Estate Taxes

1. Dizon vs. CTA, G.R. No. 140944, April 30, 2008

FACTS:
On November 7, 1987, Jose P. Fernandez (Jose) died. Thereafter, a petition for the
probate of his will was filed with Branch 51 of the Regional Trial Court (RTC) of Manila
(probate court). The probate court then appointed retired Supreme Court Justice
Arsenio P. Dizon (Justice Dizon) and petitioner, Atty. Rafael Arsenio P. Dizon
(petitioner) as Special and Assistant Special Administrator, respectively, of the Estate of
Jose (Estate). 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.
ISSUE:
Whether or not the actual claims of the aforementioned creditors may be fully allowed
as deductions from the gross estate of Jose despite the fact that the said claims were
reduced or condoned through compromise agreements entered into by the Estate with
its creditors.
RULING:
Yes. The claims existing at the time of death are significant to, and should be made the
basis of, the determination of allowable deductions. 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. This is called the date-of-death valuation rule.
2. Marcos II vs. CA, G.R. No. 120880
FACTS:
Bongbong Marcos sought for the reversal of the ruling of the CA to grant CIR's petition
to levy the properties of the late Pres. Marcos to cover the payment of his tax
delinquencies during the period of his exile in the US. The Marcos family was assessed
by the BIR after it failed to file estate tax returns. However, the assessment were not
protested administratively by Mrs. Marcos and the heirs of the late president so that
they became final and unappealable after the period for filing of opposition has
prescribed. Marcos contends that the properties could not be levied to cover the tax
dues because they are still pending probate with the court, and settlement of tax
deficiencies could not be had, unless there is an order by the probate court or until the
probate proceedings are terminated.
ISSUE:
Whether or not the contentions of Bongbong Marcos are correct.
RULING:
No. The deficiency income tax assessments and estate tax assessment are already
final and unappealable -and-the subsequent levy of real properties is a tax remedy
resorted to by the government, sanctioned by Section 213 and 218 of the National
Internal Revenue Code. This summary tax remedy is distinct and separate from the
other tax remedies, and is not affected or precluded by the pendency of any other tax
remedies instituted by the government.
The approval of the court, sitting in probate, or as a settlement tribunal over the
deceased's estate is not a mandatory requirement in the collection of estate taxes. On
the contrary, 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 CIR 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.
3. Dizon vs. Posadas, 57 Phil. 465
FACTS:
Don Felix Dizon died on April 21, 1928. Before his death, he made a gift inter vivos in
favor of the plaintiff Luis W. Dizon of all his property according to a deed of a gift of
which includes all the property of Don Felix Dizon. The plaintiff did not receive the
property of any kind of Don Felix upon the death of the latter. Don Luis is the legitimate
and only son of Don Felix.
The defendant, collector of internal revenue assesses an inheritance tax of Php2,808.73
which Don Luis paid under protest and later filed an action to recover sum of money
thus paid. Plaintiff alleged that the inheritance 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.
ISSUE:
Whether or not the gift inter vivos is subject to inheritance tax.
RULING:
Yes. Section 1540 of the administrative code 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.
In this case, the scanty facts before us may not warrant the inference that the
conveyance, acknowledged by the donor 5 days before his death and accepted by the
donee one day before the donor’s death, was fraudulently made for the purpose of
evading the inheritance tax. But the facts, in our opinion, do not warrant the inference
that the transfer was an advancement upon the inheritance which the donee as the sole
and forced heir of the donor, would be entitled to receive upon the death of the donor.
4. Villa De Roces vs. Posadas, 58 Phil. 108
FACTS:
Esperanza Tuazon donated certain parcel of lands situated in Manila to the plaintiffs
herein who with their respective husbands accepted them in the same public documents
which were duly recorded in the registry of deeds. By virtue of said donations, the
plaintiffs took possession of the said lands, received the fruits thereof and obtained the
corresponding transfer certificate of title. The donor then died in the city of Manila
leaving the forced heir and her will which was admitted to probate, she bequeathed to
each of the donees the sum of Php5,000.
After the estate had been distributed among the instituted legatees and before the
delivery of their respective shares, the appellee herein, as collector of internal revenue,
ruled that the appellant as donees and legatees should pay as inheritance taxes. At
first, the appellants refused to pay the aforementioned taxes but, at the insistence of the
appellee in order not to delay the adjudication of the legacies, they agreed at last to pay
them under protest. Hence, plaintiff-appellants filed an action to recover the taxes paid
under protest.
ISSUE:
Whether or not inheritance tax should be imposed on donations inter vivos.
RULING:
Yes. 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 circumstance that the
donees were later instituted as the former’s legatees. For this reason, the law considers
such transmission in the form of gifts inter vivos, as advances on the inheritance and
nothing therein violates any constitutional provision, in as much as said legislation is
within the power of the legislature.
5. Collector vs. Fisher, G.R. No. L-11622, January 28, 1961
FACTS:
Walter G. Stevenson died in 1951 in California where he and his wife (Filipina) moved
to. In his will, he instituted Beatrice as his sole heiress to certain real and personal
properties, among which are 210,000 shares of stocks in Mindanao Mother Lode Mines
(Mines). Statt, the appointed ancillary administrator of his estate filed an estate and
inheritance tax return. He made a preliminary return to secure the waiver of the CIR on
the inheritance of the Mines shares of stock.
In 1952, Beatrice assigned all her rights and interests in the estate to thespouses
Fisher. Statt filed an amended estate and inheritance tax return claiming ADDITIOANL
EXEMPTIONS, one of which is the estate and inheritance tax onthe Mines’ shares of
stock pursuant to a reciprocity proviso in the NIRC, hence, warranting a refund from
what he initially paid. The collector deniedthe claim. He then filed in the CFI of Manila
for the said amount.CFI ruled that (a) the ½ share of Beatrice should be deducted from
the netestate of Walter, (b) the intangible personal property belonging to the estateof
Walter is exempt from inheritance tax pursuant to the reciprocity provisoin NIRC
ISSUE:
Whether or not the estate can avail itself of the reciprocity proviso in the NIRC granting
exemption from the payment of taxes for the Mines shares of stock.
RULING:
No.
Reciprocity must be total. If any of the two states collects or imposes or doesnot exempt
any transfer, death, legacy or succession tax of any character, the reciprocity does not
work.
In the Philippines, upon the death of any citizen or resident, or non-resident with
properties, there are imposed upon his estate, bothan estate and an inheritance tax.
But, under the laws of California, only inheritance tax is imposed. Also, although the
Federal Internal Revenue Code imposes an estate tax, itdoes not grant exemption on
the basis of reciprocity. Thus, a Filipino citizenshall always be at a disadvantage.
6. Gallardo vs. Morales, 107 Phil. 903
FACTS:
In accordance with a compromise agreement, a decision was rendered therein by the
Court of First Instance of Manila, on February 3, 1956, sentencing defendant Morales to
pay to plaintiff Gallardo P7,000.00. In due course, the corresponding writ of execution
was issued and delivered to the Sheriff of Manila, who, on August 8, 1956, garnished
and levied execution on the sum of P7,000.00, out of the P30,000.00 due from the
Capital Insurance & Surety Co., Inc., to said defendant, as beneficiary under a personal
accident policy issued by said company to defendant’s husband, Luis Morales, who
died, on August 26, 1950, by assassination. Defendant asked the sheriff to quash and
lift said garnishmentor levy on execution.
ISSUE:
Whether or not a personal accident insurance that "insures for injuries and/or death as a
result of murder or assault or attempt thereat" is a life insurance, within the purview of
Rule 39, section 12, subdivision (k), of the Rules of Court, exempting from execution.
RULING:
Yes. Indeed, it has been held that statutes of this nature seek to enable the head of the
family to secure his widow and children from becoming a burden upon the community
and, accordingly, should merit a liberal interpretation. Exemption statutes or rules
should be liberally construed with a view to giving effect to their beneficent and humane
purpose. To this end, every reasonable doubt as to whether a given property is or is not
exempt should be resolved in favor of exemption.
7. Balboa vs. Farrales, 51 Phil. 498
FACTS:
Sometime in the year 1913, the plaintiff Buenaventura Balboa filled with the Bureau of
Lands an application for homestead under the provisions of Act No. 926. Afterwards,
Act No. 926 was repealed by Act No. 2874.
Balboa, for and in consideration of the sum of P950, sold said land to the defendant
Farrales. Plaintiff commenced the present action for the purpose of having said sale
declared null and void on the ground of lack of consent on his part and fraud on the part
of the defendant, and on the further ground that said sale was contrary to, and in
violation of the provisions of section 116 of Act No. 2874.
Trial judge rendered a judgment in favor of the plaintiff and against the defendant,
ordering the latter to return to the plaintiff the land.
ISSUE:
Which of the two Acts — 926 and 2874 — shall be applied in determining whether the
sale in question is valid or not?
RULING:
Act 926 applies and the sale is valid.
The moment the plaintiff had received a certificate from the Government and had done
all that was necessary under the law to secure his patent, his right had become vested
before the patent was issued. His right had already vested prior to the issuance of the
patent, and his rights to the land cannot be affected by a subsequent law or by a
subsequent grant by the Government to any other person.
It follows, therefore that the sale of the land in question by the plaintiff Buenventura
Balboa to the defendant Farrales does not infringe said prohibition, and consequently
said sale is valid and binding, and should be given full force and effect.
8. Vera vs. Navarro, 79 SCRA 408
FACTS:
This is a petition for Certiorari, Prohibition, Mandamus and Injunction filed by herein
petitioner Vera, in his capacity as CIR, against Honorable Judge Navarro,in his capacity
as Judge of CFI. It appears that Elsie Gaches died without a child. The deceased left a
last will testament. The herein respondent Judge Tan filed with the CFI a petition for the
probate of the said will and he was appointed as executor. The CIR filed with the
probate court a claim of taxes particularly estate tax, inheritance tax, and income tax.
ISSUE:
Whether or not the heirs should be required to pay first the inheritance tax before the
probate court may authorize the delivery of the hereditary share pertaining to each of
them.
RULING:
No. The inheritance tax imposed by Section 86 shall, in the absence of contrary
disposition by the predecessor, be charged to the account of each beneficiary, in
proportion to the value of the benefit received, and in accordance with the scale fixed for
the class or group to which is pertains: Provided, That in cases where the heirs divide
extrajudicially the property left to them by their predecessor or otherwise convey, sell,
transfer, mortgage, or encumber the same without being the estate or inheritance taxes
within the period prescribed in the preceding subsections (a) and (b), they shall be
solidarity liable for the payment of the said taxes to the extent of the estate they have
received.
9. Ozaeta vs. Palanca, 101 Phil 498
FACTS:
The special administrator filed a petition in court for authority to pay the accounting firm
of Sycip, Gorres, Velayo & Co. the sum of P3,650, for services rendered in taking
inventory of assets in 1950, tax consultations in 1950 to 1954, and preparation of
income tax returns for 1953 and 1954. The court below denied this motion, on the
ground that the services covered by the fees of the accounting firm were rendered to
the former special administrator Philippine Trust Company.
ISSUE:
Whether or not the services rendered to the special administrator named in the will,
previous to his actual appointment as such and at his instance, are chargeable against
the estate.
RULING:
Yes. Whoever may have contracted the services of the accountants, whether it was Mr.
Ozaeta before his appointment or the Philippine Trust, such services were for the
benefit of the estate and have redounded to the estate's benefit.
The general rule is that acts done by an executor in the interest of his trust, prior to his
qualification as such, become binding on the estate upon his qualification.
There is no question that the services rendered were for the benefit of the estate. The
Rules require that the administrator should submit an inventory of the properties of the
estate within three months from his appointment.
10. Sison vs. Teodoro, 100 Phil. 1056
FACTS:
The CFI of Manila which had jurisdiction over the estate of David, issued an order
appointing appellant Sison as judicial administrator without compensation after filing a
bond. After entering into his duties as administrator, he filed an accounting of his
administration which included items as an expense of administration the premiums he
paid on his bond.
One of the heirs, herein appellee Teodoro, objected to the approval of the items. The
court approved the report but disallowed the items objected to on the ground that these
cannot be considered as expenses of administration. Sison filed a motion for
reconsideration but was denied hence this appeal.
ISSUE:
Whether or not an executor or judicial administrator can validly charge the premiums on
his bond as an expense of administration against the estate.
RULING:
No. The premiums paid by an executor or administrator serving without a compensation
for his bond cannot be charged against the estate. Further Sec. 7 of Rule 86 of the
Rules of Court does not authorize the executor or administrator to charge to the estate
the money spent for the bond. As held in the case of Sulit v. Santos (56 Phil 626), the
position of an executor or administrator is one of trust. The law safeguards the estates
of deceased persons by making as a requirement for qualification the ability to give a
suitable bond. The execution of said bond is therefore a condition precedent to
acceptance of the responsibilities of the trust.
11. Vera vs. Fernandez, 89 SCRA 199
FACTS:
The motion for allowance of claim and for payment of taxes dated May 28, 1969 was
filed on June 3, 1969 for the collection of the indebtedness to the government of the late
Luis D. Tongoy for deficiency income taxes in the total sum of P3,254.80. The
administrator opposed the motion solely on the ground that the claim was barred under
Section 5, Rule 86 of the Rules of Court. Jose Fernandez dismissed the motion for
allowance of claim filed by the Regional director of the BIR, being the judge of the Court
of First Instance.
ISSUE:
Whether the statute of non-claims Section 5, Rule 86 of the Rule of Court bars claim of
the government for unpaid taxes, still within the period of limitation prescribed in Section
331 and 332 of the NIRC.
RULING:
No. Section 5, Rule 86 of the Rules of Curt makes no mention of claims for monetary
obligation of the decedent created by law, such as taxes which is entirely of different
character from the claims enumerated, such as “all claims for money against the
decedent arising from contract, express or implied, whether the same be due, or
contingent, all claim for funeral expenses and expenses for the last sickness of the
decedent and judgment for money against the decedent.” Under the familiar rule of
statutory construction, the mention of one thing implies the exclusion of another thing
not mentioned.
12. Estate of Hilario Ruiz vs. CA, 252 SCRA 541
FACTS:
Hilario M. Ruiz executed a holographic will naming as his heirs his only son, Edmond
Ruiz, his adopted daughter, private respondent Maria Pilar Ruiz Montes, and his three
granddaughters. On April 12, 1988, Hilario Ruiz died. Four years after the testator’s
death, it was private respondent Ruiz Montes who filed before the RTC a petition for the
probate and approval of Hilario Ruiz’s will and for the issuance of letters testamentary to
Edmond Ruiz.
ISSUE:
Whether or not the probate court, after admitting the will to probate but before payment
of the estate’s debts and obligations, has the authority to grant possession of all
properties of the estate to the executor of the will.
RULING:
No. The right of an executor or administrator to the possession and management of the
real and personal properties of the deceased is not absolute and can only be exercised
“so long as it is necessary for the payment of the debts and expenses of administration,
He cannot unilaterally assign to himself and possess all his parents’ properties and the
fruits thereof without first submitting an inventory and appraisal of all real and personal
properties of the deceased, rendering a true account of his administration, the expenses
of administration, the amount of the obligations and estate tax, all of which are subject
to a determination by the court as to their veracity, propriety and justness.
13. Commissioner vs. Pineda, 21 SCRA 104
FACTS:
Respondent Pineda, as one of the heirs of the deceased Atanasio Pineda, received an
estate of his deceased father as his share in the inheritance. The BIR assessed the
estate with income tax deficiency and made Manuel Pineda liable for the payment of all
the taxes due from the estate in the total amount of P760.28 instead of only for the
amount of taxes corresponding to his share in the estate.
ISSUE:
Whether or not the Government can require an heir to pay the full amount of the taxes
assessed.
RULING:
Yes, an heir is liable but it cannot exceed the amount of his share. He is liable for the
assessment as an heir and as a holder-transferee of property belonging to the estate-
taxpayer. As an heir he is individually answerable for the part of the tax proportionate to
the share he received from the inheritance. As a holder of the property belonging to the
estate, he is liable for the tax up to the amount of the property in his possession. The
Government has a lien on such property. But after payment of such amount, he will
have a right to contribution from his co-heirs.
Donor’s Tax
14. Lladoc vs. Commissioner, 14 SCRA 293
FACTS:
M.B. Estate Inc., of Bacolod City, donated 10,000.00 pesos in cash to Fr. Crispin Ruiz,
the parish priest of Victorias, Negros Occidental, and predecessor of Fr. Lladoc, for the
construction of a new Catholic church in the locality. The donated amount was spent for
such purpose.
The donor M.B. Estate then filed the donor's gift tax return. Afterwards, the CIR issued
an assessment for the donee's gift tax against the Catholic Parish of Victorias of which
petitioner was the parish priest.
ISSUE:
Whether or not the imposition of gift tax despite the fact the Fr. Lladoc was not the
Parish priest at the time of donation, Catholic Parish priest of Victorias did not have
juridical personality as the constitutional exemption for religious purpose is valid.
RULING:
Yes, imposition of the gift tax was valid, under Section 22(3) Article VI of the
Constitution contemplates exemption only from payment of taxes assessed on such
properties as Property taxes contra distinguished from Excise taxes. The imposition of
the gift tax on the property used for religious purpose is not a violation of the
Constitution. A gift tax is not a property by way of gift inter vivos.
The head of the Diocese and not the parish priest is the real party in interest in the
imposition of the donee's tax on the property donated to the church for religious
purpose.
15. Pirovano vs. Commissioner, 14 SCRA 832
FACTS:
De la Rama Steamship Co. insured the life of Enrico Pirovano, who was then its
President and General Manager until the time of his death. The Company then received
the total sum of P643,000.00 as proceeds of the said life insurance policies. The
Company renounced all its rights on the money in favor of the decendent's children.
After a case that marred Estefania Pirovano, the guardian and the Company paid in
favor of the children.
The CIR then assessed donees' gift tax against Pirovano and donor's tax against the
Company. Pirovano contested with the CIR which she lost and thus appealed with the
CTA. The CTA held that donees' gift tax were correctly assessed.
ISSUE:
Whether or not Pirovano should pay the donees' gift tax.
RULING:
Yes. Pirovano contends that the Court itself declared that the donation was
renumenatory and not simple and it was made for a full and adequate compensation for
the valuable services by decedent to the Company; hence, the donation does not
constitute a taxable gift under the provisions of Section 108 of the NIRC.
The Court states that it is a donation; that the consideration for the donation was,
therefore, the company's gratitude for his services, and not the services themselves and
whether the donation was simple or renumenatory, it was still a gift taxable under the
law.