Estate Tax Syllabus

Proforma Computation for Estate Tax

Gross Estate
Less: Ordinary Deductions
ELITE
Funeral Expenses
Judicial Expenses
Casualty Losses
Claims against the Estate
Claims against insolvent persons
Unpaid mortgage
Unpaid taxes
Transfer for public use
Vanishing deduction
Total Ordinary Deductions
Net Estate before special deductions
Less: Special deductions
Standard deduction
Family Home
Medical Expenses
Death benefits, RA 4917
Total Special Deductions
Net Estate before share of spouse
Less: Share of surviving spouse
Net taxable Estate
Tax rate
Estate Tax
GROSS ESTATE
Sec 85, NIRC
o Consists of all properties (real or personal tangible or intangible)
owned by a decedent at the time of his death; however, it shall not
include the separate (exclusive) properties of the surviving spouse.
Summary of Properties included in the Gross Estate (Real property, Tangible
personal property and Intangible personal property)

Decedent
Filipino citizen or resident alien
Nonresident alien

Location of Property
Within
Witthout
Yes
Yes
Yes
No

SUMMARY OF PROPERTIES INCLUDED IN THE GROSS ESTATE

Included in the Gross Estate

Resident/Filipi Nonresident
no
Alien

1 Real/immovable property
(a) in the Phil
(b) outside the Phil

xxx
xxx

xxx

2 Tangible personal property

(a) in the Phil
(b) outside the Phil

xxx
xxx

xxx

3 Intangible personal property with situs

(a) in the Phil
(b) outside the Phil

xxx
xxx

xxx

4 Franchise exercised
(a) in the Phil
(b) outside the Phil

xxx
xxx

xxx

Shares, obligations or bonds issued by

corporations organized or constituted
under the Philippine laws

xxx

xxx

Shares, obligations or bonds issued by

Foreign corporations (85% of business
located in the Phil)

xxx

xxx

Shares, obligations or bonds issued by any

Foreign corporation that acquired business
situs in the Phil

xxx

xxx

Shares or rights in partnership business or

industry established in the Phil

xxx

xxx

o Collector vs Fisher L-11621; Wells Fargo Bank vs Collector 70 Phil 505

Shares of stock acquired by a nonresident alien from a domestic
corporation are taxable in the Phil
o Sec 85 and Sec 105 of NIRC
Intangible personal property located within the Philippines of a
nonresident alien is subject to the rule of reciprocity. If there is
reciprocity, it is not subject to estate tax in the Phil
Valuation of Gross Estate
o Sec 88 (B) NIRC

 For the purpose of computing the estate tax, it is necessary that

the gross estate of the decedent be appraised or valued at the
time of death.
o Art 777 NCC
The date of valuation is at the time of death because the transfer
of properties from the dead to the living takes effect at the
moment of death.
o Lorenzo vs Posadas 64 Phil 353
The property is to be valued as of the decedents death upon the
date the tax accrues regardless of any subsequent contingency
affecting the estate
ADDITIONS TO GROSS ESTATE
Taxable transfers
o Revocable Transfers (Sec 85 C(1) NIRC)
By gift where the donor has reserved the power to alter, amend,
and revoke the donation
o Transfer in contemplation of death (Sec 85 C(2) NIRC)
Where the donation was made due to the decedents age and/or
the decedents known serious illness at the time of the gift
Vidal de Roces vs Posadas 58 Phil 108
Where the donation was made concurrently with the
execution of a will
Dizon vs Posadas 57 Phil 465
Where time between the making of a gift and the death of
the donor was relatively close
BIR Ruling No. 261, 9/2/1987
The law does not specify the number of years prior to the
decedents death within which the transfer can be
considered in contemplation of death
o Property passing under general power of appointment (Sec 85(D),
NIRC)
The phrase general power of appointment means that the
decedent must have had a power execisable in favor of himself,
his estate, or creditors of his estate
A power is special if it is expressly not exercisable in favor of
the decedent, his estate, his creditors of his estate, or the
decedent appointed only among a restricted or designated class
of persons other than himself, his estate, his creditors, or
creditors of his estate
As a rule, if the power released by the decedent is a special
power of appointment, the property subject to such power shall
be excluded from the gross estate because the decedent had
already relinquished interest over the property

o Transfers for insufficient consideration

The value to be included in the gross estate shall be determined
under the following rules:
If the transfer was in the nature of a bona fide sale for an
adequate and full consideration in money or moneys worth,
no value shall be included in the gross estate
If the consideration received is less than adequate and full
consideration, the value to be included in the gross estate
shall be the excess of the fair market value of the property
at the time of the decedents death over the consideration
received
If there was no consideration received on the the transfer
(as in donation mortis causa), the value included in the
gross estate shall be the fair market value of the property at
the time of decedents death
If the transfer is not shown to have been made in
contemplation of death or to take effect upon the
decedents demise, the transfer is subject to donors tax
under Sec 98 of the Tax Code
Others
o Decedents interest accrued at the date of death (Sec 85(A) NIRC)
Refers to the value of any interest in property or rights accrued in
favor of the decedent on or before his death which have been
received only after his death
Examples: Dividends, partnership profit earned, accrued
interest and rents
o Proceeds of life insurance with revocable beneficiary (Sec 85(E) NIRC)
Life insurance covers all description of insurance related to life,
including death benefits and accident insurance
Rules to be observed
o Exclude from the gross estate if the beneficiary is
irrevocable
o Include in the gross estate if the beneficiary is: (1)
revocable, or (2) the decedents estate, his
administrator or his executor
o Claims against insolvent persons; and
o Amount received by heirs under RA 4917 (Sec 86(7) NIRC)
EXEMPTIONS FROM ESTATE TAX
Sec 87 NIRC
o Merger of usufruct in the owner of naked title
o Transmission or delivery of the inheritance or legatee by the fiduciary
heir or legatee to the fideicommissary

o Transmission from the first heir, legatee, or done in favor of another

beneficiary, in accordance with the desire of the predecessor
o All bequests, devises, legacies or transfers to social welfare, cultural,
and charitable institutions, no part of the net income of which goes to
the benefit of any individual; provided, however, that not more than
30% of the said bequests, devises or transfers shall be used by such
institutions for administration purposes
Art XIV, Sec 4(4) of 1987 Constitution
o Bequests to be used actually, directly, and exclusively for educational
purposes
Proceeds of Life Insurance
o Where the beneficiary is irrevocably appointed
o Under a group insurance taken by the employer in favor of the
emlpoyee
Transfer by way of bona fide sales
Properties held in trust by the decedent
Sec 85(H) NIRC
o Separate property (capital of husband or paraphernal of wife) of the
surviving spouse
Exemptions under reciprocity clause of estate tax laws
Benefits from SSS, GSIS, US Veterans, War Benefits, and Grants and
donations to the Intramuros Administration

Assignment: Yellow paper

1. Make a table on the similarities and differences between the Conjugal
Partnership of Gains and Absolute Community of Property

Property

Conjugal
Partnership
1. Property inherited or received Exclusive
as donation during marriage
2. Property acquired during
Conjugal
marriage (other than
inheritance or donation)
3. Property acquired from labor, Conjugal
industry, work or profession of
the spouses
4. Fruits or income due or
Conjugal
derived during the marriage
coming from common property
5. Property before the marriage Exclusive
or brought to the marriage
6. Fruits or income due or
Conjugal

Absolute
Community
Exclusive
Community
Community
Community
Community
Exclusive

received during the marriage

coming from exclusive property
2. Make a table on the rates of Estate Tax
Rates of Estate Tax
Net Estate
Estate Tax
Over
Not Over
Tax of
Plus %
-0P200,000
Exempt
-0P200,000
500,000
-05%
500,000
2,000,000
P15,000
8%
2,000,000
5,000,000
135,000
11%
5,000,000
10,000,000
465,000
15%
10,000,000
And over
1,215,000
20%

Excess
Over
-0P200,000
500,000
2,000,000
5,000,000
10,000,000

ADMINISTRATIVE REQUIREMENTS
Sec 90 NIRC
Requirements

1. Notice of death (within 2

months)
2. Estate tax return (within 6
months)
3. CPA certificate (within 6
months)

Value of Gross
Excee Exceeds
ds
P200,00
P20,00 0
0
Yes
Yes

Estate
Exceeds
P2,000,0
00
Yes

No

Yes

Yes

No

No

Yes

Filling and payment of Estate tax

o In meritorious cases, a reasonable extension for filling the return, not
exceeding 30 days shall be granted by the BIR Commissioner or any
authorized Revenue Officer
o As a general rule, the executor, administrator or the heirs shall pay the
estate tax imposed under the Code at the time the return is filed
o By reason of undue hardship upon the estate or any of the heirs, the
BIR Commissioner may extend the time of payment of such tax or any
part thereof not to exceed five (5) years in case the estate is settled
through the courts, or two (2) years in case the estate is settled extrajudicially

o Where the request for extension is by reason of negligence, intentional

disregard of rules and regulations, or fraud on the part to the taxpayer,
the Commissioner will grant no extension.
o Any amount paid after the statutory due date of the tax, but within the
extension period shall be subject to interest but not to surcharge
Surcharges, Interest and Penalties
Payment of Estate tax by installment
Safeguards for the payment of Estate Taxes
o The executor or administrator should not distribute the estate until
taxes are paid
o The Register of Deeds shall not register any deed or instrument
covering the decedents estate until the taxes are shown to have been
paid
o No corporation shall register in its transfer books of shares or bonds of
the decedents estate until the taxes are paid
o A debtor of the decedent cannot be required to pay debts to the heirs
but may pay the debts to the executor or administrator
o Every notary public who intervened as such in any instrument affecting
the estate or part thereof must furnish copy of said instrument to the
Commissioner of Internal Revenue (Sec 94 NIRC)