ESTATE TAXATION

Compilation of Digested Cases

1. Lorenzo v. Posadas, 64 Phil. 353, June 18, 1937
FACTS:
On May 27, 1992, Thomas Hanley died leaving a will and considerable amount of real and personal
properties. Under the will, the real properties were to pass to Thomas nephew Matthew ten years after
the two executors named in the will was appointed trustee. During petitioner Lorenzos incumbency as
trustee, the defendant Collector of Internal Revenue assessed against the estate an inheritance tax in the
amount of P1,434.24 which, together with the penalties for delinquency in payment, amounted to
P2,052.74. Lorenzo paid the said amount under protest, notifying defendant Posadas that unless the
amount was promptly refunded suit would be brought for its recovery. Posadas overruled Lorenzos
protest and refused to refund the said amount. Lorenzo went to the CFI but the latter dismissed his
complaint and Posadas counterclaim.
ISSUE:
When does the inheritance tax accrue and when must it be satisfied?
HELD:
The accrual of the inheritance tax is distinct from the obligation to pay the same. Section 1536 as
amended, of the Administrative Code, imposes the tax upon "every transmission by virtue of inheritance,
devise, bequest, gift mortis causa, or advance in anticipation of inheritance, devise, or bequest." The tax
therefore is upon transmission or the transfer or devolution of property of a decedent, made effective by
his death.
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 the date. The time for the payment on inheritance tax is clearly fixed by section
1544 of the Revised Administrative Code as amended by Act No. 3031, in relation to section 1543 of the
same Code. The two sections follow:
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 in favor of another beneficiary,
in accordance with the desire of the predecessor.
SEC. 1544. When tax to be paid. The tax fixed in this article shall be paid:

(a) In the second and third cases of the next preceding section, before entrance into
possession of the property.
(b) In other cases, within the six months subsequent to the death of the predecessor; but
if 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 instant case does fall under subsection (a), but under subsection (b), of section 1544 above-quoted,
as there is here no fiduciary heirs, first heirs, legatee or donee. Under the subsection, the tax should have
been paid before the delivery of the properties in question to P. J. M. Moore as trustee on March 10,
1924.
2. Beam v. Yatco, 82 Phil. 30, October 29, 1948
FACTS:
On April 26, 1937, plaintiffs, together with Syrena McKee and Rose T. McKee, both sister of Lydia Mckee
Beam, paid respectively the amounts assessed and demanded by the defendant Collector of Internal
Revenue Yatco, aggregating P343, 698.72, under protest that was overruled by the collector on May 11,
1937. On Lydia McKees death in the State of California on October 8, 1934, she left a last will and
testament, which was admitted to probate in the superior court of the State of California for the County
of Almeda. The RTC dismissed the complaint. On their appeal, they allege that there was no issue as to
whether or not said A. W. Beam changed his residence and domicile in 1923 from the Philippines to
California and, therefore, the lower court erred in finding that appellant became a resident and citizen of
California in 1923.
ISSUE:
Whether or not A. W. Beam and his wife Lydia became residents and citizens of California in 1923.
HELD:
Yes. Upon the pleadings and the evidence, the lower court did not err in finding that A. W. Beam and wife
became residents and citizens of California in 1923. The finding of the lower court is fully supported by
the testimonies of A. W. Beam and John W. Haussermann, wherein the first stated that in 1923 he bought
a house in Oakland, California, and used it as a residence until December 1930.
The allegations necessarily include by implication the allegation of California citizenship so that the
California law may be invoked as the personal law of the deceased applicable to her personal property in
the Philippines in accordance with Article 10 of the Civil Code. That under the Inheritance Tax Law, the
defendant demanded and collected from the plaintiffs the sum of P343,698.72 alleged in the complaint,
which had been assessed on the amount of P4,050,272.46, value of the estate of said Lydia McKee,
located and having business situs in the Philippines, and transmitted to the plaintiffs by virtue of
inheritance. Because the plaintiffs failed to establish their right to recover based on their alleged Utah
citizenship, the dismissal of the complaint is fully justified, and the defendant is entitled to take advantage
of the plaintiff's failure to present sufficient proof and of the evidence adduced by the appellee.

3. Alejandro vs. Geraldez, 78 SCRA 245, August 18, 1977

FACTS:
On January 20, 1949, Spouses Gavino Diaz and Severa Mendoza executed a Deed of Donation in favor of
their children, Olimpia, Angel and Andrea Diaz. The donees manifested their acceptance in the same deed
of donation. On May 12, 1970 Andrea Diaz sued her brother, Angel Diaz for the partition of Lots Nos.
2377-A and 2502. Teodorico Alejandro, the surviving spouse of Olimpia Diaz, and their children
intervened in the said case. They claimed one-third of Lot No. 2502. The Alejandros claimed that the 1949
donation was a void mortis causa disposition. The trial court held that the said deed of donation was a
donation mortis causa because the ownership of the properties donated did not pass to the donees
during the donors' lifetime but was transmitted to the donees only "upon the death of the donors". It
further sustained the division of Lot No. 2502 into two equal parts between Angel Diaz and Andrea Diaz
on the theory that the said deed of donation was effective as an extra-judicial partition among the
parents and their children. Andrea appealed to the SC contending that it is a donation inter vivos.
Alejandro also appealed stating that it is a donation mortis causa.
ISSUE:
Whether or not the donation is a donation inter vivos or mortis causa.
HELD:
The donation is a donation inter vivos because it took effect during the lifetime of the donors as provided
in Art. 729 of the Civil Code. It was already effective during the donors' lifetime, or immediately after the
execution of the deed, as shown by the granting, habendum and warranty clause of the deed. The
acceptance clause is another indication that the donation is inter vivos. Donations mortis causa, being in
the form of a will, are never accepted by the donees during the donors' lifetime. Acceptance is a
requirement for donations inter vivos. The limited right to dispose of the donated lots, which the deed
gives to the donees, implies that ownership had passed to them by means of' the donation and that,
therefore, the donation was already effective during the donors' lifetime. That is a characteristic of a
donation inter vivos.

4. Zapanta vs. Posadas, 52 Phil. 557, December 29, 1928

FACTS:
Father Braulio Pineda instituted his sister Irene Pineda as the his sole heiress. During his lifetime, he
donated some of his property to the six plaintiffs in this case with the condition to pay him a certain
amount of rice, and others of money every year, and with the express provision that failure to fulfill this
condition would revoke the donations ipso facto. These plaintiffs, relatives of Fr. Pineda, filed an action
against the Collector of Internal Revenue as they were made to pay inheritance taxes on the properties
donated to them. They paid under protest and claimed that the donation was inter vivos, thus not subject
to inheritance tax.

ISSUE:
Whether or not the deeds of donation executed by Fr. Pineda was inter vivos.
RULING:
The Supreme Court ruled in the affirmative.
The court took notice of the fact that the nature of the deeds of donation executed by Fr. Pineda were
subject to certain conditions which were irrevocable. The fact that these donations are revocable, give
them the character of donations mortis causa, inasmuch as the revocation is not the failure to fulfill the
condition imposed. In relation to the donor's will alone, these donations are irrevocable. Furthermore,
the donation was given effect through the acceptance of the donees during the lifetime of Fr. Pineda. The
death of Fr. Pineda merely fixed the term within which the condition must be fulfilled. Thus, since the
deeds of donation were inter vivos, the property donated to the plaintiffs should not be subject to
inheritance tax, which is only applied to donations mortis causa.
5. Bonsato vs. CA, 95 Phil. 481, July 30, 1954
FACTS:
Domingo Bonsato purportedly executed two deeds of donation in favor of his brother, Juan Bonsate, and
his nephew, Felipe Bonsato. Juan and Felipe claimed that it was voluntarily executed by Domingo in
consideration of past services they rendered to him. The respondents filed a complaint for the annulment
of the deeds claiming that Domingo was induced and deceived to sign them. They further argued that the
donations were mortis causa. Thus, they are void for lack of the requisite formalities.
ISSUE:
Whether or not the deeds of donation executed by Domingo Bonsato were valid.
RULING:
The Supreme Court ruled in the affirmative.
The Court enumerated the characteristics of a donation mortis causa: that it conveys no title or
ownership to the transferee before the death of the transferor; that before his death, the transfer should
be revocable by the transferor at will; and that the transfer should be void if the transferor survives the
transferee. The court found that none of these characteristics were discernible in the deeds of donation.
Most significant here was the absence of stipulation that the donor could revoke the donations; on the
contrary, the deeds expressly declare them to be "irrevocable", a quality absolutely incompatible with the
idea of conveyances mortis causa where revocability is of the essence of the act. Therefore, since the
deeds of donation were inter vivos and that the solemnities required by law was met, they are considered
valid. Nonetheless, the donations could not affect the half interest inherited by the respondents Josefa
Utea, et al. from the predeceased wife of the donor.

6. Johannes vs. Imperial, 43 Phil 597, June 30, 1922

FACTS:
B.E. Johannes is the husband of Carmen Theodora Johannes, deceased. At the time of the latters death,
Carmen and B.E. were both citizens of Great Britain, domiciled in Singapore, Straits Settlements. Alfred
DAlmeida, Carmens brother, was appointed as the ancillary administrator of her estate in Manila, which
is a sum of money deposited in a bank. B.E. went to Manila and established his temporary residence at
The Manila Hotel. He filed a petition for the annulment of the appointment of DAlmeida as ancillary
administrator of the said estate. He further prayed that he be put in DAlmeidas stead. Judge Carlos
Imperial denied the said petition. He argued that the petition does not state sufficient facts, that the
court had jurisdiction to appoint DAlmeida as ancillary administrator, and that the appointment is not
subject to review in this court.
ISSUE:
Whether or not Alfred DAlmeida should be removed and B.E. Johannes substituted as ancillary
administrator.
RULING:
The Supreme Court ruled in the negative.
The court emphasized that there is a marked distinction between the authority of the court to appoint
and the authority to remove an administrator after he is appointed. The court explained that ancillary
administration is proper when a person dies, leaving in a country other than that of his last domicile,
property to be administered in the nature of assets of the decedent, liable for his individual debts or to be
distributed among his heirs. While it is true that preference is usually given to the surviving spouse, the
appointment of the ancillary administrator is still one of more or less legal discretion. Moreover, at the
time of the appointment, the court had primary and original jurisdiction, and no objections were made.
Therefore, the appointment of DAlmeida was proper. However, the question as to who should have been
appointed ancillary administrator, if presented at the proper time and proper way is not before the
Supreme Court.
The court further discussed that the administration of the estate itself is matter of form only and should
be very simple and inexpensive. It is the duty of the court to protect it from any illegal, unjust, or
unreasonable charges. All claims against the estate should be for just debts only, or for the actual
expenses of administration, and those should be reasonable. No other claims should be allowed. The
expenses incurred in resolving the question as to who the proper ancillary administrator must be borne
by both parties and should not be claimed against the estate.
7. Collector v. Lara, 102 Phil 813, January 6, 1958
FACTS:
- Hugo H. Miller was an American Citizen born in Santa Cruz, California, in 1883.

-He came to the Philippines in 1905 and continued his stay here up to 1944 where he was reportedly
executed by the Japanese forces in Leyte (he worked in the public school system from 1906-1917 and then
in a book publishing company up to 1941)
-He never lived in any residential house for the entirety of his stay.
- During the probate proceedings in the Superior Court of California, it was ruled that Miller was a
resident of Santa Cruz, California.
-The Bank of America, National Trust and Savings Association of San Francisco, California (co-executor)
filed an estate and inheritance tax return with the Collector of Internal Revenue, covering only the shares
of stock issued by Philippine corporations.
- Collector assessed estate and inheritance taxes which was protested by De Lara, ancillary administrator
of the estate of Miller.rtu1aw library
ISSUE:
Whether or not the estate and inheritance taxes to be paid by a non-resident of the Philippines cover only
the shares of stock issued by Philippine Corporations
HELD:
- Supreme Court affirmed the decision of the Court of Tax Appeals.
- For estate and inheritance tax purposes, the term residence is synonymous with the term domicile.
The two terms may be used interchangeably without distinction.
- At the time of his death, Miller had his residence or domicile in Sta. Cruz, California.
-He never acquired a house for residential purposes for he stayed at the Manila Hotel and later on
at the Army and Navy Club.
-Except for occasional visits, his wife never stayed in the Philippines.
-Bulk of his properties were in the US.
-He took out a property insurance policy, the addressed he indicated was the address in California.
- The decedent, being a non-resident of the Philippines, the only properties of his estate subject to estate
and inheritance taxes are those shares of stock issued by Philippine Corporations.
- (On the issue of exemption due to multiple taxation) Considering, however, the state of California, of
which he was a resident, as a foreign country in relation to Section 122 of the NIRC, the decedent is
entitled to exemption from the inheritance tax on the intangible personal property found in the
Philippines. The exemption granted to non-residents under the provision of multiple taxation, which
otherwise would subject a decedents intangible property to the inheritance tax, both in his place of
residence and domicile and the place where those properties are found.

8. Velilla v. Posadas, 62 Phil 624, December 19, 1935

FACTS:
- Arthur Graydon Moody, American Citizen, died in Calcutta, India on February 18, 1931.
-He left a will (executed in the Philippines) bequeathing all of his property (mainly consisted of bonds and
shares of stock of corporations organized under Philippine Laws) to Ida M. Palmer.
-The Collector of Internal Revenue prepared an inheritance tax return in the amount of P90,019.75
covering the amount of inheritance tax (77,018.39) and the assessment for income tax against the said
estate (13,001.41)
- Ida M. Palmer paid the amount under protest. The Collector of Internal Revenue later on overruled the
protest made. The contention is that Moody was a non-resident of the Philippines at the time of his
death.
-The substance of the plaintiffs cause of action is stated in paragraph 7 of his complaint as
follows:jgc:chanrobles.com.ph
"That there is no valid law or regulation of the Government of the Philippine Islands under or by
virtue of which any inheritance tax may be levied, assessed or collected upon transfer, by death
and succession, of intangible personal properties of a person not domiciled in the Philippine
Islands, and the levy and collection by defendant of inheritance tax computed upon the value of
said stocks, bonds, credits and other intangible properties as aforesaid constituted and constitutes
the taking and deprivation of property without due process of law contrary to the Bill of Rights
and organic law of the Philippine Islands."
- Hence, this petition to recover the amount paid. library
ISSUE:
Whether or not the taxes collected on Moodys estate is validly imposed considering his domicile at the
time of his death.
HELD:
- Supreme Court affirmed the judgment of the Trial Court.
- No copy of the taxpayers protest is included in the record and the court has no means of knowing its
contents.
- Moody was never married and there is no doubt that he had his legal domicile in the Philippines from
the Philippines from 1902 to 1903 forward during which time he accumulated a fortune from his business
in the Philippines.
- He was diagnosed with leprosy in an advanced stage and was told that he would be reported to the
authorities for confinement in the Cuilon Leper Colony as required by law; hence, his surreptitious
departure from the country.

- There is no statement of Moody, oral, or written, in the record that he had adopted a new domicile
while he was absent from Manila. Though he was physically present for some months in Calcutta prior to
the date of his death there, the appellant does not claim that Moody had a domicile there.
- There is no evidence as to where in Paris he had any fixed abode that he intended to be his permanent
home. There is no evidence that he acquired any property in Paris or engaged in any business there.
There is no evidence of legal affirmative factors that prove the establishment of legal domicile there (He
lived with a friend in Paris, France before going to Calcutta).
-Moodys continued absence from his legal domicile in the Philippines was due to and reasonably
accounted for the same motive that caused his surreptitious departure namely, to evade confinement in
the Culion Leper Colony.

- Our Civil Code (Art. 40) defines the domicile of natural persons as the place of their usual residence. The
record before the court left no doubt that his usual residence was Manila where he lived and toiled for more
than a quarter of a century, rather than in any foreign country he visited during his wanderings up to the
date of his death in Calcutta.

- To effect the abandonment of ones domicile, there must be a deliberate and provable choice of new
domicile, coupled with a declared or provable intent that it should be ones fixed and permanent place of
abode. There is a complete dearth of evidence in the record that Moody ever established new domicile in a
foreign country.
9. CIR v. Campos Rueda, 42 SCRA 23, October 29, 1971
FACTS:
- Collector of Internal Revenue held Antonio Campos Rueda, as administrator of the estate of the late
Estrella Soriano Vda. de Cerdeira, liable for the stun of P 161,974.95 as deficiency estate and inheritance
taxes for the transfer of intangible personal properties in the Philippines, the deceased, a Spanish national
having been a resident of Tangier, Morocco from 1931 up to the time of her death in 1955.
- Ruedas request for exemption was denied on the ground that the law of Tangier is not reciprocal to
Section 122 of the National Internal Revenue Code.
- Rueda requested for the reconsideration of the decision denying the claim for tax exemption. However,
respondent denied this request on the grounds that there was no reciprocity [with Tangier, which was
moreover] a mere principality, not a foreign country.
- Court of Tax Appeals ruled that the expression 'foreign country,' used in the last proviso of Section 122 of
the National Internal Revenue Code, refers to a government of that foreign power which, although not an
international person in the sense of international law, does not impose transfer or death taxes upon
intangible personal properties of our citizens not residing therein, or whose law allows a similar exemption
from such taxes. It is, therefore, not necessary that Tangier should have been recognized by our

Government in order to entitle the petitioner to the exemption benefits of the last proviso of Section 122 of
our Tax Code.
ISSUE:
Whether or not the requisites of statehood, or at least so much thereof as may be necessary for the
acquisition of an international personality, must be satisfied for a "foreign country" to fall within the
exemption of Section 122 of the National Internal Revenue Code
HELD:
- Supreme Court affirmed Court of tax Appeals Ruling.
- If a foreign country is to be identified with a state, it is required in line with Pound's formulation that it
be a politically organized sovereign community independent of outside control bound by ties of
nationhood, legally supreme within its territory, acting through a government functioning under a regime
of law.
- It is thus a sovereign person with the people composing it viewed as an organized corporate society
under a government with the legal competence to exact obedience to its commands.
- The stress is on its being a nation, its people occupying a definite territory, politically organized,
exercising by means of its government its sovereign will over the individuals within it and maintaining its
separate international personality.
- State is a territorial society divided into government and subjects, claiming within its allotted area a
supremacy over all other institutions. Moreover, similarly would point to the power entrusted to its
government to maintain within its territory the conditions of a legal order and to enter into international
relations. With the latter requisite satisfied, international law does not exact independence as a
condition of statehood.
- Collector of Internal Revenue v. De Lara: There can be no doubt that California as a state in the
American Union was lacking in the alleged requisite of international personality. Nonetheless, it was held
to be a foreign country within the meaning of Section 122 of the National Internal Revenue Code.
- This Court did commit itself to the doctrine that even a tiny principality that of Liechtenstein, hardly an
international personality in the traditional sense, did fall under this exempt category.
10. CIR v. Fisher, 110 Phil 686, January 28, 1961
FACTS:

Walter G. Stevenson was born in the Philippines of British parents, married in Manila to another
British subject, Beatrice. He died in 1951 in California where he and his wife moved to.
In his will, he instituted Beatrice as his sole heiress to certain real and personal properties, among
which are 210,000 shares of stocks in Mindanao Mother Lode Mines (Mines).
Ian Murray Statt (Statt), the appointed ancillary administrator of his estate filed an estate and
inheritance tax return. He made a preliminary return to secure the waiver of the CIR on the
inheritance of the Mines shares of stock.
In 1952, Beatrice assigned all her rights and interests in the estate to the spouses Fisher.

Statt filed an amended estate and inheritance tax return claiming additional exemptions, one of
which is the estate and inheritance tax on the Mines shares of stock pursuant to a reciprocity
proviso in the NIRC, hence, warranting a refund from what he initially paid. The collector denied
the claim. He then filed in the CFI of Manila for the said amount.
CFI ruled that (a) the share of Beatrice should be deducted from the net estate of Walter, (b)
the intangible personal property belonging to the estate of Walter is exempt from inheritance tax
pursuant to the reciprocity proviso in NIRC.

ISSUE: WON the estate can avail itself of the reciprocity proviso in the NIRC granting exemption from the
payment of taxes for the Mines shares of stock.
HELD:
No. 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 tax if any and every character, in the
case of the California law. If any of the two states collects or imposes or does not exempt any transfer,
death, legacy or succession tax of any character, the reciprocity does not work.

In the Philippines, upon the death of any citizen or resident, or non-resident with properties, there are
imposed upon his estate, both an estate and an inheritance tax. But, under the laws of California, only
inheritance tax is imposed. Also, although the Federal Internal Revenue Code imposes an estate tax, it
does not grant exemption on the basis of reciprocity. Thus, a Filipino citizen shall always be at a
disadvantage. This is not what the legislators intended.

*Reference:
Section122 of the NIRC provides 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."
On the other hand, Section 13851 of the California Inheritance Tax Law provides that intangible personal
property is exempt from tax 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 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."
11. Pastor vs. CTA, 123 SCRA 885, June 24, 1983
FACTS:

Plaintiff brought this action in CFI of Manila seeking his legal separation from the defendant, his
wife and the placing of their minor children under the care and custody of dormitory.
Plaintiff is an American citizen and resident of USA but for the purpose of filing and maintaining
this suit, he temporarily resides at Sta. Mesa, Manila.
Defendant, a resident of Samar, moved to dismiss the complaint on the ground that the venue is
improperly laid.
CFI upheld the contention of defendant that neither the plaintiff nor the defendant is a resident
of City of Manila.

ISSUE: WON the action is improperly laid.

HELD: Yes.
Section 1, Rule 5, of the Rules of Court provides that civil actions in CFI may be commenced and tried
where the defendant or any of the defendants resides or may be found or where the plaintiff or any of
the plaintiffs resides at the election of the plaintiff.
Indeed, residence as used in the said rule is synonymous with domicile. This is define as the permanent
home, the place to which, whenever absent for business or pleasure one intends to return, and depends
on facts and circumstances, in the sense that they disclose intent.
12. Corre v. Corre, 100 Phil. 321, November 13, 1956
FACTS:

Pastor, Sr., a Spanish subject, died. He was survived by his wife and two children, Pastor, Jr. and
Sofia and an illegitimate child, Quemada. Sofia is a Spanish subject while Quemada is a Filipino.
Quemada filed a petition for the probate and allowance of an alleged holographic will of Pastor,
Sr.
The will contained one testamentary disposition: a legacy in favor of Quemada consisting of 30%
of Pastor, Sr.s 42% share in Atlas.
Quemada, as special administrator appointed by the Probate Court, instituted an action for
reconveyance of alleged properties of the estate, which included the properties subject of the
legacy and which were in the names of Pastor, Jr. and his wife.

Pastor, Jr. and Sofia filed an opposition to the petition for probate and the order appointing
Quemada as special administrator.
On December 5, 1972, the Probate court issued an order allowing will to probate, CA affirmed.
SC remanded to probate court.
While the reconveyance suit was still being litigated, the Probate Court issued the Order of
Execution and Garnishment, resolving the question of ownership of the royalties payable by
ATLAS and ruling in effect that the legacy to Quemada was not inofficious.
The probate court directed ATLAS to remit directly to Quemada the 42% royalties due
decedents estate, of which Quemada was authorized to retain 75% for himself as legatee and
to deposit 25% with a reputable banking institution for payment of the estate taxes and other
obligations of the estate.

ISSUE: WON the Probate Order on December 5, 1972 resolved with finality the question of ownership
and intrinsic validity.
HELD:
In a special proceeding for the probate of a will, the issue by and large is restricted to the extrinsic
validity of the will. As a rule, the question of ownership is an extraneous matter which the Probate Court
cannot resolve with finality. Thus, for determining whether a certain property should or should not be
included in the inventory of estate properties, the Probate Court may pass upon the title thereto, but
such determination is provisional, not conclusive and is subject to the final decision in a separate action
to resolve title.
Ownership was not resolved. For it confined itself to the question of extrinsic validity of the will and the
need for and propriety of appointing a special administrator.

13. Vidal de Roces v. Posadas, G.R. No. 34937 March 13, 1933
FACTS:
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.
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.
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.

 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.
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.
14. Dison v. Posadas, G.R. No. 36770 November 4, 1932
FACTS:
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.
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)
RULING: 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.

15. 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.

16. CIR vs GONZALES

FACTS:
On May 13, 1948, Matias Yusay died intestate with two heirs Jose S. Yusay and Lilia Yusay
Gonzales. Intestate proceedings for the settlement of his estate were instituted wherein Jose was
therein appointed as administrator.
On May 11, 1949 Jose filed with the BIR an estate and inheritance tax return with a total gross
estate of P187,204.00, however, the return mentioned no heir. Upon investigation, BIR found the
following properties with a total assessed value of P219,584.32. The fair market value of the real
properties was computed by increasing the assessed value by forty percent.
Based on the above findings, the BIR assessed on October 29, 1953 estate and inheritance taxes
in the sums of P6,849.78 and P16,970.63, respectively.
On January 25, 1955 the BIR increased the assessment to P8,225.89 as estate tax and P22,117.10
as inheritance tax plus delinquency interest and demanded payment thereof on or before
February 28, 1955.
On February 16, 1955, the RTC of Iloilo required Jose to show proof of payment of said estate and
inheritance taxes. He then requested an extension of time within which to pay the tax however,
the CIR denied the request.
On May 30, 1956 the commissioner submitted a reamended project of partition with a total of
P356,699.67.
The Internal Revenue Commissioner then caused the estate of Matias to be reinvestigated for
estate and inheritance tax liability. Accordingly, he issued an assessment with regard to the total
estate and inheritance taxes amounting to P97,723.96. Like in previous assessments, the fair
market value of the real properties was arrived at by adding 40% to the assessed value.
Despite repeated demands, no payment was made whereupon the CIR filed a proof of claim for
the estate and inheritance taxes due and a motion for its allowance with the settlement court in
voting priority of lien pursuant to Section 315 of the Tax Code.
Lilia filed an answer alleging non-receipt of the assessment, the existence of two administrators,
namely namely Florencia Piccio Vda. de Yusay who administered two-thirds of the estate, and
Lilia Yusay, who administered the remaining one-third, and her willingness to pay the taxes
corresponding to her share, and praying for deferment of the resolution on the motion for the
payment of taxes until after a new assessment corresponding to her share was issued.
Moreover, Lilia disputed the legality of the assessment dated February 13, 1958 and claimed that
the right to make the same had prescribed inasmuch as more than five years had elapsed since
the filing of the estate and inheritance tax return on May 11, 1949.

 CIR denied the request and state that: (1) that the right to assess the taxes in question has not
been lost by prescription since the return which did not name the heirs cannot be considered a
true and complete return sufficient to start the running of the period of limitations of five years
under Section 331 of the Tax Code and pursuant to Section 332 of the same Code he has ten
years within which to make the assessment counted from the discovery on September 24, 1953
of the identity of the heirs; and (2) that the estate's administrator waived the defense of
prescription when he filed a surety bond on March 3, 1955 to guarantee payment of the taxes in
question and when he requested postponement of the payment of the taxes pending
determination of who the heirs are by the settlement court.
CTA reversed the decision and declared the CIR to assess the estate and inheritance taxes in
question to have prescribed.
ISSUE:
Whether or not the right of the CIR to assess the estate and inheritance taxes in question already
prescribed.
HELD:
No.
Paragraph (a) of Section 93 of the Tax Code lists the requirements of a valid return. It states:
(a) Requirements.In all cases of inheritance or transfers subject to either the estate
tax or the inheritance tax, or both, or where, though exempt from both taxes, the
gross value of the estate exceeds three thousand pesos, the executor, administrator,
or anyone of the 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 ; (2) the deductions
allowed from gross estate in determining net estate as defined in section eightynine; (3) such part of such information as may at the time be ascertainable and such
supplemental data as may be necessary to establish the correct taxes.
A return need not be complete in all particulars. It is sufficient if it complies substantially with the law.
There is substantial compliance (1) when the return is made in good faith and is not false or fraudulent;
(2) when it covers the entire period involved; and (3) when it contains information as to the various items
of income, deduction and credit with such definiteness as to permit the computation and assessment of
the tax.
There is no question that the state and inheritance tax return filed by Jose S. Yusay was substantially
defective.
First, it was incomplete. It declared only ninety-three parcels of land representing about 400 hectares and
left out ninety-two parcels covering 503 hectares. Second, the return mentioned no heir. Thus, no
inheritance tax could be assessed. As a matter of law, on the basis of the return, there would be no

occasion for the imposition of estate and inheritance taxes. When there is no heir - the return showed
none - the intestate estate is escheated to the State.12 The State taxes not itself.
The return filed in this case was so deficient that it prevented the Commissioner from computing the
taxes due on the estate. It was as though no return was made. The Commissioner had to determine and
assess the taxes on data obtained, not from the return, but from other sources. We therefore hold the
view that the return in question was no return at all as required in Section 93 of the Tax Code.
Accordingly, for purposes of determining whether or not the Commissioner's assessment of February 13,
1958 is barred by prescription, Section 332(a) which is an exception to Section 331 of the Tax Code finds
application. We quote Section 332(a):
SEC. 332. Exceptions as to period of limitation of assessment and collection of
taxes. (a) In the case of a false or fraudulent return with intent to evade tax or of a
failure to file a return, the tax may be assessed, or a proceeding in court for the
collection of such tax may be begun without assessment, at any time within ten
years after the discovery of the falsity, fraud or omission.
As stated, the Commissioner came to know of the identity of the heirs on September 24, 1953 and the
huge under declaration in the gross estate on July 12, 1957. From the latter date, Section 94 of the Tax
Code obligated him to make a return or amend one already filed based on his own knowledge and
information obtained through testimony or otherwise, and subsequently to assess thereon the taxes due.
The running of the period of limitations under Section 332(a) of the Tax Code should therefore be
reckoned from said date for, as aforesaid, it is from that time that the Commissioner was expected by law
to make his return and assess the tax due thereon. From July 12, 1957 to February 13, 1958, the date of
the assessment now in dispute, less than ten years have elapsed. Hence, prescription did not abate the
Commissioner's right to issue said assessment.
17. Collector vs Mcgrath
FACTS:
On January 10, 1956, the Collector of Internal Revenue assessed against the estate of Dora Anna
Wood, of which Ellen Wood McGrath is the administratrix, the following taxes, interests and
surcharges amounting to P49,815.64.
On March 9, 1956, upon petition of counsel for McGrath, the CIR rendered a final decision on the
said subject requesting to pay the sum of P36,144.91 as inheritance tax and penalties, plus the
corresponding interest from December 23, 1955 up to the date of payment in order that the case
may be closed, without prejudice, however, to the filing of a request for refund in accordance
with section 309 of the Tax Code in the event that the decision of the Court of Tax Appeals in the
aforesaid Miller case is affirmed by the Supreme Court
On April 2, 1956, McGrath filed a petition for review with the Court of Tax Appeals, alleging that
the assessment of the taxes made by the CIR on the estate of Dora Anna Wood are excessive and
illegal, and praying for the refund of P13,670.73.

 Respondent Collector answered the petition alleging that Dora Anna Wood left properties worth
P326,707.49, and asked for the dismissal of the petition.
CTA declared that the estate of Dora Anna Wood is exempt from the payment of the
inheritance tax, but subject to the estate tax in the amount of P13,160.55, and as petitioner had
already paid P20,572.19, the respondent CIR was ordered to refund to her the amount of
P7,411.64, with interest from the date of the payment.
ISSUE:
Whether or not there exists reciprocity between the California and Philippine laws on the matter
of the death tax on intangible personal property.
Whether or not the estate of Dora Anna Wood is not liable for the payment of the inheritance
tax.
HELD:
No.
In the cases of the Collector of Internal Revenue vs. Fisher, et al., G.R. No. L-11622 and Fisher, et al. vs. The
Collector of Internal Revenue, et al., G.R. No. L-11668, the court come to the conclusion that no
reciprocity can be extended in the case of the estate of Dora Anna Wood because the law of California
does not grant full exemption from the estate and inheritance taxes to Filipino residents in that state. The
Court said in this case that 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 tax 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.
No.
In her appeal, McGrath claims that since the CIR accepted a check tendered by her in the amount of
P6,901.46, "in full settlement of all death taxes due and payable," the latter, after accepting said
payment, can no longer collect the alleged deficiency taxes because the acceptance by the Collector of
petitioner's tender of the above amount on February 2, 1955, constitutes a compromise on the obligation
of the estate of the deceased Dora Anna Wood, which compromise extinguished petitioner's obligation to
pay additional death taxes.
Taxes are fixed by law and are not subject to contract between the taxpayer and the tax officer, except
when there is an actual compromise, which in the case at bar does not exist. 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, 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.
Lastly, counsel for petitioner McGrath claims that the estate is exempt from the payment of any
deficiency tax because of the failure of the Collector to make the assessment of the deficiency death
taxes and to demand their payment, in accordance with Section 94 of the National Internal Revenue
Code. However, Section 94 of the National Internal Revenue Code applies to a case where there is no
return filed or where one is filed but is false or fraudulent. In the case at bar there was a return and the
same was not false or fraudulent. Hence the assessment indicated in Section 94 of the National Internal
Revenue Code is not required. In any case, the assessment made in the letters of the respondent
Collector, dated January 10, 1956 and March 9, 1956, are sufficiently clear and specific, and are a valid
assessment of the taxes on the estate upon the facts and figures given by the counsel for petitioner
McGrath.
18. CIR vs CTA and Pajonar, G.R. No. 123206. March 22, 2000

FACTS:
When Pedro Pajonar, who is part of the infamous Death March by reason of which he suffered
shock and became insane, his sister Josefina Pajonar became the guardian over his person, while
his property was placed under the guardianship of the Philippine National Bank (PNB) by the RTC.
He died on January 10, 1988 and was survived by his two brothers Isidro P. Pajonar and Gregorio
Pajonar, his sister Josefina Pajonar, nephews Concordio Jandog and Mario Jandog and niece
Conchita Jandog.
On May 11, 1988, the PNB filed an accounting of the decedent's property under guardianship
valued at P3,037,672.09 in Special Proceedings No. 1254. However, the PNB did not file an estate
tax return, instead it advised Pedro Pajonar's heirs to execute an extrajudicial settlement and to
pay the taxes on his estate.

On April 5, 1988, pursuant to the assessment by the BIR, the estate of Pedro Pajonar paid taxes
in the amount of P2,557.

On May 19, 1988, Josefina Pajonar filed a petition with the RTC for the issuance in her favor of
letters of administration of the estate of her brother. The trial court appointed Josefina Pajonar
as the regular administratrix of Pedro Pajonar's estate.
On December 19, 1988, pursuant to a second assessment by the BIR for deficiency estate tax, the
estate of Pedro Pajonar paid estate tax in the amount of P1,527,790.98.
Josefina Pajonar, in her capacity as administratrix and heir of Pedro Pajonar's estate, filed a
protest with the BIR praying that the estate tax payment in the amount of P1,527,790.98, or at
least some portion of it, be returned to the heirs.

 However, without waiting for her protest to be resolved by the BIR, Josefina filed a petition for
review with the CTA, praying for the refund of P1,527,790.98, or in the alternative, P840,202.06,
as erroneously paid estate tax.
CTA - ordered the CIR to refund Josefina Pajonar the amount of P252,585.59, representing
erroneously paid estate tax for the year 1988. Among the deductions from the gross estate
allowed by the CTA were the amounts of P60,753 representing the notarial fee for the
Extrajudicial Settlement and the amount of P50,000 as the attorney's fees in Special Proceedings
No. 1254 for guardianship.
On July 5, 1994, the CIR filed with the CA a petition for review
CA - denied the Commissioner's petition.
ISSUE:
Whether or not the notarial fee paid for the extrajudicial settlement in the amount of P60,753.00 and the
attorneys fees in the guardianship proceedings with the amount of P50,000.00 may be allowed as
deductions from the gross estate of decedent in order to arrive at the value of the net estate.
HELD: Yes.
In upholding the June 7, 1994 Resolution of the Court of Tax Appeals, the Court of Appeals held that:
2. 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 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.
(Estate and Gift Taxation in the Philippines, T. P. Matic, Jr., 1981 Edition, p. 176 ).
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 of March 28, 1988 entered into between respondent Josefina Pajonar 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. 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.
3. Attorney's fees, on the other hand, in order to be deductible from the gross estate
must be essential to the settlement of the estate.
The guardianship proceeding in this case was necessary for the distribution of the
property of the deceased Pedro Pajonar. As correctly pointed out by respondent CTA,
the PNB was appointed guardian over the assets of the deceased, and that necessarily
the assets of the deceased formed part of his gross estate.
It is clear therefore that the attorney's fees incurred in the guardianship proceeding in
Spec. Proc. No. 1254 were essential to the distribution of the property to the persons
entitled thereto. Hence, the attorney's fees incurred in the guardianship proceedings in
the amount of P50,000.00 should be allowed as a deduction from the gross estate of the
decedent.
The deductions from the gross estate permitted under section 79 of the Tax Code basically reproduced
the deductions allowed under Commonwealth Act No. 466 (CA 466), otherwise known as the National
Internal Revenue Code of 1939, and which was the first codification of Philippine tax laws. Section 89 (a)
(1) (B) of CA 466 also provided for the deduction of the "judicial expenses of the testamentary or
intestate proceedings" for purposes of determining the value of the net estate.
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. Expenditures
incurred for the individual benefit of the heirs, devisees or legatees are not deductible. This distinction
has been carried over to our jurisdiction.
Coming to the case at bar, the notarial fee paid for the extrajudicial settlement is clearly a deductible
expense since such settlement effected a distribution of Pedro Pajonar's estate to his lawful heirs.
Similarly, the attorney's fees paid to PNB for acting as the guardian of Pedro Pajonar's property during his
lifetime should also be considered as a deductible administration expense. 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.
19. CIR v. CA, G.R. No. 123206, March 22, 2000, 328 SCRA 666
FACTS:
Petitioner assailed the decision of the Court of Appeals which affirmed the Resolution of the Court of Tax
Appeals granting Josefina Pajonar, administratrix of the estate of Pedro Pajonar, a tax refund representing
erroneously paid estate taxes for the year 1988; and deduction of the notarial fee for the Extrajudicial
Settlement and the attorneys fees in the guardianship proceedings.

Josefina Pajonar became the guardian over the person of Pedro Pajonar, when the latter suffered shock
and became insane while his property was placed under the guardianship of the Philippine National Bank
(PNB).
Pedro Pajonar, when he died, was survived by his two brothers Isidro P. Pajonar and Gregorio Pajonar, his
sister Josefina Pajonar, nephews Concordio Jandog and Mario Jandog and niece Conchita Jandog.
The PNB filed an accounting of the decedent's property under guardianship however, the PNB did not file
an estate tax return, instead it advised Pedro Pajonar's heirs to execute an extrajudicial settlement and to
pay the taxes on his estate, as such, pursuant to the assessment by the Bureau of Internal Revenue (BIR),
the estate of Pedro Pajonar paid taxes.
Josefina Pajonar filed a petition for the issuance in her favor of letters of administration of the estate of
her brother and was appointed as the regular administratrix of Pedro Pajonar's estate.
Pursuant to a second assessment by the BIR for deficiency estate tax, the estate of Pedro Pajonar paid
estate tax. Josefina Pajonar, in her capacity as administratrix and heir of Pedro Pajonar's estate, filed a
protest with the BIR praying that the estate tax payment or at least some portion of it, be returned to the
heirs.
However, without waiting for her protest to be resolved by the BIR, Josefina Pajonar filed a petition for
review with the Court of Tax Appeals (CTA), praying for the refund, or in the alternative, some portion of
the paid taxes, as erroneously paid estate tax.
The CTA ordered the Commissioner of Internal Revenue to refund Josefina Pajonar the amount
representing erroneously paid estate tax for the year 1988. Among the deductions from the gross estate
allowed by the CTA were the notarial fee for the Extrajudicial Settlement and the attorney's fees.
The Commissioner of Internal Revenue filed a motion for reconsideration of the CTA's decision asserting,
among others, that the notarial fee for the Extrajudicial Settlement and the attorney's fees in the
guardianship proceedings are not deductible expenses. However, the CTA upheld its decision but lowered
the tax refund, and sustained the validity of the deduction of the notarial fee for the Extrajudicial
Settlement and the attorney's fees in the guardianship proceedings.
The Commissioner of Internal Revenue filed with the Court of Appeals a petition for review of the CTAs
decision but to their dismay it was denied.
ISSUE:
Whether or not the notarial fee paid for the extrajudicial settlement and the attorney's fees in the
guardianship proceedings may be allowed as deductions from the gross estate of decedent in order to
arrive at the value of the net estate.
HELD:
YES. 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 to include all expenses essential

to the proper settlement of the estate. 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.
Coming to the case at bar, the notarial fee paid for the extrajudicial settlement is clearly a deductible
expense since such settlement effected a distribution of Pedro Pajonar's estate to his lawful heirs.
Similarly, the attorney's fees paid to PNB for acting as the guardian of Pedro Pajonar's property during his
lifetime should also be considered as a deductible administration expense. 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.
Whereby, the Supreme Court affirmed the decision of the CTA and the Court of Appeals and that the
notarial fee for the extrajudicial settlement and the attorney's fees in the guardianship proceedings are
allowable deductions from the gross estate of Pedro Pajonar.
20. Govt. of the Phils. vs. Pamintuan, 55 Phil. 13, October 11, 1930
FACTS:
Florentino Pamintuan, represented by Jose V. Ramirez or his attorney-in-fact charged with the
administration of his property, filed income-tax return for the year 1919. Florentino Pamintuan died in
Washington, D. C., U. S. A., leaving the defendants herein as his heirs. Thus, an intestate proceedings
were instituted in the Court of First Instance of Manila intestate of the late Florentino Pamintuan.
The Court of First Instance of Manila appointed Maximo de la Paz and Candido Ilagan commissioners of
appraisal of the property left by the deceased Pamintuan. The said committee rendered its report which
was duly approved by the court, and in which report it appears that the only claims presented and that
were approved were those of Tomasa Centeno, Jose, Paz, Caridad, and Natividad Pamintuan and
Cavanna, Aboitiz and Agan.
Jose V. Ramirez presented a proposed partition of the decedent's estate which proposed partition was
approved by the court ordering the delivery to the heirs, the defendants herein, of their respective shares
of the inheritance after paying the corresponding inheritance taxes
The defendants herein inherited from the deceased Florentino Pamintuan in the following proportions:
Tomasa Pamintuan inherited 0.0571 per cent of the decedent's estate and the other defendants 0.0784
per cent each according to the partition approved by the court.
During the pendency of the intestate proceedings, the administrator filed income-tax returns for the
estate of the deceased corresponding to the years 1925 and 1926.
However, during the subsequent to the distribution of the decedent's estate to the defendants herein,
the plaintiff discovered the fact that the deceased Florentino Pamintuan has not paid the additional
income tax and surcharge for the calendar year 1919, on account of the sale made by him of his house
and lot, from which sale he realized a net profit or income and was not included in his income-tax return
filed for said year 1919.

ISSUE:
Whether or not the heirs of Florentino Pamintuan responsible for the payment of the income taxes in
question.
HELD:
YES. The administration proceedings of the late Florentino Pamintuan having been closed, and his estate
distributed among his heirs, the defendants herein, the latter are responsible for the payment of the
income tax here in question in proportion to the share of each in said estate.
Heirs are not required to respond with their own property for the debts of their deceased ancestors. But
even 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.
Claims for income taxes need not be filed with the committee on claims and appraisals appointed in the
course of testate proceedings and may be collected even after the distribution of the decedent's estate
among his heirs, who shall be liable therefor in proportion to their share in the inheritance.
21. Misael P. Vera vs. Judge Pedro C. Navarro, G.R. No. L-22745, October 18, 1977
FACTS:
This is a petition for Certiorari, Prohibition, Mandamus and Injunction filed by herein petitioner Michael
Vera, in his capacity as Commissioner of Internal Revenue, against Honorable Judge Pedro Navarro, in his
capacity as Judge of Court of First Instance (CFI). It appears that Elsie Gaches died without a child. The
deceased left a last will testament.
The herein respondent Judge Bienvenido Tan, Sr. filed with the CFI a petition for the probate of the said
will and he was appointed as executor. The Commissioner of the Internal Revenue filed with the probate
court a claim of taxes particularly estate tax, inheritance tax, and income tax.
ISSUE:
Whether or not the heirs should be required to pay first the inheritance tax before the probate court may
authorize the delivery of the hereditary share pertaining to each of them.
RULING:
Under the law, the distribution of the ascendants assets may only be ordered under the following three
circumstances namely, (1) when the inheritance tax, among others, is paid, (2) when a sufficient bond is
given to meet the payment of the inheritance tax and all the other obligation of the nature enumerated

therein, or (3) when the payment of said tax and all the other obligations mentioned in the said rule has
been provided for. None of these three cases insofar as the satisfaction of the inheritance due from the
estate is concerned were present when the questioned orders were issued in the case at bar; likewise,
the record is bereft of any evidence that sufficient bond has been filed to meet the outstanding
obligation.
The inheritance tax imposed by Section 86 shall, in the absence of contrary disposition by the
predecessor, be charged to the account of each beneficiary, in proportion to the value of the benefit
received, and in accordance with the scale fixed for the class or group to which is pertains: Provided, That
in cases where the heirs divide extrajudicially the property left to them by their predecessor or otherwise
convey, sell, transfer, mortgage, or encumber the same without being the estate or inheritance taxes
within the period prescribed in the preceding subsections (a) and (b), they shall be solidarity liable for the
payment of the said taxes to the extent of the estate they have received.
22. CIR v. PINEDA, GR No. L-22734, September 15, 1967
FACTS:
Atanasio Pineda died, survived by his wife, Felicisima Bagtas, and 15 children, the eldest of whom is Atty.
Manuel Pineda. Estate proceedings were had in Court wherein the surviving widow was appointed
administratrix and so that the estate was divided among and awarded to the heirs.
Atty Pineda's share amounted to about P2,500.00. 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 it 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 and
charged the full amount to the inheritance due to Atty. Manuel Pineda who appealed to the Court of Tax
Appeals that he is liable only to extent of his proportional share in the inheritance.
The Court of Tax Appeals rendered judgment holding Manuel B. Pineda liable for the payment
corresponding to his share.
The Commissioner argued that Atty. Pineda be liable for the payment of all the taxes found to be due
from the estate instead of only for the amount of taxes corresponding to his share in the
estate.1awphl.nt
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.
ISSUE: Can BIR collect the full amount of estate taxes from an heir's inheritance.
RULING: Yes. The Government can require Atty. Pineda to pay the full amount of the taxes assessed.
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. By virtue of such lien, the
Government has the right to subject the property in Pineda's possession to satisfy the income tax
assessment. 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.
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; and
second, 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.
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, 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.
23. Marcos II v. Court of Appeals, G.R. No. 120880, June 5, 1997
FACTS:
Petitioner Ferdinand R. Marcos II sought for the reversal of the ruling of the Court of Appeals to grant
CIR's petition to levy the properties of the late Pres..Marcos to cover the payment of his tax delinquencies
during the period of his exile in the US. The CA ruled that the deficiency assessments for estate and
income tax made upon the petitioner and the estate of the deceased President Marcos have already
become final and unappealable, and may thus be enforced by the summary remedy of levying upon the
properties of the late President.
Through a Special Tax Audit Team, an investigation disclosed that the Marcoses failed to file estate tax
returns.The Marcos family was assessed by the BIR after it failed to file. However the assessment was not
protested administratively by Mrs. Marcos and the heirs of the late president so that they became final
and unappealable after the period for filing of opposition has prescribed.
Marcos contends that the properties of his late father could not be levied to cover the tax dues because
the probate proceedings are still pending probate with the court, and settlement of tax deficiencies could
not be had, unless there is an order by the probate court or until the probate proceedings are
terminated. On the other hand, the BIR argued that the States authority to collect internal revenue taxes
is paramount.

ISSUE: Whether or not the State can collect taxes on the estate of the deceased despite the pending
probate proceeding
RULING: No. The approval of the court, sitting in probate or as a settlement tribunal over the deceaseds
estate, 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.
The deficiency income tax assessments and estate tax assessment are already final and unappealable.
This summary tax remedy is distinct and separate from the other tax remedies and is not affected or
precluded by the pendency of any other tax remedies instituted by the government.
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 Commissioner of Internal Revenue
that the estate taxes have been paid. This provision disproves the petitioner's contention that it is the
probate court which approves the assessment and collection of the estate tax. If there is any issue as to
the validity of the BIR's decision to assess the estate taxes, this should have been pursued through the
proper administrative and judicial avenues provided for by law.
On the issue of prescription, the omission to file an estate tax return, and the subsequent failure to
contest or appeal the assessment made by the BIR is fatal to the petitioner's cause. Since the estate tax
assessment had become final and unappealable by the petitioner's default as regards protesting the
validity of the said assessment, there is now no reason why the BIR cannot continue with the collection of
the said tax.
It is not the Department of Justice which is the government agency tasked to determine the amount of
taxes due upon the subject estate, but the Bureau of Internal Revenue whose determinations and
assessments are presumed correct and made in good faith. The taxpayer has the duty of proving
otherwise. In the absence of proof of any irregularities in the performance of official duties, an
assessment will not be disturbed. The burden of proof is upon the complaining party to show clearly that
the assessment is erroneous. Failure to present proof of error in the assessment will justify the judicial
affirmance of said assessment. In this instance, petitioner has not pointed out one single provision in the
Memorandum of the Special Audit Team which gave rise to the questioned assessment, which bears a
trace of falsity. Indeed, the petitioner's attack on the assessment bears mainly on the alleged improbable
and unconscionable amount of the taxes charged.
The enforcement of tax laws and the collection of taxes is of paramount importance for the sustenance of
government. Taxes are the lifeblood of the government and should be collected without unnecessary
hindrance. However, such collection should be made in accordance with law as any arbitrariness will
negate the very reason for government itself.
24. De Guzman vs. De Guzman, G.R. No. L-29276, May 18, 1978
FACTS:
This case is about the propriety of allowing as administration expenses certain disbursements made by
the administrator of the testate estate of the late Felix J. de Guzman.

The deceased testator was survived by eight children. His will was duly probated. Letters of
administration were issued to his son, Doctor Victorino G. de Guzman. One of the properties left was a
residential house and lot which were adjudicated to his eight children. The administrator submitted
accounting reports which were objected by three of the heirs.
The probate court directed the administrator to refrain from spending the assets of the estate for
reconstructing and remodeling the house of the deceased and to stop spending any asset of the estate
without first during authority of the court to do so. The lower court allowed the items as legitimate
expenses of administration. The three oppositors appealed to the Supreme Court contending that the
lower court erred in approving the utilization of the income of the estate to defray those expenditures
which allegedly are not allowable under the Rules of Court.
ISSUE: Whether or not the lower court erred in approving the use of the income of the estate to defray
the expenses
HELD: NO. The probate court did not err in allowing those expenses categorized as administration
expenses because an administrator has the duty to "maintain in tenantable repair the houses and other
structures and fences belonging to the estate, and deliver the same in such repair to the heirs or devises"
when directed to do so by the court. But those expenses inuring only to the benefit of one should have
been disallowed.
Administration expenses should be those which are necessary for the management of the estate, for
protecting it against destruction or deterioration, and, possibly, for the production of fruits. They are
expenses entailed for the preservation and productivity of the estate and its management for purposes of
liquidation, payment of debts, and distribution of the residue among the persons entitled thereto.
The expenses the administrator incurred consisted of disbursements for the repair of the terrace and
interior of the family home, the renovation of the bathroom, and the construction of a fence. It is obvious
that the expenses in question were incurred to preserve the family home and to maintain the family's
social standing in the community. Obviously, those expenses redounded to the benefit of the co- owners.
They were necessary for the preservation and use of the family residence. As a result of those expenses,
the co-owners, including the three oppositors, would be able to use the family home in comfort,
convenience and security.
An executor or administrator is allowed the necessary expenses in the care, management, and settlement
of the estate. He is entitled to possess and manage the decedent's real and personal estate as long as it is
necessary for the payment of the debts and the expenses of administration. He is accountable for the
whole decedent's estate which has come into his possession, with all the interest, profit, and income
thereof, and with the proceeds of so much of such estate as is sold by him, at the price at which it was
sold.
One of the conditions of the administrator's bond is that he should render a true and just account of his
administration to the court. The court may examine him upon oath With respect to every matter relating
to his accounting and shall so examine him as to the correctness of his account before the same is
allowed, except when no objection is made to the allowance of the account and its correctness is
satisfactorily established by competent proof. The heirs, legatees, distributes, and creditors of the estate
shall have the same privilege as the executor or administrator of being examined on oath on any matter
relating to an administration account.

However, with respect to expenses incurred by de Guzman as occupant of the family residence without
paying rent. The probate court allowed the income of the estate to be used for those expenses on the
theory that the occupancy of the house by one heir did not deprive the other seven heirs from living in it.
Those expenses consist of the salaries of the house helper, light and water bills, and the cost of gas
expenses were personal expenses of Librada de Guzman, inuring only to her benefit. Those expenses, not
being reasonable administration expenses incurred by the administrator, should not be charged against
the income of the estate.
25. BIR Ruling No. 173-84, Nov. 06, 1984 November 6, 1984
FACTS:
This ruling is in reply to a letter requesting for ruling as to whether or not Land Bank Bonds in the
principal amount of P238,000.00, with a total accumulated interest of P25,680.35 of the late Leonor
Ilagan de Belen are subject to estate tax.
ISSUE: Whether or not Land Bank Bonds in the principal amount of P238,000.00, with a total accumulated
interest of P25,680.35 of the late Leonor Ilagan de Belen are subject to estate tax.
RULING: YES.
Section 166 of Republic Act No. 3844, as amended, otherwise known as the "Code of Agrarian Reforms of
the Philippines", provides:
"Sec. 166.

Definition of terms. . . .

"(26) Tax Free in reference to the bonds and shares of stock issued by the Land Bank as payments
for acquired private agricultural land shall mean all government taxes, except gift tax and
inheritance tax."
The inheritance tax was abolished, but the estate tax was retained by Presidential Decree No. 69, the
effectivity of which was on January 1, 1973. On the other hand, the aforequoted provision was
incorporated into the Code of Agrarian Reforms by Republic Act No. 6389, which became effective on
September 10, 1971, a date prior to the date of the abolition of the inheritance tax.
Thus, at the time of the adoption of the aforesaid definition, both the estate and the inheritance taxes
were still in existence. The two were correlative taxes, they having been imposed on the right to transmit
and to receive property by succession, respectively. Considering that at the time of the adoption of the
aforequoted definition the existence of the inheritance tax in any particular case necessarily presupposes
the corollary existence of the estate tax, it is our opinion that the reference to the "inheritance tax" in the
aforequoted definition also includes correlative "estate tax". Such being the case, the principal amount
and the interest of Land Bank bonds form part of the gross estate of the decedent for estate tax
purposes.
26. BIR Ruling No. 81-98, May 28, 1998
FACTS:
Atty. Amalia Yvonne Cario requested for exemption from the payment of gift tax under Section 91 of the
Tax Code (now Section 98 of the Tax Code of 1997) for the donation mortis causa she executed in favor
her sister, Marijo B. Cario

The donation provides that it will only take effect upon the death of the donor and may be revoked by
the donor.

ISSUE:
Whether or not a donation mortis causa is not subject to gift tax

RULING:
YES. A donation mortis causa is not subject to gift tax.
Donations/gifts made which are intended to take effect upon the death of the donor partake the nature
of testamentary provision and the same shall remain part of the donor-decedent's gross estate at the
time of his/her death even if the same have been donated in favor of the donee. Hence, the provision
relative to the imposition of estate tax on transfers in contemplation of death shall apply but the
donation/gifts are exempt from donor's tax.
However, since a donation mortis causa takes effect only upon the death of the donor, the real properties
subject to the donation cannot be transferred in the name of the donee and shall thereby remain the
properties of the donor. Meanwhile, the Donation Mortis Causa can be properly annotated at the back of
the TCT by the concerned Register of Deeds to protect the right of any person who may be affected by
the said donation.0) without the said certification.
27. BIR Ruling No. 10-03, Sept. 8, 2003
FACTS:
This is a ruling in reply to a letter requesting on behalf of Banco de Oro Universal Bank, for a confirmation
whether a Survivorship Agreement executed by the joint depositors under a joint deposit account
expressly stipulating that upon death of any one of the joint depositors, the entire remaining balance of
the deposit shall belong to the surviving depositor/s and, in effect, may be forthwith withdrawn by the
latter notwithstanding the provisions of Section 97 of the 1997 Tax Code.
RULING: NO.
In the Survivorship Agreement, the joint depositors cannot withdraw any portion of the said deposit
account without the consent of the other. However, upon death of any of them, the whole amount of the
funds shall belong to the surviving co-depositor/s, and may forthwith be withdrawn by the latter. The said
provision contained in the agreement is valid and binding between the joint depositors but it has an
effect of a gift or donation mortIs causa made by the deceased co-depositor during his lifetime but
effective upon death because the acquisition by the survivor of the share of the decedent in the joint
account is considered to be acquired by bequest and hence subject to estate tax under Section 84 of the
1997 Tax Code.
Considering that the joint account is co-owned by the depositors, there is a presumption that they owned
it equally or in 50/50 shares, in which case, the transfer of the remaining balance of the whole deposit to
the surviving co-depositor/s upon death of the other co-depositor pursuant to their Survivorship

Agreement is a transfer made by the said depositor in contemplation of death, as provided under Section
85(B) of the 1997 Tax Code.
Thus, upon the death of the co-depositors, the 50% share of the deceased co-depositor in the deposit
shall be included in computing the value of his gross estate.
Hence, the funds in the joint deposit account cannot be withdrawn by the surviving co-depositor/s unless
the Commissioner has certified that the taxes imposed thereon by Title III of the 1997 Tax Code have
been paid; Provided, however, That the administrator of the estate or any one (1) of the heirs of the
deceased co-depositor may, upon the authorization by the Commissioner, withdraw an amount not
exceeding Twenty thousand pesos (P20,000.00) without the said certification.
28. BIR Ruling No. 013-2005, Aug. 16, 2005
FACTS:
Antonio and Patricia Salvador wanted to reclassify the registration of their conjugal property as a Trust
property to A&P Salvador Living Trust. Under the proposal, Antonio would be the administrator. However,
in case of death or incapacity, Patricia would assume the administration of the trust property. Further, In
case of the death and incapacity of the latter, the eldest son would assume the administration and from
the next sibling up to the youngest in case of death or incapacity of the eldest.
In case the administrator would sell the trust property, the parties would distribute the share
equally.

ISSUE: Whether the transfer of real property under the revocable trust agreement is exempt from
transfer tax

HELD:
No, under the law, interest in the property of which the decedent has anytime made a treansfer by trust
or otherwise is included in the decedents gross estate. Such transfers are really considered as substitute
for testamentary disposition and thus prevent evasion of estate tax. Therefore, regardless of the
classification of the property, such real property forms part of the gross estate of the decedent.
Notably, selling of the trust property and distribute profits to children, constitutes waiver of
spouses estate. Therefore, such donation is subject to donors tax.
29. BIR Ruling No. DA-279-2006, April 25, 2006
FACTS:
Philippine Veterans Bank seeks to be exempted from payment of the 20% Final Tax for interest income
for longterm deposit or investment. It states that its revocable living trust agreement, irrevocable living
trust agreement and their trust vehicles are generally and fundamentally built for longterm
administration and accumulation.
ISSUE: Whether or not Philippine Veterans Bank is exempt from 20% final tax

HELD: Yes, under the law, only investments with a term less than 5 years are subject to 20% final tax.
Nevertheless, the intent of the bank is for their client for their vehicles to be owned by their clients during
their lifetime. Therefore, it should form part of the gross estate. It would serve as a substitute for
testamentary disposition and to prevent evasion of estate tax.
30. BIR Ruling No. 009-99, Jan. 22, 1999
FACTS:
Pepito Gonzales wanted to clarify thing regarding the deductions from the value of the gross estate. His
position is that the deductions other that standard deductions should form part of the latter.
ISSUE:
Whether or not the deductions enumerated under Section 86A of the Tax Code of 1997 for computing
the net estate of the decedent should be limited as part of Standard deductions
HELD:
No. Under the law, the words enumerated should be interpreted as separate and distinct from each
other. In this case, including the other deductions as part of the standard deductions would limit the
allowable deductions to just P1,000,000 which is contrary to the intention of the law. Therefore, Mr.
Gonzales contention is incorrect. The deductions should be treated as separate and distinct from each
other.