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BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 11

SUGGESTED ANSWERS
Chapter 3: GROSS ESTATE

CHAPTER 3
GROSS ESTATE

Problem 3-1
1. True
2. False include all properties within and outside the Philippines.
3. True
4. False intangible personal properties
5. False properties of nonresident aliens. The properties within and outside the Philippines
of a resident alien is subject to Philippine estate tax.
6. True
7. False common stock only; preferred stock is measured at its par value.
8. True
9. True
10. False This is a donation mortis causa which is subject to estate tax.
11. True
12. False only proceeds of life insurance with revocable beneficiary is included for estate
tax purposes.

Problem 3-2
1. True
2. False amount receivable under R.A. 4917 shall be included as part of the gross
estate subject to deduction of its entire amount reported.
3. False only intangible properties are exempted from estate tax.
4. True
5. False the reciprocity exemption is granted only to nonresident alien.
6. True
7. True
8. True
9. False exclusive property.
10. True
11. True
12. True

Problem 3-3 Problem 3-4
1. D 1. B
2. C 2. C
3. B 3. A
4. D 4. A
5. A 5. B
6. C 6. C
7. D 7. A
8. B 8. B
9. A 9. A
10. C 10. D
11. D 11. C
12. A 12. A








BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 12
SUGGESTED ANSWERS
Chapter 3: GROSS ESTATE


Problem 3-5

1. The reportable gross estate is P3,000,000 or (P2,500,000 + P500,000)

2. P25,000,000. The properties left by a resident alien which are located within and outside
the Philippines are required to be reported for Philippine estate tax purposes.

3. A has 20% in the book value of U Corporation. The book value of U Corp. is P2,000,000.
Therefore, the reportable gross estate of A would be P400,000 or (P2,000,000 x 20%).

4. Zero. The beneficiary is irrevocable. Therefore, the P5,000,000 proceeds of life insurance
should be excluded from the gross estate.

5. Since M is a resident alien, all of his properties within and outside the Philippines should
be reported as part of the gross estate for Philippine estate tax purposes. The reportable
gross estate should be P11,000,000.

6. Zero. No amount is allowed as exemption because the rule of reciprocity is applied only
on the intangibles of nonresident alien.

7. P10,000,000. Since Mr. T is a nonresident alien in this case, the gross estate is zero because
the rule of reciprocity can now be applied.

8. None. The rule is to report the market value of the property at the time of the decedents
death. The compensatory damages of P900,000 are excluded since the accrued is made to the
decedents heirs after death. Payments for medical and funeral expenses are nontaxable
because they are considered contributions from symphatizers.

9. Excluded from the gross estate is P3,000,000 or (P5,000,000 x 60%). As a rule, property
donated by the decedent to a nonprofit and nonstock educational institution is excluded
from the gross estate. Donations to the Philippine government is included as part of the gross
estate, but deductible in its full amount.

Problem 3 6 B
At market value of P750,000. The law provides that the valuation should be at the market value
of the property at the time of the owners death. The book value is irrelevant because the
properties left by the decedent are considered under liquidating concern.

Problem 3 7 C
Business, Daly City P30,000,000
Cars, Philippines 1,000,000
Condominium, Philippines 3,000,000
Mansion, Boracay, Philippines 20,000,000
Shares of stock, Hongkong 4,000,000
Accounts receivable 2,000,000
Gross estate of Molina P60,000,000

Problem 3-8 B
Real property in the Philippines P1,600,000
Personal properties in foreign country 600,000
Personal properties in foreign country 800,000
Amount to be included in the gross estate P3,000,000




BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 13
SUGGESTED ANSWERS
Chapter 3: GROSS ESTATE

Problem 3-9 A
P500,000. Since the alien is nonresident all of his properties outside the Philippines are
reportable for Philippine estate tax purposes. The investment in shares of stock of a resident
foreign corporation with 85% business situs in the Philippines is a property within the
Philippines.

Problem 3-10
1. Letter A
Real properties Philippines P1,000,000
Car Philippines 800,000
Collectibles Philippines 500,000
Franchise Taiwan 200,000
Taxable gross estate P2,500,000

2. Letter C
Real properties Philippines P1,000,000
Car Philippines 800,000
Taxable gross estate P1,800,000
Problem 3-11 A
P500,000. The gross estate shall be valued at its fair market value at the time of death.
Problem 3-12 C
Amount to be included in the gross estate [(P120+P150)/2] x 1,000 P135,000
Problem 3-13 D
Equity in SMC book value (P100,000,000 x 40%) P40,000,000
Investment income (P20,000,000 x 40%) 8,000,000
Amount to be included in the gross estate P48,000,000
Note: Investment income is considered because there is significant controlling interest.
Problem 3-14 B
Business establishments P10,000,000
Accrued income (P200,000 x 5 months) 1,000,000
Time deposit for 10 years 30,000,000
Accrued interest (P30,000,000 x 12% x 10/12) 3,000,000
5% equity in Jollibee Corporation 5,000,000
Car and mansion donated mortis causa to his son 20,000,000
Gross estate P69,000,000

The dividend is excluded because the declaration was made after death.

Problem 3-15 A
Commercial building P10,000,000
Rental income earned (P200,000 x 5 months) 1,000,000
Common shares (P120 + P130)/2 = P125 x 200,000 shares 25,000,000
Cash dividend (P20,000,000/200,000) = P100 x 10% x 200,000 2,000,000
Reportable gross estate P38,000,000

Problem 3-16 B
Revocable donation to the Ramon Magsaysay Foundation P1,000,000
Family home 1,000,000
Nontaxable benefits under R.A. 4917 500,000
Transfers in contemplation of death 2,000,000





BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 14
SUGGESTED ANSWERS
Chapter 3: GROSS ESTATE
Donation to the government 1,000,000
Total reportable gross estate P5,500,000

Problem 3-17 D
Zero, because the proceeds of life insurance is designated to an irrevocable beneficiary. The
P200,000 is also excluded because such amount in on account of physical injury and accrued
after death.

Problem 3-18 A
P500,000. The proceeds of life insurance are reportable because the beneficiary is revocable.

Problem 3-19 D
There is no inadequate consideration because the sale of real property classified as capital
asset is subject to a final capital gains tax of 6% based on the selling price or fair market
value, whichever is higher.

Note: If the cash P100,000 cash payment made by the son is available at the time of death;
then the amount should be included as part of the gross estate.

Problem 3-20 C
Fair market value date of death P2,000,000
Less: Selling price received by Singsong 1,300,000
Amount included in the gross estate P 700,000
Problem 3-21 C
P160,000. The entire amount of receivable, irrespective whether collectible or not, shall be
included as part of the gross estate.
Problem 3-22 B
Family home to Cell, his daughter
(Cancer used the house until his death) P 4,000,000
Commercial building to Cyst, his son
(Cancer received the rental income) 6,000,000
Shares of stock to Aids, his wife
(Evidenced by oral donation) 3,000,000

Amount reportable for estate tax purposes P13,000,000
Problem 3-23 D
The reportable estate of A in the Philippines is P10,000,000. Even if A is a nonresident
Filipino, his properties located outside the Philippines are reportable in the Philippines
because he is a Filipino citizen.

Problem 3-24 B
Condominium in Makati as a fiduciary heir P5,000,000
Cash as bequest to the University of the Philippines 2,000,000
Amount to be excluded from reportable gross estate P7,000,000
Problem 3-25 A
Zero. Only nonresident alien shall be subject to reciprocity.
Problem 3-26 B
P4,000,000 value of condominium located in the Philippines. Intangible properties are not
subject to estate tax in the Philippines when there is reciprocity and the decedent who owns
them is a nonresident alien.



BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 15
SUGGESTED ANSWERS
Chapter 3: GROSS ESTATE

Problem 3-27 D
P2,000,000. Properties acquired and brought into marriage on or after August 3, 1988 are
governed by absolute community property relation; hence, to be included as part of the gross
estate.

Problem 3-28
1. Letter C
Property brought into marriage before August 3, 1988 shall be classified as an exclusive
property but its fruits shall be classified as part of the conjugal property. The exclusive
gross estate is P12,000,000.

2. Letter A
Marriage on or after August 3, 1988 shall be governed by the absolute community regime of
property relation. Therefore, the exclusive gross estate of Mr. X is zero because his property
brought into marriage including its fruits shall be classified as part of the absolute
community property.

Problem 3-29
1. Conjugal partnership of gains = A
Conjugal properties:
Accum. income from boarding house P3,000,000
Personal properties acquired during marriage 5,000,000 P 8,000,000
Exclusive property boarding house inherited from his parents during marriage 4,000,000
Total gross estate P12,000,000

2. Absolute community of property = C
Absolute community properties:
Personal properties acquired during marriage P5,000,000
Farm land brought into marriage by his wife 6,000,000 P11,000,000
Exclusive properties
Boarding house inherited from his parents during marriage P4,000,000
Accum. income from boarding house 3,000,000 7,000,000
Total gross estate P18,000,000

Problem 3-30
Case 1 Include. The donation is conditional. The donor reserved the power to own the car
until the latter passes the CPA exam.

Case 2 Include. The donation is revocable because the donor controls and enjoys the
property for himself until his death.

Case 3 Exclude. The donation is complete because control over the property by the donor
ended after 3 years.

Case 4 - Include. The donor predeceased the donee. Absolute control is transferred to the donee
upon the death of the donor.

Case 5 Exclude. The P60,000 (P80,000 P20,000) is subject to donors tax at the time of sale.

Case 6 Include. The sale is in contemplation of death. The P900,000 is subject to income tax.

Case 7 Exclude. The sale of real property is subject to a final tax of 6% based on the
selling price or fair market value, whichever is higher.

Case 8 Include. The transfer is an inheritance to be received at the time of death as
evidenced by a Will.

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BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 16
SUGGESTED ANSWERS
Chapter 3: GROSS ESTATE

Case 9 Exclude. No transfer tax is to be paid because the property was transferred at the desire
of the predecessor, H. S has no power or control to appoint other successor.

Case 10 Include. The transfer is a general power of appointment.

Case 11 Exclude. Subject to donors tax because the actual transfer is inter vivos. The
transfer of proceeds of life insurance is deemed complete at during the life-time of the donor.

Case 12 Incude. Include as part of the gross estate if the beneficiary is revocable or the
decedents estate, his administrator or his executor.

Problem 3-31
Real properties in the Philippines P2,000,000
Car in the Philippines 800,000
Accounts receivable 500,000
Time deposit 300,000
Accrued interest on time deposit (P300,000 x 12% x 5/12) 15,000
Claims against insolvent person 35,000
Gross estate P3,650,000
Problem 3-32
Shares of stock Japanese Corporation 85% of business in the Philippines P120,000,000
Time deposit in Equitable-PCI Bank 500,000,000
Investments in bonds in Jollibee Corporation 4,000,000
Gross estate P624,000,000
Problem 3-33
House and lot P6,000,000
Investment in property 2,000,000
Car 600,000
Furniture 300,000
Gross estate P8,900,000
Problem 3-34
1. Listed in the local exchange
Common (P190/2) x 10,000 shares P 950,000
2. Not listed in the local exchange
Total stockholders equity P15,000,000
Less: Liquidating value of preferred stock
(P110 x 60,000 shares) 6,600,000
Revaluation surplus 200,000
Total book value to common shares P 8,200,000
Divided by outstanding common shares 100,000
Book value per share P 82
Multiplied by number of Mr. Tulogs
investment in common shares 10,000
Value of securities as part of gross estate P 820,000
Problem 3-35
Real estate properties P 3,000,000
Time deposit principal amount 2,000,000
Accrued interest on time deposit (P2,000,000 x 12% x 8/12) 160,000
Tangible personal properties 1,000,000
Other intangible properties 500,000
Gross estate P 6,660,000

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BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 17
SUGGESTED ANSWERS
Chapter 3: GROSS ESTATE
Problem 3-36
1. Accrued interest (P1,000,000 x 6% x 9/12) P 45,000
Transfers in contemplation of death car 1,500,000
Additions to the reportable gross estate P1,545,000
2. Family home P2,000,000
Time deposit 1,000,000
Proceeds of life insurance received by his wife 500,000
Claims against insolvent person 200,000
Additions to the reportable gross estate (see 1) 1,545,000
Total gross estate P5,245,000
Problem 3-37
Conjugal Absolute
Partnership Community
Properties:
Acquired by decedent prior to marriage P600,000 P600,000
Acquired by surviving spouse prior to marriage 700,000
Inherited by decedent during the marriage 800,000 800,000
Acquired during the marriage 1,000,000 1,000,000
Income derived from property inherited by surviving
spouse during the marriage 450,000
Time deposit 850,000 850,000
Accrued interest 90,000 90,000

Total gross estate of the decedent P3,790,000 P4,040,000
Problem 3-38
1. Filipino or resident alien
Within Outside Total

Condominium P5,000,000 P5,000,000
Commercial building P10,000,000 10,000,000
Shares of stock nonresident foreign corp. 3,000,000 3,000,000
Business transferred to his son, the decedent
enjoys the income until his death 8,000,000 8,000,000
Investments in lands:
Fair market value at time of death 5,000,000 2,000,000 7,000,000
Proceeds of life insurance, estate irrevocable beneficiary 2,000,000 2,000,000
Proceeds of property insurance 3,000,000 7,000,000 10,000,000
Cash in bank 2,500,000 4,000,000 6,500,000
Franchises 1,500,000 2,000,000 3,500,000
Total gross estate P27,000,000 P28,000,000 P55,000,000
2. Nonresident alien without reciprocity
Within
Condominium P5,000,000
Business transferred to his son, the decedent
enjoys the income until his death 8,000,000
Investments in lands:
Fair market value at time of death 5,000,000
Proceeds of life insurance, estate irrevocable beneficiary 2,000,000
Proceeds of property insurance 3,000,000
Cash in bank 2,500,000
Franchises 1,500,000
Total gross estate P27,000,000




BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 18
SUGGESTED ANSWERS
Chapter 3: GROSS ESTATE

3. Nonresident alien with reciprocity
Within
Condominium P5,000,000
Business transferred to his son, the decedent
enjoys the income until his death 8,000,000
Investments in lands:
Fair market value at time of death 5,000,000
Total gross estate P18,000,000