Professional Documents
Culture Documents
ESTATE TAX
Martha Rose C. Serrano
Vidal de Roces v. Posadas
G.R. No. 34937 March 13, 1933
Imperial, J.:
Facts:
1. Sometime in 1925, plaintiffs Concepcion Vidal de Roces and her husband, as well as one Elvira Richards,
received as donation several parcels of land from Esperanza Tuazon. They took possession of the lands
thereafter and likewise obtained the respective transfer certificates.
2.The donor died a year after without leaving any forced heir. In her will, which was admitted to probate, she
bequeathed to each of the donees the sum of P5,000. After the distribution of the estate but before the
delivery of their shares, the CIR (appellee) ruled that plaintiffs as donees and legatees should pay inheritance
taxes. The plaintiffs paid the taxes under protest.
3. CIR filed a demurrer on ground that the facts alleged were not sufficient to constitute a cause of action. The
court sustained the demurrer and ordered the amendment of the complaint but the appellants failed to do so.
Hence, the trial court dismissed the action on ground that plaintiffs, herein appellants, did not really have a
right of action.
4. Plaintiffs (appellant) contend that Sec. 1540 of the Administrative Code does not include donation inter vivos
and if it does, it is unconstitutional, null and void for violating SEC. 3 of the Jones Law (providing that no law shall
embrace more than one subject and that the subject should be expressed in its titles ; that the Legislature has
no authority to tax donation inter vivos; finally, that said provision violates the rule on uniformity of taxation.
5. CIR however contends that the word 'all gifts' refer clearly to donation inter vivos and cited the doctrine in
Tuason v. Posadas.
Issue: Whether or not the donations should be subjected to inheritance tax
YES. Sec. 1540 of the Administrative Code clearly refers to those donation inter vivos that take effect
immediately or during the lifetime of the donor, but made in consideration of the death of the decedent. Those
donations not made in contemplation of the decedent's death are not included as it would be equivalent to
imposing a direct tax on property and not on its transmission.
The phrase 'all gifts' as held in Tuason v. Posadas refers to gifts inter vivos as they are considered as advances in
anticipation of inheritance since they are made in consideration of death.
Dison v. Posadas Digest
Dison v. Posadas
G.R. No. 36770 November 4, 1932
Butte, J.:
Facts:
1. Plaintiff Luis Dison filed a suit against CIR to recover inheritance tax paid under protest amounting to
P2,808.73. Felix Dison, plaintiff's father executed a deed of gift which transferred 22 tracts of land, reserving to
himself during his lifetime the usufruct of 3 tracts. The donation was formally accepted by plaintiff.
2. The plaintiff (herein petitioner) alleged in his complaint that the tax is illegal since he received the property by
a deed of gift inter vivos duly accepted and registered before the death of his father. He also contended that
Act 2601 being an inheritance tax statute, does not tax gifts. The defendant answered in general denial with a
countermand. The court dismissed the countermand. Both sides appealed, but the CIR appeal was dismissed.
Issue: Whether or not the gifts inter vivos are taxable (inheritance tax)
YES.
Inheritance tax is imposed upon the gift inter vivos that plaintiff received from his father as this was really an
advancement upon the inheritance to which he would be entitled upon the death of the latter. Sec. 1540 of
the Administrative Code did not tax gifts per se but only those which are made to those who shall prove to be
heirs, devisees, legatees and donees mortis causa of the donor. The term 'heirs' include those given the status of
heirs irrespective of the quantity of property they may receive as such.
BPI vs. Posadas
GR No. 34583, October 22, 1931
FACTS:
BPI, as administrator of the estate of deceased Adolphe Schuetze, appealed to CFI Manila absolving
defendant, Collector of Internal Revenue, from the complaint filed against him in recovering the inheritance
tax amounting to P1209 paid by the plaintiff, Rosario Gelano Vda de Schuetze, under protest, and sum of
P20,150 representing the proceeds of the insurance policy of the deceased.
Rosario and Adolphe were married in January 1914. The wife was actually residing and living in Germany when
Adolphe died in December 1927. The latter while in Germany, executed a will in March 1926, pursuant with its
law wherein plaintiff was named his universal heir. The deceased possessed not only real property situated in
the Philippines but also personal property consisting of shares of stocks in 19 domestic corporations. Included in
the personal property is a life insurance policy issued at Manila on January 1913 for the sum of $10,000 by the
Sun Life Assurance Company of Canada, Manila Branch. In the insurance policy, the estate of the deceased
was named the beneficiary without any qualification. Rosario is the sole and only heir of the deceased. BPI, as
administrator of the decedents estate and attorney in fact of the plaintiff, having been demanded by
Posadas to pay the inheritance tax, paid under protest. Notwithstanding various demands made by plaintiff,
Posadas refused to refund such amount.
ISSUE: WON the plaintiff is entitled to the proceeds of the insurance.
HELD:
SC ruled that(1)the proceeds of a life-insurance policy payable to the insured's estate, on which the premiums
were paid by the conjugal partnership, constitute community property, and belong one-half to the husband
and the other half to the wife, exclusively; (2)if the premiums were paid partly with paraphernal and partly
conjugal funds, the proceeds are likewise in like proportion paraphernal in part and conjugal in part; and (3)the
proceeds of a life-insurance policy payable to the insured's estate as the beneficiary, if delivered to the
testamentary administrator of the former as part of the assets of said estate under probate administration, are
subject to the inheritance tax according to the law on the matter, if they belong to the assured exclusively, and
it is immaterial that the insured was domiciled in these Islands or outside.
Hence, the defendant was ordered to return to the plaintiff one-half of the tax collected upon the amount of
P20,150, being the proceeds of the insurance policy on the life of the late Adolphe Oscar Schuetze, after
deducting the proportional part corresponding to the first premium.
Collector vs. Fisher
CIR vs. CA, CTA and Pajonar
Facts: Private respondent Josefina Pajonar was the guardian of the person of decedent Pedro Pajonar. The
property of the decedent was put by the RTC- Dumaguete, under the guardianship of the Philippine National
Bank via special proceeding, wherein 50, 000 was spent therein for payment of attorney's fees.
When the decedent died, instead of filing a estate tax return, PNB advised Josefina to extra-judicially settle the
estate of his brother. The decedent's estate was extra-judicially settled and the heirs paid an amount of 60, 753
for the notarization of the deed of extra-judicial settlement of estate.
The private paid the estate tax, however, they were subsequently assessed of deficiency taxes because the
amount paid in the special proceeding [50, 000] and the notarization fee [60, 753] cannot be claimed as a
deduction to the decedent's estate. Private respondent paid the said taxes under protest. While the case is
under review by the BIR, she filed a claim for refund in the CTA which was granted.
BLOG_SUMMARY_END
Issue: whether or not the notarial fee paid for the extrajudicial settlement in the amount of P60,753 and the
attorney's fees in the guardianship proceedings in the amount 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.
Held: Yes.
As to the deductibility of the amount spent for notarization of the deed of extra-judicial settlement of estateExplained the SC, 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 [which the law on allowable deductions from gross estate was copied!] 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. Expenditures incurred for
the individual benefit of the heirs, devisees or legatees are not deductible. This distinction has been carried over
to our jurisdiction. Thus, in Lorenzo v. Posadas the Court construed the phrase "judicial expenses of the
testamentary or intestate proceedings" as not including the compensation paid to a trustee of the decedent's
estate when it appeared that such trustee was appointed for the purpose of managing the decedent's real
estate for the benefit of the testamentary heir. In another case, the Court disallowed the premiums paid on the
bond filed by the administrator as an expense of administration since the giving of a bond is in the nature of a
qualification for the office, and not necessary in the settlement of the estate. Neither may attorney's fees
incident to litigation incurred by the heirs in asserting their respective rights be claimed as a deduction from the
gross estate.
In this case, 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 the extrajudicial settlement necessitated the notarization
of the same. It follows then that the notarial fee of P60,753.00 was incurred primarily to settle the estate of the
deceased Pedro Pajonar. 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. Thus, the notarial fee of P60,753 incurred for the Extrajudicial
Settlement should be allowed as a deduction from the gross estate.
Deductible expenses of administration of the estate 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.
As to the deductibility of attorney's fees in the Special proceedings- As a rule attorney's fees 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. [34 Am. Jur. 2d 767.] In this case, the guardianship proceeding was
necessary for the distribution of the property of the late Pedro Pajonar to his rightful heirs. It is noteworthy to
point that PNB was appointed the guardian over the assets of the deceased. Necessarily the assets of the
deceased formed part of his gross estate. Accordingly, all expenses incurred in relation to the estate of the
deceased will be deductible for estate tax purposes provided these are necessary and ordinary expenses for
administration of the settlement of the estate. Hence the attorney's fees of 50, 000 is deductible from the gross
estate of the decedent.
Rafael Arsenio S. Dizon, v. CTA and CIR
G.R. No. 140944; April 30, 2008
Facts: Jose P. Fernandez died in November 7, 1987. Thereafter, a petition for the probate of his will was
filed. The probate court appointed Atty. Rafael Arsenio P. Dizon as administrator of the Estate of Jose
Fernandez.
An estate tax return was filed later on which showed ZERO estate tax liability. BIR thereafter issued a deficiency
estate tax assessment, demanding payment of Php 66.97 million as deficiency estate tax. This was
subsequently reduced by CTA to Php 37.42 million. The CA affirmed the CTAs ruling, hence, the instant
petition.
The petitioner 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. On the other hand, respondents argue that since the claims of the Estates
creditors have been condoned, such claims may no longer be deducted from the gross estate of the
decedent.
Issue: Whether the actual claims of creditors may be fully allowed as deductions from the gross estate of Jose
despite the fact that the said claims were reduced or condoned through compromise agreements entered
into by the Estate with its creditors
Held: YES. Following the US Supreme Courts ruling in Ithaca Trust Co. v. United States, the Court held that postdeath developments are not material in determining the amount of deduction. This is because estate tax is a
tax imposed on the act of transferring property by will or intestacy and, because the act on which the tax is
levied occurs at a discrete time, i.e., the instance of death, the net value of the property transferred should be
ascertained, as nearly as possible, as of the that time. This is the 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 net 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 being construed strictissimi juris against the government.
Second. Such construction finds relevance and consistency in our Rules on 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 in his lifetime, or
liability contracted by the deceased 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.
Estate of Fidel F. Reyes and Estate of Teresita R. Reyes vs. CIR
Lorenzo v. Posadas, G.R. No. L-43082 (64 PHIL 353) June 18, 1937
Facts: Herein petitioner Lorenzo, in his capacity as trustee of the estate of a certain Thomas Hanley, deceased,
brought an action against respondent Posadas, Collector of Internal Revenue. Petitioner alleges the
respondent to have exceeded in its tax collection, which, as assessed by the former, should only be in the
amount of PhP1,434.24 instead of PhP2,052.74. Disregarding the allegation, respondent filed a motion in the CFI
of Zamboanga praying that the trustee be made to pay such tax. The motion was granted. Petitioner paid the
amount in protest, however notified the respondent that until a refund is prompted, suit would be bought for its
recovery. Respondent overruled the protest. Hence, the case at bar.
Issue/s:
1. Whether or not the provisions of Act No. 3606 (Tax Law) which is favorable to the taxpayer be given
retroactive effect?
Held and Reasoning: No. The respondent levied and assessed the inheritance tax collected from the petitioner
under the provisions of section 1544 of the Revised Administrative Code as amended by Act No. 3606.
However, the latter only enacted in 1930 not the law in force when the testator died in 1922. Laws cannot be
applied retroactively. The Court states that it is a well-settled principle that inheritance taxation is governed by
the statue in force at the time of the death of the decendent. The Court also emphasized that a statute
should be considered as prospective in its operation, unless the language of the statute clearly demands or
expresses that it shall have retroactive effect Act No. 3606 does not contain any provisions indicating a
legislative intent to give it a retroactive effect. Therefore, the provisions of Act No. 3606 cannot be applied to