1. Estate Tax – Secs.
84 to 97
Revenue Regulations 12-2018
Lorenzo v. Posadas, G.R. No. L-43082, 1937
FACTS
ISSUE
RULING
CIR v. Fisher, G.R. Nos. L-11622 & L-11668, 1961
FACTS
ISSUE
RULING
a) Basic principles, concept, and definition
ESTATE TAX
A tax on the right of a deceased person to transmit his or her estate to his or her
lawful heirs and/or beneficiaries at the time of death, and on certain transfers
which are made by law as equivalent to testamentary dispositions. (Bureau of
Internal Revenue)
Take note: This definition was emphasized by Sir, because according to him, it is
an elaboration of the definitions of other book authors and of the Supreme Court
in the cases it decided.
Estate tax applies only to natural persons
Estate tax does not apply to juridical persons because the operative act which
gives rise to Estate tax is succession and it only happens when there is death as
defined under the Civil Code. Juridical entities essentially don’t die like natural
individuals.
Estate defined
The totality of the rights, properties and interests, including the obligations of the
decedent with a juridical personality separate and distinct from that of the
decedent.
Justifications of estate tax
1. Benefits received theory – The state facilitates distribution of the estate, thus it
expects to be paid for the services that it has rendered. (Ex. Register of Deeds
– transfers ownership to the heirs of the deceased)
2. State partnership theory – Succession to the property of the deceased person
is not a right but a mere privilege. Consequently, the State can constitutionally
burden such succession with tax. Everything belongs to the State pursuant to
the Regalian Doctrine. In effect, since it allowed you to exercise the privilege,
the State becomes your passive partner in the accumulation or increase of
your wealth.
3. Ability to pay – Those who have more properties to transfer pay more estate
taxes. It applies the concept equity.
4. Redistribution of wealth theory – This is founded upon the principle of
reduction of social inequality. The taxes paid by rich people are programmed
for disbursement by Congress more for the benefit of the poor in terms of
social services, education, health, etc.
b) Nature, purpose, and object
Nature of estate tax
Estate tax is laid neither on the property nor on the transferor or transferee. It is
an excise tax or a tax on the privilege to transmit property to the heirs upon death
by the decedent.
TN: It is called “estate” tax because it is the estate which is primarily liable for the
payment of the tax.
Purposes of estate tax
1. To raise revenue to defray government expenses.
2. To facilitate the distribution of wealth – If there is no transfer of properties from
the deceased to the heirs, the property becomes stagnant and useless, so there
is no economic movement.
3. To prevent undue accumulation of wealth.
c) Time and transfer of properties
The estate will have to be transferred to the heirs and/or beneficiaries of the
deceased.
When a person dies, the economic value of his properties would become stagnant
if not transferred to the heirs.
d) Classification of decedent
In estate taxation, the primary liability for the burden of tax falls upon
the estate itself. For purposes of taxing the estate, the estate is classified
as to whether the decedent is:
1. Resident or Citizen
A. Resident: Resident Filipino citizen and Resident Alien
B. Citizen: Resident and Non-Resident Filipino citizen
2. Non-Resident Alien (without regard to whether engaged in trade
or business in the Philippines)
Filipino citizen or residents
If the decedent is a Filipino citizen or resident of the Philippines, then
the estate tax will be computed on all properties of the decedent, within
and without the Philippines (personal, real and intangible properties).
Non-resident Alien
Only those within the Philippines, except intangible properties subject to
the principle of reciprocity.
e) Gross estate and net estate
GROSS ESTATE
All properties and interests in properties of the decedent at the time of
his death.
Determination of the gross estate
The operative act which gives rise to liability for estate tax is the death
of the owner of the property. Thus, it follows that the ascertainment of
the gross estate starts with the inventory of properties.
Inventory – a listing of all existing properties under the name of the
deceased person at the time of death.
VALUATION OF GROSS ESTATE
Rules
1. General Rule: The properties comprising the gross estate shall be valued
based on fair market value (FMV) as of the time of death.
2. The FMV refers to those set by law or regulations issued by the BIR.
3. If no FMV is indicated in the law or in any regulation, then there will be a
computation of the FMV in accordance with the accepted accounting
principles.
4. In determining the FMV of the property, the encumbrances attached to the
property will not be considered. Only the current value shall be considered.
COMPOSITION OF DECEDENT’S GROSS ESTATE
Section 85, NIRC
1. Decedent’s interest
2. Transfers in contemplation of death
3. Revocable transfers
4. Property passing under general power of appointment
5. Transfers for insufficient consideration
6. Proceeds of life insurance
7. Prior interests
8. Capital of the surviving spouse
f) Tax credit for estate taxes paid to a foreign country
g) Exemption of certain acquisitions and transmissions
h) Filing of notice of death – repealed by TRAIN
i) Estate tax return – filing, payment, extension and installment
j) Estate Tax Amnesty – RA No. 11213 and RR No. 6-2019
