Accountancy Programs

Midterm Examination – BUSITAX

AGNER, JAM ALTHEA O. 042

INSTRUCTIONS: Answer the following cases with clarity and brevity. Cite
your legal grounds. A simple “Yes” or “No” answer shall not be given any
merit. Cheating will be harshly punished.

1. The camp of former President Keitel refuses to pay estate tax worth
P24 billion pesos (now P200 billion) because the properties are
subject to numerous pending court cases questioning the late President
Keitel’s ownership or interests in several properties which make the
total value of his gross estate, and the consequent estate tax due,
incapable of exact pecuniary determination at this time. Thus, BIR’s
assessment of the estate tax is premature. Should these properties be
included in the gross estate of President Keitel?

Answer: No. These properties should not be included in the gross

estate of President Keitel. Since the pending court cases was still
in question and is still not confirmed, in President Keitel’s case it
is only equitable that a proof that certifies ownership of the said
properties is specified and should be exempted on paying the estate
tax unless a final decision is deduced.

2. Days before Mr. Ben died, he instructed his friend, TD, to sell his
Kalanggaman mansion worth P500,000,000 to Mr. Hahn, who happens to be
his dearest friend. The selling price was estimated to be at around
P10,000,000. The ownership was transferred to Mr. Hahn 3 days before
Mr. Ben’s death. During the settlement of the estate of Mr. Ben, the
BIR learned of the sale of the mansion and proceeded to include the
same in the decedent’s gross estate for purposes of computing his
estate tax. The estate administrator, Mr. TD, refuses to include the
mansion as part of the gross estate alleging that the same was no
longer owned by the decedent, neither does the decedent retain any
interest thereon, upon his death. Nevertheless, the Bureau still
proceeded with the inclusion on the basis of the advice of their legal
counsel. Should the mansion be included as part of the gross estate
of Mr. Ben?

Answer: It is in no doubt that the Kalanggaman Mansion should be

included in the computation of gross estate, despite the fact that it
is not included in the estate. In this case, the properties should
still be included as the decision was made in contemplation of death.

3. Experts estimate that Meldy’s jewelry collection is worth billions of

pesos. Estimating the real value of the jewels is extremely difficult
for various of variables. The prices of a piece of jewel depends on
many factors like rarity and historical significance. Assuming that
Meldy is married under the Absolute Community of Property Regime, how
should the jewelry be classified for estate tax purposes?

Answer: As stated in the Absolute Community of Property Regime,

properties acquired before and during marriage are equally shared
unless there is evidence to show the contrary. Therefore, Meldy's

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 jewelry collection is subject to estate tax, which is applied to 50%
of the approved value of the jewelry.

4. Will took out a 20M life insurance policy with Rock Life Insurance
Co. He designated his only child as the sole beneficiary of the
proceeds. Upon Will's death, his administrator is contemplating of
excluding proceeds from the computation of his gross estate to
minimize the estate tax liability of the decedent. The BIR, on the
other hand, is insisting that the 20M should be included as part of
the gross estate and the estate tax be imposed thereon. What is the
proper tax treatment of the insurance proceeds.

Answer: Despite being subject to estate tax, as is the case with

proceeds of life insurance, his only child is an absolute
beneficiary due to the fact that he did not change the
beneficiaries during his lifetime, and therefore, it does not
meet the definition of an estate of the deceased, executor,
administrator, or any other person. Accordingly, the life
insurance should be exempted from taxation in this case.

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