Excerpts From Reyes Tax Rev.

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  Q: Is the accrual of the estate tax distinct fromthe obligation to pay the same? Yes. The accrual of the tax is distinct from the obligationto pay the same. Upon the death of the decedent,succession takes place and the right of the State to taxthe privilege to transmit the estate vests instantly upondeath ( see RR 02-2003 [December 16, 2002 ]. Generally, the estate tax is paid at the me the estate taxreturn is fled by the executor, administrator or the heirs. Theperiod to fle an estate tax return within six months rom thedeath o the decedent except in meritorious cases where anextension not exceeding 30 days is granted. ( see Secton 90,Tax Code  Q: Based on the same facts as stated above, B contended that the inheritance tax should be based on the value of theestate at the lapse of the 10-year period. Is B’s contenoncorrect! !o, the tax accrues at the me o deathnotwithstanding the condion. ince death is the generangsource rom which the power o the tate to impose estatetaxes ta#es its being and i upon the death o the decedent,succession ta#es place and the right o the state to tax $estsinstantly, the tax is to be measured by the $alue o the estateas it stood at the me o the decedent%s death, regardless o any postponement o actual possession or any subse&uentincrease or decrease in $alue. ( LORENZO V. POSADAS [JUNE18, 19!  Q: Discuss the different theories regarding the  purposes of estate tax. Benefit-received theory The tax is in return for the services rendered by the state in the distribution of the estateof the decedent and for the benefits that accrueto the estate and the heirs State-partnership theory The tax is in the share of the state as a passive and silent partner in the accumulation of property Abiity to !ay heory The tax is based on theact that the receipt of inheritance creates the ability to pay and thus contribute to governmental income Redistrib#tion of $eath theory The tax is imposed to help reduce undue concentration of ealth in society to hich the receipt of inheritance is a contributing factor Q: Must there be total reciprocity? 'es. n C OLLECTOR O# $ NTERNAL R EVENUE V . # $S%ER [J ANUAR& '8,19(1 , at issue is whether the shares o stoc# o a nonresidentalien in a domesc mining company can be exempted romestate tax pursuant to the reciprocity pro$iso in the )hilippineTax *ode. The upreme *ourt held in the nega$e. +eciprocitymust be total.  any o the two states collects or imposes ordoes not exempt any transer, death, legacy, or succession taxo any character, the reciprocity does not wor#. n this case,the )hilippines imposed an estate and an inheritance tax atthe me while *aliornia imposed only inheritance tax. Q: What does the decedent’s interest include? It includes any interest having value or capable of being valued, transferred by the decedent at his death ransfer in contemplaon of death Q: When is a transfer considered one made in contemplation of death?  ! transfer is considered made in contemplation of death hen the impelling motive or reason for the transfer is the thought of death, regardless of hether the transferor is near the possibility of death or not. Note : The presumption that transfers made within three years before death are made in contemplation of death as provided under PD 170 is no longer applicable! Q: What factors should be considered in determining hether a transfer as made in contemplation of death? ne should consider the folloing# $. The type of heir (hether compulsory or voluntary% &. The timing of the transfer '. ther special factors Q: What is the rele!ance of the type of heir in determining if the transfer as made in contemplation of death? hen there is a donation inter vivos is made to a personho is not a forced heir, the presumption is that such transfer is a donation inter vivos . owe$er, i the recipient o the property is a orced heir, thepresumpon is that such transer was made to accelerateinheritance and hence, such transer is morts causa . Thispresumpon may be rebu-ed by e$idence to the contrary.( see V $DAL D E R OCES V . P OSADAS [) ARC% 1, 19  Q: Name some instances factors hich ould dispro!e the claim that the transfer as made in contemplation of death. hen the reason for the transfer as the desire of the decedent to# $. see his children en)oy the property hile the donor is still alive &. save income of property taxes '. settle family disputes *. relieve donor from administrative burden +. to reard services rendered . to provide independent income for dependents  -n % &S '!A ( ) *A [' * 'B&R +, 2000, the Supreme ourt enumerated some indications that the transfer asa donation inter vivos, to it# $. /roperty as donated out of love and affection &. hen a reservation on the donation is made only ith respect to the right of usufruct hich denotes naked onership as already transferred '. hen the transferors retained sufficient property only for the purpose of maintaining their status in life, thereby implying that it as alright to part ith the property even during the transferor0s lifetime *. 1onee accepted the donation since in a donation mortis causa acceptance is not re2uired. Q: # donated parcels of land to $% &% and '. # died ithout any forced heir. In her ell% she be(ueathed personal property to $% &% and '. )he *I+ contends that such transfers should form part of the gross estate for purposes of estate taxation. Is the *I+ correct? 3o. The donation inter vivos as made to a legatee ho is not a forced heir. Thus, absent any evidence to the contrary, the presumption holds that such transfer is a donation inter vivos . Such being the case, the transfer shall not form part of the gross estate ( see AS'. ( ) ! 'SADAS [/ A.AR 23, 130 %. Q: ,sing the same facts abo!e% it as determined that the transfer as made three months before his death. Will the transfer form  part of the gross estate? Yes. -n ( DA D & R '*&S ( ) ! 'SADAS [4 AR*5 13, 133 , the decedent died ithout forced heirs but instituted a certain person as a legatee in his ill. The presumption that such transfer as a donation inter vivos did not holdbecause of the timing of the transfer, hich as a short period before death. Q: -rior to his death% # ga!e his son  a parcel of land through a deed of donation. ,pon #’s death% the *I+ contends that the transfer should form part of the gross estate for  purposes of estate taxation. Is the *I+ correct? 'es. ince the recipient o the property, the son, is a orcedheir, the presumpon is that such transer was made incontemplaon o death. Thus, the transer should orm parto the gross estate. ( see D $ZON V P OSADAS [N OVE)*ER +, 19  Q: During his lifetime% /ather ' donated some of his property to #% % * on the condition that they pro!ide him rice and money e!ery year. /ather ' died. )he *I+ contends that the transfers should form part of the gross estate of /ather '. Is the *I+ correct? !o. n donaons iner vivos, as in the present case, thedonees ac&uired the right to the property while the donorwas sll ali$e, subect only to their acceptance and thecondion that they pay the donor rice and/or money. ( see Z APANTA V . P OSADAS [D ECE)*ER '9, 19'8  Q: 0i!e some examples of funeral expenses that are not deductible $. 4xpenses incurred after the interment, such as for prayers, masses, entertainment, or the like. &. !ny portion of the funeral and burial expenses borne or defrayed by relatives and friends of the deceased. '. 5edical expenses as of the last illness (See RR 2-2003 [December 16, 2002 #ote : As o (3) – This should insead be claimed as par of hededucton for “medical expenses Q: What are the re(uisites for the deductibility of 1udicial expenses? 6udicial expenses to be deductible $. 5ust be incurred during the settlement of the estate but not beyond the last day prescribed by la (ithin  months from the date of death of the decedent% or the extension thereof (in meritorious cases, the -7 may grant reasonable extension not exceeding '8 days% for the filing of the estate tax return. &. The )udicial expenses are incurred in# a. -nventory9taking of assets comprising the gross estateb. !dministration c. /ayment of debts of the estate d. The distribution of the estate among the heirs ( RR 2-2003 % Q: 0i!e some examples of 1udicial expenses 6udicial expenses may include# $. :ees of executor or administrator; &. !ttorney0s fees; '. ourt fees; *. !ccountant0s fees; +. !ppraiser0s fees; . lerk hire; <. osts of preserving and distributing the estate; =. osts of storing or maintaining property of the estate; and >. ?rokerage fees for selling property of the estate. ( RR 2-2003 % -n *R ( ) *A A.D ! A/'.AR [4 AR*5 22, 2000, the Supreme ourt held that expenses incurred in the extra)udicial settlement of the estate should be alloed as a deduction from the gross estate. -t is sufficient that the expense be a necessary contribution toard the settlement of the estate. The notarial fee paid for the extra)udicial settlement is deductible since such settlement effected a distribution of the decedent0s estate to his laful heirs. The attorney0s fees in the guardianship proceedings of the insane deceased is alsodeductible as it essential to the proper settlement of the estate, to preserve the properties of the deceased.any legislative intent in our tax las, hich disregards the date9of9death valuation principle hich is the US ruleon deductions. The amount deductible is the debt hich could have been enforced against the deceased in his  lifetime, nothing more and nothing less ( D 7'. ( ) *R [A !R 30, 2008 % Note : In sum, post death developments should not be considered in determining the net value of the estate Q: What are the re(uisites for unpaid taxes to be deductible? $. Taxes hich have accrued as of or before the death of the decedent; and &. Unpaid as of the time of his death, regardless of hether or not it as incurred in connection ith trade or business Note : This deduction will not include: #1$ income ta% upon income received after death, or #&$ property ta%es not accrued before his death, or #'$ the estate ta% due from the transmission of his(her estate! These shall be chargeable against the income of the estate because it accrued after the death of the decedent! Q: 2o can the I+ reco!er such unpaid tax liabilities? The ?-7 can recover in & ays# $. -t may recover said liability from all the heirs ho shallshare proportionately; or &. -t may go against the property held by an heir if the same is sufficient to cover the hole tax liability (in hichcase, the heir ho paid can seek reimbursement from his@her co9heirs% *R ( ) ! .&DA [S &! &4B&R 1+, 169 Note : In both instances, the respective heirs may not be held accountable for more than the share he(she inherited  Q: Is the appro!al of the probate court or the court settling the estate of the decedent a mandatory re(uirement in the collection of the estate tax? 3o. !s held in 4 AR*'S  ( ) *A [/ .& +, 19, i t is discernible that the approval of the court, sitting in probate, or as a settlement tribunal over the deceased isnot a mandatory re2uirement in the collection of estate taxes. -t cannot therefore be argued that the Tax ?ureau erred in proceeding ith the levying and sale of the properties allegedly oned by the late /resident, on the ground that it as re2uired to seek first the probate courtAs sanction. There is nothing in the Tax ode, and inthe pertinent remedial las that implies the necessity of the probate or estate settlement courtAs approval of the stateAs claim for estate taxes, before the same can be enforced and collectedThe spouses executed the deed out of love and affectionfor the donee, hich is a mark of a donation inter vivos . The donor reserved sufficient properties for their maintenance in accord ith their standing in society, indicating the donor intended to part ith the property donated. !nd, the donee accepted the donation, hich isonly re2uired in donations inter vivos . Q: What la go!erns the imposition of donor’s tax? The donor0s tax is governed by the statute in force at thetime of the transfer. Q: What are the re(uisites for a donation of a mo!able to be !alid? $. 1onation may be oral or in riting &. -f oral, the donation must be accompanied ith delivery '. -f value is more than /hp +,888, the donation must be in riting and accepted in riting. ( Art) 9:8, .** % Q: # sold his lot not used for business tto his brother  for -344%444 hen at that time the lot as !alued in the mar5et at -6 million. # bought it for -644%444. In addition% # sold some of the shares of his company #* *orp to his senior executi!es. 2e sold the #* *orp shares for -744%444 hen the mar5et !alue asat -344%444. 2is srcinal cost in the shares is -644%444. #re the sales sub1ect to donor’s tax? The sale of the lot is not sub)ect to donor0s tax as it is a real property classified as a capital asset and such is sub)ect to the B CT. The sale of the shares, hoever,are sub)ect to the donor0s tax of '8B based on the difference beteen the selling price and the market value. Q: # died lea!ing as his only heirs% his sur!i!ing spouse % and three minor children%  $% & and '. 8ince  does not ant to participatein the distribution of the estate% she renounced her hereditary share in the estate. Is the renunciation sub1ect to donor’s tax? 3o. The general renunciation by an heir, including the surviving spouse, as in the case of ?, of her share in the hereditary estate left by the decedent is not sub)ect to donor0s tax. This is so because the general renunciation by ? as not specifically and categorically done in favor of identified heir@s to the exclusion or disadvantage of the other co9heirs in the hereditary estate ( Section 11, RR .o) 2-2003 %. Note : )ithout a source of income or acceptable form of ac*uisition of substantial amount to purchase properties, the inclusion of the names of minor children in the certificates of title of properties shall be deemed an implied donation, which is sub+ect to donors ta%! 8  -8  . 2  9+D9N 2.   ;9N9 #ND M   #+I< *.   ;9N9 ;8  . *I+% )  .  #< .% *)#  N  9  . =43 >*)# *   #8 N  9  . =3=7% @  ,N A% B46B  #&$ )hy is real property, classified as capital asset, that is transferred for less than an ade*uate and full consideration in money or moneys worth not deemed a gift sub+ect to donors ta%- )ell, it is already sub+ect to final capital gains ta%, which is ./ of the gross selling price of fair maret value of the  property, whichever is higher! o what the seller avoids in the  payment of the donors ta%, it pays for in 23T! the *entral an5 re(uired it to de!elop a rubber  plantation. / 0oodrich purchased land under the -arity #mendment. )hereafter% the D9@  rendered an opinion stating that upon expiration of the -arity #mendment% onership rights o!er such lands% including right to dispose or sell them% ould be lost. 2ence% / 0oodrich sold the rubber plantation to 8ilton +ealty for a price less than its declared fair mar5et !alue. )he I+ assessed / 0oodrich for deficiency donor’s tax representing the difference beteen the fair mar5et !alue and the actual purchase price of the property. I+ contended that / 0oodrich filed a false income return. Did / 0oodrich commit falsity in its income return? 3o. -t is possible that real property may be sold for less than ade2uate consideration for a bona fide business purpose; in such event, the sale remains an DarmAs lengthD transaction. -n this case, Coodrich as compelled to sell the property even at a price less than its market value, because it ould have lost all onership rights over it upon the expiration of the parity amendment. -n other ords, it as attempting to minimiEe its losses. !t the same time, it as able to lease the property for &+ years, reneable for another &+. This can be regarded as another consideration on the price.The fact that Coodrich sold its real property for a price less than its declared fair market value did not by itself  )ustify a finding of false return. 4ven though a donorAs tax, hich is defined as Da tax on the privilege of transmitting oneAs property or property rights to another or others ithout ade2uate and full valuable consideration,D is different from capital gains tax, a tax on the gain from the sale of the taxpayerAs property forming part of capital assets, the tax return filed by Coodrich to report its income as sufficient compliance ith the legal re2uirement to file a return. -n other ords,the fact that the sale transaction may have partly resulted in a donation does not change the fact that Coodrich already reported its income by filing an incometax return. [*R v) B);) %oodrich !his [;ebr#ary 2:, 1 Q: #* a multinational corporation doing business in the -hilippines donated 644 shares of stoc5 of said corporation to Mr. '% its resident manager in the -hilippines. What is thetax liability% if any% of #* corporation? :oreign corporations effecting a donation are sub)ect to donor0s tax only if the property donated is located in the /hilippines. !ccordingly, donation of a foreign corporation of itson shares of stock in favor of resident employees is not sub)ect to donor0s tax. Foever, if =+B of the business of the foreign corporation is located in the /hilippines or the shares donated have ac2uired business situs in the /hilippines, the donation may be taxed in the /hilippines sub)ect to the rule of reciprocity. 7!<$ Sec. 13. Authorized Expenses of Candidatesand Political Parties. - The agreement amount that a candidate or registered political party may spend for election campaign shall e as follo!s 1.#or candidates. - Ten pesos $P1%.%%& for President and 'ice-President( and for other candidates Three Pesos $P3.%%& for e)ery )oter currently registered in the constituency !here he filed his certificate of candidacy Pro)ided* That a candidate !ithout anypolitical party and !ithout support from any political party may e allo!edto spend #i)e Pesos $P+.%%& for e)ery such )oter( and,.#or political parties. - #i)e pesos $P+.%%& for e)ery )oter currently registered in the constituency or constituencies !here it has official candidates. Any pro)ision of la! to the contrary not!ithstanding any contriution in cash orin ind to any candidate or political party orcoalition of parties for campaign purposes* duly reported to the Commission shall not e suect to the payment of any gift tax. Q: What is the rule for donations made by husband and ife? Fusband and ife are considered as separate and distinct taxpayerAs for purposes of the donorAs tax. Foever, if hat as donated is a con)ugal or community property and only the husband signed the deed of donation, there is only one donor for donorAs tax purposes, ithout pre)udice to the right of the ife to 2uestion the validity of the donation ithout her consent pursuant to the pertinent provisions of the ivil ode of the /hilippines and the :amily ode of the /hilippines. (see RR 2-2003 % -n an< 5o v) Board of a= Appeas [.ovember 1, 1++ , the Supreme ourt held that a donation of property belonging to the con)ugal partnership, made during its existence, by the husband alone in favor of thecommon children, is taxable to him exclusively as sole
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