November 11, 2011

BIR RULING NO. 440-11

Sec. 86 (A) (4) NIRC; RR 02-03; CIR vs. Isabela Cultural Corp., G.R. No. 172231
Cynthia L. Tiotuyco
#14 S. Moldero, B.F. Homes
Capitol Site, Quezon City
Ma'am :
This refers to your letter dated February 4, 2011 requesting for a clarificatory
ruling on whether the family home of your father, the deceased Maximo B.
Landrito, may be deducted from his gross estate for purposes of estate tax.
It can be gathered from the documents submitted that Maximo Landrito and his
wife, Paz Landrito, ("Spouses Landrito") obtained a loan from Zoilo and Primitiva
Espiritu ("Spouses Espiritu") in the amount of P350,000.00; that to secure the loan,
the Spouses Landrito executed a real estate mortgage over their real property
located in Alabang, Muntinlupa covered by Transfer Certificate of Title (TCT) No. S48498, in favor of Spouses Espiritu; that said property was being used by Spouses
Landrito as their residence. Furthermore, the Spouses Landrito were unable to
settle the loan when the same became due and demandable. As a consequence,
the mortgaged property was foreclosed on October 31, 1990 and sold to Spouses
Espiritu as the sole bidder. The title of the property was subsequently transferred
in the name of Spouses Espiritu under TCT No. 179802 of the Registry of Deeds for
Makati. Meanwhile, Spouses Landrito were ejected from their property and rented
an apartment as their residence. On October 9, 1992, the Spouses Landrito,
represented by their son, Zoilo Landrito, filed an action for annulment or
reconveyance of title of the subject property against Spouses Espiritu. The
Supreme Court, in its decision promulgated on April 3, 2007, declared invalid the
foreclosure proceedings and ordered the Spouses Espiritu to reconvey the property
to the Spouses Landrito. Pending the execution of the Court's decision, Maximo
Landrito died on December 20, 2007 in his rented apartment in Sampaloc, Manila.
The sole issue is whether or not the family home constituted on the lot that was
foreclosed but subsequently reconveyed to Spouses Landrito may be deducted
from the gross estate of Maximo Landrito.
In reply, please be informed that Section 6 (D) (b) of the Revenue Regulations No.
02-2003, which implements Section 86 (A) (4) of the Tax Code of 1997, provides, to
wit:
"Conditions for the allowance of FAMILY HOME as deduction from the gross estate
1. The family home must be the actual residential home of the decedent and his
family at the time of his death, as certified by the Barangay Captain of the locality
where the family home is situated;
2. The total value of the family home must be included as part of the gross estate
of the decedent; and

3. Allowable deduction must be in an amount equivalent to the current fair market

value of the family home as declared or included in the gross estate, or the extent
of the decedent's interest (whether conjugal/community or exclusive property),
whichever is lower, but not exceeding P1,000,000."
Based from the above-quoted provision, it is clear that the family home, in order to
be allowed as a deduction from the gross estate, must be the actual residential
home of the decedent and his family at the time of his death. In this case, Mr.
Landrito and his family were not actually residing at their family home at the time
of his death. Hence, the said family home may not be allowed as a deduction from
the gross estate for purposes of estate tax.
It is a governing principle in taxation that tax exemptions must be construed in
strictissimi juris against the taxpayer and liberally in favor of the taxing authority.
One who claims an exemption must be able to justify the same by the clearest
grant of organic or statute law. An exemption from the common burden cannot be
permitted to exist upon vague implications. And since a deduction for income tax
purposes partakes of the nature of a tax exemption, then it must also be strictly
construed. (CIR vs. Isabela Cultural Corporation, G.R. No. 172231 dated February
12, 2007)
Very truly yours,
(SGD.) KIM S. JACINTO-HENARES
Commissioner of Internal Revenue