400 hectares and left out ninety-two parcels covering 503 hectares. Said huge
 under declaration could not have been the result of an over-sight or mistake. As found
in L-11378, supra note 7, Jose S. Yusay very well knew of the existence of the ommited
properties. Perhaps his motive in under declaring the inventory of properties attached
to the return was to deprive Lilia Yusay from inheriting her legal share in the
hereditary estate, but certainly not because he honestly believed that they did not
form part of the gross estate. 
 Second, the return mentioned no heir. Thus, no inheritance tax could be assessed. As a
matter of law, on the basis of the return, there would be no occasion for the imposition
of estate and inheritance taxes. When there is no heir - the return showed none - the
intestate estate is escheated to the State. 
 The return filed in this case was so deficient that it prevented the Commissioner from
computing the taxes due on the estate. It was as though no return was made. The
Commissioner had to determine and assess the taxes on data obtained, not from the
return, but from other sources. We therefore hold the view that the return in question
was no return at all as required in Section 93 of the Tax Code. 
 The law imposes upon the taxpayer the burden of supplying by the return the
information upon which an assessment would be based
 Section 331 of the Tax Code gives the Commissioner five years within which to make
his assessment. Except, of course, if the taxpayer failed to observe the law, in which
case Section 332 of the same Code grants the Commissioner a longer period. Non-
observance consists in filing a false or fraudulent return with intent to evade the tax or
in filing no return at all. 
Dispositive:

 WHEREFORE, the judgment appealed from is set aside and another entered affirming the
assessment of the Commissioner of Internal Revenue dated February 13, 1958. Lilia Yusay
Gonzales, as administratrix of the intestate estate of Matias Yusay, is hereby ordered to pay
the sums of P16,246.04 and P39,178.12 as estate and inheritance taxes, respectively, plus
interest and surcharge for delinquency in accordance with Section 101 of the National
Internal Revenue Code, without prejudice to reimbursement from her co-administratrix,
Florencia Piccio Vda. de Yusay for the latter's corresponding tax liability. No costs. So
ordered.

B. Donor’s Tax

1. General Principles & Determination of the Donor’s Tax

Sections 98-100,102, and 104, Tax Code (as amended by Republic Act 10963)

DONOR'S TAX

SEC. 98. Imposition of Tax. –

(A) There shall be levied, assessed, collected and paid upon the transfer by any person, resident or
nonresident, of the property by gift, a tax, computed as provided in Section 99.
(B) The tax shall apply whether the transfer is in trust or otherwise, whether the gift is direct or
indirect, and whether the property is real or personal, tangible or intangible.

SEC. 99. Rates of Tax Payable by Donor. [4] -

(A) In General. - The tax for each calendar year shall be six percent (6%) computed on the basis of the
total gifts in excess of Two hundred fifty thousand pesos (P250,000) exempt gift made during the
calendar year.[81]

(B) Any contribution in cash or in kind to any candidate, political party or coalition of parties for
campaign purposes shall be governed by the Election Code, as amended.

SEC. 100. Transfer for Less Than Adequate and Full Consideration. [4] - Where property, other than
real property referred to in Section 24(D), is transferred for less than an adequate and full
consideration in money or money's worth, then the amount by which the fair market value of the
property exceeded the value of the consideration shall, for the purpose of the tax imposed by this
Chapter, be deemed a gift, and shall be included in computing the amount of gifts made during the
calendar year. Provided, however, That a sale, exchange, or other transfer of property made in the
ordinary course of business (a transaction which is a bona fide, at arm’s length, free from any donative
intent), will be considered as made for an adequate and full consideration in money or money’s worth.

SEC. 102. Valuation of Gifts Made in Property. - If the gift is made in property, the fair market value
thereof at the time of the gift shall be considered the amount of the gift. In case of real property, the
provisions of Section 88(B) shall apply to the valuation thereof.

SEC. 104. Definitions. - For purposes of this Title, the terms 'gross estate' and 'gifts' include real and
personal property, whether tangible or intangible, or mixed, wherever situated: Provided, however,
That where the decedent or donor was a nonresident alien at the time of his death or donation, as the
case may be, his real and personal property so transferred but which are situated outside the
Philippines shall not be included as part of his 'gross estate' or 'gross gift’: Provided, further, That
franchise which must be exercised in the Philippines; shares, obligations or bonds issued by any
corporation or sociedad anonima organized or constituted in the Philippines in accordance with its
laws; shares, obligations or bonds by any foreign corporation eighty-five percent (85%) of the business
of which is located in the Philippines; shares, obligations or bonds issued by any foreign corporation if
such shares, obligations or bonds have acquired a business situs in the Philippines; shares or rights in
any partnership, business or industry established in the Philippines, shall be considered as situated in
the Philippines: Provided, still further, that no tax shall be collected under this Title in respect of
intangible personal property:

(a) if the decedent at the time of his death or the donor at the time of the donation was a citizen and
resident of a foreign country which at the time of his death or donation did not impose a transfer tax of
any character, in respect of intangible personal property of citizens of the Philippines not residing in
that foreign country, or

(b) if the laws of the foreign country of which the decedent or donor was a citizen and resident at the
time of his death or donation allows a similar exemption from transfer or death taxes of every
character or description in respect of intangible personal property owned by citizens of the Philippines
not residing in that foreign country.

The term 'deficiency' means:

(a) the amount by which tax imposed by this Chapter exceeds the amount shown as the tax by the
donor upon his return; but the amount so shown on the return shall first be increased by the amount
previously assessed (or Collected without assessment) as a deficiency, and decreased by the amounts
previously abated, refunded or otherwise repaid in respect of such tax, or

(b) if no amount is shown as the tax by the donor, then the amount by which the tax exceeds the
amounts previously assessed, (or collected without assessment) as a deficiency, but such amounts
previously assessed, or collected without assessment, shall first be decreased by the amount previously
abated, refunded or otherwise repaid in respect of such tax.

Philippine American Life and General Insurance Company vs. Commissioner of Internal
Revenue (November 24, 2014)
THE PHILIPPINE AMERICAN LIFE AND GENERAL INSURANCE COMPANY,
Petitioner
vs.
THE SECRETARY OF FINANCE AND THE COMMISSIONER OF INTERNAL
REVENUE, Respondents.

G.R. No. 210987, November 24, 2014

DOCTRINE:
Since Sec. 100 of the NIRC categorically states that the amount by which the fair market
value of the property exceeded the value of the consideration shall be deemed a
gift.1âwphi1 Thus, even if there is no actual donation, the difference in price is considered a
donation by fiction of law.

FACTS:
The Philippine American Life and General Insurance Company (Philamlife) used to own
498,590 Class A shares in Philam Care Health Systems, Inc. (PhilamCare), representing
49.89% of the latter’s outstanding capital stock. In 2009, Philamlife offered to sell its
shareholdings in PhilamCare through competitive bidding. Thus, petitioner’s Class A shares
were sold for USD 2, 190,000, or PhP 104,259,330 to STI Investments, the highest bidder.

Philamlife filed an application for a certificate authorizing registration/tax clearance with the
BIR to facilitate the transfer of the shares. Months later, petitioner was informed that it
needed to secure a BIR ruling in connection with its application due to potential donor’s tax
liability. In compliance, Philamlife requested a ruling to confirm that the sale was not subject
to donor’s tax. However, the CIR denied the request through stating that donor’s tax is
imposable on the price difference of the book value and the selling price.

Philamlife then requested the Secretary of Finance to review the BIR Ruling issued by the
CIR. However, the Secretary affirmed the BIR Ruling. Philamlife then elevated the case to the
Court of Appeals via a petition for review. The CA dismissed the case for lack of jurisdiction
stating that the case should have been filed with the Court of Tax Appeals.

ISSUE:
1. Whether or not the CA has jurisdiction over contested decisions of the Secretary of
Finance
2. Whether or not the appellate power of the CTA includes certiorari
3. Whether or not the subject transaction is a taxable donation

RULING:
1. The CTA not the CA has jurisdiction over the matter.

Indeed, to leave undetermined the mode of appeal from the Secretary of Finance
would be an injustice to taxpayers prejudiced by his adverse rulings. To remedy this
situation, the Court implies from the purpose of RA 1125 and its amendatory laws
that the CTA is the proper forum with which to institute the appeal. This is not, and
should not, in any way, be taken as a derogation of the power of the Office of
President but merely as recognition that matters calling for technical knowledge
should be handled by the agency or quasi-judicial body with specialization over the
controversy. As the specialized quasi-judicial agency mandated to adjudicate tax,
customs, and assessment cases, there can be no other court of appellate jurisdiction
that can decide the issues raised in the CA petition, which involves the tax treatment
of the shares of stocks sold.

1. The appellate power of the CTA includes certiorari. The respective teachings in British
American Tobacco and Asia International Auctioneers, at first blush, appear to bear no
conflict––that when the validity or constitutionality of an administrative rule or
regulation is assailed, the regular courts have jurisdiction; and if what is assailed are
rulings or opinions of the Commissioner on tax treatments, jurisdiction over the
controversy is lodged with the CTA. The problem with the above postulates, however, is
that they failed to take into consideration one crucial point––a taxpayer can raise both
issues simultaneously. Evidently, City of Manila can be considered as a departure from
Ursal in that in spite of there being no express grant in law, the CTA is deemed granted
with powers of certiorari by implication. Moreover, City of Manila diametrically opposes
British American Tobacco to the effect that it is now within the power of the CTA,
through its power of certiorari, to rule on the validity of a particular administrative rule
 or regulation so long as it is within its appellate jurisdiction. Hence, it can now rule not
only on the propriety of an assessment or tax treatment of a certain transaction, but also
on the validity of the revenue regulation or revenue memorandum circular on which the
said assessment is based.

1. The price difference between the selling price and the book value is subject to donor’s
tax.

The absence of donative intent, if that be the case, does not exempt the sales of
stock transaction from donor’s tax since Sec. 100 of the NIRC categorically states
that the amount by which the fair market value of the property exceeded the value
of the consideration shall be deemed a gift. Thus, even if there is no actual
donation, the difference in price is considered a donation by fiction of law.

Spouses Gestopa vs. Court of Appeals (October 5, 2000)

FACTS:
Spouses Diego and Catalina Danlag were the owners of six parcels of unregistered lands. They
executed three deeds of donation mortis causa, two of which are dated 1965 and another dated
1966, in favor of private respondent Mercedes Danlag-Pilapil. The first deed pertained to parcels 1 &
2. The second deed pertained to parcel 3. The last deed pertained to parcel 4. All deeds contained
the reservation of the rights of the donors (1) to amend, cancel or revoke the donation during their
lifetime, and (2) to sell, mortgage, or encumber the properties donated during the donors' lifetime, if
deemed necessary.
In 1973, Diego, with the consent of Catalina, executed a deed of donation inter vivos covering the
said parcels of land plus two other parcels again, in favor of Mercedes. This contained two
conditions, that (1) the Danlag spouses shall continue to enjoy the fruits of the land during their
lifetime, and that (2) the donee cannot sell or dispose of the land during the lifetime of the said
spouses, without their prior consent and approval. 
Mercedes caused the transfer of the parcels' tax declaration to her name and paid the taxes on them.
In June and August 1979, Diego and Catalina sold parcels 3 and 4 to herein petitioners, Spouses
Gestopa. 
In September 1979, the Danlags executed a deed of revocation recovering the six parcels of land
subject of the said deed of donation inter vivos.
In 1983, Mercedes filed with the RTC a petition against the Gestopas and the Danlags, for quieting of
title over the above parcels of land. 
 She alleged that she was an illegitimate daughter of Diego Danlag; that she lived and
rendered incalculable beneficial services to Diego and his mother, Maura Danlag, when the
latter was still alive. In recognition of the services she rendered, Diego executed a Deed of
Donation, conveying to her the six (6) parcels of land. She accepted the donation in the same
 instrument, openly and publicly exercised rights of ownership over the donated properties,
and caused the transfer of the tax declarations to her name. Through machination,
intimidation and undue influence, Diego persuaded the husband of Mercedes, Eulalio Pilapil,
to buy two of the six parcels covered by the deed of donation. Said donation inter vivos was
coupled with conditions and, according to Mercedes, since its perfection, she had complied
with all of them; that she had not been guilty of any act of ingratitude; and that respondent
Diego had no legal basis in revoking the subject donation and then in selling the two parcels
of land to the Gestopas.
In their opposition, the Gestopas and the Danlags averred that the deed of donation dated 1973 was
null and void because it was obtained by Mercedes through machinations and undue influence. Even
assuming it was validly executed, the intention was for the donation to take effect upon the death of
the donor. Further, the donation was void for it left the donor, Diego Danlag, without any property at
all.

RTC Ruling
The trial court decided in favor of the Gestopas and the Danlags and against Mercedes.
It found that the reservation clause in all the deeds of donation indicated that Diego Danlag did not
make any donation; that the purchase by Mercedes of the two parcels of land covered by the Deed
of Donation Inter Vivos bolstered this conclusion; that Mercedes failed to rebut the allegations of
ingratitude she committed against Diego Danlag; and that Mercedes committed fraud and
machination in preparing all the deeds of donation without explaining to Diego Danlag their
contents.

CA Ruling
The CA reversed the trial court. 
It held that the reservation by the donor of lifetime usufruct indicated that he transferred to
Mercedes the ownership over the donated properties; that the right to sell belonged to the donee,
and the donor's right referred to that of merely giving consent; that the donor changed his intention
by donating inter vivos properties already donated mortis causa; that the transfer to Mercedes'
name of the tax declarations pertaining to the donated properties implied that the donation
was inter vivos; and that Mercedes did not purchase two of the six parcels of land donated to her.

Hence, this petition for review filed by Spouses Gestopa. 

Petitioners’ argument: 
The appellate court overlooked the fact that the donor did not only reserve the right to enjoy the
fruits of the properties, but also prohibited the donee from selling or disposing the land without the
consent and approval of the Danlag spouses. This implied that the donor still had control and
ownership over the donated properties. Hence, the donation was post mortem.
Issue: Whether the donation inter vivos or mortis causa.
Ruling: The donation is a valid donation inter vivos for the following reasons:
(a) The granting clause shows that the donors donated the properties out of love and
affection for the donee;
(b) The donors made a reservation of a lifetime usufruct which indicates that the donor
intended to transfer the naked ownership over the properties;
(c) The donors reserved sufficient properties for their maintenance indicating that they
intended to part with the lands; and
(d) The donee accepted the donation.It can be ascertained from the provisions of the deed
that the donors intended to transfer the ownership over the properties to the donee upon the
execution of the deed. The acceptance clause in which the donation was accepted by the
donee clearly indicates that the donation is inter vivos. Donation mortis causa, being in the
form of a will, are not required to be accepted by the donee during the donor’s lifetime.
Moreover, a limitation on the right to sell during the donor’s lifetime implied that ownership
had passed to the donee and the donation was already effective during the donor’s lifetime.
A valid donation, once accepted, cannot be revoked except on account of officiousness,
failure by the done to comply with the charges imposed on the donation or ingratitude.

RULING:
(MAIN)
1. Crucial in resolving whether the donation was inter vivos or mortis causa is the determination of
whether the donor intended to transfer the ownership over the properties upon the execution of the
deed.
In ascertaining the intention of the donor, all of the deed's provisions must be read together.
Note first that the granting clause shows that Diego donated the properties out of love and affection
for the donee. This is a mark of a donation inter vivos. Second, the reservation of lifetime usufruct
indicates that the donor intended to transfer the naked ownership over the properties. As correctly
posed by the CA, what was the need for such reservation if the donor and his spouse remained the
owners of the properties? Third, the donor reserved sufficient properties for his maintenance in
accordance with his standing in society, indicating that the donor intended to part with the six
parcels of land. Lastly, the donee accepted the donation. In the case of Alejandro vs. Geraldez, we
said that an acceptance clause is a mark that the donation is inter vivos. Acceptance is a requirement
for donations inter vivos. Donations mortis causa, being in the form of a will, are not required to be
accepted by the donees during the donors' lifetime.
Consequently, the CA did not err in concluding that the right to dispose of the properties belonged to
the donee. The donor's right to give consent was merely intended to protect his usufructuary
interests. In Alejandro, we ruled that a limitation on the right to sell during the donors' lifetime
implied that ownership had passed to the donees and donation was already effective during the
donors' lifetime.
The attending circumstances in the execution of the subject donation also demonstrated the real
intent of the donor to transfer the ownership over the subject properties upon its execution. Prior to
the execution of donation inter vivos, the Danlag spouses already executed three donations mortis
causa. As correctly observed by the CA, the Danlag spouses were aware of the difference between
the two donations. If they did not intend to donate inter vivos, they would not again donate the four
lots already donated mortis causa. 
Petitioners' counter argument that this proposition was erroneous because six years after, the
spouses changed their intention with the deed of revocation, is not only disingenious but also
fallacious. Petitioners cannot use the deed of revocation to show the spouses' intent because its
validity is one of the issues in this case.
(OTHERS)
2. Petitioners aver that Mercedes' tax declarations in her name cannot be a basis in determining the
donor's intent. They claim that it is easy to get tax declarations from the government offices such
that tax declarations are not considered proofs of ownership. However, unless proven otherwise,
there is a presumption of regularity in the performance of official duties. We find that petitioners did
not overcome this presumption of regularity in the issuance of the tax declarations. We also note
that the Court of Appeals did not refer to the tax declarations as proofs of ownership but only as
evidence of the intent by the donor to transfer ownership.
3. Petitioners assert that since private respondent purchased two of the six parcels of land from the
donor, she herself did not believe the donation was inter vivos. As aptly noted by the CA, however, it
was private respondent's husband who purchased the two parcels of land.
As a rule, a finding of fact by the appellate court, especially when it is supported by evidence on
record, is binding on us. On the alleged purchase by her husband of two parcels, it is reasonable to
infer that the purchase was without private respondent's consent. Purchase by her husband would
make the properties conjugal to her own disadvantage. That the purchase is against her self-interest,
weighs strongly in her favor and gives credence to her claim that her husband was manipulated and
unduly influenced to make the purchase, in the first place.
4. Was the revocation valid? A valid donation, once accepted, becomes irrevocable, except on
account of officiousness, failure by the donee to comply with the charges imposed in the donation, or
ingratitude. The donor-spouses did not invoke any of these reasons in the deed of revocation. 
5. Petitioners cited Mercedes' vehemence in prohibiting the donor to gather coconut trees and her
filing of instant petition for quieting of title. There is nothing on record, however, showing that
private respondent prohibited the donors from gathering coconuts. Even assuming that Mercedes
prevented the donor from gathering coconuts, this could hardly be considered an act covered by
Article 765 of the Civil Code. Nor does this Article cover respondent's filing of the petition for quieting
of title, where she merely asserted what she believed was her right under the law.
6. Finally, the records do not show that the donor-spouses instituted any action to revoke the
donation in accordance with Article 769 of the Civil Code. Consequently, the supposed revocation on
September 29, 1979, had no legal effect.
Wherefore, petition denied. 
 Tang Ho vs. The Board of Tax Appeals (November 19, 1955)
TANG HO, WILLIAM LEE, HENRI LEE, SOFIA LEE TEEHANKEE, THOMAS LEE,
ANTHONY LEE, JULIA LEE KAW, CHARLES LEE, VALERIANA LEE YU, VICTOR LEE,
SILVINO LEE, MARY LEE, JOHN LEE, and PETER LEE, for themselves and as heirs of LI
SENG GIAP, deceased, petitioners,
vs.
THE BOARD OF TAX APPEALS and THE COLLECTOR OF INTERNAL REVENUE,
respondents.
G.R. No. L-5949 | November 19, 1955

FACTS:

This is a petition for the review of the petition of the defunct Board of Tax Appeals holding
petitioner Li Seng Giap, et al. liable for gift taxes in accordance with the assessments made by
the respondent Collector of Internal Revenue.

Petitioners Li Seng Giap (who died during the pendency of this appeal) and his wife Tang
Ho and their thirteen children appear to be the stockholder of two close family corporations
named Li Seng Giap & Sons, Inc. and Li Seng Giap & Co. On or about May, 1951, examiners
of the Bureau of Internal Revenue, then detailed to the Allas Committee of the Congress of
the Philippines, made an examination of the books of the two corporation aforementioned
and found that each of Li Seng Giap's 13 children had a total investment therein of
approximately P63,195.00, in shares issued to them by their father Li Seng Giap.

The BIR found that petitioners had an investment in shares issued to them from their family
corporation. The CIR regarded these transfers as undeclared gifts made in the respective
years, and assessed against petitioners. After paying the basic tax, petitioners asked for the
reassessment stating that each of them received by way of gift inter vivos, that those who got
married were given additional money as propter nuptias and those who did not received it
by inter vivos. Petitioners also contend that the cash donated came from conjugal funds,
claiming for exemption.

The CIR refused to revise his original assessment. Upon petition to the CTA, the CTA still
upheld the CIR's assessment.

ISSUE: 

Whether or not the donations made by petitioner Li Seng Giap to his children from the
conjugal property should be taxed against the husband alone, or against husband and wife;

RULING:

NO. The Court took a look at the Spanish Civil Code of 1889, which was the governing law
in this case. The provisions state that the donations of property "by the husband" from the
"donations by both spouses by common consent" differs. The lawful donations by the
husband to the common children are valid and are chargeable to the community property,
irrespective of whether the wife agrees or objects thereof. To be a donation by both spouses,
taxable to both, the wife must  expressly join the husband in making the gift; her participation
therein cannot be implied.

A donation by the husband alone does not become in law a donation by both spouses merely
because it involves property of the conjugal partnership.

A donation of property belonging to the conjugal partnership, made during its existence, by
the husband alone in favor of the common children, is taxable to him exclusively as sole
donor.

Gibbs vs. Collector of Internal Revenue (April 28, 1962) Pirovano vs. Commissioner of Internal
Revenue (July 31, 1965)
G.R. No. L-14166 April 28, 1962
FINLEY J. GIBBS, as Trustee for JOHNSON KELLEY GIBBS, ALLISON DEFRANCE
GIBBS,
CANDACE GIBBS, DOUGLAS FLETCHER GIBBS, and REGINALD KELLEY
GIBBS, plaintiff-petitioner;
ALLISON J. GIBBS and ESTHER K. GIBBS, intervenors-petitioners, vs. COLLECTOR OF
INTERNAL REVENUE and COURT of TAX APPEALS, Respondents.
-----------------------------
G.R. No. L-14320 April 28, 1962
COLLECTOR OF INTERNAL REVENUE, Petitioner, vs. FINLEY J. GIBBS, as Trustee for
JOHNSON KELLEY GIBBS, ALLISON DEFRANCE GIBBS,
CANDACE GIBBS, DOUGLAS FLETCHER GIBBS and REGINALD KELLEY
GIBBS, respondent;
ALLISON J. GIBBS and ESTHER K. GIBBS, respondents-intervenors.
Ozaeta, Gibbs and Ozaeta for petitioner Finley J. Gibbs, et al.
Office of the Solicitor General for respondent Collector of Internal Revenue.
DOCTRINE:
PAYMENT OF INTEREST ON UNPAID TAX. — Section 119 (b) (2) of the Tax Code, which
provides for the payment of interest on any unpaid tax, applies only when the taxes are not
paid within the extension granted by the Commissioner of Internal Revenue.
NATURE OF THE CASE:
These are two (2) appeals, one by the plaintiff and the plaintiffs-intervenors and the other by
the Government, from a decision of the Court of Tax Appeals, promulgated on February 28,
1958, which ruled in favor of the plaintiff (herein plaintiff-petitioners) where defendant CIR
was ordered to refund to the latter the sum of P5,381.88, with legal interest from the date of
its payment, as amended by a resolution of the CTA dated July 25, 1958 modifying the
computed deficiency taxes from July 1, 1954 to July 30, 1954 with one-half (1/2) interest of
one percent (1%), ordering the defendant CIR to refund to the plaintiff the sum of P9,387.54
with interest at the legal rate from date of payment.
FACTS:
Spouses Gibbs (trustors), executed ten (10) deeds of Trust in favor of their 5 children with
Finley J. Gibbs, instituted as trustee. Subsequently, trustors gave notice to CIR of the
executed deeds of trust and requested a ruling on whether or not gift taxes were due
thereon. 
Thereafter, defendant CIR assessed a donee gift tax of P75.00 on each of the trust or a total of
P750.40, and a donor’s gift tax of P744.04 on each of trustors or a total of P1,548.08 for both.
These assessments were based upon the difference between the market value of the shares of
stock and the stipulated consideration for transfer thereof. However, defendant CIR revised
his assessment of the donor’s gift tax by increasing it with a total of P1,658.68 for each
trustor. Also, the donee’s gift taxes increased from P750.40, amounting to P17,856.90.
Said donor and donee gift taxes were paid on time by trustors. Subsequently, they
demanded for a refund of P17,106.50 representing the difference between the amount of the
first assessment (P750.40) for donee gift taxes and that of second assessment thereof
(P17,856.90) but was turned down by defendant CIR. The trustee appealed to the Secretary of
Finance, however the Board of Tax Appeals was created before the latter could pass upon the
appeal. The pertinent records were then forwarded to the said board. But due to fear of
expiration of the two-year period for the refund, the trustee instituted a Civil Case before the
CFI Manila against defendant CIR for the recovery of P17,106.50. 
Thereafter, the trustors created an additional 10 separate trusts that are identical to first set of
trusts. With this, the defendant was impelled to make an assessment of a donor’s gift tax of
P304.42 on each trustor, with a total of P608.84 for both, and a donee’s tax gift of P36.69 for
each beneficiaries, or a total of P366.90, and said amounts were paid within the statutory
period. 
Then on June 16, 1954, defendant CIR assessed an additional donor’s gift taxes in the sum of
P5,093.71 on each trustor or a total of P10,187.42 for the 10 trusts created on September 25,
1950, and P17,577.56 donor’s tax for the trust created on December 28, 1951 and additional
donee’s gift taxes of P12,040.30 for the same trust. 
Assessment notices were then sent to the trustors to pay these three sums on or before June
30, 1952 and they were given an extension up to July 31, 1954. The taxpayers paid said sums
under protest for the two sets of trust amounting to P56,911.78.  
Donee Gift Taxes On the Trusts Created On September 25, 1950 P17,106.50
Donor Gift Taxes On the Trusts Created On September 25, 1950 P10,187.42
Donee Gift Taxes On the Trusts Created On December 28, 1951 P12,040.30
Donor Gift Taxes On the Trusts Created On December 28, 1951 P17,577.56

  TOTAL …………………………….       P56,911.56

After the Court of Tax Appeals was created this Civil Case before the CFI was then
forwarded to the former, and the trustor intervened in the case praying for the refund of an
additional donor’s gift taxes paid by them in the sum of P27,764.98, with interest and
attorney’s fees. Thereafter, the trustee amended his complaint to include the refund
amounting to P56,911.78. 
The CTA rendered its decision on which MR was amended. (see background) 
Hence these appeals, one by the trustee and the trustors and another by the defendant. 
ISSUE:
Whether or not the interest chargeable on the amounts representing the taxes and the interest
should be refunded by the Government. 
 
RULING:

YES. The gift taxes imposed by section 109 and 110 of the tax code shall be due and
payable on or before the fifteenth day of May following the close of the calendar year and
shall be paid by the donor or donee, as the case may be, to the Collector of Internal Revenue
or the treasurer of the province city or municipality of which the donor or the donee is a
resident.
On the other hand, section 118 (b) of the same Code, on which the lower court relied, reads: 

“In case an extension for the payment of a deficiency is granted, there shall be collected, as a
part of the taxes, interest on the part of the deficiency the time for payment of which is so
extended,  at the rate of six per centum per annum for the period of the extensions.”

At this juncture, it should be noted that the taxes assessed on the basis of the difference
between the market value and the consideration were paid within the period fixed by law or
on May 15, 1951, as regards to trusts created in 1950, and on May 15, 1952, as regards the
trusts constituted in 1951. Even the donor gift taxes, under a revised assessment, and the
deficiency donor gift taxes due on the first set of trusts were paid in due time (May 15, 1951). 

With respect to the deficiency donor gift taxes on the two sets of trust agreements and the
deficiency donee gifts taxes assessed on the second set of trust agreements, the defendant
demanded payment thereof on or before June 30, 1954.

 Had these assessments been paid on that date, no interest whatsoever would have been due
thereon. It is but fair and just, therefore, that interest be charged only for the period of the
extension secured for the payment of the trust assessments, pursuant to section 118(b).

In support of the theory that interest is due, not only for said period of extension but, also,
from the fifteenth day of May of the year following that in which the trust had been
constituted, defendant cites section 119(b) (2) of the Tax Code, according to which:
If the part of the deficiency the time for payment of which is extended is not paid in
accordance with the terms of the extension, there shall be collected, as a part of the taxes,
interest on such unpaid amount at the rate of one per centum a month from the date the same
was originally due until it is paid.

This provision applies only when the taxes are not paid within the extension granted by the
Collector or Commissioner of Internal Revenue. It is inapplicable to the case at bar, for the
taxes involved herein were paid within said extension of time. Hence, the amount refundable
by the Government, pursuant to the decision appealed from, should draw no interest, and
said decision should be modified accordingly.

Revenue Regulations 12-18 (January 25, 2018)

2. Exemptions
Section 101, Tax Code (as amended by Republic Act 10963)

SEC. 101. Exemption of Certain Gifts. - The following gifts or donations shall be exempt from the
tax provided for in this Chapter:

(A) In the Case of Gifts Made by a Resident. [83]–

(1) Gifts made to or for the use of the National Government or any entity created by any of its
agencies which is not conducted for profit, or to any political subdivision of the said Government; and

(2) Gifts in favor of an educational and/or charitable, religious, cultural or social welfare corporation,
institution, accredited nongovernment organization, trust or philanthropic organization or research
institution or organization: Provided, however, That not more than thirty percent (30%) of said gifts
shall be used by such donee for administration purposes. For the purpose of this exemption, a 'non-
profit educational and/or charitable corporation, institution, accredited nongovernment
organization, trust or philanthropic organization and/or research institution or organization' is a
school, college or university and/or charitable corporation, accredited nongovernment organization,
trust or philanthropic organization and/or research institution or organization, incorporated as a non-
stock entity, paying no dividends, governed by trustees who receive no compensation, and devoting all
its income, whether students' fees or gifts, donation, subsidies or other forms of philanthropy, to the
accomplishment and promotion of the purposes enumerated in its Articles of Incorporation. [4]

(B) In the Case of Gifts Made by a Nonresident not a Citizen of the Philippines. –

(1) Gifts made to or for the use of the National Government or any entity created by any of its
agencies which is not conducted for profit, or to any political subdivision of the said Government.

(2) Gifts in favor of an educational and/or charitable, religious, cultural or social welfare corporation,
institution, foundation, trust or philanthropic organization or research institution or organization:
Provided, however, That not more than thirty percent (30%) of said gifts shall be used by such donee
for administration purposes.

(C)Tax Credit for Donor's Taxes Paid to a Foreign Country.–

(1)  In General. - The tax imposed by this Title upon a donor who was a citizen or a resident at the
time of donation shall be credited with the amount of any donor's tax of any character and description
imposed by the authority of a foreign country.

(2)  Limitations on Credit. - The amount of the credit taken under this Section shall be subject to each

of the following limitations:

(a) The amount of the credit in respect to the tax paid to any country shall not exceed the same
proportion of the tax against which such credit is taken, which the net gifts situated within such
country taxable under this Title bears to his entire net gifts; and

(b) The total amount of the credit shall not exceed the same proportion of the tax against which such
credit is taken, which the donor's net gifts situated outside the Philippines taxable under this title bears
to his entire net gifts.

Republic Act 7166, Section 13 (AN ACT PROVIDING FOR SYNCHRONIZED NATIONAL AND
LOCAL ELECTIONS AND FOR ELECTORAL REFORMS, AUTHORIZING APPROPRIATIONS
THEREFOR,
AND FOR OTHER PURPOSES)

Sec. 13. Authorized Expenses of Candidates and Political Parties. - The agreement amount that a
candidate or registered political party may spend for election campaign shall be as follows:

(a) For candidates. - Ten pesos (P10.00) for President and Vice-President; and for other
candidates Three Pesos (P3.00) for every voter currently registered in the constituency where
he filed his certificate of candidacy: Provided, That a candidate without any political party and
without support from any political party may be allowed to spend Five Pesos (P5.00) for every
such voter; and

(b) For political parties. - Five pesos (P5.00) for every voter currently registered in the
constituency or constituencies where it has official candidates.

Any provision of law to the contrary notwithstanding any contribution in cash or in kind to any
candidate or political party or coalition of parties for campaign purposes, duly reported to the
Commission shall not be subject to the payment of any gift tax.

Republic Act 9500, Section 25 - AN ACT TO STENGTILEN THE UNIVERSITY OF THE

PHILIPPINES AS THE NATIONAL LJNIVERSTY
 SEC. 25. Tax Exemptions. - The provisions of any general or special law to the contrary
notwithstanding:
(a) All revenues and assets of the University of the Philippines used for educational purposes
or in support thereof shall be exempt from all taxes and duties;
(b) Gifts and donations of real and personal properties of all kinds shall be exempt from the
donor’s tax and the same shall be considered as allowable deductions from the gross income
of the donor, in accordance with the provisions of the National Internal Revenue Code of
1997, as amended: Provided, That the allowable deductions shall be equivalent to 150
percent of the value of such donation. Valuation of assistance other than money shall be
based on the acquisition cost of t h e property. Such valuation shall take into consideration
the depreciated value of property in case said property has been used:
(e) Importation of economic, technical, vocational, scientsc, philosophical, historical and
cultural books, supplies and materials duly certified by the Board, including scient& and
educational computer and software equipment, shall be exempt from customs duties;
(d) The University shall only pay 0% value-added tax for all transactions subject to this tax;
and
(e) All academic awards shall be exempt from taxes.

Republic Act 9521, Section 3 - AN ACT CREATING A NATIONAL BOOK

DEVELOPMENT TRUST FUND TO SUPPORT FILIPINO AUTHORSHIP

Section 3. The National Book Development Trust Fund. - A National Book Development
Trust Fund, hereafter referred to as the Fund, is hereby established exclusively for the
support and promotion of Filipino authorship especially in science and technology and in
subject areas wherein locally authored books are either few or nonexistent. The Fund shall
be subject to the following;

(a) The contribution to the Fund shall be sourced from the following:

(1) The amount of Fifty million pesos (P50,000,000.00) shall be alloted in the
annual General Appropriation Act (GAA) for the next five (5) years starting from
the enactment of this law;

(2) The amount of Fifty million pesos (P50,000,000.00) shall be taken from the
Philippine Amusement and Gaming Corporation (PAGCOR) fund at Five million
pesos (P5,000,000.00) per month for ten (10) months;

(3) Another amount of Fifty million pesos (P50,000,000.00) shall be taken from
the Philippine Charity Sweepstakes Office (PCSO) at Five million pesos
(P5,000,000.00) per month for ten (10) months;

(b) Only the interest drawn from the Fund from sources cited in Section 3 (a1), (a2)
and (a3) shall be awarded as grants to promote Filipino authorship and to support the
completion of local manuscripts or research works for publication;
 (c) The grants can be awarded only after one (1) year from the organization of the
Fund, and the grants shall be awarded equitably among the regions.

(d) Government corporations are hereby authorized to give grants to the Fund at their
discretion;

(e) The private portion of the Fund shall be raised from donations and other
conveyances including funds, materials, property and services, by gratuitous title;

(f) Contributions to the Fund shall be exempt from the donor's tax and the same shall
be considered as allowable deductions from the gross income of the donor, in
accordance with the provisions of the National Internal Revenue Code of 1997, as
amended: Provided, That the allowable deductions shall be equivalent to one hundred
fifty percent (150%) of the value of such donation;

(g) The National Book Development Board(NBDB) shall be the administrator of the
Fund;

(h) For the sound and judicious management of the Fund, the NBDB shall appoint a
government financial institution, with sound track record on fund management, as
portfolio manager of the Fund, subject to guidelines promulgated by the NBDB; and

(i) The NBDB shall prepare the implementing guidelines and decision-making
mechanisms, subject to the following:

(1) No part of the seed capital of the Fun, including earnings thereof, shall be
used to underwrite overhead expenses for the administration; and

(2) There shall be an external auditor to perform an annual audit of the Fund's
performance.

Republic Act 10165, Sections 3-5 & 22-24 only (AN ACT TO STRENGTHEN AND
PROPAGATE FOSTER CARE AND TO PROVIDE FUNDS THEREFOR)

Section 3. Definition of Terms. – For purposes of this Act, the following terms are defined:

(a) Agency refers to any child-caring or child-placing institution licensed and

accredited by the Department of Social Welfare and Development (DSWD) to
implement the foster care program.

(b) Child refers to a person below eighteen (18) years of age, or one who is over
eighteen (18) but is unable to fully take care of or protect oneself from abuse, neglect,
cruelty, exploitation or discrimination because of a physical or mental disability or
condition.
 (c) Child Case Study Report refers to a written report prepared by a social worker
containing all the necessary information about a child.

(d) Child with Special Needs refers to a child with developmental or physical disability.

(e) Family refers to the parents or brothers and sisters, whether of the full or half-
blood, of the child.

(f) Foster Care refers to the provision of planned temporary substitute parental care to
a child by a foster parent.

(g) Foster Child refers to a child placed under foster care.

(h) Foster Family Care License refers to the document issued by the DSWD
authorizing the foster parent to provide foster care.

(i) Foster Parent refers to a person, duly licensed by the DSWD, to provide foster care.

(j) Foster Placement Authority (FPA) refers to the document issued by the DSWD
authorizing the placement of a particular child with the foster parent.

(k) Home Study Report refers to a written report prepared by a social worker
containing the necessary information on a prospective parent or family member.

(l) Matching refers to the judicious pairing of a child with foster parent and family
members based on the capacity and commitment of the foster parent to meet the
individual needs of the particular child and the capacity of the child to benefit from the
placement.

(m) Parent refers to the biological or adoptive parent or legal guardian of a child.

(n) Placement refers to the physical transfer of the child with the foster parent.

(o) Relatives refer to the relatives of a child, other than family members, within the
fourth degree of consanguinity or affinity.

(p) Social Worker refers to the registered and licensed social worker of the DSWD,
local government unit (LGU) or agency.

ARTICLE II
ELIGIBILITY

Section 4. Who May Be Placed Under Foster Care. – The following may be placed in foster
care:

(a) A child who is abandoned, surrendered, neglected, dependent or orphaned;

 (b) A child who is a victim of sexual, physical, or any other form of abuse or
exploitation;

(c) A child with special needs;

(d) A child whose family members are temporarily or permanently unable or unwilling
to provide the child with adequate care;

(e) A child awaiting adoptive placement and who would have to be prepared for family
life;

(f) A child who needs long-term care and close family ties but who cannot be placed
for domestic adoption;

(g) A child whose adoption has been disrupted;

(h) A child who is under socially difficult circumstances such as, but not limited to, a
street child, a child in armed conflict or a victim of child labor or trafficking;

(i) A child who committed a minor offense but is released on recognizance, or who is
in custody supervision or whose case is dismissed; and

(j) A child who is in need of special protection as assessed by a social worker, an

agency or the DSWD.

Provided, That in the case of (b), (c), (f), (h), (i), and (j), the child must have no family willing
and capable of caring and providing for him.

Section 5. Who May Be a Foster Parent. – An applicant who meets all of the following
qualifications may be a foster parent:

(a) Must be of legal age;

(b) Must be at least sixteen (16) years older than the child unless the foster parent is a
relative;

(c) Must have a genuine interest, capacity and commitment in parenting and is able to
provide a familial atmosphere for the child;

(d) Must have a healthy and harmonious relationship with each family member living
with him or her;

(e) Must be of good moral character;

(f) Must be physically and mentally capable and emotionally mature;

(g) Must have sufficient resources to be able to provide for the family’s needs;
 (h) Must be willing to further hone or be trained on knowledge, attitudes and skills in
caring for a child; and

(i) Must not already have the maximum number of children under his foster care at the
time of application or award, as may be provided in the implementing rules and
regulations (IRR) of this Act.

Provided, That in determining who is the best suited foster parent, the relatives of the child
shall be given priority, so long as they meet the above qualifications: Provided, further, That
an alien possessing the above qualifications and who has resided in the Philippines for at
least twelve (12) continuous months and maintains such residence until the termination of
placement by the DSWD or expiration of the foster family license, may qualify as a foster
parent.

Section 22. Assistance and Incentives to Foster Parent. –

(a) Support Care Services. – The DSWD, the social service units of LGUs and
agencies shall provide support care services to include, but not limited to, counseling,
visits, training on child care and development, respite care, skills training and
livelihood assistance.

(b) Additional Exemption for Dependents. – For purposes of claiming the Twenty-five
thousand pesos (PhP 25,000.00) additional exemption for foster parents for each
dependent not exceeding four (4) as provided for by Republic Act No. 9504, the
definition of the term "dependent" under Section 35(B) of the National Internal
Revenue Code (NIRC) of 1997 shall be amended to include "foster child": Provided,
That all other conditions provided for under the aforesaid section of the NIRC of 1997
must be complied with: Provided, further. That this additional exemption shall be
allowed only if the period of foster care is at least a continuous period of one (1)
taxable year.

For purposes of this section, only one (1) foster parent can treat the foster child as a
dependent for a particular taxable year. As such, no other parent or foster parent can claim
the said child as a dependent for that period.

Section 23. Incentives to Agencies. – Agencies shall be entitled to the following tax

incentives:

(a) Exemption from Income Tax. – Agencies shall be exempt from income tax on the
income derived by it as such organization pursuant to Section 30 of the NIRC of 1997,
as implemented by Revenue Regulation (RR) No. 13-98; and

(b) Qualification as a Donee Institution. – Agencies can also apply for qualification as
a donee institution.

Section 24. Incentives to Donors. – Donors of an agency shall be entitled to the following:

 (a) Allowable Deductions. – Donors shall be granted allowable deductions from its
gross income to the extent of the amount donated to agencies in accordance with
Section 34(H) of the NIRC of 1997; and

(b) Exemption from Donor’s Tax. – Donors shall be exempted from donor’s tax under
Section 101 of the NIRC of 1997: Provided, That not more than thirty percent (30%) of
the amount of donations shall be spent for administrative expenses.

3. Administrative Requirements
Section 103, Tax Code

SEC. 103. Filing of Return and Payment of Tax. -

(A) Requirements. - any individual who makes any transfer by gift (except those which, under Section
101, are exempt from the tax provided for in this Chapter) shall, for the purpose of the said tax, make a
return under oath in duplicate. The return shall set forth:

(1) Each gift made during the calendar year which is to be included in computing net gifts;

(2) The deductions claimed and allowable;

(3) Any previous net gifts made during the same calendar year;

(4) The name of the donee; and

(5) Such further information as may be required by rules and regulations made pursuant to law.

(B)Time and Place of Filing and Payment -The return of the donor required in this Section shall be
filed within thirty (30) days after the date the gift is made and the tax due thereon shall be paid at the
time of filing. Except in cases where the Commissioner otherwise permits, the return shall be filed and
the tax paid to an authorized agent bank, the Revenue District Officer, Revenue Collection Officer or
duly authorized Treasurer of the city or municipality where the donor was domiciled at the time of the
transfer, or if there be no legal residence in the Philippines, with the Office of the Commissioner. In
the case of gifts made by a nonresident, the return may be filed with the Philippine Embassy or
Consulate in the country where he is domiciled at the time of the transfer, or directly with the Office of
the Commissioner.

C. Estates and Trusts

Section 60-66, Tax Code (as amended by Republic Act 10963)

ESTATES AND TRUSTS

SEC. 60. Imposition of Tax. -

(A) Application of Tax. - The tax imposed by this Title upon individuals shall apply to the income of
estates or of any kind of property held in trust, including:

(1) Income accumulated in trust for the benefit of unborn or unascertained person or persons with
contingent interests, and income accumulated or held for future distribution under the terms of the will
or trust;

(2) Income which is to be distributed currently by the fiduciary to the beneficiaries, and income
collected by a guardian of an infant which is to be held or distributed as the court may direct;

(3) Income received by estates of deceased persons during the period of administration or settlement of
the estate; and

(4) Income which, in the discretion of the fiduciary, may be either distributed to the beneficiaries or
accumulated.

(B) Exception. - The tax imposed by this Title shall not apply to employee's trust which forms part of
a pension, stock bonus or profit-sharing plan of an employer for the benefit of some or all of his
employees (1) if contributions are made to the trust by such employer, or employees, or both for the
purpose of distributing to such employees the earnings and principal of the fund accumulated by the
trust in accordance with such plan, and (2) if under the trust instrument it is impossible, at any time
prior to the satisfaction of all liabilities with respect to employees under the trust, for any part of the
corpus or income to be (within the taxable year or thereafter) used for, or diverted to, purposes other
than for the exclusive benefit of his employees: Provided, That any amount actually distributed to any
employee or distributee shall be taxable to him in the year in which so distributed to the extent that it
exceeds the amount contributed by such employee or distributee.

(C) Computation and Payment. -

(1) In General. - The tax shall be computed upon the taxable income of the estate or trust and shall be
paid by the fiduciary, except as provided in Section 63 (relating to revocable trusts) and Section 64
(relating to income for the benefit of the grantor).

(2) Consolidation of Income of Two or More Trusts. - Where, in the case of two or more trusts, the
creator of the trust in each instance is the same person, and the beneficiary in each instance is the
same, the taxable income of all the trusts shall be consolidated and the tax provided in this Section
computed on such consolidated income, and such proportion of said tax shall be assessed and collected
from each trustee which the taxable income of the trust administered by him bears to the consolidated
income of the several trusts.

SEC. 61. Taxable Income. - The taxable income of the estate or trust shall be computed in the same
manner and on the same basis as in the case of an individual, except that:

(A) There shall be allowed as a deduction in computing the taxable income of the estate or trust the
amount of the income of the estate or trust for the taxable year which is to be distributed currently by
the fiduciary to the beneficiaries, and the amount of the income collected by a guardian of an infant
which is to be held or distributed as the court may direct, but the amount so allowed as a deduction
shall be included in computing the taxable income of the beneficiaries, whether distributed to them or
not. Any amount allowed as a deduction under this Subsection shall not be allowed as a deduction
under Subsection (B) of this Section in the same or any succeeding taxable year.

(B) In the case of income received by estates of deceased persons during the period of administration
or settlement of the estate, and in the case of income which, in the discretion of the fiduciary, may be
either distributed to the beneficiary or accumulated, there shall be allowed as an additional deduction
in computing the taxable income of the estate or trust the amount of the income of the estate or trust
for its taxable year, which is properly paid or credited during such year to any legatee, heir or
beneficiary but the amount so allowed as a deduction shall be included in computing the taxable
income of the legatee, heir or beneficiary.

(C) In the case of a trust administered in a foreign country, the deductions mentioned in Subsections
(A) and (B) of this Section shall not be allowed: Provided, That the amount of any income included in
the return of said trust shall not be included in computing the income of the beneficiaries.

SEC. 62. REPEALED [63]

SEC. 63. Revocable trusts. - Where at any time the power to revest in the grantor title to any part of
the corpus of the trust is vested (1) in the grantor either alone or in conjunction with any person not
having a substantial adverse interest in the disposition of such part of the corpus or the income
therefrom, or (2) in any person not having a substantial adverse interest in the disposition of such part
of the corpus or the income therefrom, the income of such part of the trust shall be included in
computing the taxable income of the grantor.

SEC. 64. Income for Benefit of Grantor.-

(A) Where any part of the income of a trust (1) is, or in the discretion of the grantor or of any person
not having a substantial adverse interest in the disposition of such part of the income may be held or
accumulated for future distribution to the grantor, or (2) may, or in the discretion of the grantor or of
any person not having a substantial adverse interest in the disposition of such part of the income, be
distributed to the grantor, or (3) is, or in the discretion of the grantor or of any person not having a
substantial adverse interest in the disposition of such part of the income may be applied to the payment
of premiums upon policies of insurance on the life of the grantor, such part of the income of the trust
shall be included in computing the taxable income of the grantor. `

(B) As used in this Section, the term 'in the discretion of the grantor' means in the discretion of the
grantor, either alone or in conjunction with any person not having a substantial adverse interest in the
disposition of the part of the income in question.

SEC. 65. Fiduciary Returns. - Guardians, trustees, executors, administrators, receivers, conservators
and all persons or corporations, acting in any fiduciary capacity, shall render, in duplicate, a return of
the income of the person, trust or estate for whom or which they act, and be subject to all the
provisions of this Title, which apply to individuals in case such person, estate or trust has a gross
income of Twenty thousand pesos (P20,000) [64] or over during the taxable year. Such fiduciary or
person filing the return for him or it, shall take oath that he has sufficient knowledge of the affairs of
such person, trust or estate to enable him to make such return and that the same is, to the best of his
knowledge and belief, true and correct, and be subject to all the provisions of this Title which apply to
individuals: Provided, That a return made by or for one or two or more joint fiduciaries filed in the
province where such fiduciaries reside; under such rules and regulations as the Secretary of Finance,
upon recommendation of the Commissioner, shall prescribe, shall be a sufficient compliance with the
requirements of this Section.

SEC. 66. Fiduciaries Indemnified Against Claims for Taxes Paid. - Trustees, executors,
administrators and other fiduciaries are indemnified against the claims or demands of every
beneficiary for all payments of taxes which they shall be required to make under the provisions of this
Title, and they shall have credit for the amount of such payments against the beneficiary or principal in
any accounting which they make as such trustees or other fiduciaries.

General Rule on Taxability: Fiduciary or Beneficiary

Decedent's Estate Administration
Revocable Trusts Income for Benefit of Grantor

Revenue Regulations No. 2 (February 10, 1940), Sections 207-213 only

SECTION 207.     Estates and trusts. — "Fiduciary" is a term which applies to all persons or
corporations that occupy positions of peculiar confidence towards others, such as trustees,
executors, or administrators; and a fiduciary, for income tax purposes, is any person or
corporation that holds in trust an estate of another person or persons. In order that a
fiduciary relationship may exist, it is necessary that a legal trust be created.  

In general, the income of a trust for the taxable year which is to be distributed to the
beneficiaries must be returned by and will be taxed to the respective beneficiaries, but the
income of a trust which is to be accumulated or held for future distribution, whether
consisting of ordinary income or gain from the sale of assets included in the corpus of the
trust, must be returned by and will be taxed to the trustee. Three exceptions to this general
rule are found in the law: (1) in the case of revocable trust (Section 59); (2) in the case of a
trust the income of which, in whole or in part, may be held or distributed for the benefit of
the grantor (Section 60); and (3) in the case of a trust administered in a foreign country
[Section 57(c)]. In the first case, the income from such part of the trust estate title to which
may be revested in the grantor should be included in the grantor's return. In the second case,
part of the income of the trust, which may be held or distributed for the benefit of the
grantor, should be included in the grantor's return. In the third case, the trustee is not
entitled to the deductions mentioned in subsections (a) and (b) of Section 57 and the net
income of the trust undiminished by any amounts distributed, paid or credited to
beneficiaries will be taxed to the trustees; however, the income included in the return of the
trustees is not to be included in computing the income of the beneficiaries.

SECTION 208.     Consolidation of incomes of two or more trusts. — Section 56(b)(2)

expressly requires the consolidation of the income of two or more trusts where the creator of
the trust in each instance is the same person and the beneficiary in each instance is the same.
The tax due on the consolidated income will be collected from the trustees in proportion to
the net income of the respective trusts. (See Section 215 of these regulations.)

SECTION 209.     Estates and trusts taxed to fiduciary. — In the case of a decedent's estate the
settlement of which is the object of testamentary or intestate proceedings, the fiduciary,
executor, or administrator is required to file an annual return for the estate up to the final
settlement thereof. In the same manner, the fiduciary is required to file a yearly return
covering the income of a trust, whether created by will or deed, for accumulation of income,
whether for unascertained persons or persons with contingent interests or otherwise. In both
cases the income of the estate or trust is taxed to the fiduciary. Where under the terms of a
will or deed, the trustee, may in his discretion, distribute the income or accumulate it, the
income is taxed to the trustee, irrespective of the exercise of his discretion. The imposition of
the tax is not affected by the fact that an ultimate beneficiary may be a person exempt from
tax.

SECTION 210.     Estate and trust taxed to beneficiaries. — In the case of (a) a trust the
income of which is to be distributed annually or regularly; (b) an estate of a decedent the
settlement of which is not the object of judicial testamentary or intestate proceedings; and (c)
properties held under a co-ownership or tenancy in common, the income is taxable directly to
the beneficiary or beneficiaries. Each beneficiary must include in his return his distributive
share of the net income of the trust, estate, or co-ownership. In the case of trusts which are in
whole or in part subject to revocation by the grantor, or which are for the benefit of the
grantor, the income of the trust is to be included in computing the net income of the
grantor.   

SECTION 211.     Decedent's estate administration. — The "period of administration or

settlement of the estate" is the period required by the executor or administrator to perform
the ordinary duties pertaining to administration, in particular, the collection of assets and the
payment of debts and legacies. Estates during the period of administration have but one
beneficiary and that beneficiary is the estate.

No taxable income is realized from the passage of property to the executor or administrator
on the death of the decedent, even though it may have appreciated in value since the
decedent acquired it. In the event of delivery of property in kind to a legatee or distributee, no
income is realized. Where, however, prior to the settlement of the estate, the executor or
administrator sells property of a decedent's estate for more than the appraised value placed
upon it at the death of the decedent, the excess is income, taxable to the estate. Where
property is sold after the settlement of the estate by the devisee, legatee or heir at a price
greater than the appraised value placed upon it at the time he inherited the property from the
decedent, he is taxable individually on any profit derived. An allowance paid a widow or heir
out of the corpus of the estate is not deductible from gross income.

SECTION 212.     Liability for tax on estate or trusts. — Liability for payment of the tax
attaches to the person of an executor or administrator up to and after his discharge, where
prior to distribution and discharge he had notice of his tax obligations or failed to exercise
due diligence in determining whether or not such obligations existed. Liability for the tax also
follows the estate itself, and when the estate has been distributed, the heirs, devisees,
legatees, and distributors may be required to discharge the amount of the tax due and
unpaid, to the extent of and in proportion to any share received. The same consideration
apply to other trusts. Where the tax has been paid on the net income of an estate or trust by
the fiduciary, the net income on which the tax is paid is free from tax when distributed to the
beneficiaries.

SECTION 213.     Exemption allowed to estate or trusts. — An estate or a trust is allowed a

personal exemption of P1,800. Each beneficiary is entitled to but one personal exemption, no
matter from how many trusts he may receive income.
(Section 61 of the Code)

BIR Ruling 522-17 (November 7, 2017)

References\522-2017.pdf