Dizon v.

The Commissioner of the BIR

Facts:
Dizon died testate. His will was probated with the Regional Trial
Court thereafter, and it was found out that his total estate would only
amount to Php 14 Million Pesos. Claims against the estate were filed by
several banks which, shockingly, totaled as much as Php 187 Million.
Because the claims against the estate were much bigger than the total
estate, the administrator filed with the Regional Director a request for
certification to the effect that no estate tax was payable. The said Director
issued a certification to that effect. Thereafter, a request was filed with the
probate court to sell the properties forming part of the estate to satisfy the
claims of the creditors.
Sometime thereafter, however, deficiency assessment was sent by the
Assistant BIR Commissioner, on the ground that compromise agreements
were entered into by the administrator of the estate, which led to a
substantial diminution of the claims, which were already paid. The
deficiency assessment was in the amount of over Php 66 Million, inclusive of
penalties and surcharges. The administrator appealed the assessment to the
Court of Tax Appeals (CTA), which took the view of the BIR but provided
another computation this time, assessing a deficiency of only Php 26
Million. The Court of Appeals (CA) affirmed the decision of the CTA.
Hence, in the appeal to the Supreme Court (SC), Dizon argues that, in
ascertaining the amount of the claims against the estate, what is controlling
and what should be declared to and made basis by the BIR in assessing the
corresponding tax is the amount payable at the time of death, so that even
notwithstanding subsequent developments, for example condonation or
compromise, the estate cannot be liable for deficiency. Moreover, it alleges
procedural lapses on the part of the BIR.
Issue:
Are the CTA and CA correct in ruling that the estate should be liable
for deficiency tax because of the subsequent compromise agreements with
the creditors?
Ruling and Discussion:
No, the CTA and CA correct in ruling that the estate should be liable
for deficiency tax, because, in the case of claims against the estate, what is
controlling is the amount or the value of the debt at the time of death.
Brushing aside the procedural lapses (which, by the way, consisted
much of the SCs discussion), the SC ruled that in this jurisdiction the dateof-death valuation rule is adhered to. Because the Philippine (PH) Tax Laws
are based on the United States (US) Tax laws, the interpretation in that
jurisdiction carry great weight in our interpretation of our tax laws. In that
jurisdiction, there are two conflicting views: (1) the post-death development
view and (2) the date-of-death valuation. The SC had an opportunity in this
case to express its agreement with the date-of-death valuation rule, because
(a) there is no law or any discernible legislative intent prohibiting it, (b) nor
does any law or discernible legislative intent prescribing the adoption of the
post-death development rule, and (c) because taxation laws are, in this
jurisdiction, being considered as burdensome to the citizens, must be

construed strictissimi juris against the government and liberally in favor of

the citizen.
Thus, the claims against the estate existing at the time of death
should be made basis in the determination of allowable deductions. The CTA
and CA were incorrect and was corrected by the SC.