Estate of Fidel F. Reyes and Estate of Teresita R.

Reyes v CIR
CTA Case No. 6747 | January 16, 2006 | Bautista, L, J.

Facts

January 23, 1997: Fidel Reyes died

- Dec 29, 1007: Estate tax return filed pursuant to the Voluntary Assessment Program (VAP)
of the BIR

August 24, 1998: Teresita Reyes died

- Feb 24, 1999: Estate tax return filed pursuant to the VAP of the BIR

Regional Director Oscar Sevilla, by virtue of a Letter of Authority, directed the examination of the
Respondent CIR – P862,030.83
books of accounts and other accounting records of the estate of Teresita Reyes to ascertain its tax
liability.
- Based on this, CIR issued a Preliminary Assessment Notice (PAN) finding petitioners
accountable in the aggregate amount of P7,837,512.01 representing deficiency estate
taxes and donor's tax

November 29, 2002 - CIR: Formal Letter of Demand together with the Details of Discrepancies with
the corresponding Final Assessment Notices (FANs) demanding payment of petitioners' tax
obligations in the amount of P8,776,279.00.
- the deficiency estate tax in the amount of P6,766,193.05 for the estate of Fidel F. Reyes
was assessed on the basis of the failure to declare actual exclusive/capital and conjugal
properties of the decedent
- the delinquency estate tax assessment in the amount of P1,793,453.58 for the estate of
Teresita R. Reyes was attributed to the inclusion of some conjugal properties which
actually belong to her spouse Fidel Reyes and an overstatement of vanishing deductions
claimed.
- The delinquency donor's tax was assessed as a result of the partition of the estates per
extra-judicial settlement concurred by all the legal heirs of the decedents.
- Demand to pay compromise penalty for late filing/payment of estate tax and donor’s in Held
the sum of P37,900 was also made
Vanishing Deductions
Feb 4, 2003: Petitioners protested the assessment - Deduction allowed from the gross estate of citizens, resident aliens and non-resident
- FANs are void because they were issued beyond the 3-year period to assess and collect estates for properties which were previously subject to donor’s or estate taxes
taxes. The 10-year period to assess estate tax returns doesn’t apply because the returns - Deduction allowed diminishes for a period of 5 years
are devoid of any falsity or fraudulent intention to evade taxes. - Section 86(A)(2) provides for the computation
- There was erroneous classification of the properties as conjugal and/or
capital/paraphernal. There was an overstatement of vanishing deductions in petitioners’ computation
- Computation of vanishing deductions was miscalculated in the estate return of Teresita
Reyes The initial basis used by petitioners is 13/24 of the gross estate of Fidel instead of only 1/24.
- Assessment of donors’ taxes is defective because the nature of the transfers is one of - In their computation, petitioners considered all properties of Fidel as conjugal
mortis causa - The 1/24 is the inheritance share of Teresita Reyes

Relevant Issue: WN there was an overstatement of vanishing deductions in the estate of Teresita The petitioners’ computation resulted in the bloating of the vanishing deductions. The correct initial
Reyes  YES basis should be the inherited property previously taxed, detailed as follows:

Vanishing deductions as computed by:

Petitioners’ accountant Ms. Kapunan – P10,680,355.43
The vanishing deductions should be P663,027.01.

Other issue: WN assessment period has prescribed  NO

Held

Assessment period for estate tax deficiency is within 3 years from the expiration of the due date
or actual date of return, whichever is later
- Under Section 203, NIRC
- Petitioners are required to file estate tax returns within 6 months from death of
decedents

Instances when the 3-year prescriptive period doesn’t apply (Section 222(a))
a. False returns
b. Fraudulent returns with intent to evade tax
c. Failure to file returns

Assessments were made within the 10-year period

Assessments dated Nov 2002 and received on January 7, 2003 were beyond the 3 years from the
filing of estate returns but they were issued within the 10-year period, which is what is applicable in
this case.

There is no indicia of fraud in this case. But the Court finds that the petitioners filed false returns
taking into account that:
1) Despite having reported conjugal and paraphernal properties, both real and personal, the
estate of Fidel Reyes failed to declare basic deficiency estate tax worth P497,789.12;
2) Instead of the vanishing deductions claimed of P10,680,355.43, the estate of Teresita R.
Reyes may only claim vanishing deductions of P663,027.01. The failure to correctly
include deductions actually incurred by the taxpayer, in effect lowered deficiency estate
tax of the estate of Teresita Reyes; and
3) The estate of Teresita R. Reyes did not report basic deficiency estate tax in the sum of
P664,661.27.

In filing false returns, intention to evade taxes need not exist.