ESTATE TAX Flashcards
(118 cards)
1
Q
What is Estate Tax?
A
Estate tax is a tax imposed on the privilege that a person is given in controlling to a certain extent, the disposition of his property to take effect upon death It is an excise/privilege tax imposed on the act of passing the ownership of property at the time of death.
2
Q
When does the State have the right to tax the privilege to transmit the estate?
A
Upon death of the decedent.
3
Q
When should Estate Tax returns be filed?
A
Before TRAIN: 6 months after death
TRAIN onwards: 1 YEAR FROM DATE OF DEATH.
4
Q
Who is the taxpayer of estate tax?
A
The “ESTATE OF THE DECEDENT” as a juridical person, represented by the administrator, executor or legal heirs.
5
Q
Who has the personal obligation to file and pay the applicable estate tax?
A
Primarily liable: ADMINISTRATOR OR EXECUTOR
Secondarily liable: Any of the heirs
6
Q
What law is to be applied in determining the estate tax?
A
The laws/statute in force at the time of the date of death of decedent.
7
Q
Under MERITORIOUS CASES, filing of estate tax may be extended for a period of?
A
NOT MORE THAN 30 DAYS. It shall be filed with the RDO where the estate tax is to be paid and must be approved by the CIR or his duly authorized representative.
8
Q
What is Succession?
A
Succession is a mode of acquisition by virtue of which the property, right and obligations to the extent of the value of the inheritance, of a person are transmitted through his death to another or others either by will or by operation of law.
9
Q
What are the types of succession?
A
- Testamentary - That which results from the designation of an heir made in a will executed in the form prescribed by law.
- Legal/Intestate - That which is effected by operation of law or transmission of properties where:
a. There is no will
b. If there is a will, the same is void or has lost its
validity - Mixed - That which is effected partly by a will and by operation of law.
10
Q
What is a will?
A
Will is an act whereby the person is permitted to control to a certain degree the disposition of his estate, to take effect after his death.
11
Q
What are the kinds of will?
A
- Notarial/Ordinary/Attested - one which is executed in accordance with the formalities prescribed. It is created for the testator by a 3rd party(lawyer) and:
a. Follows proper form
b. SIGNED AND DATED IN FRONT OF 3 OR MORE WITNESSES
c. ACKNOWLEDGED BY THE PRESENCE OF A NOTARY PUBLIC - Holographic Will - is a written will which must be ENTIRELY WRITTEN, DATED AND SIGNED BY THE HAND OF THE TESTATOR HIMSELF, without the necessity of any witness.
12
Q
What is a codicil?
A
It is a supplement or addition to a will, made after the execution of a will and annexed to be taken as part thereof.
13
Q
T or F
A holographic will requires witnesses upon its execution.
A
False. Holographic will does not need formalities because many people can recognize the testator’s handwriting and can be verified by a penmanship expert.
14
Q
What are the elements of succession?
A
Succession has 3 elements:
- Decedent
- Heir
- Estate
15
Q
What are the parts of the decedent’s estate?
A
- Legitime - that which could not be disposed of freely because the law has reserved it for the COMPULSORY HEIRS
- Free portion - that part of the estate which the testator could dispose of freely through written will irrespective of his relationship to the recipient.
16
Q
What are the kinds of heirs?
A
- Compulsory heirs - inherits with or without a will
A. Primary Compulsory heirs
a. Legitimate children and descendants
b. Illegitimate children
c. Widow
B. Secondary Compulsory heirs
a. Legitimate parents and ascendants, IN DEFAULT
OF LEGITIMATE CHILDREN AND DESCENDANTS - Voluntary heirs - inherits only if they are IN THE WILL
- Intestate heirs - When there is intestate succession
17
Q
Explain the order of distribution in an intestate succession.
A
The compulsory heirs are entitled to their LEGITIME.
The FREE PORTION is distributed as follows in the order of priority):
1. Legitimate children
2. Legitimate parents
3. Illegitimate children
4. Spouse
5. Brothers or Sisters
6. Relatives by consanguinity up to the 5th civil degree
7. State
18
Q
Can a decedent disinherit an heir?
A
Yes, on certain grounds.
19
Q
Can an heir repudiate his share in an inheritance?
A
Yes.
20
Q
What is a legatee?
A
Legatee is a person whom gifts of PERSONAL PROPERTY is given by virtue of a will.
21
Q
What is a devisee?
A
Devisee is a person whom gifts of REAL PROPERTY is given by virtue of a will.
22
Q
What is the difference between and administrator and executor?
A
Administrator - appointed by the COURTS to manage the estate.
Executor - NAMED BY THE DECEDENT to carry out the provisions of the will.
23
Q
What is Gross Estate?
A
Gross Estate consists of all properties and interests in properties of the decedent at the time of his death as well as properties transferred during his lifetime(only in form), but in substance was only transferred at the time of death.
24
Q
What is meant by bequest?
A
It is the transfer of property through a last will and testament.
25
Who are prohibited by law from making a will?
1. Those below 18 years old
2. Those of unsound mind at the will's execution
26
What are the components of Gross Estate?
a. Real property and other tangible personal property
b. Decedent's interest and intangibles
c. Properties gratuitously transferred during lifetime but in substance, transferred upon death
27
What is meant by decedent's interest?
It refers to the extent of equity or ownership participation of the decedent on any property physically existing and present in the GE, whether or not in his possession, control or dominion.
28
What are the intangible properties considered located in the Philippines?
1. Franchises which must be EXERCISED IN THE PH
2. Shares, obligations, bonds issued by any corporation/sociedad organized in the PH
3. Shares, obligations, bonds issued by ANY FOREIGN CORPORATION AT LEAST EIGHTY-FIVE (85%) OF THE BUSINESS OF WHICH IS LOCATED IN THE PH
4. Shares, obligations, bonds issued by any FOREIGN CORPORATION IF SUCH has ACQUIRED A BUSINESS SITUS IN THE PH.
5. Shares or rights in partnerships/business/industry established in the PH
29
What are included in the transfers gratuitously transferred during lifetime but in substance, transferred upon death?
1. Transfers in contemplation of death
2. Transfer with retention or reservation of certain right
3. Revocable Transfer
4. Properties passing under GENERAL POWER OF APPOINTMENT
5. Transfers for insufficient consideration
6. Proceeds from life insurance
A. Whether revocable or not, the beneficiary is the
a. Estate
b. Executor or administrator
B. When the beneficiary is a 3rd person and the life
insurance is REVOCABLE ONLY.
30
What are the exemptions and exclusions from Gross Estate under Sec 85 & 86 of NIRC?
a. Capital or Exclusive property of the surviving spouse
b. Properties outside of PH of NRA decedent
c. Intangible personal property in the PH of a NRA decedent when RECIPROCITY APPLIES.
31
What are the exemptions and exclusions from Gross Estate under Sec 87 of NIRC?
A. Merger of the usufruct in the owner of the naked title
B. Transfers under the Special Power of Appointment
C. Bequests/devices/legacies/transfers to SOCIAL WELFARE/CULTURAL AND CHARITABLE INSTITUTIONS, provided that:
a. No part of the net income of said institutions shall
inure to the benefit of any individual
b. NOT MORE THAN 30% of such transfers shall be
USED FOR ADMINISTRATION PURPOSES.
32
What are the exemptions and exclusions from Gross Estate under Special Laws?
a. Proceeds of life insurance benefits received by members of the GSIS
b. Benefits received by members from SSS BY REASON OF DEATH
c. Amounts received from PH and US govt for war damages and those from WW2
d. Amounts received from US Veterans Administration
e. Retirement benefits of officials/employees of a private firm
f. Proceeds of life insurance UNDER A GROUP INSURANCE TAKEN OUT BY EMPLOYER (not taken out upon his life)
g. Transfers by way of bona fide sales
h. Transfers of property to the National Govt or any of its political subdivisions
i. Personal Equity and Retirement Account assets of the decedent-contributor.
33
Explain the valuation of Gross Estate.
In general, properties are taken at Fair market value upon the date of death.
Personal Property - Fair Market Value
Real Property - higher between
a. Fair Market Value
b. Zonal Value
Shares of stock
a. Traded in LSE
a. Price at date of death
b. Mean between the highest and lowest quotations
nearest the date of death, if above is not available
b. Not traded in LSE -
a. Common shares - Book Value using Adjusted Net
Asset Method
b. Preference shares - Par Value
34
The separate or exclusive property of the husband is referred to as?
Husband's Capital
35
The separate or exclusive property of the wife is referred to as?
Wife's Paraphernal
36
Explain the Adjusted Net Asset Method.
Under the Adjusted Net Asset Method, all assets and liabilities of the investee corporation shall be adjusted to the fair market values. Value of real property shall be the highest of:
a. Zonal Value
b. Assessed Value
c. Market Value by and independent appraiser
Assets - Liabilities = Equity
Equity / number of shares outstanding = BVPS
BVPS x number of shares owned by decedent = value of the shares.
37
What is a best way to minimize estate tax exposure?
a. Invest money in corporation
b. Donate the properties to relatives before death
c. Understate gross estate and do not pay tax
d. Invest property in life insurance and make the designation of the beneficiary as irrevocable
d. Invest property in life insurance and make the designation of the beneficiary as irrevocable
38
For the share, obligation, or bond of a foreign corporation to be considered as an intangible property located in the PH, how many percent of the foreign corporations business must be conducted in the PH?
At least 85% of the foreign corporation's business must be conducted in the PH.
39
How are stocks not traded in the LSE valued at for estate tax purposes?
Ordinary shares - at Book value using Adjusted Net Asset Method
Preference shares - at par value
40
Mr. Abdul owns 20% of the 1,000,000 outstanding shares of Boom Corporation, a closely-held corporation. Boom Corporation had a book value per share of 120 in its FS nearest to the date of Mr. Abdul. Boom Corporation had several assets which exceed their fair value by an aggregate amount of 14,000,000.
At what amount shall Mr. Abdul's investment be reflected in his gross estate?
a. 26,800,000
b. 53,600,000
c. 120,000,000
d. 268,000,000
a. 26,800,000 using the ANAM method
41
For bequests/devices/legacies/transfers to SOCIAL WELFARE/CULTURAL AND CHARITABLE INSTITUTIONS, what conditions must be present in order to exempt such transfers from the gross estate?
a. No part of the net income of said institutions shall
inure to the benefit of any individual
b. NOT MORE THAN 30% of such transfers shall be
USED FOR ADMINISTRATION PURPOSES.
42
How shall the property relationship or marriage settlement of spouses be determined?
It shall be determined by the following order of priority:
1. BASED ON AGREEMENT
a. Absolute Community of Property (ACOP)
b. Conjugal Partnership of Gains (CPOG)
c. Complete Separation
2. BY OPERATION OF LAW - in the absence of any agreement:
a. Marriages BEFORE AUG 3, 1988 - APPLY CPOG
b. Marriages ON OR AFTER AUG 3, 1988 - ACOP
3. BY CUSTOM OR TRADITION
43
Where there is no agreement as to the marriage settlement, what must be applied?
If there is no agreement:
a. Marriages BEFORE AUG 3, 1988 - APPLY CPOG
b. Marriages ON OR AFTER AUG 3, 1988 - ACOP
44
What is Conjugal Partnership of Gains?
Conjugal Partnership of Gains provides that all properties that accrue as fruit of their individual or joint labor or fruits of their properties during marriage will be common properties of the spouses.
EXCLUSIVE PROPERTIES:
a. Properties before marriage
a. Property acquired during marriage through gratuity, EXCEPT WHEN THE DONOR/TESTATOR EXPRESSLY PROVIDES THAT IT SHALL FORM PART OF THEIR COMMON PROPERTY.
c. Properties purchased with the EXCLUSIVE MONEY
d. Property for personal and exclusive use
"ALL FRUITS ARE COMMON"
45
What is Absolute Community of Property?
Absolute Community of Property provides that all present property owned by the spouses at the date of celebration of marriage shall become common properties of the spouses including future fruit of their separate or joint industry or fruits of their common properties.
EXCLUSIVE PROPERTIES:
a. Property acquired during marriage through gratuity and its fruits, EXCEPT WHEN THE DONOR/TESTATOR EXPRESSLY PROVIDES THAT IT SHALL FORM PART OF THEIR COMMON PROPERTY.
b. Property for personal and exclusive use
c. Properties brought into the marriage by either spouse with a descendant by a prior marriage
"FRUITS SHALL FOLLOW ITS SOURCE"
"JEWELRY UNDER ACOP SHALL BE CONSIDERED COMMON PROPERTY"
46
What is the treatment of donated jewelry?
AMPONGAN:
Under ACOP, if it is donated BEFORE MARRIAGE, it is considered common.
Under ACOP if it is donated DURING MARRIAGE, it is considered exclusive.
Tabag: Jewelry is COMMON PROPERTY, since ART 92 of Law on Property Relations states that: However, jewelry shall form part of the community property"
Banggawan: it is considered exclusive. Otherwise, it shall be common property.
47
Mr. Abdul bought stocks worth 2,000,000. He then married Christina under CPOG. After the marriage, he sold the stocks for 5,000,000. How shall the proceeds of 5,000,000 be treated?
The 2,000,000 shall be considered exclusive property of Mr. Abdul.
The 3,000,000 gain shall be considered fruits, and therefore is part of the common property.
48
Mr. and Mrs. Abdul are both government employees. Mrs. Abdul died during the marriage. Before her death she received a GSIS benefit lump sum amounting to 1,000,000. 200,000 of this was expended before her death and the excess was invested in a property which now has a value of 900,000. The spouses have 4,000,000 in common properties. Mr. and Mrs. Abdul also have 1,800,000 and 2,400,000 in separate properties. What is Mrs. Abdul's Gross Estate?
Investment
Original SSS benefit 800,000
Income investment 100,000
Investment Value = 900,000
Other Common 4,000,000
Total Common = 4,900,000
Less exempt - (800,000)
Taxable Common = 4,100,000
Exclusive Mrs. Abdul 2,400,000
Gross Estate of Mrs. Abdul = 6,300,000
49
T or F
Marriages celebrated after August 3, 1988 are conclusively presumed to be under the ACOP.
False, it is prima facie presumption.
50
T or F
In taking inventory, properties are generally presumed common unless proven as exclusive of either spouse.
True.
51
T or F
The proceeds of a separate property sold during the marriage can become a conjugal property.
False. Only the gain thereon can be conjugal property.
52
T or F
Jewelry is generally considered community property.
True.
53
T or F
Jewelry inherited during the marriage is exclusive property.
True.
54
The sale of a conjugal property may produce a separate property and a conjugal property.
True. The cost is separate property while the gain is conjugal property.
55
Explain the tax treatment wherein one of the spouses has properties acquired before marriage with descendants in a prior marriage.
This is an EXCEPTION TO RETROSPECTIVITY OF ABSOLUTE COMMUNITY OF PROERTY.
ACOP does not retroact if there are affected descendants in a prior marriage.
PROPERTIES ACCUMULATED BEFORE THE MARRIAGE BY A SPOUSE WITH DESCENDANTS FROM A PRIOR MARRIAGE ARE RESERVED BY LAW AS SEPARATE PROPERTIES to protect the interest of descendants which could be prejudiced by the new marriage.
Again, fruits follow the source under ACOP.
See p438 of Banggawan
56
T or F
The properties of a spouse with a descendant from a prior marriage are communal properties.
False, it depends upon the time the properties accrued.
57
T or F
Under ACOP, jewelry acquired from income of separate property is an exclusive property.
True.
58
What are allowable deductions in estate tax?
These are deductions which the laws on estate tax allows, to be subtracted from the value of the gross estate to arrive at the net taxable estate. The rationale behind this is that there are charges which naturally diminish the amount of the inheritance of the heirs.
CLASSIFICATION OF DEDUCTIONS:
A. Ordinary Deductions
B. Special Deductions
C. Share of the Surviving Spouse
59
What are the general principles of estate tax deductions?
A. SUBSTANTIATION RULE - all items of deductions must be supported with documentary evidence such as receipts, contracts, invoices, and other proof as necessary.
B. MATCHING PRINCIPLE - an item of deduction must be part of the gross estate to be deductible therefrom.
C. NO DOUBLE CLASSIFICATION RULE - an item of deduction cannot be claimed under several deduction classifications. ONLY ONE CLASSIFICATION IS ALLOWABLE.
D. DEFAULT PRESUMPTION ON ORDINARY DEDUCTION - In the case of married decedents, ordinary deductions are presumed to be against the common properties, unless proven to be exclusive. PROPERTIES ARE COMMON UNLESS PROVEN TO BE EXCLUSIVE.
60
In the case of married decedents:
A. PROPERTIES ARE PRESUMED COMMON UNLESS PROVEN TO BE EXCLUSIVE
B. PROPERTIES ARE PRESUMED EXCLUSIVE UNLESS PROVEN TO BE COMMON
Which statement is correct?
A. PROPERTIES ARE PRESUMED COMMON UNLESS PROVEN TO BE EXCLUSIVE
61
What are the Ordinary Deductions in Estate Tax?
ELITMTVCA
a. Expenses - REPEALED UNDER TRAIN
b. Losses
c. Indebtedness
d. Taxes unpaid
e. Mortgages unpaid
f. Transfers for Public Use
g. Vanishing Deductions
h. Claims against insolvent persons
i. Accommodation loans
62
What are the expenses under ordinary deductions of estate tax?
Expenses under TRAIN LAW IS ALREADY REPEALED
1. Expenses - LOWEST BETWEEN
A. 200,000
B. ACTUAL EXPENSE
C. 5% OF GROSS ESTATE
Requirements:
a. must be incurred from date of death to interment
b. must be shouldered by the estate
c. not exceed the limit
2. Judicial Expenses - the following are deductible:
EXPENSES IN CONNECTION WITH
a. Inventory-taking of assets
b. administration
c. payment of debts of the estate
d. distribution of the estate among the heirs
Requirements:
a. Must be incurred during the settlement of the estate, but NOT BEYOND 6 MONTHS
b. Must be essential for the collection of assets, payments of debts, or distribution of the estate
63
Explain Losses under the Ordinary Deductions of Estate Tax.
These pertain to losses of properties of the estate during the settlement of the estate. LOSSES ARE DEDUCTIBLE ONLY IF THEY OCCURRED DURING THE SETTLEMENT OF THE ESTATE BEFORE DEADLINE OF FILING THE ESTATE TAX RETURN WHICH IS:
a. Pre TRAIN - WITHIN 6 MONTHS AFTER DEATH
b. TRAIN - WITHIN 1 YEAR AFTER DEATH
The amount deductible is the value of the property lost
Losses MUST NOT BE COMPENSATED BY INSURANCE
Losses MUST NOT BE CLAIMED AS DEDUCTION FOR INCOME TAX PURPOSES
64
Explain Indebtedness under the Ordinary Deductions of Estate Tax.
Indebtedness or Claims against the Estate has the following requisites:
a. Must be personal debts existing at the time of death
b. Contracted in good faith
c. Must be VALID IN LAW AND ENFORCEABLE IN COURT
d. Must not have been condoned by the creditors
e. Must NOT HAVE PRESCRIBED.
65
Explain the Substantiation Requirements for simple LOANS/ADVANCES, and PURCHASE OF GOODS/SERVICES.
A "DULY NOTARIZED CERTIFICATION" from the creditor as to the unpaid balance of the debt including interest as the date of death is needed to claim as deductible the indebtedness. This sworn certification must be signed by:
If creditor is a :
CORPORATION - signed by President, VP, or other principal officer of the corporation
PARTNERSHIP - any of the general partners
BANK/FINANCIAL INSTITUTION - Branch manager which monitors and manages the loan of the decedent/debtor
IF SAID LOAN IS CONTRACTED WITHIN 3 YEARS PRIOR TO DEATH OF DECEDENT:
A "STATEMENT UNDER OATH" executed by the administrator or executor of the estate reflecting the disposition of the proceeds of the loan.
66
Explain Taxes Unpaid under Ordinary Deductions under Estate Tax.
Unpaid taxes must have accrued before the death of the decedent, BUT NOT INCLUDING:
a. Income tax upon income received AFTER DEATH
b. Property tax not accrued before death
c. Estate tax from transmission of estate
67
Explain Mortgages Unpaid under Ordinary Deductions under Estate Tax.
This includes mortgages upon, or any indebtedness with respect to property where the value of the decedent's interest therein, undiminished by such mortgage or indebtedness, IS INCLUDED IN GROSS ESTATE. It must be contracted in good faith and for an adequate and full consideration.
68
Explain Transfers for Public Use under Ordinary Deductions under Estate Tax.
Transfers for Public Use includes the amount of all bequests, legacies, devises, or transfer to or for the use of GOVERNMENT OF THE PHILIPPINES (national or local)
IT MUST BE TESTAMENTARY IN CHARACTER (indicated in the decedent's last will and testament) OR
By way of donation mortis causa executed by the decedent before his death.
The transfer must be EXCLUSIVELY FOR PUBLIC PURPOSE.
TRANSFERS TO GOCCs ARE SITUATIONAL SINCE SOME GOCCs ARE COMMERCIAL IN NATURE AND ARE NOT FOR PUBLIC PURPOSE.
69
Explain Vanishing Deductions under Ordinary Deductions under Estate Tax.
Vanishing Deduction is a deduction that lessens the impact of successive transfer taxation. It has the following requisites:
a. The decedent DIED WITHIN 5 YEARS FROM RECEIPT OF THE PROPERTY FROM A PRIOR DECEDENT OR DONOR
b. The property is LOCATED IN PHILIPPINES
c. The property must be part of the taxable estate
d. No vanishing deduction was allowable to the estate of the prior decedent.
FORMULA:
Value to take (lower between FMV XXX
at time of death vs FMV at time of
inheritance)
LESS: Mortgage assumed and paid by
present decedent (XXX)
on mortgaged assumed
-------
Initial basis(IB) XXX
LESS: Proportional Deduction
(IB/GE)x(ELITMT) (XXX)
--------
Final Basis XXX
Appropriate Rate x%
```
Appropriate Rate is as follows:
Within 1 year - 100%
1-2 years - 80%
2-3 years - 60%
3-4 years - 40%
4-5 years - 20%
```
70
Explain Claims against insolvent persons under Ordinary Deductions under Estate Tax.
Claims against insolvent persons is a form of loss but is presented as a separate item of deduction in the tax return. The deductible amount of claim against insolvent persons is the UNRECOVERABLE AMOUNT OF THE CLAIM.
71
Explain Accommodation Loan under Ordinary Deductions under Estate Tax.
An accommodation loan is one contracted by a person in behalf of another person with the contracting person merely representing in behalf of the other person who will be the beneficiary of the loan proceeds.
Accommodation loan are presented as a receivable in the GE and is presented as a deduction.
72
Explain the Special Deductions in Estate Taxation.
The following are special deductions under estate taxation:
1. Standard deduction
Pre TRAIN - 1,000,000
TRAIN - 5,000,000 for residents and citizens
- 500,000 for NRAs
2. Family Home Allowance - Requisites include:
a. Decedent is the head of the family
b. Must be ACTUAL RESIDENTIAL HOME of the family
c. Located in PH
d. Value of family home is included in the GE
Amount deductible is the LOWER BETWEEN THE ACTUAL VALUE OF THE HOME AND LIMIT.
Limit Pre TRAIN - 1,000,000
TRAIN - 10,000,000
3. Medical Expenses - REPEALED UNDER TRAIN
a. Must be incurred 1 year prior to death, whether paid or unpaid
b. duly substantiated
c. NOT EXCEEDING 500,000
4. Amounts received by heirs under RA 4917
a. must have been included in the GE
b. must have been received by the heirs from the decedent's employer as a CONSEQUENCE OF DEATH OF THE DECEDENT-EMPLOYEE
73
What is the situs of bank deposits?
The situs of bank deposits is where the depositary bank is located (regardless of whether the bank is foreign or domestic)
74
Differentiate General Power of Appointment and Special Power of Appointment.
General Power of Appointment - decedent was chosen to transfer to ANYONE the property inherited by him. Technically, the donee of the general power of appointment becomes owner of the property and is therefore part of his gross estate.
Special Power of Appointment - decedent was chosen to transfer the property from a designated class or group of persons other than himself.
75
What is the treatment of a life insurance policy in case the designation is not clear or is silent?
The treatment is revocable, according to Philippine Insurance Commission, since "the insured should have the right to change the beneficiary he designated in the policy, unless he has expressly waived this right in said policy.
Therefore, if the policy is silent, IT IS PART OF THE GROSS ESTATE
76
T or F
Modifications or amendments in the marriage settlements may only be allowed after the celebration of the marriage.
False. Amendments shall be made PRIOR TO THE MARRIAGE.
77
Mohammed, the father of Mr. Abdul, donated a piece of land to Mr. and Mrs. Abdul during their marriage, stating that the land shall form part of their common property. What is the treatment of this donation when:
1. ACOP?
2. CPOG?
ACOP - Generally, donations during marriage are exclusive property, HOWEVER, in cases when the donor expressly provides that it shall form part of their community property, then it will be community property.
CPOG - It is the EXCLUSIVE property of Mr. Abdul, even if Mohammed stated that it shall form part of their common property.
78
Is mortgage included in computing the proportional deduction in vanishing deductions?
Yes, but only the UNPAID PORTION that was ASSUMED by the donee-decedent.
79
Are claims against persons who absconded deductible from gross estate?
No.
80
What deductions are available to Nonresident aliens?
Nonresident aliens can claim the following deductions:
A. Prorated Ordinary deductions (ELITM) for those in the PH only. (PH GE/World GE) x ELITM
B. Transfers for Public Use full amount (separate from A above)
C. Vanishing Deduction based on prorated ELITM
D. Special Deductions
a. Standard deduction of 500,000 under TRAIN
E. Share of the Surviving Spouse
81
Can a NRA claim family home allowance as a special deduction?
No.
82
Can a NRA claim benefits under RA 4917 as a special deduction?
No.
83
Explain the tax credit for estate tax paid to a foreign country.
Tax credit can be claimed for estate taxes paid to a foreign country. It is subject to the following rules:
a. Only resident or citizens can claim tax credit
b. Amount deductible is the LOWER BETWEEN:
A. ACTUAL ESTATE TAX PAID
B. LIMIT
The LIMIT depends on how many countries are involved. Its formula is:
A. ONLY 1 FOREIGN COUNTRY INVOLVED
(Net estate foreign / Net estate world) x PH estate tax
B. 2 OR MORE FOREIGN COUNTRIES INVOLVED - the limit is the lower between LIMIT 1 and LIMIT 2:
```
Limit 1 (PER FOREIGN COUNTRY)
(Net estate PER foreign / Net estate world) x PH estate tax
```
```
Limit 2(Total of ALL foreign countries involved)
(Net estate ALL foreign / Net estate world) x PH estate tax
```
84
Can a NRA claim tax credits for estate tax paid abroad?
No.
85
Explain the Notice of Death as a compliance requirement under Estate Taxation.
Notice of death -REPEALED UNDER TRAIN LAW
Pre-TRAIN
Notice of Death is required:
a. In all cases of transfer subject to estate tax
b. The value of the Gross estate exceeds 20,000
It shall be filed by the executor/administrator OR any of the legal heirs.
It shall be filed:
a. Within 2 months after the decedent's death OR
b. Within 2 months after the executor or administrator has qualified.
86
When is an estate tax return required?
A. In all cases subject to estate tax
B. Regardless of the amount of the gross estate, where it CONSISTS OF REGISTERED OR REGISTRABLE PROPERTY such as real property, motor vehicles, stocks and other such properties for which a "CERTIFICATE AUTHORIZING REGISTRATION" from the BIR is required as a condition precedent for the transfer of ownership thereof in the name of the transferee, administrator/executor, or any of the legal heirs, as the case may be, SHALL FILE A RETURN UNDER OATH.
87
When is a CPA certification required in estate tax returns?
A CPA certification is required if the Gross estate EXCEEDS:
Pre-TRAIN - 2,000,000
TRAIN - 5,000,000
88
What are the contents of the CPA certification?
It shall contain certifications as to the:
A. Itemized composition of the Gross Estate
B. Itemized Allowable deductions claimed
C. The estate tax due whether paid or outstanding
89
Who shall file the Estate tax return?
a. Administrator/Executor - PRIMARY
b. Any of the legal heirs - SECONDARY
90
When are Estate tax returns filed?
Pre-TRAIN - within 6 months after death
Post-TRAIN - Within 1 year after death
91
Can the period of filing of estate tax returns be extended? What process is done in the extension?
Filing of estate tax return CAN BE EXTENDED UNDER MERITORIOUS CASES.
The COMMISSIONER OR HIS DULY AUTHORIZED REPRESENTATIVE shall have the authority to grant in such meritorious cases a REASONABLE EXTENSION NOT EXCEEDING 30 DAYS.
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Where is Estate tax return filed?
For resident decedents:
a. Authorized agent bank
b. Revenue district officer
c. Collection officer
d. Duly authorized Treasurer of the city or municipality in which the decedent was domiciled at the time of his death
For non-resident decedents
a. Revenue district office where the executor / administrator is registered
b. Revenue District Office having jurisdiction over the executor or administrator's legal residence
c. Office of the BIR Commissioner if the estate does not have an executor or administrator in the PH.
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When should Estate tax be paid?
Estate tax shall be paid at the time the return is filed. (PAY AS YOU FILE)
94
Can the payment of estate tax be extended? Explain the process of extension.
Yes. When the Commissioner finds that the payment of the estate tax or of any part thereof would impose undue hardship upon the estate or any of the heirs, he may extend the payment as follows:
a. EXTRA-JUDICIAL SETTLEMENT - 2 YEARS
b. JUDICIAL SETTLEMENT - 5 YEARS
The application for extension shall be filed with the Revenue District Officer, and such shall be approved by the CIR or his duly authorized representative.
When such extension is granted, the CIR MAY REQUIRE the executor/administrator or beneficiary to FURNISH A BOND NOT EXCEEDING DOUBLE THE AMOUNT OF THE TAX and with such sureties as the Commissioner deems necessary, conditioned upon the payment of the said tax in accordance with the terms of the extension.
95
What are the instances wherein the CIR or his duly authorized representative, will deny the request for extension of payment of estate tax?
Where the request for extension is by reason of:
a. negligence
b. intentional disregard of rules and regulations
c. fraud
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What options are available when the estate has insufficient cash for the payment of estate tax?
1. Cash installment
2. Partial disposition of the estate and application of its proceeds to the estate tax due
97
Explain the Cash installment option in payment of estate tax.
1. The cash installments shall be made within 2 years from the date of the filing of the estate tax return
2. Frequency deadline and the amount of each installment shall be indicated in the estate tax return, subject to approval by BIR
3. In case of lapse of 2 years, the whole tax shall become due and demandable, subject to applicable penalties and interest
4. No civil penalties or interest may be imposed on the estates permitted to pay the estate tax due by installment.
98
Explain the partial disposition of estate and the application of its proceeds to the estate tax due.
1. The disposition shall refer to the CONVEYANCE OF PROPERTY, with the equivalent cash consideration
2. The written request for the partial disposition of estate shall be filed together with a notarized undertaking that the proceeds thereof shall be EXCLUSIVELY USED for the payment of the total estate tax due.
3. The computed estate tax due shall be allocated in proportion to the value of each property
4. An electronic CERTIFICATE AUTHORIZING REGISTRATION shall be issued upon presentation of the proof of payment of the proportionate estate tax due
5. In case of failure to pay the total estate tax due out from the proceeds of the said disposition, the estate tax due shall be immediately due and demandable subject to the applicable penalties and interest.
99
When can the distributive share be authorized and delivered to the intended party?
A distributive share can only be delivered when the executor or administrator has been authorized by a judge. This authorization REQUIRES A CERTIFICATION FROM BIR STATING THAT THE ESTATE TAX HAS BEEN PAID.
100
What is required when a share, obligation or bond is donated to a corporation/sociedad anonima, partnership or business?
An Electronic Certificate Authorizing Registration is needed to transfer, which shall be issued by the Commissioner or his duly authorized representative.
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In cases of donation mortis causa of real properties, what is required when registering with the Registry of Deeds?
To register real properties received by way of donation mortis causa, a certification from the BIR of payment of estate tax is needed to register said property in the Registry of Deeds.
102
Explain the duty of banks that has knowledge of death of a person who maintained a joint account.
Under TRAIN law, if the bank has knowledge of the death of a person who maintained a bank account alone or jointly with another, it shall ALLOW ANY WITHDRAWAL from said account, subject to a final withholding tax of 6% IF IT WAS WITHDRAWN PRIOR TO THE FILING OF AN ESTATE TAX RETURN. There must also be a SUBMISSION OF PERTINENT DOCUMENTS TO THE BANK.
THE AMOUNT WITHDRAWN SHALL NOT BE INCLUDED ANYMORE IN THE GROSS ESTATE.
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Are prescribed payable/receivable deductible/added from/to the Gross Estate?
No, since it already prescribed, there is no more right to collect/pay.
104
Explain the surcharges and interest that may accrue when paying estate taxes.
If the estate tax return was filed and/or paid after the due date, surcharges and interest on the internal revenue tax will be imposed as follows:
A. SURCHARGES
50% - false or fraudulent return is willfully filed
- willful neglect to file return on time
25% - failure to file any return and pay tax due thereon
- return is not filed with proper internal revenue
officer
- failure to pay on time any deficiency as shown in
the notice of assessment
B. INTEREST - 12% PER ANNUM computed from the date prescribed for payment until amount is fully paid.
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Who shall file the return when there is no executor, administrator appointed, or heir or anyone qualified in the Philippines?
Any person in actual or constructive possession of any property of the decedent.
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Differentiate the extension granted when filing ang paying estate tax.
Extension for FILING of estate tax return - NOT MORE THAN 30 DAYS UNDER MERITORIOUS CASES.
Extension for PAYMENT of estate tax - When the Commissioner finds that the payment of the estate tax or of any part thereof would impose undue hardship upon the estate or any of the heirs, he may extend the payment as follows:
a. EXTRA-JUDICIAL SETTLEMENT - 2 YEARS
b. JUDICIAL SETTLEMENT - 5 YEARS
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T or F
A general power of appointment makes the donee of the power the owner of the property.
True.
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T or F
For claims against insolvent persons, it could be that the amount included in gross estate is less than the full and actual amount owed.
False, it would result to lower estate tax and therefore the full amount must be included.
109
Can a NRA claim his family home as a special deduction?
No. Refer to allowable deductions to NRA on card 80.
110
When the decedent and his/her partner are not married, but are co-habiting with one another, what property relation occurs? What is the treatment for estate tax purposes?
There is no property relation, since they are not LEGALLY MARRIED. Cohabitation shall be governed by the rules on co-ownership.
THERE IS NO SHARE OF SURVIVING SPOUSE, NOR CONJUGAL OR COMMON PROPERTIES SINCE THERE IS NO PROPERTY REGIME.
Their salaries and wages shall be owned by them in equal shares.
In absence of proof to the contrary, properties acquired by them shall be presumed to have been obtained by their joint efforts and therefore shall be owned by them in EQUAL SHARES.
111
Explain how zonal value and assessor's value are determined.
Zonal Value is given by the BIR in their website.
Assessor's Value can be seen in the tax declaration OR:
a. Municipality - PROVINCIAL ASSESSOR
b. City - CITY ASSESSOR
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Abdul died on a Jan 16, 2021, a Saturday . He had stocks listed in the LSE at the time of his death. The LSE is closed on weekends and holidays. For purposes of computing the valuation of his shares, the following are given:
a. Jan 15 Friday - Highest - 101.25, lowest - 98.5
b. Jan 18 Monday - Highest 104.4, lowest - 97.4
c. Valuation according to market analysts on Jan 16 - 100.1.
How shall Abdul's shares be valued?
The shares shall be valued based on the average price of the highest and lowest price NEAREST THE DATE OF DEATH.
The closest date to date of death is the day prior, Jan 15, therefore the valuation shall be the average of the highest and lowest on that day. (99.875)
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What are the requisites for deductibility of transfers for public purpose?
1. Must be EMBODIED IN A WILL
2. Must be donated to the national government or political subdivisions
3. Exclusively for public purpose
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What are the requisites for the deductibility of family home?
1. The family home must be situated in the Philippines
2. Beneficiaries of family home are the spouses, ascendants and descendants who are living in the family home.
3. The decedent is being depended upon as the head of the family for support.
115
Abdul and his family relocated to Australia for work. They bought a house and lot, where he and his family resided. 5 years later Abdul died, leaving behind his properties in the Philippines and Australia. The family home is worth PHP 10 million Is the family home deductible?
No. The family home must be situated in the Philippines.
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T or F
Claims against the estate that are NOT NOTARIZED are also deductible from the gross estate.
FALSE. CLAIMS AGAINST THE ESTATE THAT ARE NOT NOTARIZED ARE NON-DEDUCTIBLE.
117
What happens when property is bought in installments paid partly from exclusive and partly from conjugal funds?
Treatment shall depend on whether ownership is vested BEFORE OR AFTER THE MARRIAGE.
1. OWNERSHIP VESTED BEFORE MARRIAGE - EXCLUSIVE PROPERTY OF THE BUYERE, SHARE IN THE CONJUGAL PROPERTY SHALL BE REIMBURSED
2. OWNERSHIP VESTED AFTER MARRIAGE - OWNED BY CONJUGAL PARTNERSHIP - -SHARE OF SPOUSE SHALL BE REIMBURSED.
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When is a conjugal partnership regime considered dissolved?
1. Upon death of either spouse
2. When there is a decree of legal separation
3. When the marriage is annulled or declared void
4. In case of judicial separation of property during the marriage.
