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CIR v CA and Pajonar

Pedro Pajonar, a member of the Philippine Scout, Bataan Contingent, during WWII, was a part of
the infamous Death March by reason of which he suffered shock and became insane.
His sister Josefina Pajonar became the guardian over his person, while his property was placed
under the guardianship of the Philippine National Bank (PNB) by the Regional Trial Court.
He died on January 1988.
PNB filed an accounting of the decedent's property under guardianship valued at P3,037,672.09.
However, PNB did not file an estate tax return, instead it advised Pajonar's heirs to execute an
extrajudicial settlement and to pay the taxes on his estate.
Estate of Pedro Pajonar paid taxes in the amount of P2,557.
The trial court appointed Josefina Pajonar as the regular administratrix of Pedro Pajonar's estate.
The BIR then made a 2nd assessment for deficiency estate tax in the amount of P1,527,790.98
which Josefina paid under protest.
Without waiting for her protest to be resolved by the BIR, Josefina filed a petition for review with
the CTA praying for a refund.
CTA ordered the CIR to refund Josefina. Among the deductions from the gross estate allowed by
the CTA were the amounts notarial fee for the Extrajudicial Settlement and the attorney's fees in
the guardianship proceedings.
CIR argued that notarial and attorneys fees are not deductible.

WON said notarial and attorneys fees are allowed as deductions fro the gross estate of decedent.
YES.
Attorneys Fees:
Attorneys fees in order to be deductible from the gross estate must be essential and related to
the settlement of estate.
In this case, the attorneys fees paid for guardianship proceeding was necessary for the
distribution of the property of the late Pedro Pajonar to his rightful heirs.
Thus, it was deductible.
Necessary expenses of administration are such expenses as are entailed for the preservation
and productivity of the estate and for its management for the purposes of liquidation, payment of
debts and distribution of the residue among the persons entitled.
Notarial Fees:
Although tax code specifies judicial expenses of the testamentary or intestate proceedings,
there is no reason why expenses incurred in the administration and settlement of an estate in
extrajudicial proceedings should not be allowed.
However, deduction is limited to such administration expenses as are actually and necessarily
incurred in the collection of the assets of the estate, payment of debts, and distribution of the
remainder among those entitled thereto.
Such expenses may include executors or administrators fees, attys fees, court fees and
charges, appraisers fees, clerk hire, costs of preserving and distributing the estate and storing or
maintaining it, brokerage fees or commissions for selling or disposing of the estate.
It is clear that the Extrajudicial Settlement was for the purpose of payment of taxes and the
distribution of the estate to the heirs.
The execution of Extrajudicial Settlement necessitated the notarization of the same.
Thus, the notarial fee for the Extrajudicial Settlement should be allowed as a deduction from the
gross estate.

Judicial expenses are expenses for administration. Administration expenses are deductible from
the gross estate. Expenses must be essential to the proper settlement of the estate.
DOCTRINE:
Judicial expenses are expenses for administration. Administration expenses are deductible from
the gross estate. Expenses must be essential to the proper settlement of the estate.

Attorneys Fees:
Attorneys fees in order to be deductible from the gross estate must be essential and related to
the settlement of estate.
In this case, the attorneys fees paid for guardianship proceeding was necessary for the
distribution of the property of the late Pedro Pajonar to his rightful heirs. Thus, it was deductible.
Notarial Fees:
Deduction is limited to such administration expenses as are actually and necessarily incurred in
the collection of the assets of the estate, payment of debts, and distribution of the remainder
among those entitled thereto.
Extrajudicial Settlement was for the purpose of payment of taxes and the distribution of the
estate to the heirs.
The execution of Extrajudicial Settlement necessitated the notarization of the same.
Notarial fee should be allowed as deduction from the gross estate.