I.

Estate Tax

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Table of Contents






I. Estate of the Late Juliana Diez Vda. De Gabriel v. CIR, GR 155541 3

II. CIR vs Pineda, G.R. No. L-22734 4
III. CIR V PRIETO, GR L-11976 6
IV. CIR v. CA and Pajonar, G.R. No. 123206 8
V. Lorenzo vs Posadas, GR 43082 11
VI. ESTATE OF DAVID SISON v. TEODORO, GR L-9271 13
VII. CIR v. CA, GR 123206 (please see case III) 14
VIII. Marcos vs. CA, GR 120880 15
IX. Rafael Arsenio S. Dizon vs CIR, GR 140944 17
X. The Collector of Internal Revenue vs. Douglas Fisher and Bettina Fisher
G.R. Nos. L-11622 and L-11668, January 28, 1961. 19
XI. CIR v McGrath, GR No. L-12710, Feb. 28, 1961 24























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I. Estate of the Late Juliana Diez Vda. De Gabriel v. CIR, GR 155541


Facts: During the life time of Juliana Vda de Gabriel (Juliana), Philippine Trust Company
acted as the manager for the former’s businesses. While Juliana died on April 3, 1979,
Philtrust when it filed the Income Tax Return Return two days thereafter, failed to
indicate the fact of death of the decedent. Despite this, Philtrust instituted a petition for
the appointment of a special administrator before the RTC of Manila (probate
proceedings). During the pendency of the suit, the BIR conducted an investigation and
found that Juliana had an income tax deficiency in the amount of P 318,233.93.

Thereafter, RTC (probate proceedings) appointed Antonio Ambrosio (Ambrosio) as

Auditor Tax Consultant for decedent’s estate. The BIR sent a demand letter address
to the decedent “c/o Philippine Trust Company”. Not receiving any response from
the Philtrust and unaware of decedent’s death, the BIR issued warrants of distraint and
levy to enforce collection of decedent’s deficiency this time served upon the Francisco
Gabriel, one of the heirs. Incidentally, the BIR filed a motion for Allowance of claims
and for an order of payment of taxes in before the RTC of Manila to enforce tax liability.

Mr. Ambrosio, initially, filed a protest on BIR’s assessment but the Litigation Division of
the BIR did not act on the protest as the same had become final and executory. Thus,
the estate of the late Juliana instituted a formal opposition to the BIR’s claim alleging
that there was no service of assessment and that the filing of the claim has prescribed.
The BIR filed a reply alleging that sufficient service and that the claim was filed within
the prescribed period of 5 years under Section 318 of the NIRC.

The RTC disallowed the BIR’s claim for improper notice. Hence, the CIR appealed to
the CA alleging that the service of demand to Philtrust was proper as the same has
constituted itself as de facto administrator of the estate. Furthermore, respondent also
argues that pursuant to Basilan Estate v. CIR, it is the mailing of service to the
taxpayer’s address as per ITR and not the actual receipt of the service by taxpayer to
qualify with the legal requirement.

The CA sided with CIR and ruled that the administrator (Philtrust) had failed in its duty
to inform the CIR of Juliana’s death pursuant to Section 104 of NIRC and that after the
lapse of thirty days the assessment had become final and executory.

Issue: Whether the service to Philtrust was valid, Whether Philtrust was obliged to
inform the BIR of the decedent’s death purusant to Section 104

Ruling:

Service of demand to Philtrust was improper

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The Court primarily ruled that the agency relationship between the then Juliana and
Philtrust was severed upon the death of the former pursuant to the Civil Code. The
agency was not revived by the fact that Philtrust filed the ITR of Juliana. Since there
was no agency to speak, the acts or omissions of Philtrust could not bind the estate.
Thus, service on Philtrust was improper.

Philtrust was under no obligation to inform the CIR of decedent’s death

The Court discussed that the obligation under Section 104 of the NIRC pertains to
a) “all cases of transfer” subject to tax or b) where the gross value of the estate
exceeds “three thousand pesos”. It has no applicability to a case of deficiency in
income tax, as in this case. The Court also ruled that the provision does not apply to
CIR not being an executor.

Thus, Philtrust has no obligation to either:

1) respond to the demand letter and assessment notice;

2) inform respondent of the decedent’s death;

3) Inform petitioner that it had received said demand letter.

It appearing that the person liable for the payment of the tax did not receive the
assessment, the assessment could not become final and executory.

-o0o-

II. CIR vs Pineda, G.R. No. L-22734

Facts:

●Sometime in 1945, Atanasio Pineda died, survived by his wife, Bagtas, and 15
children, the eldest of whom is Manuel B. Pineda, a lawyer. Estate proceedings
were had in CFI Manila wherein the surviving widow was appointed administratrix. 


●The estate was divided among and awarded to the heirs.

●After the estate proceedings were closed, the Bureau of Internal Revenue
investigated the income tax liability of the estate for the years 1945, 1946, 1947 and
1948 and found that the corresponding income tax returns were not filed. 


●Thereupon, the representative of the Collector of Internal Revenue filed said

returns for the estate on the basis of information and data obtained from the
aforesaid estate proceedings and issued an assessment (deficiency + surcharge +
interest).

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 ●The Commissioner of Internal Revenue has appealed to this court and has
proposed to hold Manuel B. Pineda liable for the payment of all the taxes found by
the Tax Court to be due from the estate in the total amount of P760.28 instead of
only for the amount of taxes corresponding to his share in the estate.


●Manuel B. Pineda opposes the proposition on the ground that as an heir he is

liable for unpaid income tax due the estate only up to the extent of and in
proportion to any share he received. He relies on Government of the Philippine
Islands v. Pamintuan where it was held that "after the partition of an estate, heirs
and distributees are liable individually for the payment of all lawful outstanding
claims against the estate in proportion to the amount or value of the property they
have respectively received from the estate."

Issue: Can the Government require Pineda to pay the full amount of taxes assessed?

Held: Yes. Pineda is liable for the assessment as an heir and as a holder-transferee of
property belonging to the estate/taxpayer. As an heir he is individually answerable for
the part of the tax proportionate to the share he received from the inheritance. His
liability, however, cannot exceed the amount of his share.

As a holder of property belonging to the estate, Pineda is liable for the tax up to the
amount of the property in his possession. The reason is that the Government has a lien
on the P2,500.00 received by him from the estate as his share in the inheritance, for
unpaid income taxes for which said estate is liable, pursuant to the last paragraph of
Section 315 of the Tax Code, which we quote hereunder:

If any person, corporation, partnership, joint-account (cuenta en participacion),

association, or insurance company liable to pay the income tax, neglects or refuses to
pay the same after demand, the amount shall be a lien in favor of the Government of
the Philippines from the time when the assessment was made by the Commissioner of
Internal Revenue until paid with interest, penalties, and costs that may accrue in
addition thereto upon all property and rights to property belonging to the taxpayer: . . .

By virtue of such lien, the Government has the right to subject the property in Pineda's
possession, After such payment, Pineda will have a right of contribution from his co-
heirs, to achieve an adjustment of the proper share of each heir in the distributable
estate.

All told, the Government has two ways of collecting the tax in question. One, by going
after all the heirs and collecting from each one of them the amount of the tax
proportionate to the inheritance received. This remedy was adopted in Government of
the Philippine Islands v. Pamintuan, supra. In said case, the Government filed an action

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against all the heirs for the collection of the tax. This action rests on the concept that
hereditary property consists only of that part which remains after the settlement of all
lawful claims against the estate, for the settlement of which the entire estate is first
liable. The reason why in case suit is filed against all the heirs the tax due from the
estate is levied proportionately against them is to achieve thereby two results: first,
payment of the tax; and second, adjustment of the shares of each heir in the
distributed estate as lessened by the tax.

Another remedy, pursuant to the lien created by Section 315 of the Tax Code upon all
property and rights to property belonging to the taxpayer for unpaid income tax, is by
subjecting said property of the estate which is in the hands of an heir or
transferee to the payment of the tax due, the estate. This second remedy is the very
avenue the Government took in this case to collect the tax. The Bureau of Internal
Revenue should be given, in instances like the case at bar, the necessary discretion
to avail itself of the most expeditious way to collect the tax as may be envisioned
in the particular provision of the Tax Code above quoted, because taxes are the
lifeblood of government and their prompt and certain availability is an imperious
need. And as afore-stated in this case the suit seeks to achieve only one objective:
payment of the tax. The adjustment of the respective shares due to the heirs from the
inheritance, as lessened by the tax, is left to await the suit for contribution by the heir
from whom the Government recovered said tax.

-o0o-

III. CIR V PRIETO, GR L-11976

Facts:
Doña Teresa Tuason y de la Paz died leaving a last will and testament. It provided
that, with the exception of five specific legacies amounting to P80,800.00, all her
properties be distributed in equal shares among 14 heirs, respondents Antonio,
Benito and Mauro, all surnamed Prieto, being amongst them. The probate court
approved the project of partition submitted by the Executrix, according to which the
value of the inventoried estate amounted to P3,513,073.63. Deducting therefrom the
five specific legacies amounting to a total of P80,800.00, the resulting net estate to
be divided equally among the 14 heirs was P3,432,273.63, this entitling each heir to
a share with a value of P245,162.40.

However, because of the impossibility of dividing the real properties of the testatrix
equally among the 14 heirs, to respondents Antonio, Benito and Mauro Prieto were
allotted properties with a total value greater than that of the properties allotted to
the other 11 heirs. It was, therefore, agreed that, to equalize the shares of the heirs,

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the three respondents should reimburse in cash to their co-heirs the resulting
difference in value.

The executrix paid the inheritance and estate taxes based on the initial assessment
of petitioner. However, the heirs received a revised assessment notice from
petitioner as it contended that the cash reimbursed by Antonio, Benito and Mauro
Prieto to their co-heirs is taxable as against them. Petitioner contends that the
individual share of each heir in the net estate is what appears in the project of
partition, and that the cash payments made by respondents are immaterial in the
determination of their respective inheritance tax because the money paid did not
form part of the estate of the decedent. Petitioner made 5 assessments in total.
When petitioner made its final assessment notice, the estate tax assessed under the
third assessment notice — P681,692.02 — had already been paid in full.
Consequently, when the aforesaid last assessment reduced the estate tax to
P613,674.04, there was a resulting overpayment of the estate tax in the sum of
P68,018.02 which petitioner credited to the unpaid inheritance taxes due from the
heirs.

Issues:

1) WON the other 11 heirs should have been joined as parties

2) WON there has been an overpayment of tax

3) WON petitioner was correct when he said “the individual share of each heir in the
net estate is what appears in the project of partition, and that the cash payments
made by respondents are immaterial in the determination of their respective
inheritance tax because the money paid did not form part of the estate of the
decedent.”

4) WON the claim for refund has already prescribed.

Ruling:

1) This is purely procedural in nature and without merits. As respondents were only
asking for a refund of inheritance taxes it is unnecessary for them to implead the
executrix and the other 11 heirs. They are not indispensable parties because even
without them the final determination of the inheritance tax liability of the Prietos can
be made.

2) There was an overpayment of said estate tax in the sum of P68,018.02. For this
reason, upon making the last assessment notice aforesaid, petitioner gave the heirs
a tax credit of P68,018.02 and credited it against the inheritance taxes still unpaid.

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3) We find no merits in these contentions. It cannot be disputed that the inheritance
tax should be paid on the basis of the value of the properties inherited by an heir.
On the other hand, it is clear in this case that what each of the respondents really
and actually received as his share in the inheritance is the value of the properties
allotted to them minus what they had to pay to their co-heirs to compensate the
latter for the difference in value existing between the properties allotted to
respondents, on the one hand, and those allotted to the other heirs, on the other. To
claim otherwise would be closing one's eyes to the realities of the case. The
resulting amount, therefore, is the just and fair basis for the determination of the tax
liability of respondents.

4) When a tax is paid in installments, the prescriptive period of two years provided
in Section 306 of the National Internal Revenue Code should be counted from the
date of the final payment.

The last payment of the inheritance tax pertaining to Antonio Prieto was made on
March 11, 1953 and as regards Benito Prieto and Mauro Prieto on December 9,
1954. On January 12, 1955 petitioners filed their claim for refund of the taxes
allegedly overpaid and on January 14, 1955 respondent rendered his decision
thereon from which petitioners interposed the present appeal. Therefore, it was
timely filed.

IV. CIR v. CA and Pajonar, G.R. No. 123206


Doctrine: [Judicial Expenses] Expenses on extrajudicial settlement of the estate are

allowed as deductions. They come within the meaning of administration expenses.

FACTS:
• Pedro Pajonar was a member of the Philippine Scout, Bataan Contingent, during
World War II and was a part of the infamous Death March by reason of which he
suffered shock and became insane. His sister Josefina became the guardian over
his person, while his property was placed under the guardianship of the Philippine
National Bank (PNB) by RTC of Dumaguete.


• After his death, PNB filed an accounting of his property under guardianship valued at
P3,037,672.09 in a Special Proceeding. However, PNB did NOT file an estate tax
return, instead it advised Pedro's heirs to execute an extrajudicial settlement and to
pay the taxes on his estate. 


• Pursuant to the assessment by the BIR, the estate of Pedro paid taxes in the amount
of P2,557.


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• Josefina then filed a petition with RTC of Dumaguete for the issuance in her favor of
letters of administration of the estate of her brother. This was granted and she was
appointed as the regular administratrix of Pedro’s estate.


• The BIR then made a second assessment for deficiency estate tax which Josefina, in
her capacity as administratrix and heir of Pedro’s estate, paid under protest. And
without waiting for her protest to be resolved by the BIR, she filed a petition for
review with the Court of Tax Appeals (CTA), praying for the refund of P1,527,790.98,
or in the alternative, P840,202.06, as erroneously paid estate tax.


• The CTA ordered the Commissioner of Internal Revenue to refund Josefina

P252,585.59, representing erroneously paid estate tax for the year 1988. Among the
deductions from the gross estate allowed by the CTA were P60,753 representing
the notarial fee for the Extrajudicial Settlement and the amount of P50,000 as the
attorney's fees for guardianship proceedings.


• CIR filed a MR which the CTA denied. It then filed with the CA a petition for review
which was also denied Hence, the present appeal.

ISSUE: WON the notarial fee paid for the extrajudicial settlement of P60,753 and the
attorney's fees in the guardianship proceedings of P50,000 may be allowed as
deductions from the gross estate of decedent in order to arrive at the value of the net
estate. – YES.

RATIO

•Judicial expenses are expenses of administration.

!Administration expenses, as an allowable deduction from the gross estate of

the decedent for purposes of arriving at the value of the net estate, have been
construed by the federal and state courts of the United States to include all
expenses "essential to the collection of the assets, payment of debts or the
distribution of the property to the persons entitled to it." In other words, the
expenses must be essential to the proper settlement of the estate.


!This Court adopts the view under American jurisprudence that expenses incurred in
the extrajudicial settlement of the estate should be allowed as a deduction from the
gross estate. There is no requirement of formal administration. It is sufficient that the
expense be a necessary contribution toward the settlement of the case.


!Although the 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

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 the debts, and distribution of the remainder among those entitled thereto.


! Such expenses may include executor's or administrator's fees, attorney's fees,

court fees and charges, appraiser's 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, and the like.


!Deductible attorney's fees are those incurred by the executor or administrator in

the settlement of the estate or in defending or prosecuting claims against or due the
estate.


!It is clear then that the extrajudicial settlement was for the purpose of payment of
taxes and the distribution of the estate to the heirs.



The execution of the extrajudicial settlement necessitated the notarization of
the same. Hence the Contract of Legal Services entered into between Josefina and
counsel was presented in evidence for the purpose of showing that the amount of
P60,753.00 was for the notarization of the Extrajudicial Settlement.


!The notarial fee of P60,753.00 was incurred primarily to settle the estate of Pedro.
Said amount should then be considered an administration expenses 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.


!Attorney's fees, on the other hand, in order to be deductible from the gross estate
must be essential to the collection of assets, payment of debts or the distribution of the
property to the persons entitled to it. The services for which the fees are charged must
relate to the proper settlement of the estate.


!The amount of P50,000.00 was incurred as attorney's fees in the guardianship

proceedings.

!The guardianship proceeding in this case was necessary for the distribution of the
property of the deceased Pedro. PNB was appointed guardian over the assets of
the deceased, and that necessarily the assets of the deceased formed part of his
gross estate.


♣PNB provided a detailed accounting of decedent's property and gave advice

as to the proper settlement of the latter's estate, acts which contributed towards
the collection of decedent's assets and the subsequent settlement of the estate.

DECISION: Decision of the Court of Appeals is AFFIRMED.

-o0o-

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V. Lorenzo vs Posadas, GR 43082

FACTS:

• It appears that on 1922 one Thomas Hanley died in leaving a will and
considerable amount of real and personal properties. Proceedings for the
probate of his will and the settlement and distribution of his estate were begun in
the CFI of Zamboanga. The will was admitted to probate.

• During the incumbency of the plaintiff as trustee, the defendant Collector of

Internal Revenue, alleging that the estate left by the deceased at the time of his
death and assessed against the estate an inheritance tax the defendant filed a
motion i n the testamentary proceedings pending before the CFI praying that the
trustee, plaintiff herein, be ordered to pay to the Government

• The plaintiff paid this amount under protest, notifying the defendant at the same
time that unless the amount was promptly refunded suit would be brought for its
recovery. The defendant overruled the plaintiff's protest and refused to refund
the said amount or any part thereof.

ISSUES:

( a ) When does the inheritance tax accrue and when must it be satisfied?

( b ) Should the inheritance tax be computed on the basis of the value of the estate at
the time of the testator's death, or on i ts value ten years l ater?

( c ) In determining the net value of the estate subject to tax, is it proper to deduct the
compensation due to trustees?

( d ) What l aw governs the case at bar? Should the provisions of Act No. 3606
favorable to the

taxpayer be given retroactive effect?

( e ) Has there been delinquency i n the payment of the inheritance tax? I f so, should
the additional Interest claimed by the defendant i n his appeal be paid by the estate?

RULING:

• )

• The accrual of the inheritance tax is distinct from the obligation to pay the same.
The tax therefore is upon transmission or the transfer or devolution of property of
a decedent, made effective by his death. It is in reality an exise or privilege tax
imposed on the right to succeed to, receive, or take property by or under a will or
the intestacy l aw, or deed, grant, or gift to become operative at or after death.
According to article 657 of the Civil Code, "the rights to the succession of a
person are transmitted from the moment of his death."

• The provision of section 625 of the Code of Civil Procedure regarding the
authentication and probate of a will as a necessary condition to effect
transmission of property does not affect the general rule laid down in article 657
of the Civil Code. The authentication of a will implies i ts due execution but once
probated and allowed the transmission i s effective as of the death of the testator

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 in accordance with article 657 of the Civil Code. Whatever may be the time when
actual transmission of the inheritance takes place, succession takes place i n
any event at the moment of the decedent's death. The time when the heirs
legally succeed to the inheritance may differ from the time when the heirs
actually receive such inheritance. "

• From the fact, however, that Thomas Hanley died on May 27, 1922, it does not
follow that the obligation to pay the tax arose as of that date. The time for the
payment of i nheritance tax i s clearly fixed by section 1544 of the Revised
Administrative Code as amended by Act No. 3031, i n relation to section 1543 of
the same Code.

"SEC. 1543. Exemption of certain acquisitions and transmissions .—The following shall
not be taxed:

( a ) The merger of the usufruct in the owner of the naked title.

(b ) The transmission or; delivery of the inheritance or legacy by the fiduciary heir or
legatee to the trustees.

(c ) The transmission from the first heir, legatee, or donee i n favor of another
beneficiary, i n accordance with the desire of the predecessor.

"In the last two cases, i f the scale of taxation appropriate to the new beneficiary i s
greater than that paid by the first, the former must pay the difference,

"SEC. 1544. When tax to be paid. —The tax fixed i n this article1 shall be paid:

"(a ) I n the second and third cases of the next preceding section, before entrance into
possession of the property.

"(b ) I n other cases, within the six months subsequent to the death of the predecessor;
but i f judicial testamentary or intestate proceedings shall be instituted prior to the
expiration of said period, the payment shall be made by the executor or administrator
before delivering to each beneficiary his share.

• ) the tax should be measured by the value of the of the estate as i t stood at the
time of the decedent's deaths regardless of any subsequent contegency
affecting value or any subsequent increase or decrease i n value. "The right of
the state to an i nheritance tax accrues at the moment of death, and hence is
ordinarily measuredas to any beneficiary by the value at that time of such
property as passes to him. Subsequent appreciation or depreciation is
immaterial." We hold that a transmission by inheritance i s taxable at the time of
the predecessor's death, notwithstanding the postponement of the actual
possession or enjoyment of the estate by the beneficiary, and the tax measured
by the value of the property transmitted at that time regardless of its appreciation
or depreciation.

C.) A trustee, no doubt, i s entitled to receive a fair compensation for his services. But
from this i t does not follow that the compensation due him may lawfully be deducted i
n arriving at the net value of the estate subject to tax. There i s no statute i n the
Philippines which requires trustees' commissions to be deducted i n determining the
net value of the estate subject to inheritance tax. The compensation of a trustee,
earned, not in the administration of the estate, but i n the management thereof for the
benefit of the l egatees or devisees, does not come properly within

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the class or reason for exempting administration expenses.

D.)It i s well-settled that inheritance taxation i s governed by the statute i n force at the
time of the death of the decedent. "A statute should be considered as prospective in its
operation, whether i t enacts, amends, or repeals an i nheritance tax, unless the l
anguage of the statute clearly demands or expresses that it shall have a retroactive
effect.

E.) The mere fact that the estate of the deceased was placed i n trust did not remove i t
from the operation of our inheritance tax l aws or exempt i t from the payment of the
inheritance tax. The corresponding inheritance tax should have been paid on or before
March 10, 1924, to escape the penalties of the law. The delinquency i n payment
occurred on March 10, 1924, the date when Moore became trustee. The i nterest due
should be computed from that date and i t i s error on the part of the defendant to
compute i t one month l ater. The provision of law requiring the payment of i nterest i n
appropriate cases is mandatory, and neither the Collector of Internal Revenue nor this
court may remit or decrease such interest, no matter how heavily i t may burden the
taxpayer.

-o0o-

VI. ESTATE OF DAVID SISON v. TEODORO, GR L-9271

PRINCIPLE:

The expenses incurred by an executor or administrator to produce a bond is not a

proper charge against the estate because it is not a necessary expense.

FACTS
• - On December 20, 1948, the Court of First Instance of Manila, which has
jurisdiction over the estate of the late Margarita David, issued an order
appointing Carlos Moran Sison as judicial administrator, without compensation,
after filing a bond in the amount of P5,000.

• - On January 19, 1955, the judicial administrator filed an accounting of his

administration which contains, among others, the following disbursement items:

• o 13. Paid to Visayan Surety & Insurance Corporation on August 6, 1954, as

renewal premiums on the Administrator's bond of Judicial Administrator Carlos
Moran Sison covering the period from December 20, 1949 to December 20,
1954, inclusive - P380.70.

• o 15. Paid to Visayan Surety & Insurance Corporation on December 21, 1954,
for premiums due on the Administrator's bond of judicial Administrator Carlos
Moran Sison for the period from December 21, 1954 to December 21, 1955 -
76.14.

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• - Narcisa F. Teodoro, one of the heirs, objected on the grounds that they are
not necessary expenses of administration and should not be charged against the
estate.

• - RTC approved the report, but disallowed the charge against the estate.
Petitioner appealed and was denied.

ISSUE:
• - Whether a judicial administrator, serving without compensation, is entitled to
charge as an expense of administration the premiums paid on his bond.

RULING:
• - No. Lower court based its decision on the case of Sulit. In Sulit, SC ruled
that the expense incurred by an executor or administrator to produce a bond is
not a proper charge against the estate. Section 680 of the Code of Civil
Procedure (similar to section 7, Rule 86) does not authorize the executor or
administrator to charge against the estate the money spent for the presentation,
filing, and substitution of a bond.


• - The position of an executor or administrator is one of trust. The ability

to give this bond is in the nature of a qualification for the office. The
execution and approval of the bond constitute a condition precedent to
acceptance of the responsibilities of the trust. Consequently, the giving of a
bond by an administrator is not a necessary expense because necessary
expenses are those expenses incurred after the acceptance of the
responsibilities of the trust. Thus, the giving of a bond cannot be charged
against the estate.


• - While it is true that the Sulit case is different because in the former the
administrator accepted the trust with compensation, whereas in the latter the
administrator accepted the same without compensation, but this difference is of
no moment, because nothing in the decision mentions that the paying of the
bond is dependent on the receipt of compensation.

-o0o-

VII. CIR v. CA, GR 123206 (please see case III)

-o0o-

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VIII. Marcos vs. CA, GR 120880

Facts:

1.Former President Marcos died in Honolulu, Hawaii.

2.A Special Tax Audit Team conducted investigations on the tax liabilities and
obligations of the late president. The investigation disclosed that the Marcoses
failed to file a written notice of the death of the decedent, an estate tax returns, as
well as several ITRs.

3.The Commissioner of Internal Revenue (CIR) caused the preparation and filing of
the Estate Tax Return for the estate of the decedent and the Income Tax Returns of
the Spouses Marcos and their son.

4.The BIR issued deficiency estate tax assessment (P23,293,607,638.00) and

deficiency income tax assessments which were not protested administratively
within 30 days from service of said assessments.

5.The BIR Commissioner then issued 30 notices of levy on real property against
certain parcels of land owned by the Marcoses to satisfy the alleged deficiencies.

6.Petitioner Ferdinand R. Marcos II, eldest son of the decedent questions the action
of the CIR in assessing and collecting through summary remedy of Levy on Real
Properties the delinquencies upon the estate despite the pendency of the probate
proceedings.

7.Petitioner filed with the CA a Petition for Certiorari and Prohibition to annul and
set aside the notices of levy on real property and to enjoin the revenue executive
assistant director from proceeding with the auction of the real properties.

8.CA ruled that the deficiency assessments have already become final and
unappealable and may be enforced upon the properties of the late President.

9.Hence, this Petition for Review on Certiorari.

Petitioner’s contentions:
a.In the case of Domingo vs. Garlitos, "the ordinary procedure by which to settle
claims of indebtedness against the estate of a deceased, person, as in an
inheritance (estate) tax, is for the claimant to present a claim before the probate
court so that said court may order the administrator to pay the amount therefor."
This remedy is allegedly, exclusive, and cannot be effected through any other
means.

b.The probate court is not precluded from denying a request by the government for
the immediate payment of taxes, and should order the payment of the same only
within the period fixed by the probate court for the payment of all the debts of the
decedent.

Respondents’ contention:
a.The state's authority to collect internal revenue taxes is paramount. The pendency
of probate proceedings over the estate of the deceased does not preclude the
assessment and collection of estate taxes over the same. It is not the government

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 agency to decide whether an estate is liable for payment of estate of income taxes.
It is a court with special and limited jurisdiction.

Issue:
WON the levy of the properties are affected and precluded by the probate proceedings.

Ruling:
No.

The approval of the court, sitting in probate, or as a settlement tribunal over the
deceased is not a mandatory requirement in the collection of estate taxes. There is
nothing in the Tax Code, and in the pertinent remedial laws that implies the necessity of
the probate or estate settlement court's approval of the state's claim for estate taxes,
before the same can be enforced and collected. On the contrary, under Section 87 of
the NIRC, it is the probate or settlement court which is bidden not to authorize the
executor or judicial administrator of the decedent's estate to deliver any distributive
share to any party interested in the estate, unless it is shown a Certification by the CIR
that the estate taxes have been paid.

Taxes are the lifeblood of the government. Vectigalia nervi sunt rei publicae — taxes are
the sinews of the state. Therefore, it calls for the liberal treatment of claims for taxes
charged against the estate of the decedent. The Government has two ways of
collecting the taxes in question.

a.By going after all the heirs and collecting from each one of them the amount of
the tax proportionate to the inheritance received.

b.Subjecting all property and rights to property belonging to the taxpayer for the
unpaid income tax, pursuant to the lien created by Section 315 of the Tax Code.
(Commissioner of Internal Revenue vs. Pineda, 21 SCRA 105, September 15, 1967)

Moreover, the petitioners and the other heirs failed to protest administratively within 30
days from the receipt of the assessment which made the assessment final and
unappealable (Section 229 of the NIRC).

Further, the omission to file an estate tax return, and the subsequent failure to contest
or appeal the assessment made by the BIR under Section 223 of the NIRC which
states that in case of failure to file a return, the tax may be assessed at any time within
10 years after the omission, and any tax so assessed may be collected by levy upon
real property within 3 years following the assessment of the tax are prejudicial to the
petitioner. Since the estate tax assessment had become final and unappealable, there
is now no reason why the BIR cannot continue with the collection of the said tax.

CA decision is affirmed.

Side topics:

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 • The pending cases of the decedent involving ill-gotten wealth does not affect
the enforcement of tax assessments over the properties indubitably included in his
estate.

• Question as to the total deficiency, it is petitioner's last-ditch effort to assail the

assessment of estate tax which had already become final and unappealable.
Petitioner did not show proof disproving the assessment made by BIR.

• On the question of proper service of notice, the taxpayer is the estate and
therefore, it follows that service of notices of levy in satisfaction of these tax
delinquencies upon the petitioner is not required by law, as under Section 213 of
the NIRC. However, notices were served to the counsel of the petitioner.

-o0o-

IX. Rafael Arsenio S. Dizon vs CIR, GR 140944


Facts:

• A petition for the probate of Jose Fernandez’s will was filed. The probate court
appointed retired SC Justice Arsenio Dizon, and Rafael Dizon as Special and
Assistant Administrator, respectively.

• In order to secure a Certificate of Tax Clearance, Atty. Jesus Gonzales (as

authorized by justice Dizon), filed the required estate tax return with BIR showing
therein a NIL estate tax liability.

• BIR issued a certification stating that taxes due on the transfer of real and
personal properties had been fully paid and said properties may be transferred to
his heirs.

• Petitioner requested the probate court’s authority to sell several properties

forming the estate for the purpose of paying its creditors. Yet, the Assistant
Commissioner for Collection of BIR issued ESTATE TAX ASSESSMENT NOTICE
demanding the payment of PHP66,973,985.40 as deficiency of the estate.

• Atty. Gonzales moved for reconsideration of the said estate tax assessment but
the BIR Commissioner denied the request.

• So petitioner filed petition for review before the Court of Tax Appeal.

• The amount was consequently reduced by CTA Php 37,420,000.

• CA affirmed the CTA ruling, hence the instant petition.

• Petitioner claims that in as much as the valid claims of the creditors against the
estate are in excess of the gross estate no estate tax was due. On the other
hand, respondents argue that the filing of the estate tax return by the Estate and
since the claims of the estate’s creditors have been condoned, such claims may
no longer be deducted from the gross estate of the decedent.

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Issue:
Whether or not the actual claims of creditors may be fully allowed as deductions from
the gross estate of Jose despite the fact that said claims were reduced or condoned
thorugh compromise agreement entered into by the estate with its creditors.

Held: Yes.

“Claims against the estate,” as allowable deductions from the gross estate under Sec.
79 of the tax code are reproduction of the deductions allowed under Sec. 89 ( a) (1)
( C ) ( E ) of Commonwealth Act No. 466. Since Philippine tax laws were based on the
federal tax laws of the US, it is an established rule in statutory construction that
decisions of American courts construing the federal tax code are entitled great weight
in the interpretation of Philippine Tax Laws.

US court espoused that appropriate deduction is the “value” that the claim had at the
date of the decedent’s death. As held in Propstra v US, where a lien claimed against
the estate was certain and enforceable on the date of the decedents death, the fact
that the claimant subsequently settled for lesser amount did not preclude the estate
from deducting the entire amount of the claim for the estate tax purposes. These
pronouncements confirm the general principle that post-death developments are
not material in determining the amount of deduction.

Following the US Supreme Court’s ruling in Ithaca Trust Co vs Us where the Propstra
case was applied, the court held that post-death developments are not material in
determining the amount of deduction. This is because estate tax is an act of
transferring property by will or intestacy, and because the act on which the act is levied
occurs at a discrete time, e.g instance of death, the net value of the property
transferred should be ascertained, as nearly possible, as of that time. This supports the
application of date-of-death valuation rule.

The Court in adopting the date-of-death valuation principle explained that:

First. There is no law, nor do we discern any legislative intent in our tax laws, which
disregards the date-of-death valuation principle and particularly provides that post-
death developments must be considered in determining the value of the estate. It bears
emphasis that tax burdens are not to be imposed, nor presumed to be imposed,
beyond what the statute expressly and clearly imports, tax statutes are being
construed strictissimi juris against the government.

Second. Such construction finds relevance and consistency in our Rules of Special
Proceedings wherein the term “claims” required to be presented against a decedent’s
estate is generally construed to mean debts or demands of a pecuniary nature which
could have been enforced against the deceased on his lifetime, or liability contracted
by the deceased in his lifetime before his death therefore the claims existing at the time
of death are significant to, and should be made the basis of, the determination of
allowable deductions.

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BIR’s deficiency estate tax assessment against the Estate of Jose Fernandez is
nullified.

-o0o-

X. The Collector of Internal Revenue vs. Douglas Fisher and Bettina

Fisher G.R. Nos. L-11622 and L-11668, January 28, 1961.

TOPIC: Estate tax, deductions allowed to non-resident estates

FACTS:

Walter Stevenson, a British-Filipino died in San Francisco where he and his wife
Beatrice lived as permanent residents since 1945. Walter instituted Beatrice as sole
heiress of his properties in a will probated in the Superior Court of California. Beatrice
then assigned all her rights to the Fisher spouses, herein respondents.

Part of Stevenson’s gross estate were two parcels of land in Baguio and shares of
stock in Mindanao Mother Lode Mines. Ancillary administration proceedings were held
in the Court of First Instance of Manila for the settlement of the estate in the
Philippines. in connection with this, Ian Murray Statt, Stevenson’s ancillary
administrator filed estate and inheritance tax returns. In his amended estate and
inheritance tax return, Statt claimed a deduction of P10,0,22.4. This amount is the peso
equivalent of a $5,000 loan Stevenson secured by pledging his shares of stock of
Mindanao Mother Lode Mines to the Bank of California National Association. Statt filed
a second amended return where he claimed a P4,000 deduction from the gross estate
of the decedent as provided for in Section 861 (4) of the U.S. Federal Internal Revenue
Code which the ancillary administrator averred was allowable by way of the reciprocity
granted by Section 122 of the National Internal Revenue Code. Because of these
additional claims, the Fishers alleged that they overpaid the government. They asked
for a refund of the excess estate and inhertance taxes they paid in an action filed with
the CFI Manila.

The Collector of Internal Revenue (CIR), herein petitioner, disallowed the refund. The
case was elevated to the Court of Tax Appeals, which exempted the estate from
inheritance tax due to the reciprocity rule. However, the deduction on the loan was
disallowed on the ground that the local probate court had not approved the same as a
valid claim against the estate. Both parties appealed this decision, hence the instant
case.

ISSUES:

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 1.Whether or not the estate can avail itself of the reciprocity proviso embodied in
Section 122 of the National Internal Revenue Code granting exemption from the
payment of estate and inheritance taxes on the 210,000 shares of stock in the
Mindanao Mother Lode Mines Inc.;

2.Whether or not the estate is entitled to the deduction of P10,0,22.47 representing

the amount of indebtedness allegedly incurred by the decedent during his lifetime

RULING:
1.The intangible personal property is not exempt from inheritance tax, there existing
no complete total reciprocity as required in section 122 of the National Internal
Revenue Code, nor is the decedent's estate entitled to an exemption of P4,000.00
in the computation of the estate tax;

2.The lower court was correct in disallowing the deduction of the alleged
indebtedness in the sum of P10,022.47.

Rules (reciprocity issue)

Section 122 of our National Internal Revenue Code, in pertinent part, provides:

... And, provided, further, That no tax shall be collected under this Title in respect
of intangible personal property (a) if the decedent at the time of his death was a
resident of a foreign country which at the time of his death did not impose a
transfer of tax or death tax of any character in respect of intangible personal
property of citizens of the Philippines not residing in that foreign country, or (b) if
the laws of the foreign country of which the decedent was a resident at the time
of his death allow a similar exemption from transfer taxes or death taxes of every
character in respect of intangible personal property owned by citizens of the
Philippines not residing in that foreign country." (Emphasis supplied).
Section 13851 of the California Inheritance Tax Law, insofar as pertinent, reads:.

"SEC. 13851, Intangibles of nonresident: Conditions. Intangible personal

property is exempt from the tax imposed by this part if the decedent at the time
of his death was a resident of a territory or another State of the United States or
of a foreign state or country which then imposed a legacy, succession, or death
tax in respect to intangible personal property of its own residents, but either:.
(a) Did not impose a legacy, succession, or death tax of any character in respect
to intangible personal property of residents of this State, or
(b) Had in its laws a reciprocal provision under which intangible personal
property of a non-resident was exempt from legacy, succession, or death taxes
of every character if the Territory or other State of the United States or foreign

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 state or country in which the nonresident resided allowed a similar exemption in
respect to intangible personal property of residents of the Territory or State of the
United States or foreign state or country of residence of the decedent." (Id.)

Note: Sec. 122 is now entitled Tax on Other Non-Bank Finance Intermediaries. The
applicable new provision is Sec. 87 (D)

(D) Tax Credit for Estate Taxes paid to a Foreign Country. -

(1) In General. - The tax imposed by this Title shall be credited with the amounts of any
estate tax imposed by the authority of a foreign country.
(2) Limitations on Credit. - The amount of the credit taken under this Section shall be
subject to each of the following limitations:
(a) The amount of the credit in respect to the tax paid to any country shall not exceed
the same proportion of the tax against which such credit is taken, which the decedent's
net estate situated within such country taxable under this Title bears to his entire net
estate; and
(b) The total amount of the credit shall not exceed the same proportion of the tax
against which such credit is taken, which the decedent's net estate situated outside the
Philippines taxable under this Title bears to his entire net estate.

Application:
The reciprocity must be total, that is, with respect to transfer or death taxes of any and
every character, in the case of the Philippine law, and to legacy, succession, or death
taxes of any and every character, in the case of the California law. Therefore, if any of
the two states collects or imposes and does not exempt any transfer, death, legacy, or
succession tax of any character, the reciprocity does not work. This is the underlying
principle of the reciprocity clauses in both laws.

In the Philippines, upon the death of any citizen or resident, or non-resident with
properties therein, there are imposed upon his estate and its settlement, both an estate
and an inheritance tax. Under the laws of California, only inheritance tax is imposed.
On the other hand, the Federal Internal Revenue Code imposes an estate tax on non-
residents not citizens of the United States, but does not provide for any exemption on
the basis of reciprocity. Applying these laws in the manner the Court of Tax Appeals did
in the instant case, we will have a situation where a Californian, who is non-resident in
the Philippines but has intangible personal properties here, will the subject to the
payment of an estate tax, although exempt from the payment of the inheritance tax.
This being the case, will a Filipino, non-resident of California, but with intangible
personal properties there, be entitled to the exemption clause of the California law,
since the Californian has not been exempted from every character of legacy,
succession, or death tax because he is, under our law, under obligation to pay an
estate tax? Upon the other hand, if we exempt the Californian from paying the estate

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tax, we do not thereby entitle a Filipino to be exempt from a similar estate tax in
California because under the Federal Law, which is equally enforceable in California he
is bound to pay the same, there being no reciprocity recognized in respect thereto. In
both instances, the Filipino citizen is always at a disadvantage. We do not believe that
our legislature has intended such an unfair situation to the detriment of our own
government and people. We, therefore, find and declare that the lower court erred in
exempting the estate in question from payment of the inheritance tax.

Rule (issue on loan as an allowable deduction):

Section 89, letter (d), number (1), of the National Internal Revenue Code reads:

(d) Miscellaneous provisions — (1) No deductions shall be allowed in the case of

a non-resident not a citizen of the Philippines unless the executor, administrator
or anyone of the heirs, as the case may be, includes in the return required to be
filed under section ninety-three the value at the time of his death of that part of
the gross estate of the non-resident not situated in the Philippines.

Note: This provision has already been repealed by RA 10963 or the TRAIN Law. The
applicable provisions are quoted below:

Sec. 86, A, (c) of the NIRC

A.Deductions Allowed to the Estate of Citizen or a Resident. - In the case of a
citizen or resident of the Philippines, by deducting from the value of the gross estate
(c) For claims against the estate: Provided, That at the time the indebtedness
was incurred the debt instrument was duly notarized and, if the loan was
contracted within three (3) years before the death of the decedent, the
administrator or executor shall submit a statement showing the disposition of the
proceeds of the loan;
These deductions shall be allowed only where a donor's tax or estate tax
imposed under this Title was finally determined and paid by or on behalf of such
donor, or the estate of such prior decedent, as the case may be, and only in the
amount finally determined as the value of such property in determining the value
of the gift, or the gross estate of such prior decedent, and only to the extent
that the value of such property is included in the decedent's gross estate,
and only if in determining the value of the estate of the prior decedent, no
deduction was allowable under paragraph (2) in respect of the property or
properties given in exchange therefor.
SEC. 90. Estate Tax Returns. –
(A) Requirements. - In all cases of transfers subject to the tax imposed herein, or where,
though exempt from tax, the gross value of the estate exceeds Two hundred thousand
pesos (P200,000), or regardless of the gross value of the estate, where the said estate

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consists of registered or registrable property such as real property, motor vehicle,
shares of stock or other similar property for which a clearance from the Bureau of
Internal Revenue is required as a condition precedent for the transfer of ownership
thereof in the name of the transferee, the executor, or the administrator, or any of the
legal heirs, as the case may be, shall file a return under oath in duplicate, setting forth:

(1) The value of the gross estate of the decedent at the time of his death, or in case of a
nonresident, not a citizen of the Philippines, of that part of his gross estate situated
in the Philippines;

Application:
For a deduction to be allowed for estates where the decedent is a non-resident who is
not a citizen of the Philippines, two conditions must be satisfied:

1.

Before a will duly probated outside of the Philippines can have effect here, it must first
be proved and allowed before our courts, in much the same manner as wills originally
presented for allowance therein.

Note: This delves more on succession and the Rules of Court. Reason #2 is the one
applicable to Tax 2.
1.
In the case at bar, no such statement of the gross estate of the non-resident Stevenson
not situated in the Philippines appears in the three returns submitted to the court or to
the office of the petitioner Collector of Internal Revenue. The purpose of this
requirement is to enable the revenue officer to determine how much of the
indebtedness may be allowed to be deducted, pursuant to (b), number (1) of the same
section 89 of the Internal Revenue Code.

In other words, the allowable deduction is only to the extent of the portion of the
indebtedness which is equivalent to the proportion that the estate in the Philippines
bears to the total estate wherever situated. Stated differently, if the properties in the
Philippines constitute but 1/5 of the entire assets wherever situated, then only 1/5 of
the indebtedness may be deducted. But since, as heretofore adverted to, there is no
statement of the value of the estate situated outside the Philippines, no part of the
indebtedness can be allowed to be deducted, pursuant to Section 89, letter (d),
number (1) of the Internal Revenue Code.

-o0o-

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XI. CIR v McGrath, GR No. L-12710, Feb. 28, 1961


Topic: Estate tax

Facts:
The Collector of Internal Revenue (referred here as CIR) found that the estate of Dora
Anna Wood, whom McGrath is the administratrix, is liable for inheritance tax and
penalties, and was duly ordered to pay the amount of P36,144.91. Aggrieved, McGrath
filed a petition for review with the Court of Tax Appeals alleging that the assessment of
the CIR was excessive and illegal. The CTA ruled in their favor and declared the estate
exempt from inheritance tax, HOWEVER, subject to estate tax in the amount of
P13,160.55. And since McGrath already paid P20,572, the CIR was mandated to
refund to her the excess of thereof.

Hence, the present case, as the CIR posits that the CIR erred in deciding that there
exists reciprocity between the California and Philippine laws on the matter of the death
tax on intangible property and in holding that the estate of Dora Anna Wood not liable
for the payment of inheritance tax and in ordering them to refund the P7,411.04,
excess of the payment of estate tax.

Issue:
WON the CIR is liable to return the amount of P7,411.04, as excess in the payment of
estate tax, to McGrath?
Ruling:
Yes, however, the estate of Dora Anna Wood is also liable to pay inheritance estate tax.

First, no reciprocity can be extended. Sec.122 of the NIRC so provides:

“. . . And, provided, further, That no tax shall be collected under this Title in respect of
intangible personal property (a) if the decedent at the time of his death was a resident
of a foreign country which at the time of his death did not impose a transfer tax or
death tax of any character in respect of intangible personal property of citizens of the
Philippines not residing in the foreign country, or (b) if the laws of the foreign country of
which the decedent was a resident at the time of his death allow a similar exemption
from transfer taxes or death taxes of every character in respect of intangible
personal property owned by citizens of the Philippines not residing in that foreign
country.' (Emphasis supplied.).”

As the law of California governing estate and inheritance tax does not grant full
exemption from the estate and inheritance taxes to Filipino residents of that state,
consequently, no similar exemption must be granted to the estate of Dora Anna Wood.

Secondly, the claim of McGrath that there was already a full settlement of all death
taxes due and payable when the CIR accepted the check she tendered is of no
moment. SC ruled as to wit:

“The acceptance of any amount by employees or officials, which does not constitute a
full payment of the amount fixed by law, is no ground or reason for the claim for
exemption by the taxpayer from liability for the remaining amount due under the law.
Taxes are not subject to agreements between the taxpayer and the tax officer,

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and if any such agreements are made, they cannot serve to defeat or discharge
the liability that the law fixes as the full amount of the tax. Furthermore, any error
made by a tax official in the assessment or computation of taxes does not have the
effect of relieving the taxpayer from the full amount of liability as fixed by law. Errors of
tax officers or officials of the Government do not bind the Government or
prejudice its right to the taxes or dues collectible by it from its citizens…. (T)he
claim of release of the taxpayer because of the acceptance of an amount offered by
the taxpayer, even if the taxpayer made the offer in full payment of the tax liability,
which payment was not in pursuance of compromise under Section 309 of the National
Internal Revenue Code, is without any merit and the same is hereby overruled.”

Wherefore, the CTA judgment is reversed in so far as the exemption of the estate Dora
Anna Wood from the payment of inheritance tax.

(NB: Highlighted rule, I checked on the NIRC dli ni siya mao ang provision. I also tried
to check sa Estate tax na title but wala pud siya ngadto. This may came from the old
NIRC.)

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