Tax Reviewer - Transfer Taxes

7/27/2019 Tax Reviewer - Transfer Taxes

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Frances Lipnica Pabilane | Ateneo Law School 2015 | 3A 1

TRANSFER TAXES | ATTY. MONTERO | ATENEO LAW SCHOOL | 2013-2014 (1ST

SEMESTER)

I. Transfer Taxes

A. Estate Tax

1. General Principles & Determination of the Estate Tax

Sections 84 & 88, Tax

Code

84 Rates of estate tax

o Levied, assessed, collected and paido Upon transfer of the net estateo Of every decedent (whether resident or non-resident)o Based on the value of such net estate

88 Determination of the value of the net estate

(A)Usufructo Value of useful life, use or habitation, as well as that of annuityo Probable life of the beneficiaryo In accordance with the latest Basic Standard Mortality Tableo To be approved by the Secretary of Financeo Upon recommendation of the Insurance Commissioner

(B)Propertieso Appraised at its fair market valueo At the time of deatho Whichever is higher of

(1)FMV as determined by the Commissioner(2)FMV as shown in the assessment of values by the Provincial and City

Assessors

Lorenzo vs. Posadas

(June 18, 1937)

There is a will that says that all real estate at the time of death should not be disposed

until after 10 years.

o The right of the State to inheritance tax accrues at the moment of a person'sdeath.

o The compensation to be received by the trustee for his services to the estate maynot lawfully be deducted as judicial expenses.

o A trustee is but an instrument or agent for the cestui que trust. As trustee, Mooredid not acquire any beneficial interest in the estate. The delinquency in paying

the inheritance tax arose when Moore was appointed as trustee.

Revenue Regulations

02-03 (Consolidated

Revenue Regulations

on Estate tax and

Donors Tax

Incorporating theAmendments

Introduced by Republic

Act No. 8424, the Tax

Reform Act of 1997)

1 Scope

o Govern the taxation of the transmission of the decedents estate and donationsmade by persons, natural or juridical, whether citizens or aliens, residents or

non-residents

o Family Code shall govern property relations between husband and wife whosemarriage was celebrated on or after such date (Prior to it, the Civil Code shallgovern) August 3, 1988

2 Rates of estate tax

o Transfer of the net estateo Of every decedent, whether resident or non-resident

3 The law that governs the imposition of estate tax

o Statute in force at the time of death of the decedento Estate tax accrues at the death of the decedento Accrual of tax is distinct from the obligation to pay the same


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o Upon the death of the decedent, succession takes place and the right of the Stateto tax the privilege to transmit the estate vests instantly upon death.

4 Composition of the gross estate

o Properties and interest at the time of death including revocable transfers andtransfers for insufficient consideration

(A)Residents and citizens properties, real or personal, tangible or intangible,WHEREVER situated

(B)Non-resident aliens Only properties situated in the Philippines With respect to intangible personal property, inclusion in the gross

estate is subject to principle of reciprocity

5 Valuation of the gross estate

o Based on the FMV at the time of deatho Real property

FMV as determined by Commissioner or schedule of values by provincialand city assessors, whichever is higher

o Shares of stocks Depend on whether shares are listed or unlisted Unlisted common shares book value Unlisted preferred shares par value In determining the book value of the common shares, appraisal surplus

shall not be considered as well as the value assigned to preferred shares

(if there are any)

Listed in stock exchanges FMV shall be the arithmetic mean betweenthe highest and lowest quotation at a date nearest the date of death, if

none is available, the date of death itself

o Usufruct Use or habitation, that of annuity Probable life of beneficiary in accordance with the basic standard of

mortality table

6 Computation of the net estate of a decedent who is either a citizen or resident of the

Philippines

o Deducting from the value of the net estate the following items of deduction:(A)Expenses, losses, indebtedness and taxes

(1)Actual funeral expenses (whether paid or unpaid) up to the time ofinterment, or an amount equal to five percent (5%) of the gross estate,

whichever is lower, but in no case to exceed 200,000

Excess cannot be claimed as deduction Neither can it be claimed as claims against estate Funeral expenses is not confined to its ordinary or usual

meaning. They include:

(a)Mourning apparel (surviving spouse and unmarried minorchildren) on the occasion of the burial

(b)Expenses for the deceaseds wake, including food and drinks(c) Publication charges for death notices(d)Telecommunications expenses for informing relatives(e)Cost of burial plot, but not their upkeep (only the value

corresponding to the plot where he is buried)

(f) Interment and/or cremation fees and charges(g)All other expenses incurred for the performance of the rites

and ceremonies incident to interment


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Expenses after the interment are not deductible Medical expenses of the last illness will not form part of funeralexpenses bbut under subsection (F)

Actual funeral expenses actually incurred in connection withthe interment or burial.

Must be duly supported by receipts or invoices or other evidence(2)Judicial expenses of the testamentary or intestate proceedings

Inventory-taking of assets, administration, payment of debts,distribution of the estate

Incurred during the settlement of the estate but not beyond thelast day prescribed by law (or extension thereof) for the filing of

the estate tax return. Judicial expenses may include:

(a)Fees of executor or administrator(b)Attorneys fees(c) Court fees(d)Accountants fees(e)Appraisers fees(f) Clerk hire(g)Costs of preserving and distributing the estate(h)Costs for storing or maintaining property of the estate(i) Brokerage fees for selling property of estate

Any unpaid amount should be supported by a sworn statement ofaccount issued and signed by the creditor

(3)Claims against the estate Debts or demands of pecuniary nature May arise out of contract, tort or operation of law

Requisites for deductibility of claims against the estate(a)Represents a personal obligation of the deceased (except

unpaid funeral expenses and unpaid medical expenses)

(b)Good faith and for adequate and full consideration in moneyor moneys worth

(c) Debt or claim valid in law and enforceable in court(d)Not condoned by the creditor or the action to collect has

prescribed

Substantiation requirements(a) In case of a simple loan (including advances)

Debt instrument must be duly notarized at the timeindebtedness was incurred

Duly notarized Certification as to the unpaid balance,including interest (one who will certify should not be

a relative of the borrower within the fourth civil

degree of consanguinity or affinity)

In accordance with the requirements Statement under oath by administrator or executor

of the disposition of the loan proceeds (if contracted

within 3 years prior to the death of decedent)

(b)If the unpaid obligation arose from purchase of goods orservices

Pertinent documents evidencing the purchase ofgoods or service

Duly notarized Certification from the creditor as tothe unpaid balance of the debt, including interest at

the time of death

Certified true copy of the latest audited balance sheet


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of the creditor with a detailed schedule of its

receivable showing the unpaid balance of the

decedent-debtor(c) Where the settlement is made through the Court in a testate

or intestate proceeding, pertinent documents filed with the

Court evidencing the claims against the estate, and the Court

Order approving the said claims, if already issued, in

addition to the documents mentioned in the preceding

paragraphs.(4)Claims of the deceased against insolvent persons where the value of the

decedents interest therein is included in the value of the gross estate

(5)Unpaid mortgages, taxes and casualty losses(a)Unpaid mortgages

In all instances, the mortgaged property, TO THE EXTENT OFTHE DECEDENTS INTEREST THEREIN, should always form

part of the gross taxable estate.

(b)Taxes which have accrued as of the death of the decedent which wereunpaid at the time of death

(c) Losses incurred during the settlement of the estate arising from fires,storms, shipwreck, or other casualties, or from robbery, theft, or

embezzlement Losses are not compensated for by insurance Not claimed as deduction for income tax purposes

(B)Property previously taxed(C)Transfers for public use(D)The family home

(a)Definition of terms Family home dwelling house including the land; for the purpose

of this regulation, actual occupancy of the house and lot shall not

be considered interrupted/ abandoned by temporary absence

(characterized by permanency); a person may constitute only

one family home, for the purpose of availing deduction

Husband and wife legally married man and woman Unmarried head of a family Beneficiaries of a family home: husband, wife, or head of family;

parents, ascendants, descendants xxx

(b)Conditions for the allowance of FAMILY HOME as deduction from thegross estate

Actual residential home Total value of the family home must be included as part of the

gross estate

Deduction equivalent to amount of current FMV or the extent ofdecedents interest NOT exceeding 1M

(E)Standard deduction On emillion pesos Without need of substantiation

(F)Medical expenses All medical expenses Incurred within 1 year before the death of the decedent Duly substantiated with official receipts Amount whether paid or unpaid does not exceed 500,000

(G)Amount received by heirs under Republic Act No. 4917 Received from employer as a consequence of death Provided that amount of separation benefit is included as part of the


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gross estate

(H)Net share of the surviving spouse in the conjugal partnership or communityproperty

The share of the surviving spouse should be removed to ensure thatonly the decedents interest in the estate is taxed

7 Computation of the net estate of a decedent who is a non-resident alien of the

Philippines

o Deducting from the value of that part of his gross estate which at the time of hisdeath is situated in the Philippines the following items of deductions:(1)Expenses, losses, indebtedness and taxes

That proportion of the total expenses, losses, indebtedness and taxeswhich the value of such part bears to the value of his entire gross

estate wherever situated

(2)Property previously taxed(3)Transfers for public use(4)Net share of the surviving spouse in the conjugal property or community

property

o Executor or administrator should file a return of the gross estate not situated inthe Philippines (Sec. 90)

8 Proper presentation of funeral expenses, family home, standard deduction, and

medical expenses ad deductions from gross estate

9 Time and place of filing estate tax return and payment of estate tax due(A)Time for filing estate tax returno 6 months from the decedents deatho Court shall furnish copy of partition to the Commissioner within 30 days from

order

(B)Extension of time to file estate tax returno Not exceeding 30 days

(C)Place of filing the return and payment of taxo Resident decedent

Register the estate to secure a new TIN Pay corresponding tax with AAB, RDO, Collection Officer or duly

authorized Treasurer of the city or municipality

o Non-resident decedent (whether non-resident citizen or non-residentalien)

If there is no executor or administrator in the Philippines Officeof the Commissioner through RDO No. 39 South Quezon City

(D)Time for payment of the estate taxo General rule: at the time the return is filed

(E)Extension of time to pay estate taxo 5 years if settled through the courtso 2 years if settled extrajudiciallyo Running of the statute of limitations for deficiency shall be suspended for

the period of extension

o No extension shall be granted if reason is negligence, intentionaldisregard, fraud

o May be required to furnish a bond not exceeding double the amount(F)Payment of the estate tax by installment

o Clearance shall be released only with respect to the property thecorresponding/ computed tax on which has been paid

(G)Liability for payment


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o Executor or administrator has primary obligation to pay estate taxo But the heir or beneficiary has subsidiary liability for the payment of

that portion of the estate which his distributive share bears the value ofthe total net estate

2. Gross Estate

Sections 85 and 104,

Tax Code

85 Gross Estate

o At the time of deatho ALL property, real or personal, tangible or intangibleo WHEREVER situatedo NONRESIDENT DECEDENT who at the time of death was NOT CITIZEN

Only part of the entire gross estate situated in the Philippines Included in taxable estate

(A)Decedents interesto Interest of the decedent at the time of his death

(B)Transfer in contemplation of deatho Possession or enjoyment of, or the right to the income from the propertyo Right either alone, or in conjunction with any person, to designate the

person who shall possess or enjoy the property or the income therefrom

o EXCEPT bona fide sale for an adequate and full consideration In money Or moneys worth

(C)Revocable transfero By gift where the donor has reserved the power to alter, amend and

revoke donation

o The donor retains the option to relinquish such power in contemplationof death

(D)Property passing under general power of appointment(1)By will(2)By deed executed in contemplation of death(3)By deed which he retained for his life or any period not ascertainable

without reference to death(a)Possession or enjoyment(b)Right to designate, either alone or in conjunction with any person

EXCEPT bona fide sale with full/ adequate consideration(E)Proceeds of life insurance

o To the extent of the amount receivable by the estateo Policies taken out by decedent upon his OWN LIFEo Irrespective of WON the decedent retained the power of revocationo EXCEPT when expressly stipulated that the designation of beneficiary is

irrevocable

(F)Prior interestso Shall apply to the transfers, trusts, estates, interests, rights, powers and

relinquishment of powers

o As severally enumerated and described therein, whethero Made, created, arising, existing, exercised or relinquished before the

effectivity of this Code

(G)Transfers for insufficient considerationo Not a bona fide sale for an adequate and full consideration in money or

moneys worth

o Included in the gross estateo Excess of the FMV over the value of the consideration received thereof by

the decedent


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(H)Capital of the surviving spouseo For purpose of this Chapter, shall NOT be deemed part of the gross

estate

104 Definitions

o Gross estate and gifts include real and personal, whether tangible orintangible

o Considered situated in the Philippines Franchise exercised in the Philippines Shares, bonds, obligations corporations in the Philippines Shares, obligations, bonds 85% in the Philippines Shares, obligations, bonds foreign business that acquired

business situs in the Philippines

Shares, rights partnership/ business in the Philippineso No tax shall be collected on intangible personal property(a)Decedent (citizen and resident of a foreign country) time of death or

donation did not impose a transfer tax of any character, in respect of

intangible personal property of citizens of the Philippines not residing in

that foreign country

(b)Foreign country allows a similar exemption from transfer or death taxesof every character or description in respect of intangible personalproperty owned by citizens of the Philippines not residing in that foreign

country

o Deficiency basically difference between amount of tax imposed withthe amount shown in the return (better memorize this, or familiarize because Sir

might ask this in fill in the blanks huhu)

Collector of Internal

Revenue v. Fisher

o It is clear from both these quoted provisions that the reciprocity must be total,that is, with respect to transfer of death taxes of any and every character, in thecase of the Philippine law, and to legacy, succession, or death taxes of any and

every character, in the case of the California law.

o Therefore, if any of the two states collects and imposes and does not exempt anytransfer, death, legacy, or succession tax of any character, the reciprocity does

not work.

o This is the underlying principle of the reciprocity clauses in both laws. In thePhilippines, upon the death of any citizen or resident, or non-resident with

properties therein, there are imposed upon his estate and its settlement, both anestate 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 who are not citizens of the United States, but does

not provide for any exemption on the basis of reciprocity.

Zapanta v. Posadas Father Braulio donated properties by public instruments to six plaintiffs, with the

condition that some of them would pay him a certain amount of rice.

o Failure to fulfill his condition would revoke the donations.o The donations were made inter vivos and thus, not subject to inheritance taxo Here, the donations were neither inheritance nor legacy.o Revocation was also not based on the discretion of donor but the failure to fulfill

condition.

Tuason v. Posadas Donations made in anticipation of death are part of the gross estate.

o It also appearing that the appellees after the death of Esperanza, were found tobe legatees under her will, the donation inter vivos she had made to them in 1922and 1923, must be added to the net amount to be taxed.

Dison v. Posadas Donor executed Deed of gift (April 9) Acknowledgment by donor before notary public


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(April 16) Formal acceptance by Dison Formal acceptance by Dison (April 17)

Acknowledgment by Dison before Notary Public (April 20) Death of Felix Dison

(donor) (April 21)

o It is subject to inheritance tax.o The facts show that donation was fraudulently made for the purpose of evading

inheritance tax.

o The facts warrant the inference that the transfer was an advancement upon theinheritance which the donee, as the sole and forced heir of the donor, would be

entitled to receive upon the death of the donor.Vidal de Roces v.

Posadas

Tuazon died without leaving any forced heir.

o Issue here is whether donation inter vivos falls under the contemplation of Art.1540 of the Administrative Code (Act No. 2061) - YES

"Additions of Gifts and Advances - After the aforementioned deductionshave 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, devises, legatees, or donees

mortis causa."

o Included in the ambit of the provision would be the donations inter vivos thattake effect immediately or during the lifetime of the donor but are made in

contemplation of death.

o If the donee inter vivos was found to be legatees, heirs, devisees or donees mortiscausa of the decedent, then they would have to pay the inheritance tax.

The reason for this is because the donation inter vivos is deemed to be inanticipation of inheritance/ death, meaning that it is a scheme to evade

payment of taxes. (advancement of inheritance!)

3. Deductions

Section 86, Tax Code 86 Computation of net estate

(A)Deductions allowed to the estate of a citizen or resident(1)Expenses, losses, indebtedness, and taxes(a)Actual funeral expenses

o 5% of gross estate, but shall not exceed 200,000 WHICHEVER ISLOWER

(b)Judicial expenses of testamentary or intestate proceedings(c) Claims against the estate

o Duly notarizedo If within 3 years before the death of decedent, statement showingthe disposition of the proceeds

(d)Claims against insolvent personso Interest should be included in the gross estate

(e)Unpaid mortgage or indebtedness on propertyo Xxx not compensated by insuranceo

Not yet claimed as deduction in income taxo Incurred not later than payment for estate tax

(2)Property previously taxed (Vanishing deductions)o Forming part of gross estate situated in the Philippineso Any person who died within 5 years prior to the death of the

decedent

o Transferred to the decedent by gift within 5 years prior to his deatho Two or more items, the aggregate value of such items shall be used

for the purpose of computing the deduction

o Requirements according to Mickey Ingles reviewer Present decedent died within 5 years from receipt of the


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property from a prior decedent or donor

Property being claimed must be located in the Philippines Property must have formed part of the taxable estate of the

prior decedent or of the taxable gift of the donor

Estate tax on the prior succession or the donors tax on thegift must have been finally determined and paid

Property must be identified as the one received from theprior decedent or donor, or something acquired in exchange

therefore No vanishing deduction on the property was allowable to the

estate of the prior decedent

(3)Transfers for public useo Government of the Republic of the Philippineso Or any political subdivision thereofo Exclusively public purposes

(4)The family homeo Current FMVo If it exceeds 1M, excess shall be subject to estate taxo Condition sine qua non: should have been the family home by the

decedent, as certified by the barangay captain of the locality

(5)Standard deductiono Amount equivalent to 1M

(6)Medical expenseso Incurred by decedento Within 1 year prior to his deatho Duly substantiated by receiptso Shall not exceed 500,000

(7)Amount received by heirs under Republic Act No. 4917o Received by heirs from decedents employer as consequence of deatho PROVIDED, Amount is included in the gross estate of the decedent

(B)Deductions allowed to nonresident estates(1)Expenses, losses, indebtedness and taxes(2)Property previously taxed(3)Transfers for public use

(C)Share in the conjugal propertyo Net share of surviving spouseo As diminished by the obligations chargeable

(D)Miscellaneous provisionso For deductions to be allowed for nonresidents, noncitizens, executor,

administrator, heirs

o Return required to be filed (Sec. 90), the value at the time of death of thegross estate of nonresident not situated in the Philippines

(E)Tax credit for estate taxes paid to a foreign country(1)In general amounts of any estate tax imposed by the authority of a foreign

country

(2)Limitations on credit(a)Shall not exceed the same proportion off the tax against which such

credit is taken (okay, I dont get the difference between a and b. almost the

same total amount, one is within that country, other is outside the

Philippines)


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Commissioner of

Internal Revenue v. CA

and Pajonar

o Notarial fees and attorney's fees may be allowed as deductions from gross estateNeither may attorney's fees incident to litigation incurred by the heirs in

asserting their respective rights be claimed as a deduction from the gross estate.

o The attorney's fees paid to PNB for acting as the guardian of Pedro's propertyduring his lifetime should also be considered as a deductible administration

expense.

o The deduction is limited to such administration expenses as are actually andnecessarily incurred in the collection of the assets of the estate, payment of the

debts, and distribution of the remainder among those entitled thereto. It is clear that the extrajudicial settlement was for the purpose of

payment of taxes and the distribution of the estate to the heirs.

Testate Estate of the

late Felix de Guzman v.

Guzman-Carillo

o An executor or administrator is allowed the necessary expenses in the care,management, and settlement of the estate... entitled to possess and manage the

decedent's real and personal estate as long as it is necessary for the payment of

the debts and the expenses of administration...

o The expenses for the renovation and improvement of the family homeredounded to the benefit of the owners (preservation of home and social

standing).

o The expenses incurred by Librada as occupant of the house without paying rentwere personal expenses, inuring only to her benefit and should not be charged

against the estate.o The stenographic notes, representation expenses and expenses in celebration of

the first death anniversary are all disallowed as they have nothing to do with

care, management and settlement of the estate.

Dizon in his capacity as

Administrator ofdeceased Fernandez v.

CIR

o The return showed a completely zero estate tax liability. Gross value of estatewas at 14M and deductions presented amounted to 187M.The amounts paid tocreditors were significantly lowered because of compromise while others were

fully condoned. BIR reduced deductions and included only the amount actually

paid to creditors at the time of death was allowed deduction.

o Two views from American jurisprudence Ithaca Trust date-of-death valuation principle: The fact that the claimant

subsequently settled for a lesser amount did not preclude the estate from

deducting the entire amount of the claim for estate tax purposes.

Internal Revenue Service or IRS: The post death developments should betaken into consideration and that the creditors' claim should be allowed

only to the extent of the amount paid.

o The claims existing at the time of death are significant to, and should be madethe basis of, the determination of allowable deductions.

4. Exemptions

Section 87, Tax Code 87 Exemption of Certain Acquisitions and Transmissions

(A)Merger of usufruct in the owner of the naked title(B)

Transmission or delivery of the inheritance or legacy by the fiduciary heir orlegatee to the fideicommisary

(C)Transmission from the first heir, legatee or done in favor of another beneficiary,in accordance with the desire of the predecessor

(D)All bequests, devises, legacies or transfers to social welfare, cultural andcharitable institutions

o No part inures to the benefit any individualo Not more than 30% shall be used for administration purposes

5. Administrative Requirements


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Sections 89-97, Tax

Code

89 Notice off death to be filed

o Though exempt from tax, gross value exceeds 20,000o 2 months after the decedents deatho Or within a like period after qualifying as such executor or administratoro Notice to the Commissioner

90 Estate Tax Returns

(A)Requirementso Exceeds 200,000o Registered or registrable property (like real, motor, shares of stock)

where BIR clearance is required for transfer. Shall set forth:

(1)Value of the gross estate at time of death (if nonresident, noncitizen,situated in the Philppines)

(2)Deductions allowed(3)Supplemental data necessary to establish correct taxes

o If showing a gross exceeding 2M, supported by a statement duly certifiedby CPA containing:

(a) Itemized assets(b)Itemized deductions(c) Amount of tax due (whether paid or still due and outstanding)

(B)Time for filingo 6 months from the decedents deatho Furnish Commissioner, within 30 days from order schedule of

partition of order of the court approving the same

(C)Extension of timeo Commissioners authority to grant, in meritorious cases, the filing of

return

o Not exceeding 30 days(D)Place of filing

o AAB, RDO, Collection Officer, duly authorized Treasurer of city ormunicipality

o Where there is no legal residence in the Philippines, then with the Officeof the Commissioner

91 Payment of Tax

(A)Time of paymento At the time the return is filed

(B)Extension of timeo Undue hardship upon the estate or the heirso Commissioner may extend time for payment or any parto Not to exceed 5 years (estate settled through the courts)o 2 years (in case estate is settled extrajudicially)o Running of Statute of Limitations for assessment shall be suspended

during such extension

o No extension negligence, intentional disregard, fraudo If there is extension, Commissioner may require bond (not exceeding

double the amount, conditioned on the term of the extension)

(C)Liability for paymento Before delivery to any beneficiary of his distributive share of the estateo Beneficiary to the extent of his share, subsidiarily liableo If there is no executor or administrator, the person in actual or

constructive possession of any property of the decedent

92 Discharge of executor from personal liability


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o Executor or administrator written application to the Commissionero For the determination of the amount of the estate tax and discharge from

liability

o Commissionerwithin 1 year from application, 1 year after return is filed, BUTNOT after the expiration of the period prescribed for assessment notify of the

amount of the tax

o Upon payment of tax based on such notice discharged from personal liabilityfor any deficiency in the tax found to be due

o Entitle to a receipt or writing showing such discharge93 Definition of Deficiency

(a)(amount of tax exceeds that shown in return) Xxxx increased by the amountspreviously assessed (or collected without assessment) as a deficiency and

decreased by the amounts previously abated, refunded or otherwise repaid in

respect of such tax

(b)(no amount is shown) Xxx amount by which the tax exceeds the amountpreviously assessed (or collected without assessment) as a deficiency; but such

amounts previously assessed or collected without assessment shall first be

decreased by the amounts previously abated, refunded or otherwise repaid in

respect of such tax

94 Payment before delivery by executor or administrator

o Certification from the Commissioner that the estate tax has been paid95 Duties of certain officers and debtors

o Register of Deedso Lawyer, notary public or any government officero Debtor

But he may pay the executor or judicial administrator withoutcertification from Commissioner (that tax has been paid) if the credit

is included in the inventory of the estate

96 Restitution of tax upon satisfaction of outstanding obligationso Upon payment of tax, new obligations of the decedent shall appearo Right to the restitution of the proportional part of the tax paid

97 Payment of tax antecedent to the transfer of shares, bonds, or rights

o Certificate from the Commissioner that the taxes fixed in this Title and duethereon have been paid is shown

o Bank knowledge of death of person (account alone or jointly with another) not allow withdrawal

Unless Commissioner certified that taxes imposed have been paid May withdraw 20,000 without certification All withdrawal slips statement that all joint depositors are still living

(under oath)

Government of the

Philippine Islands v.

Pamintuan

o The claims presented did not include the claim from the Republic of thePhilippines.

o Subsequently, Government of the Philippines discovered some unpaid taxesfrom the deceased Pamintuan.

o The heirs here are responsible for the payment of the income tax in proportionto the share of each in the estate.

o Claims for income taxes need to be filed with the committee on claims andappraisals appointed in the course of testate proceedings and may be collected


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even after the distribution of the decedent's estate among his heirs, who shall be

liable therefor in proportion to their share in the inheritance.

Commissioner of

Internal Revenue v.

Pineda

o Government can require Manuel to pay the full amount of the deficiency tax.Pineda is liable for the assessment as an heir and as a holder-transferee of

property belonging to the estate/ taxpayer.

As an heir, he is individually answerable for the part of the taxproportionate to the share he received from the inheritance. His liabilityhowever, cannot exceed the amount of his share.

As a holder of property belonging to the estate, Pineda is liable for the taxup to the amount of the property in his possession.

o Government has two ways of collecting the tax in question By going after all the heirs and collecting from each of them the amount

of the tax proportionate to the inheritance received (used in Pamintuan).

By subjecting said property of the estate which is in the hands of an heiror transferee to the payment of the tax due the estate (used in this case).

Commissioner of

Internal Revenue v.

Gonzales

o The counting of the thirty days within which to institute an appeal in the Court ofTax Appeals should commence from the date of receipt of the decision of the

Commissioner on the disputed assessment, not from the date the assessment

was issued.

o In a case where the return was made on the wrong form, the Supreme Court ofthe United States held that the filing thereof did not start the running of theperiod of limitations.

o The return filed is defective. It was incomplete. It declared 400 hectares and left out 503 more. The return mentioned no heir. Thus, no inheritance tax could be

assessed. As a matter of law, on the basis of the return, there would be nooccasion for the imposition of estate and inheritance taxes. When there is

no heir, the intestate estate is escheated to the State.

o A return need not be complete in all particulars. It is sufficient if it compliessubstantially with the law. There is substantial compliance:

The return is made in good faith and is not false or fraudulent. It covers the entire period involved. It contains information as to the various items of income, deduction and

credit with such definiteness as to permit the computation of the

assessment of the tax.

B. Donors Tax

1. General Principles & Determination of the Donors TaxSections 98-100, 102,104, Tax Code

98 Imposition of tax(A)Levied, assessed collected and paid upon transfer

oBy any person, resident or nonresident(B)Tax shall apply whether transfer is in trust or otherwise

o Whether gift is direct or indirecto Whether property is real or personalo Tangible or intangible

99 Rates of tax payable by donor

(A)In Generalo Computed on the basis of the total net giftso Made during the calendar year

(B)Tax payable by donor if done is a stranger


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o Tax payable by donor is 30% of the net giftso Stranger is one who is not:

(1)Brother, sister (whether by whole or half-blood), spouse, ancestorand lineal descendant

(2)Relative by consanguinity in the collateral line within the fourthdegree of relationship

(C)Contribution in cash or in kind to any candidate, political party or coalition ofparties for campaign shall be governed by the Election Code

100 Transfer for less than adequate and full considerationo Property other than real property referred to in Section 224(D)o Less than adequate and full consideration in money or moneys wortho Deemed gift the amount by which the FMV exceeded the value of consideration

102 Valuation of gifts made in property

o FMV at the time of gift shall be considered the amount of gifto In case of real property, the provisions of 88(B) Determination of Value of the

Estate shall apply to the valuation

104 Definitions (see above)

Spouses Gestopa v.Court of Appeals

The court ruled that the donation here is inter vivos (and notmortis causa).o The following facts were considered to decide the issue: love and affection;

reservation of lifetime usufruct; reservation of sufficient properties; acceptance

of the donee.

o Prior to the donation inter vivos, the spouses already executed three donationsmortis causa. Hence, they are aware of the difference.

Tang Ho v. Board of

Tax Appeals

The court ruled that the donations made by Li Seng Giap to his children from the

conjugal property should be taxed against the husband alone (and not against husband

and wife). Only one exemption or deduction can be claimed for every such gift.

Gibbs v. Collector of

Internal Revenue

Gift taxes on the transfer of shares should be based on the full market value of the shares

of stock (not the difference between the market value and stipulated consideration).

o The corpus of the trust was never totally or partially sold, hypothecated orencumbered.

o There being no real consideration for the transfer, gift taxes should be based onthe full market value of the shares of stock at the time of the respective transfer.

Pivorano v.

Commissioner of

Internal Revenue

Gift taxes were proper because they were gifts and not remuneratory.

o Records do not show that Enrico was not already fully compensated for the workthat he did for the company.

o The fact that his services were so valuable did not make it a recoverable debt.

2. ExemptionsSection 101, Tax Code 101 Exemption of certain gifts(A)In case of gifts made by a resident

(1)Dowries or gifts made on account of marriageo Before its celebrationo Or within one yearo By parents to legitimate, recognized natural or adopted childreno To the extent of (P10,000)

(2)Gifts made to or for the use of National Governmento Any entity created by any of its agencieso Not conducted for profito Or any political subdivision of the Government


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(3)Gifts in favor of an educational and/or charitable, religious, cultural or socialwelfare corporation, institution, accredited nongovernment organization

trust or philanthropic organization and/or research institution ororganization

o Not more than 30% is used for administration purposeso Institutions paying no dividends, governed by trustees who receive

no compensation, devoting all income to xxx the accomplishment and

promotion of the purposes in the Articles of Corporation

(B)In the case of gifts made by a nonresident not a citizen of the Philippines(1)For the use of national government or political subdivisions (read definitionabove)

(2)Gifts in favor of educational xxx (see above)o Not more than 30% is used for administration purposes

(C)Tax credit for donors taxes paid to a foreign country (1)In general

o Citizen or resident at the time of donationo Credited with the amount of any donors tax of any character and

description

o Imposed by the authority of a foreign country(2)Limitations on credit

(a)Shall not exceed the same proportion of the tax against which such creditis taken, which the net gifts situated within such country taxable under

this Title to bear his entire net gifts

(b)Total amount credit shall not exceed the same proportion of the taxagainst which such credit is taken, which the donors net gifts situatedoutside the Philippines taxable under this Title bears to his entire net

gifts

Republic Act 7166,

Section 13

An Act Providing for Synchronized National and Local Elections and for Electoral

Reforms13 Authorized expenses of candidates and political parties

o President and Vice President 10phpo Other candidates 3php for every voter currently registered in the constituency

5php for every voter for candidate without any political party andwithout support from any political party

o Political parties 5php for every voter currently registered in the constituencywhere it has official candidates

o Contributions in cash or in kind to any candidate or political party or coalition ofparties for campaign purposes

Duly reported to the Commission Not subject to payment of gift tax

Republic Act 10165,

Sections 3-5 & 22-24

Foster Care Act

22 Assistance and incentives to foster parent

o Additional exemption for dependents 25,000; shall be amended to includefoster child

23 Incentives to agencieso Exemption from income tax

24 Incentives to donors

o Allowable deductions to the extent of the amount donated to agencieso Exemption from donors tax not more than 30% will be used for administrative

expenses

Revenue Regulations 7-

2001

Tax treatment of campaign contributions and expenditures

1 Backgroundo XXX in instances when these campaign contributions are not fully utilized by a

candidate for campaign purposes, there is a need to clarify the treatment of these


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excess campaign funds, for tax purposes

2 Policies and guidelines

o General rule: campaign contributions are not included in the taxable income To be considered as exempt from income tax, these campaign

contributions must have been utilized to cover a candidates

expenditures for his/her electoral campaign.

Unutilized/ excess campaign funds shall be considered as subject toincome tax.

Any candidate (winning or losing) who fails to file with the COMELEC theappropriate Statement of Expenditures shall be automatically precludedfrom claiming such expenditures as deductions from his/ her campaign

contributions (as such, the entire amount shall be subject to income tax)

3. Administrative requirementsSection 103, Tax Code 103 Filing of return and payment of tax

(A)Requirementso Any individual who makes any transfer by gifto For the purpose of the said taxo Make a return under oath in duplicate

(1)Each gift made during the calendar year (included in computing netgifts)

(2)Deductions claimed and allowable(3)Previous net gifts made during the same calendar year(4)Name of the done(5)Further information as may be required by rules and regulations

(B)Time and place of filing and paymento 30 days after the date the gift is madeo Tax due shall be paid on the time of filingo AAB, RDO, Revenue Collection Officer, duly authorized Treasure or the

city or municipality where the donor was domiciled at the time of

transfer. If there is no legal residence in the Philippines, with the Office of

the Commissioner

o Gifts made by a nonresident, return may be filed with the PhilippineEmbassy or Consulate or with the Office of the Commissioner

Revenue Regulations

02-03, Sections 10-13

10 Rate of donors tax

(A)Scheduler rates of donor tax imposable on donation made to a donee who is nota stranger

o Brackets for each calendar year(B)Tax payable by the donor if donee is a stranger 30%

o Brother, sister (whether by whole or half blood), spouse, ancestor, andlineal descendant

o Relative by consanguinity in the collateral line within the fourth degreeof relationship

o A legally adopted child is entitled to all the rights and obligationsprovided by law to legitimate children, and therefore, donation to him

shall not be considered as donation made to stranger

o Donation made between business organizations an those made betweenan individual and a business organization shall be considered as

donation made to a stranger

(C)Contribution for election campaigns11 - The law that governs the imposition of donors tax

o Donors tax is not a property tax. It is a tax imposed on the transfer of property


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by way of gift inter vivos

o Donors tax shall not apply unless there is a completed gifto It is completed from the moment the donor knows of the acceptance by the done.o It is completed by delivery, either actually or constructively, of the donated

property to the done.

o The law in force at the time of the perfection/ completion of the donation shallgovern the imposition of the donors tax.

o For immovable, it must be made in a public document specifying the propertydonated

Acceptance may be made in the same Deed of Donation Or in a separate public document Shall not take effect unless it is done during the lifetime of the donor If acceptance is made in a separate instrument, the donor shall be

notified thereof in authentic form, and this step shall be noted in both

instruments.

o A gift that is incomplete because of reserved powers becomes complete Donor renounces the power Right to exercise reserved power ceases

o Renunciation by surviving spouse of share in conjugal partnership or absolutecommunity after dissolution of marriage

Specifically in favor of (subject to donors tax) In general (not subject to donors tax)

o The law in force at the time of eh completion of the donation shall govern theimposition of the donors tax.

12 Computation of donors tax

o The computation of the donors tax is on a cumulative basis over a period of onecalendar year.

o Husband and wife are considered as separate and distinct taxpayer for thepurposes of donors tax.

o However, if what was donated is a conjugal or community property and only thehusband signed the deed of donation, there is only one donor for donors tax

purposes Without prejudice to the right of the wife to question the validity of

donation without her consent

13 Filing of returns and payment of donors tax

(A)Requirements donor to accomplish under oath a donors tax return induplicate

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

(2)Deductions claimed and allowable(3)Previous net gift made during the same calendar year(4)Name of the done(5)Relationship of the donor to the done(6)Such further information as the Commissioner may require

(B)Time and filing of paymento 30 days from the time the gift is made or completedo Shall be paid at the same time the return is filedo AAB, RDO, Revenue Collection Officer or duly authorized Treasurer of the

city or municipality where the donor was domiciled at the time of

transfer

o No legal residence Office of the Commissionero Non-resident Embassy or Consulate or the Office of Commissioner


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Officer of the Commissioner shall refer to the RDO having jurisdictionover the BIR National Office Building which houses the Office of the

Commissioner presently, RDO 39 South Quezon City(C)Notice of donation by a donor engaged in business

o Given to qualified done institutions duly accredited by the PhilippineCouncil for NGO Certification, Inc.

o Notice to the RDO of his place from receipt of the qualified doneo Not more than 30# shall be used for administration purposes

C. Estates and Trusts

Sections 60-66, Tax

Code

60 Imposition of Tax

(A)Application of Tax shall apply to income of estates or of any kind of propertyheld in trust

(1)Income accumulated in trust for the benefit of unborn or unascertainedpersons xxx, and income accumulated or held for future distribution under

the terms of a will or trust

(2)Income which is to be currently distributed by the fiduciary to thebeneficiaries, and income collected by a guardian of an infant which is to be

held or distributed as the court may direct

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

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

(B)Exceptiono Employees trust which forms part of a pension, stock bonus or profit-

sharing plan of an employer

(1)Contributions are made to the trust by employer or employees purpose of distributing the earnings of accumulated by trust

(2)If impossible, prior to the satisfaction of all liabilities xxx to be usedor diverted to, for purposes other than the exclusive benefit of

employees

o Any amount actually distributed shall be taxable to him in the year whichso distributed to the extent that it exceeds the amount contributed by

such employee or distribute

(C)Computation and payment(1)In general

o Computed upon the taxable income of the estate or trust, except Revocable trust (63) Income for the benefit of the grantor (64)

(2)Consolidation of income of two or more trustso Creator of trust is the same persono Beneficiary is the sameo Tax shall be assessed and collected from each trustee

Taxable income of the trust administered by him61 Taxable income (in the same manner an on the same basis as in the case of an

individual) except:

(A)Any amount allowed as deduction under Subsection shall not be allowed as adeduction under Subsection B in the same or any succeeding taxable year.

(B)Income received by estates of deceased persons during the period ofadministration or settlement of estate.

(C)Trust administered in a foreign country, deductions in A and B shall not beallowed.


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o The amount of any income included in the return of said trust shall notbe included in computing the income of the beneficiaries.

62 Exemption allowed to estates and trusts

o 20,000 from the income of the estate or trust63 Revocable trust

o When power to revest in the grantor title or any part of the trust isvested(1)In the grantor, either alone or in conjunction with any person(2)In a person not having substantial adverse interest

o Income of such part of the trust shall be included in computing thetaxable income of the grantor

64 Income for benefit of grantor

(A)Where any part of the income of a trust (shall be included in computing thetaxable income of the grantor)

(1)In the discretion of grantor or any person may be held or accumulated forfuture distribution to the grantor

(2)Interest in the disposition of such part of the income, be distributed to thegrantor

(3)May be applied to the payment of premiums upon policies of insurance onthe life of the grantor

(B)In the discretion of the grantoro Means in the discretion of the grantor, either alone or in conjunction

with any person not having a substantial adverse interest in the

disposition of the part of the income in question

65 Fiduciary returnso Guardians, trustees, executors, administrators, receivers, conservators

and all persons or corporations (acting in fiduciary capacity)

o Render in duplicateo Return of the income of the person, trust or estateo Subject to provisions if 20,000php or overo Take oath that he has sufficient knowledge best of his knowledge and

belief true and correct

o Joint fiduciaries Filed in the province where such fiduciaries reside

66 Fiduciaries indemnified against claims for taxes paido For all the payments they shall be required to make under the provisions of this

Title

o Credit for the amount of such payments against the beneficiary or principal In any accounting which they make as such trustees or other

fiduciaries

Revenue Regulations

No. 2 (Sections 207-

213)

207 - Estates and trusts

o "Fiduciary" - applies to all persons or corporations that occupy positions ofpeculiar confidence towards others, such as trustees, executors, or

administrators

Fiduciary (for income tax purposes) - any person or corporation thatholds in trust an estate of another person or persons.

Fiduciary relationship there needs to be a legal trusto In general, the income of a trust for the taxable year which is to be distributed to


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the beneficiaries

Must be returned by and will be taxed to the respective beneficiaries But the income of a trust which is to be accumulated or held for future

distribution, whether consisting of ordinary income or gain from the sale

of assets included in the corpus of the trust, must be returned by and will

be taxed to the trustee.

o Three exceptions to this general rule are found in the law: In the case of revocable trust (income from such part of the trust estate

title to which may be revested in the grantor should be included in thegrantor's return)

In the case of a trust the income of which, in whole or in part, may beheld or distributed for the benefit of the grantor (part of the income of

the trust, which may be held or distributed for the benefit of the grantor,

should be included in the grantor's return)

In the case of a trust administered in a foreign country (trustee is notentitled to the deductions mentioned in subsections (a) and (b) of

Section 57 and the net income of the trust undiminished by any amounts

distributed, paid or credited to beneficiaries will be taxed to the trustees;

however, the income included in the return of the trustees is not to be

included in computing the income of the beneficiaries)

208 - Consolidation of incomes of two or more trusts

o Requires the consolidation of the income of two or more trustso Creator of the trust in each instance is the same persono Beneficiary in each instance is the same.o The tax due on the consolidated income will be collected from the trustees in

proportion to the net income of the respective trusts.

209 - Estates and trusts taxed to fiduciary

o File an annual return for the estate up to the final settlemento File a yearly return covering the income of a trust

Whether created by will or deed, for accumulation of income Whether for unascertained persons or persons with contingent interests

or otherwise.

In both cases the income of the estate or trust is taxed to the fiduciary.o Where under the terms of a will or deed, the trustee, may in his discretion,

distribute the income or accumulate it, the income is taxed to the trustee

Irrespective of the exercise of his discretion.o The imposition of the tax is not affected by the fact that an ultimate beneficiary

may be a person exempt from tax.

210 - Estate and trust taxed to beneficiaries

o Taxable directly to the beneficiary or beneficiaries(a) a trust the income of which is to be distributed annually or regularly;

(b) an estate of a decedent the settlement of which is not the object of judicial

testamentary or intestate proceedings;

(c) properties held under a co-ownership or tenancy in common, the income is

taxable directly to the beneficiary or beneficiaries.

o Each beneficiary must include in his return his distributive share of the netincome of the trust, estate, or co-ownership.

o Included in computing the net income of the grantor In whole or in part subject to revocation by the grantor For the benefit of the grantor


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211 - Decedent's estate administration

o "Period of administration or settlement of the estate" Period required by the executor or administrator to perform the

ordinary duties pertaining to administration

Collection of assets Payment of debts and legacies.

o Estates during the period of administration have but one beneficiary and thatbeneficiary is the estate.

o No taxable income is realized Passage of property to the executor or administrator on the death of the

decedenteven though it may have appreciated in value since the decedent

acquired it.

Delivery of property in kind to a legatee or distributeo Where prior to the settlement of the estate, the executor or administrator sells

property of a decedent's estate for more than the appraised value placed upon it

at the death of the decedent

Excess is income, taxable to the estateo Where property is sold after the settlement of the estate by the devisee, legatee

or heir at a price greater than the appraised value placed upon it at the time he

inherited the property from the decedent

Taxable individually on any profit derivedo An allowance paid a widow or heir out of the corpus of the estate is not

deductible from gross income.

212 - Liability for tax on estate or trust

o Liability for payment of the tax attaches Executor or administrator Up to and after his discharge

o Liability for the tax also follows Estate itself When the estate has been distributed, the heirs, devisees, legatees, and

distributors may be required to discharge the amount of the tax due and

unpaid, to the extent of and in proportion to any share received.o Where the tax has been paid on the net income of an estate or trust by the

fiduciary, the net income on which the tax is paid is free from tax when

distributed to the beneficiaries.

213 - Exemption allowed to estate or trusts

o Personal exemption of P1,800. Each beneficiary is entitled to but one personal exemption, no matter

from how many trusts he may receive income.

Documents

Tax Reviewer - Transfer Taxes