TAXATION 2

Reviewer
2nd Semester
A.Y. 2022 - 2023
 TABLE OF CONTENTS:

Case Summary 3
ESTATE TAX 3
DONOR’S TAX 10
Case Digests 12
ESTATE TAX 12
Notes 12
Lorenzo v. Posadas 18
Elegado v. CTA 22
Dizon v. CTA 24
Aznar v. CTA 27
San Agustin v. CIR 29
CIR v. Reyes 32
Marcos v. CA 36
PNB v. Santos 38
Zapanta v. Posadas 42
Tuazon v. Posadas 43
Dizon v. Posadas 45
Vidal del Roces v. Posadas 48
Collector v. Fisher 51
Question & Answers: 55
DONOR’S TAX 57
Notes 57
Lladoc v. Commissioner of Internal Revenue 62
Abello, et al. v. Commissioner of Internal Revenue 64
The Philippine American Life and General Insurance Company v. The Secretary of
Finance and the Commissioner of Internal Revenue 67
Commissioner of Internal Revenue v. B.F. Goodrich Phils., Inc. (now Sime Darby
International Tire Co., Inc. and the Court of Appeals 69
Question & Answers: 73
INCOME TAX 74
Notes 74

References
76
Disclaimer: Notes were copied from the books and jurisprudence. Let me know if there are
any corrections / mistakes. 76
Case Summary

ESTATE TAX

Case Summary Principle

Lorenzo vs. Posadas Mr. Hanley died leaving a will Transmission by inheritance
which provided that the is taxable at the time of the
properties he left shall be predecessor’s death,
disposed of by his trustee notwithstanding the
only 10 years after his death. postponement of the actual
possession or enjoyment of
Nevertheless, CIR assessed the estate by the beneficiary,
the estate and inheritance tax and the tax measured by the
on the properties of Hanley value of the property
upon his death. transmitted at that time
Plaintiff-trustee paid under regardless of its appreciation
protest. CIR refused to refund or depreciation.
the taxes paid.
Inheritance Tax accrues at
the moment of the 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."

Accrual of Inheritance Tax

is distinct from the
Obligation to pay it.

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.

Compensation of trustees
not subject to deductions.
But from this it does not
follow that the compensation
due him may lawfully be
deducted in arriving at the net
value of the estate subject to
tax. There is no statute in the
Philippines which requires
trustee’s commissions to be
deducted in determining the
net value of the estate
subject to inheritance tax.

Tax law - prospective in

operation, as a general
rule.

It is well settled that

inheritance taxation is
governed by the statute in
force at the time of the death
of the decedent. The
taxpayer cannot foresee and
ought not to be required to
guess the outcome of
pending measures. Of
course, a tax statute may be
retroactive in its operation.
Liability for taxes under
retroactive legislation has
been “one of the incidents of
social life”. But legislative
intent that a tax statute
should operate retroactively
should be perfectly clear. “A
statute should be considered
as prospective in its operation
whether it enacts, amends, or
repeals an inheritance tax.
Unless the language of the
statute clearly demands or
expressess that it shall have
a retroactive effect , xxx “

Revenue laws, generally,

 which impose taxes collected
by the means ordinarily
resorted to for the collection
of taxes are not classed as
penal laws, although there
are authorities to the contrary.

Elegado vs. CTA WTG, an American national Provisional assessment

and former resident in the PH cannot supersede former
left shares of stock in the PH. assessment which have
His son filed an estate tax attained finality.
return by which an
assessment (first It is illogical to suggest that a
assessment) was made. The provisional assessment can
estate tax was paid under supersede an earlier
protest but it was denied. No assessment which had
further action was done. become final and executory.

Four years later, petitioner as Procedural laws re

attorney-in-fact of WTG’s son contesting assessment
filed a second estate tax notices shall be strictly
return by which ALG Law construed.
Firm protested. (second
assessment / provisional In contesting assessment
assessment). notices, the procedural rules
as provided for by law are to
CIR filed a motion for the be strictly construed and
allowance of the basic estate failure to comply with the said
tax in the amount of the first rules will warrant appropriate
assessment. It said that this action.
liability had not yet been paid
although the assessment had Protest denied –
long become final and prescriptive period to
executory. appeal.

Petitioner considers this In view of the finality of the

motion of CIR as an implied first assessment, the
denial of the second protest. petitioner cannot now raise
the question of its validity
before this Court any more
than he could have done so
before the CTA. What the
estate of the decedent should
have done earlier, following
the denial of its protest, was
to appeal to the CTA within
the reglementary period of 30
days after it received notice
of said denial.
Dizon vs. CTA Jose died on Nov. 7, 1987. Date-of-death valuation
BIR Regional Director issued rule.
certification Nos. 2052 and
2053 stating that the transfer The claims existing at the
of real and personal time of death are significant
properties of Jose had been to, and should be made the
fully paid and said properties basis of, the determination of
may be transferred to his allowable deductions. Where
heirs. Petitioner, however, a lien claimed against the
being the administrator of the estate was certain and
Estate requested the enforceable on the date of
probable court’s authority to the decedent's death, the fact
sell several properties that the claimant
forming part of the estate to subsequently settled for
pay the creditors. Assistant lesser amount did not
Commissioner for Collection preclude the estate from
of BIR issued Estate Tax deducting the entire amount
Assessment notice of the claim for estate tax
demanding payment of purposes. This is called the
deficiency estate tax. date-of-death valuation rule.

Aznar vs. CTA Aznar filed his ITR during his Proceeding for collection of
lifetime for years 1946 - 1951. deficiency taxes based on
BIR Examiner found that the false return, fraudulent
taxpayer did not correctly return or failure to file a
reported his income in his return prescribes in 10
ITR for the aforesaid years. years.
Hence,the CIR issued a letter
in 1952 notifying the taxpayer In the three different cases of
of the deficiency income tax. (1) false return, (2) fraudulent
This deficiency income tax return with intent to evade
was reduced in 1955 until the tax, (3) failure to file a return,
lower court concluded the the tax may be assessed, or
final amount of his tax liability
a proceeding in court for the
in 1962. collection of such tax may be
begun without assessment, at
The issue is whether or not any time within 10 years after
the right of the CIR to assess the discovery of the the
deficiency income taxes of falsity, fraud, or omission.
late Aznar had already
prescribed at the time the
assessment was made on
1952.

San Agustin vs. CRA The estate tax return was Imposition of surcharge,
filed on behalf of the estate penalty and interest for
on Sept. 3, 1990 with a delay in payment of
request for the extension of deficiency tax - not illegal.
two years for the payment of
tax. The BIR however only The delay in the payment of
 granted the heirs an the deficiency tax within the
extension of only six months. time prescribed for its
The executor paid the estate payment in the notice of
tax amount as reported in the assessment justifies the
tax return on Mach 8, 1991. imposition of 25% surcharge
Then on Sept. 23, 1991, the in consonance with Sec.
widow of the deceased 248A(3) of the Tax Code.
(petitioner in this case),
received a PAN from the BIR
showing a deficiency estate
tax which include surcharge,
interest and penalties.

The issue in this case is

whether the imposition of
surcharge, interest and
penalties is illegal.

CIR vs. Reyes Maria Tancinco died leaving Due process

the subject property (subject
to estate tax). The RDO Taxpayers must be informed
conducted an investigation in writing of the law and the
and subsequently issued a facts upon which a tax
Return Verification Order for assessment is based;
regular investigation of the otherwise, the assessment is
estate tax. Mr. Reyes, one of void. Being invalid, the
the decedent’s heirs received assessment cannot in turn be
the Letter of Authority. The used as a basis for the
BIR then issued a PAN perfection of a tax
against the estate; the heirs compromise.
received a final estate tax
assessment notice and The old requirement of
demand letter inclusive of merely notifying the taxpayer
surcharge and interest. CIR of the CIR’s findings was
issued a preliminary changed in 1998 to informing
collection letter to Reyes the taxpayer of not only the
followed by Final Notice law but also of the facts on
Before Seizure. which an assessment would
be made (R.A. 8242)
A Warrant of Distraint and/or
Levy was served upon the To proceed heedlessly with
estate, followed by Notice of tax collection without first
Levy on Real Property and establishing a valid
Tax Lien by which Reyes assessment is evidently
protested. violative of the cardinal
principle in administrative
Reyes’ proposal to pay 50% investigations: that taxpayers
of the basic tax due for should be able to present
inability to pay was rejected. their case and adduce
supporting evidence.
 Since it failed to pay the tax
liability, the BIR notified
Reyes that the subject
property would be sold at a
public auction. CA ruled that
the assessment and the
demand were void, hence the
proceedings emanating from
them were likewise void and
could never attain finality.
Although taxes are the
lifeblood of the government,
their assessment and
collection should be made in
accordance with law as any
arbitrariness will negate the
very reason for government
itself.

CIR filed a Petition for

Review of the decision of the
CA which raises the issue of
whether the assessment
against the estate is valid.

Marcos vs. CA BIR issued the deficiency The approval of the court,
estate tax assessments sitting in probate, or as a
against the estate of late settlement tribunal over the
Ferdinand and Imelda
deceased is not a mandatory
Marcos which were all
personally and constructively requirement in the collection
served upon Imelda Marcos of estate taxes.
at her last known address.
The copies were likewise
issued against the petitioner
(son of Ferdinand Marcos).
These deficiency tax
assessments were not
protested and the other heirs
within 30 days from service.
Hence, BIR Commissioner
issued 22 notices of levy on
real property against certain
parcels of land owned by the
Marcoses to satisfy the
alleged estate tax and
deficiency income taxes of
the spouses.

Petitioner posits that notices

of levy, notices of sale, and
subsequent sale of properties
of the late Pres. Marcos
effected by the BIR are null
and void for disregarding the
established procedure for the
enforcement of taxes due
 upon the estate of the
deceased; relying on the
ground that the (BIR) was
required to seek first the
probate court’s sanction.
PNB vs. Santos Respondents discovered that
their father had a premium
savings account and time
deposit with PNB. They went
to PNB and submitted the
documents necessary to
withdraw their father’s
deposit. However, PNB
Branch Manager informed
them that the deposit had
already been released to
certain Manimbo. Hence,
respondents filed a complaint
for sum of money and
damages against PNB, its
branch manager and a John
Doe.
Zapanta vs. Posadas Fr. Pineda, during his lifetime,
donated some of his property
to six plaintiffs (who are his
relatives), with the condition
that some of them would pay
him certain amount of rice
and others of money every
year, and with the express
provision that failure to fulfill
this condition would revoke
the donation ipso facto.
The six plaintiffs filed their
protests against the CIR for
the sums they’ve paid as
inheritance tax on the
property donated to them.
The question is whether the
donated properties are
subject to inheritance tax;
whether they are considered
as advances.
Estate tax may also serve as
guard against the release of
deposits to persons who have
no sufficient and valid claim
over the deposits.
The standard of diligence
required of banks is higher
than the degree of diligence
of a good father of a family.
Neither can these donations
be considered as an advance
on inheritance or legacy,
according to the terms of
section 1536 of the
Administrative Code,
because they are neither an
inheritance nor a legacy. And
it cannot be said that the
plaintiffs received such
advance on inheritance or
legacy, since they were not
heirs or legatees of their
predessor in interest upon his
death (sec. 1540 of the
Administrative Code). Neither
can it be said that they
obtained this inheritance or
legacy by virtue of a
document which does not
contain the requisites of a will
(sec. 618 of the Code of Civil
Pocedure).1a
 DONOR’S TAX

Case Principle

Lladoc vs. CIR A gift tax is not a property tax, but an excise tax imposed on
the transfer of property by way of gift inter vivos, the
imposition of which on property used exclusively for religious
purposes, does not constitute an impairment of the
Constitution.

Abello vs. CIR Election contributions are subject to gift tax – they are not
exempt even if such transfers are with intentions, motives or
purpose.

Philam vs. The Secretary of
Finance
The absence of donative intent 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 and even if there is no actual donation,
the difference in price is considered a donation by fiction of
law.

CIR vs. B.F. Goodrich Phils.
It is possible that real property may be sold for less than
adequate consideration for a bona fide business purpose; in
such event, the sale remains an "arm's length" transaction. In
the present case, the private respondent was compelled to
sell the property even at a price less than its market value,
because it would have lost all ownership rights over it upon
the expiration of the parity amendment. In other words,
private respondent was attempting to minimize its losses; At
the same time, it was able to lease the property for 25 years,
renewable for another 25, which can be regarded as another
consideration on the price.
Case Digests

ESTATE TAX
Notes

Estate tax - levy on gratuitous transfer of property through testate or intestate succession,
including certain transfers in contemplation of death.
● Onerous transfer of property - generally subject to capital gains tax.
● Gratuitous transfer of property - either subject to an estate tax or a donor’s tax.

Estate tax - tax upon the right to transmit an inheritance (tax on the transferor)
Inheritance tax - tax upon the right to receive an inheritance (tax on the recipient)

Q: Is there double taxation on imposition of estate and inheritance tax?

➔ NO. There was no double taxation. Both taxes were not imposed on the property, but on
the privilege of transferring (on the one hand) and receiving (on the other hand) such
property.

Note: P.D. 69 repealed the inheritance tax. Only the estate tax remains to be the tax due on
gratuitous transfer of property mortis cause.

GROSS ESTATE (GE)

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.

GE includes:
● Real and personal property
○ Tangible
○ Intangible
■ Franchise which must be exercised in the PH
■ Shares, obligations or bonds (SOB) issued by any corporation or
sociedad anonima organized or constituted in the PH in accordance with
its laws.
■ SOB issued by any foreign corporation 85% of the business of which is
located in the Philippines
■ SOB issued by any foreign corporations, if such shares obligations or
bonds have acquired a business situs in the PH, and
■ Shares or rights in any partnership, business or industry in the PH

○ Mixed
 wherever situated.

● Any interest or right in the nature of property, but less than title, having value or capable
of having value, like:
○ Dividends declared, but paid after the death
○ Partnership profits
○ Right of usufruct

● Properties not in the estate

- Properties, which at the time of the decedent’s death, are not in the estate
because they were transferred by him during his lifetime.
- The value of these properties will be included in the determination of the gross
estate for the estate tax purposes.
❖ Transfers in contemplation of death
Note: in case of bona fide sale for an adequate and full consideration in
money or money’s worth, the value of the property transferred will not be
considered in determining the gross estate.
❖ Revocable transfers
❖ Transfers under general power of appointment; and
❖ Transfers for an insufficient consideration.

Rule for Imposition of GE

1. Resident, Non-Resident Alien
a. Resident - all properties, wherever located, form part of his estate.
Note: including properties with a tax situs outside the Philippines.
b. Non-Resident Alien1 - only the properties situated in the Philippines shall form
part of his gross estate (Sec. 85 of NIRC)
● Real properties - where they are located.
● Personal properties - where they are considered situated at the time of
decedent’s death.

1
Non-Resident Alien - not Filipino (at the time of his death) and not resident of the Philippines, at the
same time.

Who
Citizen (Filipino, regardless
on whether he lives abroad or
not) or
Resident (Filipino/Alien,
provided: living in the
Philippines)
Nonresident Alien (Is not a Estate within the Philippines
Filipino, does not live in the only.
Philippines, but owns
properties in the Philippines)
⭐️ The only thing that
matters here is that he owns
properties in the Philippines,
regardless of his citizenship
and residence.
Composition of Gross Estate
Taxable in the PH Types of properties
Estate within and without the ❖ Real property
Philippines (All the properties; wherever situated.
even properties abroad) ❖ Tangible personal
property wherever
Ex: situated.
Pedro, a Filipino now lives in ❖ Intangible personal
America, owns only two property wherever
properties in America. These situated.
two properties are subject to
tax in America, can it be
taxed too by the Philippine
Government? Will it be
subject to Double Taxation?
➔ Pedro’s estate is still
subject to tax in the
Philippines,
regardless of whether
it is also taxed in
America.
➔ However, it is subject
to tax credit.
Brad Pitt, an American
decided to retire in the
Philippines and now lives in
PH. He owns five houses and
lots situated in the ff
countries: Philippines, US,
Thailand, Mexico and Japan.
What properties are subject
to estate tax in the
Philippines?
➔ ALL properties are
subject to estate tax in
the Philippines.
❖ Real property situated
in the Philippines.
❖ Tangible personal
property located in the
Philippines.
❖ Intangible personal
property with situs in
the Philippines unless
excluded on the basis
of reciprocity.
Transfer in contemplation of death - a transfer motivated by the thought of death, although
death may not be imminent.
● Transfers, by trust or otherwise, in contemplation of or intended to take effect (in
possession or enjoyment) at or after death;
● Transfers by trust or otherwise, under which the decedent has retained for his life (or for
any period which does not in fact end before his death) the possession or enjoyment of,
or the right to the income from the property, or the right to designate the person who
shall possess or enjoy the property or the income therefrom.

Note: in case of bona fide sale for an adequate and full consideration in money or money’s
worth, the value of the property transferred will not be considered in determining the gross
estate.

Revocable Transfers - transfer where the terms of the enjoyment of the property may be
altered, amended, revoked or terminated by the decedent.
● It is sufficient that the decedent had the power to revoke, though he did not exercise the
power to revoke.
● The same rule with bona fide sales applies.

Transfers under General Power of Appointment

Power of Appointment - refers to the right to designate the person or persons who will
succeed the property of a prior decedent.

General Power of Appointment - is one which may be exercised in favor of anybody.

This forms part of the powerholder’s estate.

Please note: In order that property passing under a power of appointment may be included in
the gross estate of the transferor, the power of appointment must be a GENERAL POWER OF
APPOINTMENT.

● Bona fide sale rule applies.

Life Insurance Proceeds

- Shall constitute part of the gross estate if the beneficiary is:
1. The estate of the decedent, his executor or administrator AS SUCH; or
● Doesn’t matter if revocable or not.
2. A third person (not those in #1), and the designation of the beneficiary is
revocable.
● Under #2, life insurance proceeds are excluded, provided:
 ○ Irrevocable
○ Payable to beneficiaries other than estate, executor, administrator.

Transfer of Insufficient Consideration

(G) Transfers of Insufficient Consideration – If any one of the transfers, trusts, interests,
rights or powers enumerated and described in Subsections (B), (C ) and (D) of this Section is
made, created or exercised or relinquished for a consideration in money or money’s worth, but
is not a bona fide sale for an adequate and full consideration in money or money’s worth,
there shall be included in the gross estate only the excess of the fair market value, at the time
of death, of the property otherwise to be included on account of such transaction, over the
value of the consideration received therefor by the decedent.

Capital of the Surviving Spouse

● Shall not form part of the decedent’s gross estate.

Case Was the Time between Was there a What did the
transferee a transfer and will? Supreme Court
voluntary or death say?
compulsory
heir?

Zapanta vs. Compulsory None Yes Not considered

Posadas advances. Not
part of gross
estate.

Tuason vs. Voluntary 3 years Yes Considered as

Posadas advances,
because the
donees became
legatees in the
will. Part of
gross estate,
include it.

Dizon vs. Compulsory 1 day No Considered

Posadas advances. The
donee is the
compulsory heir.
Include it in the
gross estate.

Vidal del Roces Voluntary 9 months Yes Considered

vs. Posadas advances.
Donees were
 legatees in the
will. Include that
in the gross
estate.
[Exact table from Tax Made Less Taxing by Atty. Ingles]
 1 Lorenzo v. Posadas
[Abella] G.R. No. 43082
June 18, 1937

Principle Transmission by inheritance is taxable at the time of the predecessor’s death,

notwithstanding the postponement of the actual possession or enjoyment of the
estate by the beneficiary, and the tax measured by the value of the property
transmitted at that time regardless of its appreciation or depreciation.

Inheritance Tax accrues at the moment of the 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."

Accrual of Inheritance Tax is distinct from the Obligation to pay it.

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.

Facts
On May 27, 1922, Thomas Hanley died, leaving a will and considerable amount
of real and personal properties to his nephew Matthew Hanley.

Court of First Instance of Zamboanga considered it proper for the best interests
of the estate to appoint a trustee to administer the real properties which, under
the will, were to pass to Matthew Hanley ten years after the testator's death.

P. J. M. Moore was appointed trustee until February 29, 1932, when he

resigned and the Pablo Lorenzo was appointed in his stead.

During the incumbency of the plaintiff as trustee, the defendant Collector of

Internal Revenue assessed aTangainst the estate an inheritance tax in the
amount of P1,434.24 which, together with the penalties for delinquency in
payment consisting of a 1 per cent monthly interest from July 1, 1931 to the
date of payment and a surcharge of 25 percent on the tax, amounted to
P2,052.74.

On September 15, 1932, the plaintiff paid this amount under protest.

The defendant overruled the plaintiff's protest and refused to refund the said
amount.
Issue
1. When does the inheritance tax accrue and when must it be satisfied?
2. Should the inheritance tax be computed on the basis of the value of the
estate at the time of the testator's death, or on its value ten years later?
3. In determining the net value of the estate subject to tax, is it proper to
deduct the compensation due to trustees?
4. What law governs the case at bar? Should the provisions of Act No.
3606 favorable to the taxpayer be given retroactive effect?
5. Has there been delinquency in the payment of the inheritance tax? If so,
should the additional interest claimed by the defendant in his appeal be
paid by the estate?
Ruling
1. When does the inheritance tax accrue and when must it be satisfied?

According to article 657 of the Civil Code, "the rights to the succession of a
person are transmitted from the moment of his death." In other words, the heirs
succeed immediately to all of the property of the deceased ancestor. The
property belongs to the heirs at the moment of the death of the ancestor as
completely as if the ancestor had executed and delivered to them a deed for
the same before his death.

Thomas Hanley having died on May 27, 1922, the inheritance tax accrued as of
that date.

"SEC. 1544. When tax to be paid. — The Tax fixed in this article shall be
paid:…(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.”

Tax should have been paid before the delivery of the properties in question to P.
J. M. Moore as trustee on March 10, 1924.

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

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.

Transmission by inheritance is taxable at the time of the predecessor's death,

notwithstanding the postponement of the actual possession or enjoyment of the
estate by the beneficiary, and the tax measured by the value of the property
transmitted at that time regardless of its appreciation or depreciation.

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

A trustee is entitled to receive a fair compensation for his services. But from this
it does not follow that the compensation due him may lawfully be deducted in
arriving at the net value of the estate subject to tax.

There is no statute in the Philippines which requires trustees' commissions to

be deducted in determining the net value of the estate subject to inheritance tax

The compensation of a trustee, earned, not in the administration of the estate,

but in the management thereof for the benefit of the legatees or devisees, does
not come properly within the class or reason for exempting administration
expenses.
4. What law governs the case at bar? Should the provisions of Act No. 3606
favorable to the taxpayer be given retroactive effect?

It is well-settled that inheritance taxation is governed by the statute in force at

the time of the death of the decedent. "A statute should be considered as
prospective in its operation, whether it enacts, amends, or repeals an
inheritance tax, unless the language of the statute clearly demands or presses
that it shall have a retroactive effect. Act No. 3606 itself contains no provisions
indicating legislative intent to give it retroactive effect.

Revenue laws, generally, which impose taxes collected by the means ordinarily
resorted to for the collection of taxes are not classed as penal laws, Article 22
of the Revised Penal Code is not applicable.

5. Has there been delinquency in the payment of the inheritance tax? If so,
should the additional interest claimed by the defendant in his appeal be paid by
the estate?

P. J. M. Moore became trustee on March 10, 1924. On that date the trust estate
vested in him. The mere fact that the estate of the deceased was placed in trust
did not remove it from the operation of our inheritance tax laws or exempt it
from the payment of the inheritance tax.

The corresponding inheritance tax should have been paid on or before March
10, 1924, to escape the penalties of the law.

The trustee was in esse delivery of the same estate to the cestui que trust, the
beneficiary in this case.

The delinquency in payment occurred on March 10, 1924, the date when Moore
became trustee. The interest due should be computed from that date and it is
error on the part of the defendant to compute it one month later.
 2 Elegado v. CTA
[Yamamoto] G.R. No. L-68385
May 12, 1989

Principle In contesting assessment notices, the procedural rules as provided for by law
are to be strictly construed and failure to comply with the said rules will warrant
appropriate action.

Facts Warren Taylor Graham, an American national formerly resident in the

Philippines, died in Oregon, U.S.A. He left shares of stock in the Philippines.
His son, Ward Graham, filed an estate tax return with the Philippine Revenue
Representative in San Francisco, U.S.A.

The respondent Commissioner of Internal Revenue assessed the decedent's

estate on the basis of the estate tax return. The assessment provided for an
estate tax in the amount of P96,509.35

The said assessment was protested on March 7, 1978, by the law firm of
Bump, Young and Walker on behalf of the estate . The protest was denied by
the Commissioner and no further action was taken by the estate in pursuit of
that protest. The decedent's will had been admitted to probate in the Circuit
Court of Oregon, Ildefonso Elegado, the herein petitioner was then appointed
as the attorney-in-fact for the allowance of the will in the Philippines.

The petitioner then commenced probate proceedings in the Court of First

Instance of Rizal. The will was allowed, and the petitioner was designated as
ancillary administrator. A second estate tax return was filed with the Bureau of
Internal Revenue. In the second estate tax return, the Commissioner imposed
an assessment on the estate in the amount of P72,948.87 and the same was
protested in behalf of the estate by the Agrava, Lucero and Gineta Law Office.

During protest, the Commissioner filed in the probate proceedings a motion for
the allowance of the first assessment. The contention was that it had not yet
been paid, and that the assessment had long become final and executory.

The petitioner regarded this motion as an implied denial of the 2nd protest and
he filed on September 15, 1981, a petition for review with the Court of Tax
Appeals challenging the said assessment. No answer was filed during a delay
of 195 days and in the end canceled the protested assessment in a letter to the
decedent's estate dated March 31, 1982.

This cancellation was notified to the Court of Tax Appeals in a motion to dismiss
on the ground that the protest had become moot and academic.

The motion was granted and the petition dismissed on April 25, 1984.18 The
petitioner then came to this Court on certiorari under Rule 45 of the Rules of
Court.
Issue Whether respondent Court of Tax Appeals erred in dismissing the petitioner's
appeal on grounds of jurisdiction and lack of a cause of action.

Ruling No. The court ruled that the first assessment had reached finality as the denial
of the protest on July 7,1978 the remedy was to appeal to the CTA within the
reglementary period of 30 days after receipt of denial. No further action was
taken by the decedent’s estate as such the same had lapsed into finality.

Also, the court explained that during the protest of the second assessment it
does not supersede an earlier assessment which had clearly become final and
executory.
 3 Dizon v. CTA
[Mallari] G.R. No. 140944
April 30, 2008

Principle The claims existing at the time of death are significant to, and should be made
the basis of, the determination of allowable deductions. Where a lien claimed
against the estate was certain and enforceable on the date of the decedent's
death, the fact that the claimant subsequently settled for lesser amount did not
preclude the estate from deducting the entire amount of the claim for estate tax
purposes. This is called the date-of-death valuation rule.

Facts
Jose P. Fernandez died. Hence, a petition for the probate of his will was filed
with the RTC of Manila (probate court). Petitioner alleged that several requests
for extension of the period to file the required estate tax return were granted by
the BIR since the assets of the estate, as well as the claims against it, had yet
to be collated, determined and identified. Atty. Gonzales wrote a letter
addressed to the BIR Regional Director and filed the estate tax return with the
same BIR Regional Office, showing therein a NIL estate tax liability. The BIR
RD for San Pablo City,. Umali issued Certification Nos. 2052 and 2053 stating
that the taxes due on the transfer of real and personal properties of Jose had
been fully paid and said properties may be transferred to his heirs.

Petitioner requested the probate court's authority to sell several properties

forming part of the Estate, for the purpose of paying its creditors. Petitioner
manifested that Manila Bank, a major creditor of the Estate was not included,
as it did not file a claim with the probate court since it had security over several
real estate properties forming part of the Estate. However, the Assistant
Commissioner for Collection of the BIR, Montalban, issued an Estate Tax
Assessment, demanding the payment of P66,973,985.40 as deficiency estate
tax.

Atty. Gonzales moved for the reconsideration of the said estate tax
assessment. However, the BIR Commissioner denied. Petitioner received the
letter of denial and then filed a PFR before respondent CTA. CTA denied the
PFR and ordered the petitioner and/or the heirs Fernandez to pay to
respondent the amount of P37,419,493.71 plus 20% interest. Aggrieved,
petitioner went to the CA via a petition for review. CA affirmed the CTA's ruling.
Petitioner filed a MFR which the CA denied. Hence, the instant Petition.
Petitioner claims among others that in as much as the valid claims of creditors
against the Estate are in excess of the gross estate, no estate tax was due.

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 - YES
Ruling
The claims existing at the time of death are significant to, and should be made
the basis of, the determination of allowable deductions. It is admitted that the
claims of the Estate's aforementioned creditors have been condoned.
Condonation is an act of liberality, by virtue of which, without receiving any
equivalent, the creditor renounces the enforcement of the obligation, which is
extinguished in its entirety or in that part or aspect of the same to which the
remission refers.

Verily, the second issue in this case involves the construction of Section 79 of
the NIRC which provides for the allowable deductions from the gross estate of
the decedent. "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 the NIRC of 1939. Philippine tax laws were, in
turn, based on the federal tax laws of the United States. 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.

The U.S. court ruled that the appropriate deduction is the "value" that the claim
had at the date of the decedent's death. Also, as held in Propstra v. U.S.,
where a lien claimed against the estate was certain and enforceable on the
date of the decedent's death, the fact that the claimant subsequently settled for
lesser amount did not preclude the estate from deducting the entire amount of
the claim for estate tax purposes. These pronouncements essentially confirm
the general principle that post-death developments are not material in
determining the amount of the deduction.

On the other hand, the Internal Revenue Service (Service) opines that
post-death settlement should be taken into consideration and the claim should
be allowed as a deduction only to the extent of the amount actually paid.
Recognizing the dispute, the Service released Proposed Regulations in 2007
mandating that the deduction would be limited to the actual amount paid.
We express our agreement with the date-of-death valuation rule, made
pursuant to the ruling of the U.S. Supreme Court in Ithaca Trust Co. v. United
States.First. There is no law, nor do we discern any legislative intent in our tax
laws, which disregards the date-of-death valuation principle and particularly
provides that post-death developments must be considered in determining the
net value of the estate. It bears emphasis that tax burdens are not to be
imposed, nor presumed to be imposed, beyond what the statute expressly and
clearly imports, tax statutes being construed strictissimi juris against the
government. Any doubt on whether a person, article or activity is taxable is
generally resolved against taxation. Second. Such construction finds relevance
and consistency in our Rules on Special Proceedings wherein the term "claims"
required to be presented against a decedent's estate is generally construed to
mean debts or demands of a pecuniary nature which could have been enforced
against the deceased in his lifetime, or liability contracted by the deceased
before his death. Therefore, the claims existing at the time of death are
significant to, and should be made the basis of, the determination of allowable
deductions.
 4 Aznar v. CTA
[Lat] G.R. No. L-20569
August 23, 1974

Principle ● The ordinary period of prescription of 5 years within which to assess tax
liabilities under Sec. 331 of the NIRC should be applicable to normal
circumstances, but whenever the government is placed at a
disadvantage so as to prevent its lawful agents from proper assessment
of tax liabilities due to false returns, fraudulent return intended to evade
payment of tax or failure to file returns, the period of ten years provided
for in Sec. 332 (a) NIRC, from the time of the discovery of falsity, fraud
or omission even seems to be inadequate and should be the one
enforced.
● The reconstruction of the property did not render it valueless during the
time it was being reconstructed and consequently it should be listed as
an asset as of January 1, 1946 (during the period of reconstruction)

Facts Matias Aznar filed his ITR for years 1946 - 1951. The CIR having doubts on the
veracity of the report, caused the BIR Examiner to investigate. It was found that
the net worth of Mr. Aznar increased every year hence, his networth was more
than the income he had declared. BIR Examiner notified the taxpayer of the
assessed tax deficiencies to the amount of 723,032.66 pesos on Nov. 28, 1952.
Moreover, the CIR through the City Treasurer of Cebu placed the properties of
Aznar under distraint and levy to secure the payment of deficiency income tax
in question. Aznar requested for reinvestigation, and as a result thereof, the tax
deficiency assessment was reduced to 381,096.07 on Feb. 16, 1955; which
such notice of the now reduced deficiency tax was received by Aznar on March
2, 1955. The lower concluded that the tax liability of Aznar for yrs 1946 - 1951
was 227, 788.64. Aznar, through his administrator, filed a petition contending
that the assessment of CIR had already lapsed (not the following the 5 year
prescriptive period under Sec. 331 of NIRC); and that the CIR erred in not
deducting the ff from his undeclared income:
1) Proceeds of jewelries valued at 30,000;
2) Schedules of assets of TP:
Including, accounts receivables, buildings (over valuation)
Issue WON CTA erred in:
a) Not deducting from the alleged undeclared income of the TP for yr 1946
the proceeds from the sale of jewelries valued at 30,000;
b) Not excluding from other schedules of assets of the taxpayer:
i) Accounts receivable from the customers, provision for doubtful
accounts;
ii) Over valuation of hospital and dental buildings;
iii) Investment in hollow block business;
iv) Over valuation of surplus goods
v) Variou lands and buildings included in the schedule of assets.

Whether or not the buildings that were destroyed by typhoon in 1949, should be
eliminated in petitioner’s inventory of assets beginning Dec. 31, 1949;

Whether or not the imposition of a 50% fraud penalty by the lower court is
proper.

Ruling From the above exposition of facts, we cannot but emphatically reiterate the
well established doctrine that fraud cannot be presumed but must be proven.
As a corollary thereto, we can also state that fraudulent intent could not be
deduced from mistakes however frequent they may be, especially if such
mistakes emanate from erroneous entries or erroneous classification of items in
accounting methods utilized for determination of tax liabilities The predecessor
of the petitioner undoubtedly filed his income tax returns for "the years 1946 to
1951 and those tax returns were prepared for him by his accountant and
employees. It also appears that petitioner in his lifetime and during the
investigation of his tax liabilities cooperated readily with the B.I.R. and there is
no indication in the record of any act of bad faith committed by him.

The lower court's conclusion regarding the existence of fraudulent intent to

evade payment of taxes was based merely on a presumption and not on
evidence establishing a willful filing of false and fraudulent returns so as to
warrant the imposition of the fraud penalty. The fraud contemplated by law is
actual and not constructive. It must be intentional fraud, consisting of deception
willfully and deliberately done or resorted to in order to induce another to give
up some legal right. Negligence, whether slight or gross, is not equivalent to the
fraud with intent to evade the tax contemplated by the law. It must amount to
intentional wrong-doing with the sole object of avoiding the tax. It necessarily
follows that a mere mistake cannot be considered as fraudulent intent, and if
both petitioner and respondent Commissioner of Internal Revenue committed
mistakes in making entries in the returns and in the assessment, respectively,
under the inventory method of determining tax liability, it would be unfair to treat
the mistakes of the petitioner as tainted with fraud and those of the respondent
as made in good faith.

We conclude that the 50% surcharge as fraud penalty authorized under Section
72 of the Tax Code should not be imposed, but eliminated from the income tax
deficiency for each year from 1946 to 1951, inclusive.
 5 San Agustin v. CIR
[del G.R. No. 138485
Rosario] September 10, 2011

Principle The delay in the payment of the deficiency tax within the time prescribed for its
payment in the notice of assessment justifies the imposition of 25% surcharge
in consonance with Sec. 248A(3) of the Tax Code.
Facts Atty. Jose San Agustin died on June 27, 1990 a holographic will executed on
April 21, 1980 giving all his estate to his widow, Dra. Felisa L. San Agustin.

Probate proceedings were instituted. An estate tax return reporting an estate

tax due of P1,676,432.00 was filed on behalf of the estate, with a request for an
extension of two years for the payment of the tax. BIR Deputy Commissioner
Victor A. Deoferio, Jr., granted the heirs an extension of only six (6) months,
subject to the imposition of penalties and interests under Sections 248 and 249
of the National Internal Revenue Code, as amended.

In the probate proceedings, the RTC allowed the will and appointed Jose Feria
as Executor of the estate. The executor paid the estate tax in the amount of
P1,676,432 within the six (6) months extension period granted by the BIR.

The widow of the deceased, Felisa L. San Agustin, received a Pre-Assessment

Notice from the BIR, showing a deficiency estate tax of P538,509.50, which,
including surcharge, interest and penalties, amounted to P976,540.00. Within
the ten-day period given in the pre-assessment notice, the executor filed a
letter with the petitioner Commissioner expressing readiness to pay the basic
deficiency estate tax but requesting that the surcharge, interest, and other
penalties, amounting to P438,040.38 be waived, considering that the assessed
deficiency arose only on account of the difference in zonal valuation used by
the Estate and the BIR, and that the estate tax due per return of P1,676,432.00
was already paid in due time within the extension period.

The Commissioner issued an Assessment Notice reiterating the demand in the

pre-assessment notice and requesting payment on or before thirty (30) days
upon receipt thereof.

The executor requested the Commissioner a reconsideration of the assessment

of P976,549.00 and waiver of the surcharge, interest, etc. which was denied
stating that there was no legal justification for the waiver. Nevertheless, the
payment of the basic deficiency tax in the amount of P538,509.50 was
accepted by the Commissioner.

In view thereof, the respondent estate paid the amount of the penalties under
protest. A Petition for Review was then filed by the executor with the CTA with
the prayer that the Commissioners letter/decision be reversed and that a refund
of the amount of the amount paid be ordered. The Commissioner opposed the
said petition, alleging that the CTAs jurisdiction was not properly invoked
inasmuch as no claim for a tax refund of the deficiency tax collected was filed
with the Bureau of Internal Revenue before the petition was filed, in violation of
Sections 204 and 230 of the National Internal Revenue Code.

Upholding its jurisdiction over the dispute, the CTA rendered its Decision
modifying the CIRs assessment for surcharge, interests and other penalties
from P438,040.38 to P13,462.74, representing interest on the deficiency estate
tax, for which reason the CTA ordered the reimbursement to the respondent
estate the balance excess payment.
Issue Whether the imposition by the respondent of surcharge, interest and penalties
on the deficiency estate tax is not in accord with the law and therefore illegal.

Ruling No. The delay in the payment of the deficiency tax within the time prescribed for
its payment in the notice of assessment justifies the imposition of a 25%
surcharge in consonance with Section 248A(3) of the Tax Code. The basic
deficiency tax in this case being P538,509.50, the twenty-five percent thereof
comes to P134,627.37. Section 249 of the Tax Code states that any deficiency
in the tax due would be subject to interest at the rate of twenty percent (20%)
per annum, which interest shall be assessed and collected from the date
prescribed for its payment until full payment is made.

Regrettably for petitioner, the need for an authority from the probate court in the
payment of the deficiency estate tax, over which respondent Commissioner has
hardly any control, is not one that can negate the application of the Tax Code
provisions aforequoted. Taxes, the lifeblood of the government, are meant to be
paid without delay and often oblivious to contingencies or conditions.

The deficiency assessment for surcharge, interest and penalties is modified

and recomputed to be in the amount of P148,090.00, surcharge of P134,627.37
and interest of P13,462.74. Petitioner estate having since paid the sum of
P438,040.38, respondent Commissioner is hereby ordered to refund to the
Estate of Jose San Agustin the overpaid amount of P289,950.38.
 6 CIR v. Reyes
[Surdilla] G.R. No. 159694
January 27, 2006

Principle Taxpayers must be informed in writing of the law and the facts upon which a tax
assessment is based; otherwise, the assessment is void. Being invalid, the
assessment cannot in turn be used as a basis for the perfection of a tax
compromise.
Facts Maria Tancino died leaving a residential lot and an old house located in Pasay
Road, Masmarinas Village, Makati City. On the basis of a
sworn-information-for-reward filed by Raymond Abad, RDO (South Makati)
conducted an investigation on the decedent’s estate. It issued a Return
Verification Order but without the required preliminary findings being submitted,
it issued a LOA for the regular investigation of the estate tax case. Azucena
Reyes, one of the decedents heirs, received the LOA.

The Chief Assessment Division, BIR, issued a preliminary assessment notice

against the estate in the amount of P14.5M. On May 10, 1998, the heirs of the
decedent received a final estate tax assessment notice and a demand letter
both dated April 22, 1998 for the amount of P14.9M inclusive of surcharge and
interest. On June 1, 1998, Felix Sumbillo protested the assessment on behalf of
the heirs on the ground that the subject property had already been sold by the
decedent sometime in 1990. On November 12, 1998, the CIR issued a
preliminary collection letter to Reyes, followed by a Final Notice Before Seizure
dated December 4, 1998.

On January 5, 1999, a Warrant of Distraint and/or Levy was served upon the
estate, followed on February 11, 1999 by Notices of Levy on Real Property and
Tax Lien against it.

On March 2, 1999, Reyes protested the notice of levy. However, on March 11,
1999, the heirs proposed a compromise settlement of P1M. Reyes proposed to
pay 50% of the basic tax due, citing the heirs’ inability to pay the tax
assessment. The CIR rejected Reyes’ offer. It demanded to pay P18M on or
before April 15, 2000 otherwise, the notice of sale of the subject property would
be published. Reyes again wrote the CIR proposing to pay 100% of the basic
tax due in the amount of P5.3M. The estate failed to pay its tax liability within
the April 15, 2000 deadline so the BIR notified Reyes on June 6, 2000 that the
subject property would be sold at public auction on August 8, 2000.

She filed a protest on June 13, 2000 with the BIR Appellate Division asserting
that the whole tax proceedings against the estate are void ab initio. She offered
to file the corresponding estate tax return and pay the correct amount of tax
without surcharge or interest. CIR instructed the Collection Enforcement
Division to proceed with the August 8, 2000 auction sale.

On June 28, 2000, Reyes filed a Petition for Review with the CTA. On July 17,
2000 she filed a Motion for the Issuance of a Writ of Preliminary Injunction or
Status Quo Order, which was granted by the CTA. Upon filing of a surety bond
in the amount of P27M, the CTA ordered the CIR to desist and refrain from
proceeding with the auction sale of the subject property or from issuing a
Warrant of Distraint or Garnishment of Bank Account, pending determination of
the case and/or unless a contrary order is issued.
 The CIR filed a Motion to Dismiss the petition but was denied by the CTA.
During the pendency of the Petition for Review with the CTA, the BIR issued an
RR and RMO offering certain taxpayers with delinquent accounts and disputed
assessments an opportunity to compromise their tax liability. Reyes filed an
application for the compromise settlement.

On February 19, 2001, Reyes filed a Motion to Declare Application for the
Settlement of Disputed Assessment as a Perfected Compromise. She alleged
that the CIR had not yet signed the compromise because of procedural red
tape requiring the initials of 4 Deputy Commissioners on relevant documents
before the compromise is signed by the CIR. Reyes posited that the absence of
the requisite initials and signatures on said documents does not vitiate the
perfected compromise.

The CIR countered that without the approval of the National Evaluation Board,
her application cannot be considered a perfected compromise. Her Motion was
denied so she filed an MR but was also denied. She filed a Supplemental
Petition for Review with the CTA. The CIR averred that an application for
compromise of a tax liability under the said RR and RMO requires evaluation
and approval of either the NEB or the REB, as the case may be. She filed a
Motion for Judgement on the Pleadings which was granted. The CTA denied
the Petition for Review and ordered to pay deficiency tax of P19.5M.

Issue Whether or not the assessment against the estate is valid.

Whether or not the compromise entered into is also valid.

Ruling No. The Sec. 228(2) of the Tax Code is clear and mandatory. It provides that
“the taxpayers shall be informed in writing of the law and the facts on which the
assessment is made: otherwise, the assessment shall be void.” In this case,
Reyes was not informed in writing of the law and the facts on which the
assessment of estate taxes had been made. She was merely notified of the
findings by the CIR. The RA 8424 has already amended the provision of Sec
229 on protesting an assessment. It was changed to notifying the taxpayer of
not only the law but also of the facts on which an assessment would be made;
otherwise, the assessment itself would be invalid.

The said law was already effective when the assessment notice and demand
letter were made. The act cannot be taken to mean that Reyes already knew
the law and the facts on which the assessment was based. The Letter of
Authority was for the sheer purpose of investigation and was not even the
requisite notice under the law.

The CIR should have required the assessment officers of the BIR to follow the
clear mandate of the new law. The old regulation governing the issuance of
estate tax assessment notices ran afoul of the rule that tax regulations should
be in harmony with and not supplant or modify the law. An administrative rule
interpretative of a statue and not declarative of certain rights and corresponding
obligations, is given retroactive effect as of the date of the effectivity of the
statute. Even if it was issued only on September 6, 1999, this regulation was to
retroact to January 1, 1998 a date prior to the issuance of the preliminary
assessment notice and demand letter. A void assessment bears no fruit.

It would be premature for this Court to declare that the compromise on the
estate tax liability has been perfected and consummated, considering the
earlier determination that the assessment against the estate was void. Nothing
has been settled or finalized.

Under Sec 204(A) of the Tax Code, where the basic tax involved exceeds P1M
or the settlement offered is less than the prescribed minimum rates, the
compromise shall be subject to the approval of the NEB composed of the
petitioner and 4 deputy commissioners.

Finally, this provision applies to all compromises, whether government-initiated

or not. Ubi lex non distinguit, nec nos ditinguere debemos. Where the law does
not distinguish, the courts should not distinguish.
 7 Marcos v. CA
[De G.R. No. 120880
Guzman] June 5, 1997

Principle The approval of the court, sitting in probate, or as a settlement tribunal over the
deceased is not a mandatory requirement in the collection of estate taxes. It
cannot therefore be argued that the Tax Bureau erred in proceeding with the
levying and sale of the properties allegedly owned by the late President, on the
ground that it was required to seek first the probate court's sanction. There is
nothing in the Tax Code, and in the pertinent remedial laws that implies the
necessity of the probate or estate settlement court's approval of the state's
claim for estate taxes, before the same can be enforced and collected.

The nature of the process of estate tax collection has been described as
follows: "Strictly speaking, the assessment of a inheritance tax does not directly
involve the administration of a decedent's estate, although it may be viewed as
an incident to the complete settlement of an estate, and, under some statutes, it
is made the duty of the probate court to make the amount of the inheritance tax
a part of the final decree of distribution of the estate… In the Philippine
experience, the enforcement and collection of estate tax, is executive in
character, as the legislature has seen it fit to ascribe this task to the Bureau of
Internal Revenue.

Facts ● Bong Bong / Marcos II questions the CIR/Commissioner of Internal

Revenue in assessing and collecting through the summary remedy of
Levy on Real Properties of the properties of his father despite the
pendency of the proceedings on probate of the will of the late president.
● CA Decision: deficiency assessment for Marcos have already become
final and unappealable and thus may be enforced by summary remedy
of levy as was done by the CIR
● Following the death of Marcos in Hawaii, the BIR issued assessments:
○ Estate tax assessment deficiency P23, 293, 607, 638
○ Deficiency income tax for the years 1985 and 86 of P149,
551.70 and P184,009
○ Deficiency in income tax assessment worth P258.7 ; P9,386,
and P6,373 for years 1982-1985

Issue Whether the CA erred in ruling that the summary tax remedy resorted is not
affected and precluded by the pendency of the special proceeding for the
allowance of the late President’s will.
Ruling NO.
● It is discernible that the approval of the court, sitting in probate, or as a
settlement tribunal over the deceased is not a mandatory requirement in
the collection of estate taxes. It cannot therefore be argued that the Tax
Bureau erred in proceeding with the levying and sale of the properties
allegedly owned by the late President, on the ground that it was
required to seek first the probate court's sanction. There is nothing in
the Tax Code, and in the pertinent remedial laws that implies the
necessity of the probate or estate settlement court's approval of the
state's claim for estate taxes, before the same can be enforced and
collected.|||
● under Section 87 of the NIRC, it is the probate or settlement court which
is bidden not to authorize the executor or judicial administrator of the
decedent's estate to deliver any distributive share to any party
interested in the estate, unless it is shown a Certification by the
Commissioner of Internal Revenue that the estate taxes have been
paid. This provision disproves the petitioner's contention that it is the
probate court which approves the assessment and collection of the
estate tax.
 8 PNB v. Santos
[Moico] G.R. No. 208293
December 10, 2014

Principle The standard of diligence required of banks is higher than the degree of
diligence of a good father of a family.|||
Facts Respondents are children of Angel C. Santos who died on March 21, 1991.
Sometime in May 1996, respondents discovered that their father maintained a
premium savings account with Philippine National Bank (PNB),Sta.
Elena-Marikina City Branch. As of July 14, 1996, the deposit amounted to
P1,759,082.63. Later; respondents would discover that their father also had a
time deposit of P1,000,000.00 with PNB.
Respondents went to PNB to withdraw their father's deposit.
Lina B. Aguilar, the Branch Manager of PNB-Sta. Elena-Marikina City Branch,
required them to submit the following:
(1) original or certified true copy of the Death Certificate of Angel C.
Santos;
(2) certificate of payment of, or exemption from, estate tax issued by the
Bureau of Internal Revenue (BIR);
(3) Deed of Extrajudicial Settlement;
(4) Publisher's Affidavit of publication of the Deed of Extrajudicial
Settlement; and
(5) Surety bond effective for two (2) years and in an amount equal to the
balance of the deposit to be withdrawn.
By April 26, 1998, respondents had already obtained the necessary
documents. They tried to withdraw the deposit. However, Aguilar informed
them that the deposit had already "been released to a certain Bernardito
Manimbo (Manimbo) on April 1, 1997." An amount of P1,882,002.05 was
released upon presentation of:
(a) an affidavit of self-adjudication purportedly executed by one of the
respondents, Reyme L. Santos;
(b) a certificate of time deposit dated December 14, 1989 amounting to
P1,000,000.00; and
(c) the death certificate of Angel C. Santos, among others.
A special power of attorney was purportedly executed by Reyme L. Santos in
favor of Manimbo and a certain Angel P. Santos for purposes of withdrawing
and receiving the proceeds of the certificate of time deposit.
On May 20, 1998, respondents filed before the Regional Trial Court of
Marikina City a complaint for sum of money and damages against PNB, Lina
B. Aguilar, and a John Doe. Respondents questioned the release of the
deposit amount to Manimbo who had no authority from them to withdraw their
father's deposit and who failed to present to PNB all the requirements for
such withdrawal.
 PNB and Aguilar denied that Angel C. Santos had two separate accounts
(premium deposit account and time deposit account) with PNB. They alleged
that Angel C. Santos' deposit account was originally a time deposit account
that was subsequently converted into a premium savings account. They also
alleged that Aguilar did not know about Angel C. Santos' death in 1991
because she only assumed office in 1996. Manimbo was able to submit an
affidavit of self-adjudication and the required surety bond. He also submitted
a certificate of payment of estate tax dated March 31, 1997. All documents he
submitted appeared to be regular.

RULING OF THE RTC:

The trial court held that PNB and Aguilar were jointly and severally liable to
pay respondents the amount of P1,882,002.05 with an interest rate of 6%
starting May 20, 1998.
● They were both negligent in releasing the deposit to Manimbo.
● They failed to notify the depositor about the maturity of the time
deposit and the conversion of the time deposit into a premium savings
account.
● They failed to cancel the certificate of time deposit despite conversion.
● They failed to require the production of birth certificates to prove
claimants' relationship to the depositor.
● They relied on the affidavit of self-adjudication when several persons
claiming to be heirs had already approached them previously.
RULING OF THE CA:
CA sustained the decision of the RTC. It held that PNB and Aguilar were
negligent in handling the deposit.

Issue Whether Philippine National Bank was negligent in releasing the deposit to
Bernardito Manimbo
Ruling Yes. Banking is a business that is impressed with public interest. the bank is
under obligation to treat the accounts of its depositors with meticulous care,
always having in mind the fiduciary nature of their relationship. The public
reposes its faith and confidence upon banks, such that "even the humble
wage-earner has not hesitated to entrust his life's savings to the bank of his
choice, knowing that they will be safe in its custody and will even earn some
interest for him." This is why we have recognized the fiduciary nature of the
banks' functions, and attached a special standard of diligence for the exercise
of their functions. Petitioners PNB and Aguilar's treatment of Angel C. Santos'
account is inconsistent with the high standard of diligence required of banks.
They accepted Manimbo's representations despite knowledge of the existence
of circumstances that should have raised doubts on such representations. As a
result, Angel C. Santos' deposit was given to a person stranger to him.
Petitioners PNB and Aguilar either have no fixed standards for the release of
their deceased clients' deposits or they have standards that they disregard for
convenience, favor, or upon exercise of discretion. Both are inconsistent with
the required diligence of banks. Petitioners PNB and Aguilar released Angel C.
Santos' deposit to Manimbo without having been presented the BIR-issued
certificate of payment of, or exception from, estate tax. This is a legal
requirement before the deposit of a decedent is released. Petitioners PNB and
Aguilar claimed that Manimbo presented a certificate of payment of estate tax.
During trial, however, it turned out that this certificate was instead an authority
to accept payment, which is not the certificate required for the release of bank
deposits. It appears that Manimbo was not even required to submit the BIR
certificate. He, thus, failed to present such a certificate. Petitioners PNB and
Aguilar provided no satisfactory explanation why Angel C. Santos' deposit was
released without it.
 9 Zapanta v. Posadas
[Era] G.R. No. 29204
December 29, 1928

Principle Neither can these donations be considered as an advance on inheritance or

legacy, according to the terms of section 1536 of the Administrative Code,
because they are neither an inheritance nor a legacy. And it cannot be said that
the plaintiffs received such advance on inheritance or legacy, since they were
not heirs or legatees of their predessor in interest upon his death (sec. 1540 of
the Administrative Code). Neither can it be said that they obtained this
inheritance or legacy by virtue of a document which does not contain the
requisites of a will (sec. 618 of the Code of Civil Pocedure).

Facts Fr. Pineda died without any ascendant and descendant, whilst leaving a will in
which he instituted his sister Irene Pineda as his sole heiress.

During his lifetime, Fr. Pineda donated some of his properties to six plaintiffs
who are his relatives; some of them are his brothers. These six plaintiffs filed a
separate action against the CIR under protest for the inheritance tax they paid
on the property donated to them.

The trial court held that the donations made by Fr. Pineda are donations inter
vivos and therefore not subject to inheritance tax. Hence, it ordered the
defendants to return to each of the plaintiffs the sums paid by the latter.

The defendant appealed from this judgment of trial court.

Issue Whether or not the donations are considered as advances.

Ruling NO.
 10 Tuazon v. Posadas
[Maravilla] G.R. No. L-30885
January 23, 1930

Principle SEC. 1536. Conditions and rate of taxation. — Every transmission by virtue of
inheritance, devise, bequest, gift mortis causa, or advance in anticipation of
inheritance, devise, or bequest shall be subject to the following tax;

Section 1540 of the same code then provides:

SEC. 1540. Additions of gifts and advances. — After the aforementioned

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.
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.

Furthermore, the defendant collected the sums of P3,809.76 and P6,653.64

from plaintiffs Mariano Tuason y Angeles and Alfonso Tuason y Angeles
against their opposition and over their protest as inheritance tax upon the gifts
inter vivos made to them.

The plaintiffs brought this action against the Collector of Internal Revenue for
the recovery of the amounts of P3,809.76 and P6,653.64 collected from them
as inheritance tax.

The judgment appealed from ordered the defendant to return the amounts
claimed to the plaintiffs.

The appellant contends that the collection of these amounts as inheritance tax
is authorized by the law.

Issue Whether the donation inter vivos made to the plaintiffs shall be subjected to
inheritance tax (estate tax)
Ruling Yes, the donation inter vivos made to the plaintiffs shall be subjected to
inheritance tax (estate tax)

Section 1536 of the Administrative Code provides:

SEC. 1536. Conditions and rate of taxation. — Every transmission by virtue of

inheritance, devise, bequest, gift mortis causa, or advance in anticipation of
inheritance, devise, or bequest shall be subject to the following tax;

Section 1540 of the same code then provides:

SEC. 1540. Additions of gifts and advances. — After the aforementioned

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.

In this phrase “there shall be added to the resulting amount the value of all gifts
mortis causa . . . made by the predecessor to those who, after his death, shall
prove to be his . . . donees mortis causa.", the law presumes that 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.

In this case, 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.

11 Dizon v. Posadas
[Pilar] G.R. No. L-36770
November 4, 1932
Principle Section 1540 of the Administrative Code subjects the plaintiff and appellant the
payment of the inheritance tax upon the gift inter vivos who received from his
father and which really was an advancement upon the inheritance he would be
entitled to receive upon the death of the donor

Section 1540 of the Administrative Code does not tax gifts per se but only when
those gifts are made to those who shall prove to be the heirs, devises, legatees
or donees mortis cause of the donor

Facts This is an appeal from the decision of the court of first instance of pampanga in
favor of the defendant Juan Posados, Jr., Collector of Internal Revenue in a suit
filed by the plaintiff Luis Dizon for the recovery of an inheritance tax in the sum
of 2,808.73 paid protest

According to Dizon, the tax is illegal because he received the property which is
the basis of the tax, from his father before his death by a deed of gift inter vivos
which was duly accepted and registered before the death of his father

However, Posadas Jr, denied with counterdemand for the sum of of 1,254.56.
Which it was alleged is a balance still due and unpaid on account of said tax

The court held that the cause of action in the counterdemand was not proven
hence it was dismissed

The only evidence introduced at the trial of this case was the proof of payment
of the tax under protest and the deed of gift executed by felix dizon in favor of
his son Luis Dison.

According to the plaintiff-appellant he received and holds the property

mentioned by a consummated gift and that Act No. 2601 or Chapter 40 of the
Administrative Code being the inheritance tax statute, does not tax gifts

Issue Whether or not Sec 1540 of the Administrative Code subject the
plaintiff-appellant to the payment of an inheritance Tax?
Ruling Under the facts presented, as an advance made by Felix Dison to his only
child, it was held that Section 1540 to be applicable and the tax to have been
properly assessed by the collector of internal revenue

Neither the title of Act No. 2601 nor chapter 40 of the Administrative Code
makes any reference to a tax on gifts. Perhaps it is enough to say of this
contention that section 1540 plainly does not tax gifts per se but only when
those gifts are made to those who shall prove to be the heirs, devisees,
legatees or donees mortis cause of the donor

This court said in the case of Tuason and Tuason v. Posadas (54 Phil 289)
“When the law says all gifts, it doubtless refers to gifts inter vivos and not mortis
causa. Both the letter and spirit of the law leave no room for any other
interpretation. The tenor of the language which refers to donations 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
 12 Vidal del Roces v. Posadas
CRUZ, Sam G.R. No. L-34937
March 13, 1993

WILL FIX AFTER

Principle TRANSFER MADE IN CONSIDERATION OF DEATH (Sec 85 (b), NIRC)

Facts On March 10 and 12, 1925, Esperanza Tuazon donated certain parcels of land
situated in Manila to the plaintiffs herein, who accepted them. On January 5,
1926, the donor died in the City of Manila 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, the appellee herein, as
Collector of Internal Revenue, ruled that the appellants as donees and
legatees, should pay as inheritance tax the sums of P16,673 and P13,951.45,
respectively under Sec. 1540 of the Administrative Code. At first the appellants
refused to pay the aforementioned taxes but, at the insistence of the appellee
and in order not to delay the adjudication of the legacies, they agreed at last, to
pay them under protest. The appellee filed a demurrer to the complaint on the
ground that the facts alleged therein were not sufficient to constitute a cause of
action. The court sustained the demurrer and ordered the amendment of the
complaint which the appellants failed to do, causing the dismissal of the action
on the ground that the appellants did not really have a right of action. Plaintiffs
appealed on the ground that the demurrer interposed by the appellee was
sustained without sufficient ground.

Issue 1. Whether or not Sec. 1540 of the Administrative Code includes donations
inter vivos. - YES
2. If Sec. 1540 includes donations inter vivos, whether or not it is
unconstitutional on the basis of:
a. The title of the law should not embrace more than one subject,
and that the subject should be expressed in the title thereof
b. The Legislature has no authority to impose inheritance tax on
donations inter vivos
c. It contravences the fundamental rule of Uniformity of Taxation
Ruling The gifts referred to in section 1540 of the Revised Administration Code 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, which act does not
come within the scope of the provisions contained in Article XI of Chapter 40 of
the Administrative Code which deals expressly with the tax on inheritances,
legacies and other acquisitions mortis causa.

A. Its provisions are perfectly summarized in the heading, "Tax on Inheritance,

etc." which is the title of Article XI. Furthermore, the constitutional provision
cited should not be strictly construed as to make it necessary that the title
contain a full index to all the contents of the law. It is sufficient if the language
used therein is expressed in such a way that in case of doubt it would afford a
means of determining the legislators intention. Lastly, in a compilation of laws
such as the Administrative Code, it is but natural and proper that provisions
referring to diverse matters should be found.

B. The tax collected by the appellee on the properties donated in 1925 really
constitutes an inheritance tax imposed on the transmission of said properties in
contemplation or in consideration of the donor's death and under the
circumstance that the donees were later instituted as the former's legatees. For
this reason, the law considers such transmissions in the form of gifts inter vivos,
as advances on inheritance and nothing therein violates any constitutional
provision, inasmuch as said legislation is within the power of the Legislature.

C. 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. There would be
a repugnant and arbitrary exception if the provisions of the law were not
applicable to all donees of the same kind. In the case cited above, it was said:
"At any rate the argument adduced against its constitutionality, which is the lack
of Uniformity, does not seem to be well founded. It was said that under such an
interpretation, while a donee inter vivos who, after the predecessor's death
proved to be an heir, a legatee, or a donee mortis causa, would have to pay the
tax, another donee inter vivos who did not prove to he an heir, a legatee, or a
donee mortis causa of the predecessor, would be exempt from such a tax. But
as these are two different cases, the principle of uniformity is inapplicable to
them."

VILLAREAL, dissent
Presumptions are of two kinds: One determined by law which is also called
presumption of law or of right; and another which is formed by the judge from
circumstances antecedent to, coincident with or subsequent to the principal fact
under investigation, which is also called presumption of man (presuncion de
hombre). The Civil Code as well as the code of Civil Procedure establishes
presumptions juris et de jure and juris tantum which the courts should take into
account in deciding questions of law submitted to them for decision. The
presumption which majority opinion wishes to draw from said section 1540 of
the Administrative Code can neither be found in this Code nor in any of the
aforementioned Civil Code and Code of Civil Procedure. Therefore, said
presumption cannot be called legal or of law. Neither can it be called a
presumption of man (presuncion de hombre) inasmuch as the majority opinion
did not infer it from circumstances antecedent to, coincident with or subsequent
to the principal fact with is the donation itself. In view of the nature, mode of
making and effects of donations inter vivos, the contrary presumption would be
more reasonable and logical; in other words, 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
 GROSS ESTATE - Rule for Imposition

13 Collector v. Fisher
[Lunar] 1 SCRA 9

Principle Reciprocity of exemption

Facts Walter Stevenson was born in the Philippines of British parents and
married Beatrice, another British. He then died in California where his
family resides permanently. He instituted Beatrice as his sole heiress
to his properties acquired in the Philippines. Ian Statt was appointed
the ancillary administrator of the estate and filed a preliminary estate
and inheritance tax return to secure the waiver of the Commission of
Internal Revenue on the inheritance tax on the Mines share of the
stock.

The CIR then assessed all the taxes to be paid and it was paid. After 6
months, Statt filed an amended estate and inheritance tax return in
pursuance of his reservation of the right granted by Sec 91, National
Internal Revenue of Code or the Reciprocity Provision and wanted
to get a refund of what he initially paid.
a. The Mindanao Mother Lode Mines Inc was from P.38 to
P.20 per share based on the market quotation at the San
Francisco Stock Exchange

Meanwhile, Beatrice assigned all her rights and interests in the estate
to the spouses Fisher (the respondents) A second amended return
was filed
a. Deduction of P4,000 from the gross estate as provided for
by Sec 861(4), US Federal Internal Revenue Code
pursuant to the reciprocity provision of NIRC (Sec 122)
b. Exemption from the imposition of inheritance and estate tax
on Mine’s shares

CIR denied the claim. An action was commenced in the Court of First
Instance of Manila, and forwarded to the Court of Tax Appeals.
Both the parties appealed from the decision of the Court of Tax
Appeals, hence this petition

Petitioner disputes the action of the Tax Court in exempting the

respondents from paying inheritance tax on the 210,000 shares of
stock in the Mindanao Mother Lode Mines, Inc. in virtue of the
reciprocity proviso of Section 122 of the National Internal Revenue
Code, in relation to Section 13851 of the California Revenue and
Taxation Code, on the ground that: (1) the said proviso of the California
Revenue and Taxation Code has not been duly proven by the
respondents; (2) the reciprocity exemptions granted by section 122 of
the National Internal Revenue Code can only be availed of by residents
of foreign countries and not of residents of a state in the United States;
and (3) there is no "total" reciprocity between the Philippines and the
state of California in that while the former exempts payment of both
estate and inheritance taxes on intangible personal properties, the
latter only exempts the payment of inheritance tax.
Issue Whether or not the estate can avail itself of the reciprocity provision in
Sec 122 of the National Internal Revenue Code

Whether or not the estate is entitled to the deduction of P4000 allowed by

Sec 861, US Internal Revenue Code, in relation to Sec 122 of the
National Internal Revenue Code.
Ruling 1. Reciprocity must be total: There is no partial reciprocity. In the Philippines,
estate and inheritance is taxed. In California, there’s only estate tax, no
reciprocity clause. Therefore, the Filipino is always at a disadvantage, and this
is not the intent of the legislators. Therefore, the reciprocity provision of Sec
122, NIRC would not apply.

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 be 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 there by 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.

2. To prove the pertinent California law, Attorney Allison Gibbs, counsel for
herein respondents, testified that as an active member of the California Bar
since 1931, he is familiar with the revenue and taxation laws of the State of
California. When asked by the lower court to state the pertinent California law
as regards exemption of intangible personal properties, the witness cited article
4, sections 13851 (a) and (b) of the California Internal and Revenue Code as
published in Deerings's California Code, a publication of the Bancroft-Whitney
Company, Inc. And as part of his testimony, a full quotation of the cited section
was offered in evidence as Exhibit "V-2" by the respondents.

With respect to the question of deduction or reduction in the amount of

P4,000.00 based on the U. S. Federal Estate Tax Law which is also being
claimed by respondents, we uphold and adhere to our ruling in the Lara case
(supra) that the amount of $2,000.00 allowed under the Federal Estate Tax Law
is in the nature of a deduction and not of an exemption regarding which
reciprocity cannot, be claimed under the proviso of section 122 of our National
Internal Revenue Code. Nor is reciprocity authorized under the Federal Law.
Question & Answers:
1. What is the prescriptive period for the assessment and collection?
a. What are the grounds?

Prescriptive Period
Assessment & Collection
a. 3 years
b. 10 years from the date of discovery on the ground of FAME.

SEC. 203. Period of Limitation Upon Assessment and Collection. - Except as provided
in Section 222, internal revenue taxes shall be assessed within three (3) years after
the last day prescribed by law for the filing of the return, and no proceeding in court
without assessment for the collection of such taxes shall be begun after the expiration
of such period: Provided, That in a case where a return is filed beyond the period
prescribed by law, the three (3)-year period shall be counted from the day the return
was filed. For purposes of this Section, a return filed before the last day prescribed by
law for the filing thereof shall be considered as filed on such last day

Grounds for Compromise

a. A reasonable doubt as to the validity of the claim against the TP exists; or
b. The financial position of the TP demonstrates clear inability to pay the assessed
tax.

Grounds for Abatement

a. The tax or any portion thereof appears to be unjustly or excessively assessed; or
b. The administration and collection costs involved do not justify the collection of the
amount due.

SEC. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit
Taxes. - The Commissioner may -

(A) Compromise the Payment of any Internal Revenue Tax, when:

(1) A reasonable doubt as to the validity of the claim against the taxpayer exists; or
(2) The financial position of the taxpayer demonstrates a clear inability to pay the
assessed tax.

The compromise settlement of any tax liability shall be subject to the following
minimum amounts:
For cases of financial incapacity, a minimum compromise rate equivalent to ten
percent (10%) of the basic assessed tax; and
 For other cases, a minimum compromise rate equivalent to forty percent (40%) of the
basic assessed tax.

Where the basic tax involved exceeds One million pesos (P1,000.000) or where the
settlement offered is less than the prescribed minimum rates, the compromise shall be
subject to the approval of the Evaluation Board which shall be composed of the
Commissioner and the four (4) Deputy Commissioners.

(B) Abate or Cancel a Tax Liability, when:

(1) The tax or any portion thereof appears to be unjustly or excessively assessed; or
(2) The administration and collection costs involved do not justify the collection of the
amount due.

All criminal violations may be compromised except: (a) those already filed in court, or
(b) those involving fraud.

2. Can the heirs ask that the payment be by installment? (under the TRAIN Law)
a. Can the Commissioner require payment of interest and penalty if it is payment by
installment?
b. If extension, can it be subject to interest and penalty?
c. Interest rate under the TRAIN Law?
3. If there is an extension of payment and the estate was not able to pay, can the BIR run
after the heirs for the full amount, regardless of the amount of inheritance?
4. What is the effect if you fail to file the protest?
5. Remedy against the assessment?
6. You file the protest before whom?
7. If there is no decision on the protest, what is the remedy of the TP/heir?
 DONOR’S TAX
Notes

Donation - an act of liberality whereby a person disposes gratuitously of a thing or right in favor
of another who accepts it.
● The transferor must have the intent to do an act of liberality or animus donandi.

Donor’s Tax - a tax imposed on the gratuitous transfer of property during the transferor’s
lifetime.
● The tax shall only be due in case the transfer is not for a consideration or subject to any
condition, or there is a consideration but the same does not constitute a demandable
debt (i.e. remuneratory donation).

Remember:
● It is a tax on the transferor.
● The transferor however may transfer the tax burden to the transferee as a condition for
the effectivity of the transfer (See Art. 726 of the Civil Code)

Donor:
a. Natural or Juridical person
b. Citizen or non-citizen
c. Resident or nonresident of the pH

Q: Are donations made in a foreign country by a nonresident alien subject to donor’s tax in the
Philippines?
➔ NO.

Q: What is the basis of donor’s tax?

➔ Net gift - the net economic benefit from the transfer that accrues to the donee.

Rate: uniform rate of 6% on the annual net gifts in excess of 250,000 pesos.

TRAIN Law amendments:

● It does not consider the relationship between the donor and the donee anymore.
(uniform tax rate of 6% applicable whether the donee is relative or stranger)
● It does not distinguish between donations made to relatives and to strangers.

● The value of exempt gifts was increased from ₱100,000 to ₱250,000.

Tax Credit in Donor’s Tax

- Only permitted for donations in foreign countries made by a:
a. Filipino citizens; or
 b. Philippine residents

Basis rules on donation (for Donor’s tax to apply)

● The donation must be accepted by the donee and related to the donor during his
lifetime2

Formalities of donation:
a. Both the donation and the acceptance must be in writing;
b. If the property donated is real property - the donation must be made in a public
instrument specifying the property donated and the value of the charges which
the donee must satisfy;
c. The acceptance of the donation of real property is made in the same public
instrument, or in a separate instrument with notice to the donor in an authentic
form, which must be indicated in both instruments.

Legal Bases:

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. -

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.

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.

Note: The rate of donor’s tax is six percent (6%) regardless of whether the donee is considered
a relative or a stranger.

2
Article 734. The donation is perfected from the moment the donor knows of the acceptance by the
donee. (NCC)
 SEC. 100. Transfer for Less Than Adequate and Full Consideration. - Where property,
other than real property referred to in Section 24(D)3, 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 worth4

Exemption of Certain Gifts (Sec. 101)

In case of gifts made by a

Tax Credit for Donor's Taxes Paid to a
Resident Nonresident not a Foreign Country
Citizen of the PH

Gifts made to or for the use of the National (1) In General. - The tax imposed by this Title
Government or any entity created by any of upon a donor who was a citizen or a resident
its agencies which is not conducted for profit, at the time of donation shall be credited with
or to any political subdivision of the said the amount of any donor's tax of any
Government character and description imposed by the
authority of a foreign country.
Gifts in favor of an educational and/or
charitable, religious, cultural or social welfare (2) Limitations on Credit. - The amount of the
corporation, institution, accredited credit taken under this Section shall be
nongovernment organization, trust or subject to each of the following limitations:
philanthropic organization or research
institution or organization. Provided, (a) The amount of the credit in respect to the
however, That not more than thirty percent tax paid to any country shall not exceed the
(30%) of said gifts shall be used by such same proportion of the tax against which
donee for administration purposes. 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.

SEC. 102. Valuation of Gifts Made in Property. - If the gift is made in property, the fair

3
Sec. 24 (D) Capital Gains from Sale of Real Property.
4
Introduced by Sec. 29 of the TRAIN.
 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. 88. Determination of the Value of the Estate. -

xxx
(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.

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 Commission

Requirements in filing of return: (GDPDF)

1. Gift
2. Deductions
3. Previous net gifts
4. Donee’s name
5. Further information
Time of filing of return: within 30 days from the date the gift is made.

Time of payment: at the time of filing.

Where to file the return and pay the tax:

● Authorized agent bank
● Revenue District Officer (RDO)
● Revenue Collection Officer; or
● Duly Authorized Treasurer
○ of the city or municipality where the donor was domiciled at the time of the
transfer.
● Office of the Commissioner
- if there be no legal residence in the Philippines
● Philippine Embassy or Consulate
- in the case of gifts made by a nonresident
- in the country where he is domiciled at the time of the transfer
- can be made directly with the Officer of the Commissioner
* Except in cases where the Commissioner otherwise permits.
 14 Lladoc v. Commissioner of Internal Revenue
[Bellosillo, G.R. No. L-19201
Mikhail] June 16, 1965

Principle A gift tax is not a property tax, but an excise tax imposed on the transfer of
property by way of gift inter vivos, the imposition of which on property used
exclusively for religious purposes, does not constitute an impairment of the
Constitution.

Facts This is an appeal of the decision of the CTA affirming the assessment of the
CIR requiring petitioner Casimiro Lladoc to pay the donee’s gift tax. The action
came after then parish priest Rev. Crispin Ruiz received a P10,000 donation for
the construction of a new Catholic Church from M.B. Estate, Inc of Bacolod
City. The CIR then assessed the Catholic Parish of Victorias liable to pay said
tax. The petitioner now contends that the assessment should be withdrawn
because: (1) he was not the parish priest at the time the donation was received;
(2) that there is no juridical entity known as the Catholic Parish of Victorias; and
(3) that the assessment of gift tax against the Roman Catholic Church was in
clear violation of the tax exemption granted by the Constitution.

Issue Whether or not a parish priest may be liable for taxes incurred by his
predecessor (CTA ISSUE)

Whether or not the assessment is violative of the Constitution (SC ISSUE)

Ruling YES, a parish priest may be liable for a tax incurred by his predecessor. As per
the CTA as affirmed by the Court in this case, Parish priests of the Roman
Catholic Church under canon laws are similarly situated as its Archbishops and
Bishops with respect to the properties of the church within their parish. They
are the guardians, superintendents or administrators of these properties, with
the right of succession and may sue and be sued. Thus, tax incurred by a
previous parish priest may be charged against his successor who is the
administrator of the parish properties.

NO, the assessment of donee’s gift tax in this case is not violative of the
Constitution. It is a cardinal rule in taxation that exemptions from payment
thereof are highly disfavored by law, and the party claiming exemption must
justify his claim by a clear, positive, or express grant of such privilege by law.
Section 22 (3), Art. VI of the Constitution of the Philippines, exempts from
taxation cemeteries, churches and parsonages or convents, appurtenant
thereto, and all lands, buildings, and improvements used exclusively for
religious purposes. The exemption is only from the payment of taxes assessed
on such properties enumerated, as property taxes, as contra distinguished from
excise taxes.

In this case, what the Collector assessed was a donee's gift tax; the
assessment was not on the properties themselves. It did not rest upon general
ownership; it was an excise upon the use made of the properties, upon the
exercise of the privilege of receiving the properties. A gift tax is not a property
tax, but an excise tax imposed on the transfer of property by way of gift inter
vivos, the imposition of which on property used exclusively for religious
purposes, does not constitute an impairment of the Constitution. As well
observed by the learned respondent Court, the phrase "exempt from taxation,"
as employed in the Constitution (supra) should not be interpreted to mean
exemption from all kinds of taxes.

Thus, there being no clear, positive or express grant of such privilege by law, in
favor of petitioner, the exemption herein must be denied.
 15 Abello, et al. v. Commissioner of Internal Revenue
[Querubin, G.R. No. 120721
Queenie] February 23, 2005

Principle gift not defined in the Tax Code – Civil Code definition on donation applies;
election contributions are subject to gift tax – they are not exempt even if such
transfers are with intentions, motives or purpose.

Facts During the 1987 national elections, petitioners, who are partners in the Angara,
Abello, Concepcion, Regala and Cruz (ACCRA) law firm, contributed
P882,661.31 each to the campaign funds of Senator Edgardo Angara, then
running for the Senate. BIR assessed each of the petitioners P263,032.66 for
their contributions. Petitioners questioned the assessment to the BIR, claiming
that political or electoral contributions are not considered gifts under the NIRC
so they are bot liable for donor's tax. The claim for exemption was denied by
the Commisioner. The CTA rule in favor of the petitioners but such ruling was
overturned by the CA,, thus this petition for review.

Issue Whether or not electoral contributions are subject to donor’s tax.

Ruling Yes, they are. The NIRC does not define transfer of property by gift.
However, Article 18 of the Civil Code, states: “In matters which are
governed by the Code of Commerce and special laws, their deficiency shall
be supplied by the provisions of this Code.” Thus, reference may be made
to the definition of a donation in the Civil Code. Article 725 of said Code
defines donation as: “. . . an act of liberality whereby a person disposes
gratuitously of a thing or right in favor of another, who accepts it.”

Donation has the following elements: (a) the reduction of the patrimony of
the donor; (b) the increase in the patrimony of the donee; and, (c) the intent
to do an act of liberality or animus donandi.

The present case falls squarely within the definition of a donation.

Petitioners each gave P882,661.31 to the campaign funds of Senator
Edgardo Angara, without any material consideration. All three elements of a
donation are present. The patrimony of the four petitioners were reduced by
P882,661.31 each. Senator Angara’s patrimony correspondingly increased
by P3,530,645.24. There was intent to do an act of liberality or animus
donandi was present since each of the petitioners gave their contributions
without any consideration. Taken together with the Civil Code definition of
donation, Section 91 of the NIRC is clear and unambiguous, thereby
leaving no room for construction.

Since animus donandi or the intention to do an act of liberality is an

essential element of a donation, petitioners argue that it is important to
look into the intention of the giver to determine if a political contribution is a
gift. Petitioners’ argument is not tenable. First of all, donative intent is a
creature of the mind. It cannot be perceived except by the material and
tangible acts which manifest its presence. This being the case, donative
intent is presumed present when one gives a part of ones patrimony to
another without consideration. Second, donative intent is not negated
when the person donating has other intentions, motives or purposes which
do not contradict donative intent. This Court is not convinced that since the
purpose of the contribution was to help elect a candidate, there was no
donative intent.

Petitioners’ contribution of money without any material consideration evinces

animus donandi.
Petitioner’s claim that since the purpose of electoral contributions is to
influence the results of the elections, donative intent is not present. They
claim that the purpose of electoral contributions is brought on by the desire of
the giver to influence the result of an election by supporting candidates who
would influence the shaping of government policies that would promote the
general welfare and economic well-being of the electorate, including the
giver himself. Petitioners attempt to place the barrier of mutual exclusivity
between donative intent and the purpose of political contributions. This Court
reiterates that donative intent is not negated by the presence of other
intentions, motives or purposes which do not contradict donative intent.
Petitioners’ attempt is strained. The fact that petitioners will somehow in the
future benefit from the election of the candidate to whom they contribute, in
no way amounts to a valuable material consideration so as to remove
political contributions from the purview of a donation. Senator Angara was
under no obligation to benefit the petitioners. The proper performance of his
duties as a legislator is his obligation as an elected public servant of the
Filipino people and not a consideration for the political contributions he
received. In fact, as a public servant, he may even be called to enact laws
that are contrary to the interests of his benefactors, for the benefit of the
greater good.
 16 The Philippine American Life and General Insurance Company v. The
[Miranda] Secretary of Finance and the Commissioner of Internal Revenue
G.R. No. 210987
November 24, 2014

Principle
The absence of donative intent 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 and 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 shares in PhilamCare Health Systems, Inc. (PhilamCare). In 2009,
Philamlife offered to sell its shareholdings in PhilamCare through competitive
bidding. Philamlife’s shares were sold to STI Investments, Inc., who emerged
as the highest bidder. After the sale, Philamlife filed an application for a
certificate authorizing registration/tax clearance with the Bureau of Internal
Revenue (BIR) Large Taxpayers Service Division to facilitate the transfer of the
shares. Months later, Philamlife was informed that it needed to secure a BIR
ruling in connection with its application due to potential donor's tax liability.
Philamlife requested a ruling to confirm that the sale was not subject to donor's
tax, pointing out that the transaction cannot attract donor's tax liability since
there was no donative intent and no taxable donation that the shares were sold
at their actual fair market value and at arm's length; that as long as the
transaction conducted is at arm's length — such that a bona fide business
arrangement of the dealings is done in the ordinary course of business — a
sale for less than an adequate consideration is not subject to donor's tax; and
that donor's tax does not apply to sale of shares sold in an open bidding
process. However, Commissioner on Internal Revenue (Commissioner) denied
Philamlife's request as he determined that the selling price of the shares thus
sold was lower than their book value based on the financial statements of
PhilamCare as of the end of 2008 and ruled that donor's tax became imposable
on the price difference pursuant to Sec. 100 of the National Internal Revenue
Code (NIRC). Philamlife requested the Secretary of Finance (Secretary) to
review the Commissioner’s ruling, but the Secretary affirmed the
Commissioner's ruling.

Issue
Whether or not the price difference in petitioner's adverted sale of shares in
PhilamCare attracts donor's tax.

Ruling
Yes. The Supreme Court ruled that the price difference is subject to donor's tax
and the absence of donative intent 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 and even if there is no actual
donation, the difference in price is considered a donation by fiction of law.
 17 Commissioner of Internal Revenue v. B.F. Goodrich Phils., Inc. (now Sime
[Barbers] Darby International Tire Co., Inc. and the Court of Appeals
G.R. No. 104171
February 24, 1999

Principle SALE OF REAL PROPERTY AT A PRICE LESSER THAN ITS DECLARED

FAIR MARKET VALUE DOES NOT BY ITSELF JUSTIFY THE FINDING OF
FALSE RETURN. — Petitioner insists that private respondent committed
"falsity" when it sold the property for a price lesser than its declared fair market
value. This fact alone did not constitute a false return which contains wrong
information due to mistake, carelessness or ignorance. It is possible that real
property may be sold for less than adequate consideration for a bona fide
business purpose; in such event, the sale remains an "arm's length"
transaction. In the present case, the private respondent was compelled to sell
the property even at a price less than its market value, because it would have
lost all ownership rights over it upon the expiration of the parity amendment. In
other words, private respondent was attempting to minimize its losses. At the
same time, it was able to lease the property for 25 years, renewable for another
25. This can be regarded as another consideration on the price. Furthermore,
the fact that private respondent sold its real property for a price less than its
declared fair market value did not by itself justify a finding of false return.
Indeed, private respondent declared the sale in its 1974 return submitted to the
BIR. Within the five-year prescriptive period, the BIR could have issued the
questioned assessment, because the declared fair market value of said
property was of public record. This it did not do, however, during all those five
years.
Facts · P. respondent BF Goodrich Phils., Inc. (now Sime Darby Int’l Tire Co,
Inc,) was an US-owned and controlled corp.
· BF Goodrich wanted to manufacture tires and other rubber products,
but the Central Bank of the PH required it to develop a rubber plantation
first.
· So in 1961, BF Goodrich purchased from the PH Gov’t (under the
Public Land Act and the Parity Amendment to the 1935 Constitution)
certain parcels in Basilan and developed thereon a rubber plantation.
· In 1973, the Secretary of Justice made an opinion, that when the Parity
Amendment expires in 1974, the Americans would lose their ownership
rights over public agricultural lands, including the right to dispose or sell
their real estate. So, BF Goodrich sold its Basilan landholding to Siltown
Realty.
→ Pursuant to the terms of the sale, Siltown leased said parcels to BF
Goodrich for 25 years, w the option to extend for another 25 years.
· In April 14, 1975, the books and accounts of BF Goodrich were
examined to determine its tax liability for taxable year 1974, which
resulted in the 1975 assessment for deficiency income tax. BF Goodrich
paid the same. The BIR also later examined Siltown’s business, income
and tax liabilities.
· In October 10, 1980 – the BIR issued an assessment for deficiency in
donor’s tax, in relation to the sale of the Basilan landholding to Siltown.
The BIR deemed the consideration for the sale insufficient, and the
difference between the fair market value and the actual purchase price
a taxable donation.
· BF Goodrich contested said assessment, but later in April 9, 1981, it
received another assessment increasing the amount for the alleged
deficiency donor’s tax, surcharge, interest and compromise penalty. So,
BF Goodrich appealed the correctness & legality of the 2 assessments
before the CTA.
· CTA: modified the CIR’s assessment of deficiency gift tax.
· CA: reversed. Held that what was involved was NOT a first assessment
nor one within the 5-yr period in Sec. 331. That since the case involved
a multiple assessment beyond the 5-year period, Sec. 337 must apply,
and Sec. 337 does NOT include “falsity” as a ground, but only ‘fraud,
irregularity, and mistake.’ Falsity suffices only for a first assessment
made within the 5-year period, but NOT a subsequent assessment
made beyond the 5-year period (wc may be justified only by fraud,
irregularity and mistake.’)
· Hence, this petition. Petitioner BIR contends:
- that BF Goodrich committed “falsity” when it sold the property for a price
lesser than its declared fair market value.

Issue W/N the BIR’s right to assess the deficiency donor’s tax has prescribed.
( or W/N the BIR, despite the expiration of the 5 year prescriptive period, may
still assess a taxpayer even after he has already paid the tax due on ground the
previous assessment was insufficient or based on a “false” return.) - Y E S.
Ruling - The 1980 and 1981 assessments were issued by the BIR beyond the
5-year statute of limitations, hence, the period for assessment has prescribed.
- Sec. 331, NIRC, provides, “Period of limitation upon assessment and
collection. — Except as provided in the succeeding section, internal-revenue
taxes shall be assessed within five years after the return was filed, and no
proceeding in court without assessment for the collection of such taxes shall be
begun after expiration of such period. For the purposes of this section, a return
filed before the last day prescribed by law for the filing thereof shall be
considered as filed on such last day: Provided, That this limitation shall not
apply to cases already investigated prior to the approval of this Code. "
- In this case, the 1980 assessment modified by the 1981 assessment,
violated the law. Involved in the petition was the income of BF Goodrich for the
year 1974, the returns of which were required to be filed in April 1975, which BF
Goodrich did file. Hence, the subsequent 1980 assessment, modified by the
1981 assessment, was made beyond the period expressly set in Sec. 331,
NIRC.
- Moreover, Sec. 15, NIRC, on the other hand, provides that "when a
report required by law as a basis for the assessment of any national internal
revenue tax shall not be forthcoming within the time fixed by law or regulation,
or when there is reason to believe that any such report is false, incomplete, or
erroneous, the Commissioner of Internal Revenue shall assess the proper tax
on the best evidence obtainable." Sec. 15 does NOT provide an exception to
the statute of limitations on the issuance of an assessment, by allowing the
initial assessment to be made on the basis of the best evidence available.
Having made its initial assessment in the manner prescribed, the commissioner
could not have been authorized to issue, beyond the five-year prescriptive
period, the second and the third assessments.
- Sec. 332, NIRC enumerates the exceptions to the period of prescription.
The BIR’s claim of falsity was NOT sufficient to take the subject assessments
out of the ambit of the statute of limitations.
- It is possible that real property may be sold for less than adequate
consideration for a bona fide business purpose; in such event, the sale remains
an "arm's length" transaction. In the present case, BF Goodrich was compelled
to sell the property even at a price less than its market value, because it would
have lost all ownership rights over it upon the expiration of the parity
amendment. In other words, BF Goodrich was attempting to minimize its
losses. At the same time, it was able to lease the property for 25 years,
renewable for another 25. This can be regarded as another consideration on
the price.
Further, the fact that BF Goodrich sold its real property for a price less
than its declared fair market value did not by itself justify a finding of false
return. Indeed, BF Goodrich declared the sale in its 1974 return submitted to
the BIR. Within the five-year prescriptive period, the BIR could have issued the
questioned assessment, because the declared fair market value of said
property was of public record. This it did not do, however, during all those five
years. Moreover, the BIR failed to prove that respondent's 1974 return had
been filed fraudulently. Equally significant was its failure to prove respondent's
intent to evade the payment of the correct amount of tax.
- Since the BIR failed to demonstrate clearly that BF Goodrich had filed a
fraudulent return with the intent to evade tax, or that it had failed to file a return
at all, the period for assessments has obviously prescribed. Such instances of
negligence or oversight on the part of the BIR cannot prejudice taxpayers.

NOTES:
-SECTION 332, NIRC. Exceptions as to period of limitation of assessment and
collection of taxes. — (a) In the case of a false or fraudulent return with intent to
evade a tax or of a failure to file a return, the tax may be assessed, or a
proceeding in court for the collection of such tax may be begun without
assessment, at any time within ten years after the discovery of the falsity, fraud,
or omission: . . . ."|||
Question & Answers:
 INCOME TAX
Notes

GENERAL PRINCIPLES
I. Features of Philippine Income Taxation:
a. Tax situs
i. Nationality
ii. Residence
iii. Source
b. Progressive bs. Regressive System of Taxation
c. Global vs. Schedular System of Taxation

II. General Principles of Income Taxation (CNIADF)

Sec. 23. General Principles of Income Taxation in the Philippines. - Except when
otherwise provided in this Code:

(A) A Citizen of the Philippines residing therein is taxable on all income derived from sources
within and without the Philippines;

(B) A Nonresident citizen is taxable only on income derived from sources within the
Philippines;

(C) An Individual citizen of the Philippines who is working and deriving income from abroad as
an overseas contract worker is taxable only on income from sources within the Philippines:
Provided, That a seaman who is a citizen of the Philippines and who receives compensation
for services rendered abroad as a member of the complement of a vessel engaged
exclusively in international trade shall be treated as an overseas contract worker;

(D) An Alien individual, whether a resident or not of the Philippines, is taxable only on income
derived from sources within the Philippines;

(E) A Domestic corporation is taxable on all income derived from sources within and without
the Philippines; and

(F) A Foreign corporation, whether engaged or not in trade or business in the Philippines, is
taxable only on income derived from sources within the Philippines.

Summary:
Who What are taxable

Citizen of PH ALL income derived from sources within and

without the Philippines

Nonresident citizen Income derived from sources within the

Philippines.
 Individual Citizen (Overseas contract worker; Income from sources within the Philippines.
includes seaman*)

Alien individual (WON resident or not of the Income derived from sources within the
PH) Philippines.

Domestic Corporation ALL income derived from sources within and

without the Philippines.

Foreign Corporation (whether engaged or not Income derived from sources within the
in trade or business in the PH) Philippines.

Note: Only citizens of the Philippines and Domestic Corporation are subject to tax on ALL
income derived from sources within and without the Philippines (regardless where the income
was derived)

MIDTERM EXAM COVERAGE UNTIL GENERAL PRINCIPLES OF INCOME TAXATION.

References:
● Collated digests of Tax 2 3D 2nd Sem A.Y. 2022 - 2023
● A Treatise on the Philippine Internal Revenue Taxes (2022), Recalde.
● Tax Made Less Taxing. 3rd Ed. 2021. Ingles

Youtube links:
● Principles of Estate Tax - https://www.youtube.com/watch?v=d1Psls5UKnE
● Donor’s Tax - https://www.youtube.com/watch?v=6JtbSviA8Og
● Principles of Income Tax - https://www.youtube.com/watch?v=_A1LPX1K27w

Disclaimer: Notes were copied from the books and jurisprudence. Let me know if there are any
corrections / mistakes.