TRANSFER TAX – ESTATE TAX

Q: Are donations inter vivos and donations mortis causa subject to estate taxes? (1994 Bar)

A: The general rule is that donations inter vivos are subject to donor's taxes while donations mortis
causa are subject to estate taxes. However, if the transferor's control over the property donated inter
vivos extends up to the death of the donor, such transfers in contemplation of death, revocable
transfers, then these are subject to estate taxes.

Q: A law was passed by Congress abolishing estate tax. Is the law valid?

A: YES, it is in the nature of a tax exemption. Settled is the rule that the power to tax includes the
power to grant an exemption.

Q: Tong Siok, a Chinese billionaire and a Canadian resident, died and left assets in China valued at
P80 billion and in the Philippines assets valued at P20 billion. For Philippine estate tax purposes the
allowable deductions for expenses, losses, indebtedness, and taxes, property previously taxed,
transfers for public use, and the share of his surviving spouse in their conjugal partnership amounted
to P15 billion. Tong's gross estate for Philippine estate tax purposes is? (2011 Bar)

A: P20 billion. Being a non-resident alien, the estate tax to be paid will be based on his properties
situated in the Philippines. The deductions are not included since the question pertains to gross estate,
not the net estate.

NOTE: Gross estate tax is arrived at after adding all those included and deducting the exclusions
while net estate is arrived at after subtracting the allowable deductions from the gross estate.

Q: Ralph Donald, an American citizen, was a top executive of a U.S company in the Philippines until
he retired in 1999. He came to like the Philippines so much that following his retirement, he decided
to spend the rest of his life in the country. He applied for and was granted permanent resident status
the following year. In the spring of 2004, while vacationing in Orlando Florida USA, he suffered a
heart attack and died. At the time of his death he left the following properties:

a. Bank deposits with Citibank Makati and Citibank Orlando Florida;

b. Rest house in Orlando, Florida;
c. A condominium unit in Makati;
d. Shares of stock in the Phil subsidiary of the U.S company where he worked;
e. Shares of stock in San Miguel Corporation and PLDT
f. Shares of stock in Disney World in Florida g. U.S treasury bonds
h. Proceeds from a life insurance policy issued by a US corporation.
Which of the foregoing assets shall be included in the taxable gross estate in the Philippines?
Explain. (2005 Bar)

A: All of the properties enumerated except (h), the proceeds from life insurance, are included in the
taxable gross estate in the Philippines. Ralph Donald is considered a resident alien for tax purposes
since he is an American citizen and was a permanent resident of the Philippines at the time of his
death. The value of the gross estate of a resident alien decedent shall be determined by including the
value at the time of his death of all property, real or personal, tangible or intangible, wherever situated
(Sec. 85, NIRC).
The other item, (h) proceeds from a life insurance policy, may be included in his gross estate only when
it was Ralph Donald who took out the insurance upon his own life, payable upon his death to his
estate, or when the beneficiary is a third person other than his estate who is not designated as an
irrevocable beneficiary (Sec. 85[E], NIRC).

Q: Jose Ortiz owns 100 hectares of agricultural land planted with coconut trees. He died on May 30,
1994. Prior to his death, the government, by operation of law, acquired under the Comprehensive
Agrarian Reform Law all his agricultural lands except five (5) hectares. Upon the death of Ortiz, his
widow asked you how she will consider the 100 hectares of agricultural land in the preparation of
the estate tax return. What advice will you give her? (1994 Bar)

A: The 100 hectares of land that Jose Ortiz owned but which prior to his death on May 30, 1994
were acquired by the government under CARP are no longer part of his taxable gross estate, with
the exception of the remaining five (5) hectares which under Sec. 78{a) of the NIRC still forms part of
"decedent's interest".

Q: Mr. Agustin, 75 years old and suffering from an incurable disease, decided to sell for valuable and
sufficient consideration a house and lot to his son. He died one year later. In the settlement of Mr.
Agustin's estate, the BIR argued that the house and lot were transferred in contemplation of death
and should therefore form part of the gross estate for estate tax purposes. Is the BIR correct? (2013
Bar)

A: The BIR is not correct. Pursuant to Section 85(B) of the NIRC, properties that are transferred in
contemplation of death form part of the gross estate of the decedent. An exception to this is a bona
fide sale for an adequate and full consideration in money. Therefore, the house and lot which Mr.
Agustin sold to his son for a valuable and sufficient consideration should not be considered as forming
part of Mr. Agustin’s gross estate.

Q: A, aged 90 years and suffering from incurable cancer, on August 1, 2001 wrote a will and, on the
same day, made several inter-vivos gifts to his children. Ten days later, he died. In your opinion, are
the inter-vivos gifts considered transfers in contemplation of death for purposes of determining
properties to be included in his gross estate? (2001 Bar)

A: Yes. When the donor makes his will within a short time of, or simultaneously with, the making of
gifts, the gifts are considered as having been made in contemplation of death (Roces v. Posadas, 58
Phil. 108). Obviously, the intention of the donor in making the inter-vivos gifts is to avoid the
imposition of the estate tax and since the donees are likewise his forced heirs who are called upon to
inherit, it will create a presumption juris tantum that said donations were made mortis causa, hence,
the properties donated shall be included as part of A's gross estate.

Q: Mr. Mayuga donated his residential house and lot to his son and duly paid the donor's tax. In the
Deed of Donation, Mr. Mayuga expressly reserved for himself the usufruct over the property for as
long as he lived. Describe the donated property from the taxation perspective. (2013 Bar)

A: The property will form part of Mr. Mayuga's gross estate when he dies. Applying Section 85 (B)1 of
the NIRC, the donated property will still form part of the gross estate of the decedent when in the
deed of donation, the donor “has retained for his life or for any period which does not in fact end
before his death 91) the possession or enjoyment of, or the right to the income from the property.”
Therefore, the property will form part of Mr. Mayuga’s gross estate when he dies because he donated
the property in contemplation of death.
Q: In his last will and testament, X bequeathed a painting to his only son, Z. The will also granted Z
the power to appoint his wife, W, as successor to the painting in the event of Z’s death. Z died and
W succeeded to the property. Should the painting be included in the gross estate of Z and thus be
subject to estate tax? (2009 Bar)

A: NO. Only property passing under a general power of appointment is included in the gross estate of
the decedent. In this case, the painting has to be transferred by Z only to his wife, W, based on the
will of his father, X. Since the power of appointment is specific (i.e., only to his wife), such property
should not be included in his gross estate.

Q: Suppose an employer takes a life insurance policy on the life of an employee where the employer
is designated as the beneficiary, what are its tax implications?

A: The premiums paid by the employer will not be deductible from its employer’s gross income (Sec.
36 [A][4], NIRC). On the part of the employee, it will not be included in his/her gross income of the
based on Sec. 32(B)(1), NIRC. However, the life insurance proceeds will form part of the gross estate
of the decedent employee if his designation is revocable. Conversely, if the designation is irrevocable,
it will not form part of his gross estate.

Q: If the property insured was destroyed after the taxpayer’s death, will it still form part of the gross
estate?

A: NO, it will be considered as a receivable of the estate.

Q: Antonia Santos, 30 years old, gainfully employed, is the sister of Eduardo Santos. She died in an
airplane crash. Edgardo is a lawyer and he negotiated with the airline company and insurance
company and they were able to agree to settlement of P10 million. This is what Antonia would have
earned as somebody who was gainfully employed. Edgardo was her only heir.

a. Is the P10 million subject to estate tax?

A: A. NO. The estate tax is a tax on the privilege enjoyed by an individual in controlling the disposition
of her properties to take effect upon her death. The P10 million is not a property existing at the time
of the decedent’s death; hence it cannot be said that she exercised control over its disposition. Since
the privilege to transmit property is not exercised by the decedent, the estate tax cannot be imposed
thereon.

b. Should Edgardo report the 10 million as his income being Antonia’s only heir? (2007 Bar)

b. NO. The amount received in a settlement agreement with the airline company and insurance
company is an amount received from the accident insurance covering the passenger of the airline
company and is in the nature of compensation for personal injuries and for damages sustained on
account of such injuries, which is excluded from the gross income of the recipient.

Q: On June 30, 2000, X took out a life insurance policy on his own life in the amount of P2, 000,000.
He designated his wife, Y, as irrevocable beneficiary to P1,000,000 and his son Z, to the balance of
P1,000,000, but in the latter designation, reserving his right to substitute him for another. On
September 1, 2003 X died and his wife and son went to the insurer to collect the proceeds of X’s life
insurance policy.

a. Are the proceeds of the insurance subject to income tax on the part of Y and Z for their respective
shares? Explain.
 A: a. NO. The law explicitly provides that the proceeds of life insurance policies paid to the heirs or
beneficiaries upon the death of the insured are excluded from gross income and is exempt from
taxation. The proceeds of life insurance received upon the death of the insured constitute a
compensation for the loss of life, hence a return of capital, which is beyond the scope of income
taxation (Sec. 32 B (1), NIRC)

b. Are the proceeds of the insurance to form part of the gross estate of X? Explain. (2003 Bar)

b. Only the proceeds of 1M given to the son, Z, shall form part of the Gross Estate of X. Under the
NIRC, proceeds of life insurance shall form part of the gross estate of the decedent to the extent of
the amount receivable by the beneficiary designated in the policy of the insurance except when it is
expressly stipulated that the designation of the beneficiary is irrevocable. As stated in the problem,
only the designation of Y is irrevocable while the insured/decedent reserved the right to substitute Z
as beneficiary for another person. Accordingly, the proceeds received by Y shall be excluded while the
proceeds received by Z shall be included in the gross estate of X (Sec. 85(E), NIRC).

Q: Mr. A knows that he is dying, therefore he sold his car worth P500,000 to his only son for
P300,000. Mr. A died and at the time of his death, the fair market value of his car is P550,000. How
much is to be included as part of the gross estate? What if he is not dying and indeed he is very
much alive and kicking?

A: P250,000. This represents the excess of the FMV at the time of his death which is P550,000 over
the consideration received on the amount of P300,000.

On the second scenario, the insufficient consideration shall not be considered as part of the gross
estate because the transfer does not fall under any of the following: transfer in contemplation of
death, revocable transfer, or property passing under general power of appointment. Hence, the
difference of P200,000 (P500K-300K) is subject to gift tax.

Q: BIR issued an Estate Tax Assessment Notice demanding payment of the deficiency estate tax
against Jose Fernandez’s estate. The administrator claims that in as much as the valid claims of
creditors against the estate are in excess of the gross estate, no estate tax was due. May the actual
claims of the creditors be fully allowed as deductions from the gross estate of Jose despite the fact
that the claims were reduced or condoned through compromise agreements entered into by the
Estate with its creditors?

A: YES. Under the date-of-death valuation rule, claims existing at the time of death should be made
the basis of the determination of allowable deductions. Thus, postdeath developments, such as
condonotion in this case, are not material in determining the amount of the deduction (Dizon, et. al
v. CA, G.R. No. 140944, April 30, 2008).

Q: During his lifetime, Mr. Sakitin obtained a loan amounting to P10 million from Bangko Uno for
the purchase of a parcel of land located in Makati City, using such property as collateral for the loan.
The loan was evidenced by a duly notarized promissory note. Subsequently, Mr. Sakitin died. At the
time of his death, the unpaid balance of the loan amounted to P2 million. The heirs of Mr. Sakitin
deducted the amount of P2 million from the gross estate, as part of the "Claims against the Estate."
Such deduction was disallowed by the Bureau of Internal Revenue (BIR) Examiner, claiming that the
mortgaged property was not included in the computation of the gross estate. Do you agree with the
BIR? Explain. (2014 Bar)
A: YES. I agree with the BIR. Unpaid mortgages can be deducted from the gross estate as long as the
value of the mortgaged property is included in the computation from the gross estate. The heirs of
Mr. Sakitin didn’t include the value in his gross estate so he can’t deduct it.

The Heirs also assumed the unpaid mortgage was a claim against the estate, which, to be fair to them,
is a direct deduction that need to be included in the computation of gross estate.

Q: Remedios, a resident citizen, died on November 10, 2006. She died leaving three condominium
units in Quezon City valued at P5M each. Rodolfo was her only heir. He reported her death on
December 6, 2006 and filed the estate tax return on March 30, 2007. Because she needed to sell one
unit of the condominium to pay for the estate tax she asked the CIR to give her one year to pay the
estate tax due. The CIR approved the request of extension of time provided that the estate tax be
computed on the basis of the value of property at the time of payment of tax.

a. Does CIR have the power to extend the payment of estate tax?

A: a. YES. The CIR may allow an extension of time to pay the estate tax if the payment on the due date
would impose undue hardship upon the estate or any of the heirs. The extension in any case, will not
exceed 2 years if the estate is not under judicial settlement of 5 years if it is under judicial settlement.
The CIR may require the posting of a bond to secure the payment of the tax (Sec. 91[B], NIRC).

b. Does the condition that the basis of the estate tax will be the value at the time of the payment
have legal basis? (2007 Bar)

b. NO. The valuation of properties comprising the estate of a decedent is the fair market value as of
the time of death. No other valuation date is allowed by law (Sec. 88, NIRC).

Q: When shall the intangible properties of the non-resident be excluded from the gross estate?

A: These shall be excluded on the basis of reciprocity. No donor’s or estate tax shall be collected in
respect of intangible personal property:

1. Total exemption - If the decedent at the time of his death or the donor at the time of the
donation was a citizen and resident of a foreign country which at the time of his death or
donation did not impose a transfer tax of any character, in respect of intangible personal
property of citizens of the Philippines not residing in that foreign country, or

2. Partial exemption - If the laws of the foreign country of which the decedent or donor was a
citizen and resident at the time of his death or donation allows a similar exemption from transfer
or death taxes of every character or description in respect of intangible personal property owned
by citizens of the Philippines not residing in that foreign country (Sec. 104, NIRC)

Q: For purposes of Estate and Donor’s tax, do we adhere to mobilia sequutur personam?

A: NO. As a general rule, the situs of an intangible property is determined by the domicile or residence
of the owner. This is known as the principle of “mobilia sequentur personam.” The principle, however,
is not controlling (a) when it is inconsistent with the express provisions of statute, or (b) when justice
does not demand that it should be, as when the property has in fact a situs elsewhere (Mamalateo,
2014).

Q: Is there a need to disclose properties outside the Philippines?

A: YES, whether resident or non-resident. A resident decedent is taxed on properties within or
without. On the other hand, while a non-resident decedent (NRA) is taxed only on properties within
the Philippines, it is a requirement that his estate tax return should disclose the value of his gross
estate outside the Philippines in order to avail of the allowable deductions (Sec. 86 (D), NIRC).

Q: Is 13th month pay included in the gross estate? How about Christmas bonus?

A: Both 13th month pay and Christmas bonus are not included in the gross estate as these are subject
to income tax. Moreover, these are not income of the estate as they were earned while the decedent
was still alive.

Q: If the decedent is a partner in a partnership, will his interest in the partnership considered as
part of his gross estate?

A: YES. The decedent’s interest in the partnership at the time of his death shall form as part of his
gross estate. His contributions and his share in the partnership’s profits and surplus shall be included
in his gross estate.

Q: On April 9, 1928, Felix Dison made a gift inter vivos, transferring 22 tracts of land, in favor of his
son Luis Dizon. Luis formally accepted the donation in writing on April 17 and such acceptance was
acknowledged before a notary public on April 20, 1928. On April 21, 1928, Felix Dison died. Is the
donation inter vivos or mortis causa?

A: The transfer is inter vivos in form but mortis causa in substance; it is a transfer in contemplation of
death (Dison v. Posadas, 57 Phil. 465).

Q: On March 10 and 12, 1925, Esperanza Tuazon, by means of public documents, donated certain
parcels of land situated in Manila to Concepcion and Elvira, who accepted the same. On January 5,
1926, the donor died without any forced heir and in her will which was admitted to probate, she
bequeathed to each of the said donees the sum of P5,000. After the estate had been distributed
among the instituted legatees and before delivery of their respective shares, the appellee herein,
as CIR, ruled that the appellants, as donees and legatees, should pay as deficiency inheritance tax.
Are these donations mortis causa, thus should be included as part of the gross estate?

A: YES. These donations are inter vivos but made in contemplation of death, thus, considered as
donation mortis causa. The concurrent making of a will or making a will within a short time after the
transfer shows clearly the intention of the donor in making the said donations inter vivos in order to
avoid imposition of estate tax. We refer to the allegations that such transmissions were effected in
the month of March, 1925, that the donor died in January, 1926, and that the donees were instituted
legatees in the donor's will which was admitted to probate. It is from these allegations, especially the
last, that we infer a presumption juris tantum that said donations were made mortis causa (Roces v.
Posadas, 58 Phil. 108).
 DONORS TAX

Q: In the settlement of the estate of Mr. Barbera who died intestate, his wife renounced her
inheritance and her share of the conjugal property in favor of their children. The BIR determined
that there was a taxable gift and thus assessed Mrs. Barbera as a donor. Was the BIR correct? (2013
Bar)

A: The BIR is correct that there was a taxable gift but only insofar as the renunciation of the share of
the wife in the conjugal property is concerned. This is a transfer of property without consideration,
which takes effect during the lifetime of the wife. But the renunciation of the wife’s share in the
inheritance from her deceased husband is not a taxable gift, considering that the property is
automatically transferred to the other heirs by operation of law due to her repudiation of her
inheritance.

Q: Your bachelor client, a Filipino residing in Quezon City, wants to give his sister a gift of P200,000.
He seeks your advice, for purposes of reducing if not eliminating the donor's tax on the gift, on
whether it is better for him to give all of the P200,000.00 on Christmas 2001 or to give P100,000.00
on Christmas 2001 and the other P100,000.00 on January 1, 2002. Please explain your advice. (2001
Bar)

A: I would advise him to split the donation. Giving the P200,000 as a one-time donation would mean
that it will be subject to a higher tax bracket under the graduated tax structure thereby necessitating
the payment of donor's tax. On the other hand, splitting the donation into two equal amounts of
P100,000 given on two different years will totally relieve the donor from the donor’s tax because the
first Pl00, 000 donation in the graduated brackets is exempt (Sec. 99, NIRC). While the donor’s tax is
computed on the cumulative donations, the aggregation of all donations made by a donor is allowed
only over one calendar year.

Q: A, an individual, sold to B, her sister-in-law, his lot with a market value of P1,000,000 for
P600,000. A's cost in the lot is P100,000. B is financially capable of buying the lot. A also owns X Co.,
which has a fast growing business. A sold some of her shares of stock in X Co. to her key executives
in X Co. These executives are not related to A. The selling price is P3, 000,000, which is the book
value of the shares sold but with a market value of P5, 000,000. A's cost in the shares sold is P1,
000,000. The purpose of A in selling the shares is to enable her key executives to acquire a
proprietary interest in the business and have a personal stake in its business.

Explain if the above transactions are subject to donor's tax. (1999 Bar)

A: The first transaction where a lot was sold by A to her sister-in-law for a price below its fair market
value will not be subject to donor's tax if the lot qualifies as a capital asset. The transfer for less than
adequate and full consideration, which gives rise to a deemed gift, does not apply to a sale of property
subject to capital gains tax (Sec. 100, NIRC). However, if the lot sold is an ordinary asset, the excess of
the fair market value over the consideration received shall be considered as a gift subject to the
donor's tax.
The sale of shares of stock below the fair market value thereof is subject to the donor's tax pursuant
to the provisions of Section 100 of the NIRC. The excess of the fair market value over the selling price
is a deemed gift.

Q: In 2011, Mr. Vicente Tagle, a retiree, bought 10,000 CDA shares that are unlisted in the local stock
exchange for P10 per share. In 2015, the said shares had a book value per share of P60. In view of a
car accident in 2015, Mr. Tagle had to sell his CDA shares but he could sell the same only for P50 per
share. The sale is subject to tax as follows: (2012 Bar)

A: 5%/10% capital gains tax on the capital gain from sale of P40 per share (P50 selling price less P10
cost) plus donor’s tax on the excess of the fair market value of the shares over the consideration.

Q: Kenneth Yusoph owns a commercial lot which she bought many years ago for P1 Million. It is
now worth P20 Million although the zonal value is only P15 Million. She donates one-half pro-
indiviso interest in the land to her son Dino on 31 December 1994, and the other one-half pro-
indiviso interest to the same son on 2 January 1995.

a. How much is the value of the gifts in 1994 and 1995 for purposes of computing the gift tax?
Explain.

A: a. the value of the gifts for purposes of computing the gift tax shall be P7.5million in 1994 and
P7.5million in 1995. In valuing a real property for gift tax purposes the property should be appraised
at the higher of two values as of the time of donation which are

(a) the fair market value as determined by the Commissioner (which is the zonal value fixed pursuant
to Section 16(e) of the NIRC), or

(b) the fair market value as shown in the schedule of values fixed by the Provincial and City Assessors.
The fact that the property is worth P20 million as of the time of donation is immaterial unless it can
be shown That this value is one of the two values mentioned as provided under Sec. 81 now 88(B) of
the NIRC.

b. The Revenue District Officer questions the splitting of the donations into 1994 and 1995. He says
that since there were only two (2) days separating the two donations they should be treated as one,
having been made within one year. Is he correct? Explain.

b. NO, because the computation of the gift tax is cumulative but only insofar as gifts made within the
same calendar year. There is no legal justification for treating two gifts effected in two separate
calendar years as one gift.

c. Dino subsequently sold the land to a buyer for P 20 Million. How much did Dino gain on the sale?
Explain.

c. Dino gained an income of 19 million from the sale. Dino acquires a carry-over basis which is the
basis of the property in the hands of the donor or P1 million. The gain from the sale or other disposition
of property shall be the excess of the amount realized therefrom over the basis or adjusted basis for
determining gain [Sec. 34(a), NIRC]. Since the property was acquired by gift, the basis for determining
gain shall be the same as if it would be in the hands of the donor or the last preceding owner by whom
the property was not acquired by gift. Hence, the gain is computed by deducting the basis of P1 million
from the amount realized which is P20 million.

d. Suppose, instead of receiving the lot by way of donation, Dino received it by inheritance. What
would be his gain on the sale of the lot for P20 Million? Explain. (1995 Bar)
d. If the commercial lot was received by inheritance, the gain from the sale for P20 million is P5 million
because the basis is the fair market value as of the date of acquisition. The stepped-up basis of P15
million which is the value for estate tax purposes is the basis for determining the gain (Sec. 34(b)(2),
NIRC).

Q: Mr. L owned several parcels of land and he donated a parcel each to his two children. Mr. L
acquired both parcels of land in 1975 for 112,000,000.00. At the time of donation, the fair market
value of the two parcels of land, as determined by the CIR, was 112,300,000.00; while the fair market
value of the same properties as shown in the schedule of values prepared by the City Assessors was
112,500,000.00. What is the proper valuation of Mr. L's gifts to his children for purposes of
computing donor's tax? (2015 Bar)

A: The valuation of Mr. L’s gift to his children is the fair market value (FMV) of the property at the time
of donation. It is the higher of the FMV as determined by the Commissioner or the FMV as shown in
the schedule of values fixed by the provincial or city assessors. In this case, for the purpose of
computing donor’s tax, the proper valuation is the value prepared by the City Assessors amounting to
P12,500,00.00 because it is higher than the FMV determined by the CIR.

Q: The Congregation of Mary Immaculate donated a parcel of land and a dormitory building located
along Espana St. in favor of Sisters of the Holy Cross, a group of nuns operating a free clinic and high
school teaching basic spiritual values. Is the donation subject to donor’s tax? (2007 Bar)

A: NO. Gifts in favor of educational and/or charitable, religious, social welfare corporation or cultural
institution, accredited non-government organization, trust or philanthropic organization or research
institution or organization are exempt from donor’s tax, provided, that, no more than 30%of the gifts
are used for administration purposes. The donation being in the nature of real property complies with
the utilization requirement (Sec. 101[A][3], NIRC).

Q: Mr. De Sarapen is a candidate in the upcoming Senatorial elections. Mr. De Almacen, believing
in the sincerity and ability of Mr. De Sarapen to introduce much needed reforms in the country,
contributed P500,000.00 in cash to the campaign chest of Mr. De Sarapen. In addition, Mr. De
Almacen purchased tarpaulins, t-shirts, umbrellas, caps and other campaign materials that he also
donated to Mr. De Sarapen for use in his campaign. Is the contribution of cash and campaign
materials subject to donor’s tax? (2014 Bar)

A: The answer must be qualified. Section 99(C) of the NIRC explicitly provides that any contribution in
cash or in kind to any candidate, political party or coalition of parties for campaign purposes shall be
governed by the Election Code, as amended. On the other hand, Section 13 of the Republic Act No.
7166 specifically states that any provision of law to the contrary notwithstanding, any contribution in
cash or kind to any candidate or political party or coalition of parties for campaign purposes, duly
reports to the Commission on Elections (COMELEC) shall not be subject to the payment of any gift tax.

Thus, if Mr. De Almacen reported his campaign contributions of Php 500,000.00 in cash, tarpaulins,
tshirts, umbrellas, caps, and other campaign materials to the COMELEC, then the BIR cannot impose
donor’s tax on such contributions. Conversely, if Mr. De Almacen failed to report these campaign
contributions to the COMELEC, such contributions would be subject to donor’s tax.

Q: When the donee or beneficiary is a stranger, the tax payable by the donor shall be 30% of the net
gifts. For purposes of this tax, who is a stranger? (2000 Bar)

A: A stranger is one who is not a brother, sister, spouse, ancestor and lineal descendant, or a relative
by consanguinity in the collateral line within the 4th civil degree of the donee. A donation is also
considered made to a stranger when it is between business organizations or between an individual
and a business organization (Sec 10B, R.R. 02-03).