` Time of Filing of Return

BASIC PRINCIPLES 6 months from death

30 days after date of
gift (NIRC, Sec. 103
(NIRC, Sec.90[B])
[B])
Transfer Taxes Extension Of Filing Return
Taxes imposed upon the privilege of passing 30 days, in meritorious
ownership of property without any valuable cases (NIRC, None
consideration (DOMONDON, Taxation Vol. III, Sec.90[C])
(2010), p. 1) [hereinafter DOMONDON, Vol III]. Time of Payment
6 months from death 30 days after date of
Kinds of Transfer Taxes: (NIRC, Sec.91[A]) gift (NIRC, Sec.103[B])
1. Estate tax; and Extension of Payment
2. Donor’s tax. Allowed Not allowed
Differences between Estate Tax and Donor’s Tax
Estate tax Donor’s tax
Nature of Transfer
ESTATE TAX
Tax on privilege to Tax on privilege to
transfer property upon transfer property during Estate Tax
one’s death one’s lifetime An excise tax on the right of transmitting property at
Person’s Liable the time of death and on the privilege that a person
Individuals and is given in controlling to a certain extent the
Individuals only
Corporations disposition of his property to take effect upon death
Type of Donation (VITUG & ACOSTA, supra at 211).
Imposed on donations Imposed on donations
mortis causa inter vivos Basic Principles of Estate Tax:
Rates Applicable 1. The transfer of the net estate of every decedent,
Tax rates are lower whether resident or non-resident is subject to
Tax rates are relatively
(2%-15%) or 30% (if estate tax (NIRC, Sec. 84).
higher (5%-20%)
donee is a stranger) 2. Estate tax is a tax imposed upon the basis of the
Amount Exempt net estate considered as a unit, regardless of the
P200,000 P100,000 number of shares into which it may be divided or
Grant of Deduction the relationship of the beneficiaries. It is paid by
Yes (NIRC, Sec. 86) None the estate represented by the
Filing of Return administrator/executor (Report of the Tax
1.Transfers subject to Commission on the National Internal Revenue
estate tax; Laws, Vol. II, p. 113).
2.Exempt from tax but 3. It is different from inheritance tax, which is an
gross value of the All transfer by gift imposition on the privilege to receive property and
estate exceeds except those which is paid by the recipients of the property from the
P200,000; under Sec. 101 of the estate (Lorenzo v. Posadas, G.R. No. L-43082,
3. Estate consist of NIRC are exempt from June 18, 1937).
registrable property tax (NIRC, Sec. 103)
regardless of the value Inheritance Tax – a tax imposed on the legal right
of the gross estate or privilege to succeed to, receive or take property
(NIRC, Sec. 90) by or under a will, intestacy law, or deed, grant or

EXECUTIVE COMMITTEE
SYLVESTER AUSTRIA over-all chairperson,
REYNOLD ORSUA chairperson for academics,
JOE VINCENT AGUILA chairperson for hotel
operations, LYNDON RUTOR vice-chairperson
for operations, RODEL JAMES PULMA vice-
chairperson for secretariat, DENISE DIANNE
MAGBUHOS vice-chairperson for finance, IAN
DANIEL GALANG vice-chairperson for
electronic data processing, JOMARC PHILIP
DIMAPILIS vice-chairperson for logistics,
ALBERTO RECALDE JR. vice-chairperson for
membership
SUBJECT COMMITTEE
MA. EVANOR BONAOBRA subject chair,
MABEL BUTED assistant subject chair, IAN
CALMARES edp, CLAIRE BULIYAT general
principles, CAROLINE CLAIRE BARIC,
ROBERT JAY LIM and NIKKI NAKHISHA
MACALINO income tax, PATRICIA ANNE
SAYO transfer tax, MA. PATRICIA PAULA
GAUNA, value added tax, FLORIAN
SALCEDO nirc remedies, MONIQUE CHU
tax administration and enforcement,
JONATHAN VINARAO real property tax and
local taxation, RICHMOND MONTEVIRGEN
tariff and customs law, IAN DULDULAO
court of tax appeals
MEMBERS
Jez Charlemagne Arago, Noreen
Joyce Aquino, Jeana Lyn
Caceres, Paul Vincent Casilla,
Bai Pangandongan Dilangalen,
Clarissa Heromina Esguerra,
Lara Carmela Fernando, Aemie
Mana Jordan, Raynald Lopez,
Ali Loraine Manrique,
Maygenica Mateo, Jona
Christinelli Mendoza, Henson
Macayanan Montalvo, Derek
Odosis, Krizia Marie Redondo,
Ma. Katrina Roxas, Michelle
Salcedo, Sarah Lou Sulit, Doris
Moriel Tampis, Fenna Marie
Tilos, Wesley Young


gift becoming operative at or after death (Lorenzo after the death of the decedent (RR No. 2-2003,
v. Posadas, G.R. No. L-43082, June 18, 1937). Sec. 3).

Note: Presently, there is no inheritance tax Law that Governs the Imposition of Estate Tax
imposed by law. Presidential Decree No. 69 Estate taxation is governed by the statute in force at
passed on November 24, 1972, effective January the time of the death of the decedent (RR No. 2-
1, 1973, abolished the inheritance tax. 2003, Sec. 3).

Nature of Estate Tax: Estate Tax Planning

1. A transfer tax imposed upon the gratuitous It is a device to achieve a transfer of properties from
disposition of private property; and the testator to the heirs at the least tax as possible.
2. A privilege or excise tax, not a property tax Note: The legal right of a taxpayer to decrease the
(DOMONDON, Vol. III supra at 5) because their amount of what otherwise could be his taxes or
imposition does not rest upon general ownership altogether avoid them, by means which the law
but rather they are imposed on the act of passing permits, cannot be doubted (Delpher Trades
ownership of property. Corporation v. IAC, G.R. No. L-69259, January 26,
1988).
Purpose or Object of Estate Tax:
1. To generate additional revenue for the Time and Transfer of Properties
government; The properties and rights are transferred to the
2. To reduce concentration of wealth; successors at the time of death of the decedent
3. To provide for equal distribution of wealth; (CIVIL CODE, Art. 777).
4. It is the most appropriate method for taxing the
privilege which the decedent enjoys in controlling Upon the death of the decedent, succession takes
the disposition at death of property accumulated place and the right of the State to tax the privilege to
during the lifetime of the decedent; and transmit the estate vests instantly upon death (RR
5. It is the only method of collecting the share which No. 2-2003, Sec.3).Thus:
is properly due to the State as a partner in the 1. The notice of death must be filed within two (2)
accumulation of property which was made months after the death of the decedent or within
possible on account of the protection given by the two (2) months after qualifying as such executor or
State (Report of the Tax Commission on National administrator (NIRC, Sec.89);
Internal Revenue Laws, Vol. I, pp. 55-57). 2. The properties comprising the gross estate shall
be valued based on their fair market value as of
Theories regarding the Purpose of Estate Tax: the time of death of the decedent (RR No. 2-2003,
1. Benefit-received Theory – The tax is in return for Sec.5); and
the services rendered by the State in the 3. The return must be filed within six (6) months from
distribution of the estate of the decedent and for the decedent’s death (NIRC, Sec. 90[B]).
the benefits that accrue to the estate and the
heirs. Despite the transfer of properties and rights at the
2. State-partnership Theory – The tax is in the time of death, the executor or judicial administrator
share of the State as a “passive and silent partner” shall not deliver a distributive share to any party
in the accumulation of property. interested in the estate unless there is a certification
3. Ability-to-pay Theory – The tax is based on the from the Commissioner that estate tax has been
fact that the receipt of inheritance creates an paid (NIRC, Sec.94).
ability to pay and thus to contribute to
governmental income. Estate Tax Formula
4. Redistribution-of-wealth Theory – Tax is
imposed to help reduce undue concentration of Exclusive* Community Total
wealth in society to which the receipt of Gross xx xx xx
inheritance is a contributing factor (DOMONDON, Estate
Taxation Reviewer (2008), p.948) [hereinafter Less: (xx) (xx)
DOMONDON, 2008]. Ordinary
deductions
Accrual of Estate Tax Net xx
The estate tax accrues as of the death of the Community
decedent and the accrual is distinct from the Estate
obligation to pay the tax, which is six (6) months Less: (xx)
Special
Deductions

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Net Estate xx Note: A corporation, domestic or foreign, is not

Less: ½ (xx)** liable for estate tax because a corporation is not
share of capable of a natural death.
the
surviving Gross Estate vis-a-vis Net Estate
spouse Gross estate refers to the value of all the property,
Net taxable xx real or personal, tangible or intangible, of the
estate decedent wherever situated (except for non-resident
Multiply % alien), to the extent of his interest at the time of his
by: Tax death, as well as other items includible in the gross
rate estate (NIRC, Sec. 85). On the other hand, net
Estate Tax xx estate refers to the value of the gross estate less the
Due ordinary and special deductions (NIRC, Sec. 86).
Less: Tax (xx)
Credit, if
Determination of the Gross Estate
any
1. If the decedent is a resident or non- resident
Estate Tax xx
still due, if
citizen, or a resident alien – All properties, real
any or personal, tangible or intangible, wherever
situated, plus items includible in gross estate.
*The exclusive properties included in the gross 2. If the decedent is a non-resident alien – Only
estate are only those exclusive properties of the properties situated in the Philippines provided
decedent. The exclusive properties of the surviving that, intangible personal property is subject to the
spouse are not included in the computation of the rule of reciprocity provided for under Sec. 104 of
gross estate. the NIRC (RR No. 02-2003, Sec. 4).

**The ½ share of the surviving spouse can be Intangible Properties Considered Situated in the
derived at by dividing the net community estate into Philippines: (NIRC, Sec. 104)
two. 1. Franchise which must be exercised in the
Philippines;
Note: Ordinary deductions are deducted from the 2. Shares, obligations or bonds issued by
conjugal or community property from which as corporations organized or constituted in the
diminished shall be taken the ½ net share of the Philippines;
surviving spouse (DE LEON, NIRC, supra at 705). 3. Shares, obligations or bonds issued by a foreign
Special deductions are deducted from the gross corporation eighty-five (85%) of the business of
estate pertaining only to the decedent. which is located in the Philippines;
4. Shares, obligations or bonds issued by a foreign
Schedule of Tax Rate corporation if such shares, obligations or bonds
If the net estate is: have acquired a business situs in the Philippines;
and
Of the
But not Tax shall 5. Shares, rights in any partnership, business or
Over + excess
over be industry established in the Philippines.
over
P200,000 EXEMPT Rule of Reciprocity
P200,000 500,000 P0 5% P200,000 The intangible personal property of a non-resident
alien individual, if:
500,000 2million 15,000 8% 500,000 1. With reciprocity – shall not be included in the
2million 5million 135,000 11% 2million gross estate if:
5 million 10million 465,000 15% 5 million a. The laws of the foreign country to which the
decedent was a citizen and resident at the time
10million of his death, did not impose a transfer tax of any
1,215,000 20% 10million
and over character, in respect of intangible personal
property of citizens of the Philippines not
Classification of Decedent for Estate Tax residing in that foreign country; or
Purposes (RR No. 2-2003, Sec. 4) b. The laws of the foreign country allows a similar
1. Residents and Citizens exemption from transfer or death taxes of every
2. Non-resident Aliens character owned by citizens of the Philippines
not residing in that foreign country (NIRC, Sec.
104).

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2. Without reciprocity – shall be included in the
gross estate.
Determination of the Net Estate
1. If the decedent is a resident or non- resident
citizen, or a resident alien – Net estate is equal
to gross estate less ordinary and special
deductions and exclusions allowed by law (RR No.
2-2003, Sec.6).
2. If the decedent is a non-resident alien – Net
estate is equal to gross estate less ordinary
deductions and exclusions allowed by law (RR No.
2-2003, Sec. 7).
Note: Non-resident aliens are not entitled to
special deductions. Please refer to table below on
Deductions.
Valuation of Gross Estate:
1. Real Property – whichever is higher between the
FMV
a. As determined by the Commissioner (zonal
value); or
b. As shown in the schedule of values fixed by the
provincial and city assessors (NIRC, Sec. 88).
2. Personal Property
General Rule: FMV at the time of death
Exception: Shares of stock
a. If listed – FMV is the arithmetic mean between
the highest and lowest quotation at the date of
death, or the date nearest the date of death, if
none is available on the date of death itself (RR
No. 02-2003, Sec. 5);
b. If unlisted – FMV is the par value in case of
preferred shares, and book value in case of
common shares (RR 02-2003, Sec. 5).
In determining the book value of common shares,
the following shall not be considered:
a. Appraisal surplus; and
b. The value assigned to preferred shares, if there
are any (RR No. 02-2003, Sec. 5).
3. Right to Usufruct, Use or Habitation, and
Annuity – The probable life of the beneficiary in
accordance with the latest basic standard mortality
table is to be taken into account, to be approved
by the Secretary of Finance, upon
recommendation of the Insurance Commissioner
(RR 02-2003, Sec. 5).
4. Improvement – The construction cost per building
permit or the FMV per latest tax declaration.
INCLUSIONS IN THE GROSS ESTATE: (ITRGPI)
I. Decedent’s Interest at the time of his death;
II. Transfer in contemplation of death;
III. Revocable Transfer;
IV. Property passing under a General Power of
Appointment ;
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V. Proceeds of a life insurance taken out by the
decedent upon his own life, where the
beneficiary is the estate, his executor or
administrator irrespective of whether or not
the insured retained the power of revocation;
or any beneficiary designated as revocable;
and
VI. Property transfers for Insufficient
consideration
1. Decedent’s Interest (NIRC, Sec. 85[A])
It includes any interest having value or capable of
being valued, transferred by the decedent at the
time of his death.
2. Transfers in Contemplation of Death (NIRC,
Sec. 85[B])
General Rule: The transfer shall be considered as
transfer in contemplation of death if, during the
lifetime of the decedent, he still retained in the
property the following:
1. Possession or enjoyment thereof;
2. Receipt of the income or the fruits
notwithstanding the transfer; or
3. Right either alone or in conjunction with any
person, to designate person who shall possess
or enjoy the said property or income therefrom.
Exception: Bona fide sale for an adequate and
full consideration in money or in money’s worth.
Concept of Transfer in Contemplation of Death
The concept of transfer in contemplation of death
has a technical meaning. This does not constitute
any transfers made by a dying person. It is not
the mere transfer that constitutes a transfer in
contemplation of death but the retention of some
type of control over the property transferred
(DOMONDON, Vol. III supra at p. 30). In effect,
there is no full transfer of all interests in the
property inter vivos.
Illustration: X died on April 21, 1928. X, before
his death, made a gift inter vivos in favor of Y of all
his property according to a deed of gift which
includes all the property of X. The deed of gift was
executed by X on April 9, 1928, in favor of his son
Y. This deed of gift transferred 22 tracts of land to
the donee Y, reserving to the donor X for his life
the usufruct of 3 tracts.
Suggested Answer: The facts warrant the
inference that the transfer was an advancement
upon the inheritance which the donee, as the sole
and forced heir of the donor, would be entitled to
receive upon the death of the donor. The law
presumes that such gifts have been made in

anticipation of inheritance, devise, bequest, or gift
mortis causa, when the donee, after the death of
the donor proves to be his heir, devisee or donee
mortis causa, for the purpose of evading the tax,
and it is to prevent this that it provides that they
shall be added to the resulting amount (Dison v.
Posadas, G.R. No. L-36770, November 4, 1932). decedent (DOMONDON, Vol. III, supra at 710).
3. Revocable Transfers (NIRC, Sec. 85[C])
General Rule: A transfer is a revocable transfer
where:
a. There is a transfer by trust or otherwise;
b. The enjoyment thereof was subject at the date
of his death to any change through the exercise
of a power (in whatever capacity exercisable)
by:
i. The decedent alone;
ii. The decedent in conjunction with any other
person without regard to when or from what
source the decedent acquired such power, to
alter, amend, revoke or terminate; or
iii. Where any such power is relinquished in
contemplation of the decedent’s death.
Exception: Bona fide sale for an adequate and
full consideration in money or money’s worth.
The power to alter, amend, or revoke is
considered to exist on the death of the
decedent:
1. Even though the exercise of the power is
subject to a precedent of giving notice; or
2. Even though the alteration, amendment, or
revocation takes effect only on the expiration of
a stated period after the exercise of the power.
Note: Whether or not, on or before the decedent’s
death, notice has been given, or the power has
been exercised, proper adjustment shall be made
representing the interest which would have been
excluded from the power if the decedent had lived.
However, if notice has not been given, or the
power has not been exercised on or before the
date of his death, such notice shall be considered
to have been given, or the power exercised, on
the date of his death.
Irrevocable Transfers Not Included
Only revocable transfers shall be included in the
gross estate because of the tremendous power
and control which the transferor can exercise.
The transferor can anytime revoke the transfer,
hence there was no transfer made (SABABAN,
supra at 136).
4. Property Passing under the General Power of
Appointment (NIRC, Sec.85[D])
Power of Appointment – The right to designate
the person or persons who shall enjoy and
possess certain property from the estate of a prior
General Rule: Property over which the decedent
held a power of appointment is not includible in his
gross estate unless such power is general.
a. General power of appointment – When it
authorizes the donee (decedent) to appoint any
person he pleases, including himself, thus
having full dominion over the property as though
he owned it (DE LEON, NIRC, supra at 710).
b. A power is not general (specific) – When the
donee (decedent) can appoint only among a
restricted or designated class of persons other
than himself (Id.).
The general power of appointment may be
exercised by the decedent:
1. By will;
2. By deed executed in contemplation of, or
intended to take effect in possession or
enjoyment at, or after his death; or
3. By deed under which he has retained for his life
or any period not ascertainable without
reference to his death or for any period which
does not in fact end before his death:
a. The possession or enjoyment or the right to
the income from the property; or
b. The right, either alone or in conjunction with
any person, to designate the persons who
shall possess or enjoy the property or the
income.
Exception: Bona fide sale for an adequate and
full consideration in money or money’s worth.
5. Proceeds of Life Insurance (NIRC, Sec. 85[E])
Requisites to be Included in the Gross Estate:
a. The decedent takes an insurance policy on his
own life; and
b. The amounts are receivable by:
i. The estate, his executor, or administrator
irrespective of whether or not insured retained
the power of revocation; or
ii. Any beneficiary designated as revocable.
The proceeds of life insurance are not included in
a decedent’s gross estate hence, not subject to
estate tax when:
a. The beneficiary is other than the estate, his
executor, or administrator; and
b. The designation is irrevocable.
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Note: Life insurance proceeds are always Summary of Deductions

excluded from gross income of the recipient Ordinary Deductions Special Deductions
whether the designation of the beneficiary is (EVP) (FSMA)
revocable or irrevocable (DOMONDON, Vol. III A. ELIT 1. Family Home
supra at 47). 1. Funeral Expenses 2. Standard deduction
2. Judicial Expenses 3. Medical expenses
6. Transfers for Insufficient Consideration (NIRC, 3. c.Claims against the 4.Amount received by
Sec. 85[G]) estate heirs under R.A. 4917
Transfers, trusts, interests, rights or powers 4. d.Claims against
(denominated as transfer in contemplation of insolvent persons
death, revocable transfer and property passing 5. Unpaid mortages
under general power of appointment) made, 6. Unpaid taxes
created, exercised or relinquished for a 7. Losses
consideration in money or money’s worth. B. Property Previously
taxed (Vanishing
Exception: a bona fide sale for an adequate and Deduction)
full consideration in money or money’s worth. C. Transfer for Public
Use
The value to be included in the gross estate is the
excess of the fair market value of the property at Citizens and Resident Aliens (EVP-FS-MAN)
the time of the decedent’s death over the 1. Expenses, losses, indebtedness and taxes: (ELIT)
consideration received. – (FJCCUUL)
a. Funeral expenses;
Formula: b. Judicial expenses;
FMV of the property at the date of decedent’s c. Claims against the estate;
death d. Claims against insolvent persons;
Less: Actual consideration received by the e. Unpaid mortgages;
decedent f. Unpaid taxes; and
= Amount includible in decedent’s gross estate g. Losses
2. Property previously taxed (Vanishing deductions);
Illustration: 3. Transfers for Public use;
Ex. A Ex. B 4. Family Home;
1. FMV at the time of transfer P500 P500 5. Standard deduction;
2. Consideration received by 6. Medical expenses;
the transferor-decedent at P500 P300 7. Amount received by heirs under R.A. 4917; and
the time of transfer 8. Net share of the surviving spouse in the conjugal
3.FMV at the time of the property.
P750 P750
death of transferor
Value to be included in the Non-resident aliens (EVP-N)
P0 P450 1. Expenses, losses, indebtedness and taxes (ELIT);
gross estate
2.
To determine the adequacy of consideration, Philippine gross
compare items 1 and 2. If there is not enough Allowable estate
= x ELIT
consideration or there is no consideration at all, Deduction World gross
obtain the difference between items 2 and 3 to estate
determine the valuation for inclusion in the gross
estate. 3. Vanishing deductions for property in the
Philippines
Property relations between husband and wife shall 4. Transfers for Public Use
be governed primarily by the Family Code. Please 5. Net share of the surviving spouse in the conjugal
refer to the discussions on the Family Code, property
particularly on the topic concerning conjugal
partnership of gains and absolute community of Items not allowed as deduction to non-resident
property. aliens:
1. Family home;
Deductions from the Gross Estate 2. Standard deduction;
1. Ordinary; and 3. Medical expenses; and
2. Special (RR No. 02-2003, Sec. 8) 4. Amounts received by heirs under RA 4917.

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A. Expenses, Losses, Indebtedness and Taxes
(ELIT) (NIRC, Sec. 86[A][1]; RR No. 2-2003,
Sec. 6[A])
1. Funeral Expenses
The amount deductible must be:
a. Whichever is lower of:
i. Actual funeral expense; or
ii. 5% of the gross estate
b. But not exceeding P200,000.
Actual funeral expenses – Those which are
actually incurred in connection with the
interment or burial of the deceased. The
expenses must be duly supported by receipts or
invoices or other evidence to show that they
were actually incurred.
Deductible Funeral Expenses:
a. Mourning apparel of the surviving spouse or
unmarried minor children of the deceased
bought and used on the occasion of the burial;
b. Expenses for the deceased’s wake, including
food and drinks;
c. Publication charges for death notices;
d. Telecommunication expenses incurred in
informing relatives of the deceased;
e. Cost of burial plot, tombstones, monument or
mausoleum but not their upkeep. In case the
deceased owns a family estate or several
burial lots, only the value corresponding to the
plot where he is buried is deductible;
f. Interment and/or cremation fees and charges;
and
g. All other expenses incurred for the
performance of the rites and ceremonies
incident to interment.
Non-Deductible Funeral Expenses:
a. Expenses incurred after the internment, such
as prayers, masses, entertainment, or the like;
b. Any portion of the funeral or burial expenses
borne or defrayed by relatives and friends of
the deceased; and
c. Medical expenses as of the last illness will not
form part of funeral expenses but should be
claimed as medical expenses incurred within
one (1) year before the death of the decedent.
Note: The cut-off point for funeral expenses to
be claimed as deduction is internment (RR No.
2-2003, Sec. 6)
Illustrations on how to determine the amount
of allowable funeral expenses:
a. If five percent (5%) of the gross estate is
P70,000 and the amount actually incurred is
P50,000, only P50,000 will be allowed as
deduction;
b. If five percent (5%) of the gross estate is
P70,000 and the amount actually incurred is
P90,000, only P70,000 will be allowed as
deduction;
c. If five percent (5%) of the gross estate is
P220,000 and the amount actually incurred is
P215,000, the maximum amount that may be
deducted is only P200,000.
i. If five percent (5%) of the gross estate is P
100,000 and the total amount incurred is
P150,000 where P20,000 thereof is still
unpaid, the only amount that can be claimed
as deduction for funeral expenses is
P100,000. The entire P50,000 excess
amount consisting of P30,000 paid amount
and P20,000 unpaid amount can no longer
be claimed as funeral expenses. Neither
can the P20,000 unpaid portion be deducted
from the gross estate as claims against the
estate.
Note: The amount to be deducted as funeral
expenses is the lowest of the actual funeral
expenses, five percent (5%) of the gross
estate or P200,000.
2. Judicial Expenses
Nature of Expenses that May be Deducted:
(PAID)
a. Incurred in the Payment of debts of the estate;
b. Incurred in the Administration of the estate;
c. Incurred in Inventory-taking of assets
comprising the gross estate; and
d. Incurred in the Distribution of the estate
among the heirs.
Note: Judicial expenses must be incurred
during the settlement of the estate but not
beyond the last day prescribed by law (i.e.,
within six (6) months from the date of death of
the decedent), or the extension thereof (in
meritorious cases, the Commissioner may grant
reasonable extension not exceeding thirty (30)
days), for the filing of the estate tax return.
Any deduction for unpaid judicial expenses
should be supported by a sworn statement of
account issued and signed by the creditor.
Deductible Judicial Expenses:
a. Fees of executor or administrator;
b. Attorney’s fees;
Note: Attorney’s fees must be essential to the
collection of assets, payment of debts, or
distribution of the property to the person
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entitled to it. The services for which the fees
are charged must relate to the proper
settlement of the estate (CIR v. CA, G.R. No.
123206, March 22, 2000).
c. Court fees;
d. Accountant’s fees;
e. Appraiser’s fees;
f. Clerk hire;
g. Costs of preserving and distributing the
estate;
h. Costs of storing or maintaining property of the
estate; and
i. Brokerage fees for selling property of the
estate.
Extrajudicial Expenses
Although the NIRC and revenue regulations are
silent on deductibility of extrajudicial expenses,
the High Court ruled that since the provision of
the NIRC on this matter was copied from the
laws of the U.S. where extrajudicial expenses
are considered as deduction from the gross
estate, then it is proper to consider them as
deduction provided these are incurred for the
settlement of the estate of the deceased
(CIR v.CA, G.R. No. 123206, March 22, 2000).
Notarial fee for extra-judicial settlement and
attorney’s fee for guardianship proceedings are
also allowed as deductions from gross estate of
decedent (CIR v. CA, G.R. No. 123206, March
22, 2000).
Non-deductible Judicial Expenses:
a. Expenditures incurred for the individual benefit
of the heirs, devisees or legatees;
b. Compensation paid to a trustee of the
decedent’s estate when it appeared that such
trustee was appointed for the purpose of
managing the decedent’s real property for the
benefit of the testamentary heir;
c. Premiums paid on the bond filed by the
administrator as an expense of administration
since the giving of a bond is in the nature of a
qualification for the office and not necessary
for the settlement of the estate; and
d. Attorney’s fees incident to litigation incurred
by the heirs in asserting their respective rights
(CIR v. CA, G.R. No. 123206, March 22,
2000).
3. Claims Against the Estate
This refers to debts or demands of a pecuniary
nature which could have been enforced against
the deceased in his lifetime and could have
been reduced to simple money judgments. It
may arise out of contract, tort or under operation
of law.
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Requisites for Deductibility: (PEG-C)
a. Must be a Personal obligation of the deceased
existing at the time of death, except unpaid
obligations incurred incident to his death such
as unpaid funeral expenses (i.e., expenses
incurred up to the time of interment) and
unpaid medical expenses;
b. Must be valid in law and Enforceable in court
c. Must be incurred in Good faith and for an
adequate consideration in money or money’s
worth; and
d. Must not have been Condoned by the creditor
or the action must not have prescribed.
The date-of-death valuation rule, which
provides that the appropriate deduction is the
“value” that the claim had at the date of the
decedent’s death, should be applied. Post-
death developments should not be considered
in determining the net value of the estate. Thus,
where a lien claimed against the estate was
certain and enforceable on the date of the
decedent’s death, the fact that the claimant
subsequently settled for lesser amount did not
preclude the estate from deducting the entire
amount of the claim for estate tax purposes.
(Dizon v. CTA, G.R. No. 140944, April 30,
2008).
4. Claims Against Insolvent Persons
Requisites for Deductibility:
a. The amount thereof has been initially included
as part of his gross estate (for otherwise they
would constitute double deductions if they
were to be deducted); and
b. The incapacity of the debtors to pay their
obligation is proven.
Illustration: X died leaving an estate amounting
to P5M. Included in the gross estate is a P1M
receivable from Y, who was declared to be
insolvent 5 days prior to the death of X. The
P1M amount was deducted from the gross
estate of X in computing the net estate subject
to tax. Thereafter, the estate of X was settled,
and the remaining assets were distributed to the
heirs. Years later, Y won from a lottery and he
paid the heirs of X the sum owed amounting to
P1M. Discuss the estate tax implication of the
payment of Y to the heirs of the deceased.
Suggested answer: The answer must be
qualified. If Y paid within the 3-year prescriptive
period provided under Sec. 203 of the NIRC
within which the estate tax return may be
assessed, then the deficiency estate tax may be
collected by the BIR.

On the other hand, if Y paid the P1M only after 5
years from the settlement of the estate, which is
beyond the 3-year prescriptive period, then no
deficiency estate tax may be collected by the
BIR. Nonetheless, the P1M collected by the
heirs of X may be considered as income
recovered and therefore taxable for income tax
purposes, applying the tax benefit rule. Claim
against insolvent persons is in the nature of a
bad debt, wherein when actually charged off
from the books and subsequently recovered, is
taxable to the extent of benefit obtained from
such deduction.
5. Unpaid Mortgages
Requisites for Deductibility:
a. The value of the decedent’s interest therein,
undiminished by such mortgage or
indebtedness, is included in the value of the
gross estate; and
b. The mortgages were contracted bona fide and
for an adequate and full consideration in
money or money’s worth.
Note: In case the loan of the decedent is only
an accommodation loan where the loan
proceeds went to another person, the value of
the unpaid loan must be included as a
receivable of the estate. If there is a legal
impediment to recognize the same as receivable
of the estate, the said unpaid obligation shall not
be allowed as deduction. In all instances, the
mortgaged property, to the extent of the
decedent’s interest therein, should always form
part of the taxable gross estate. (RR No. 2-
2003, Sec. 6)
6. Unpaid Taxes
Requisites for Deductibility:
a. Taxes which have accrued as of or before the
death of the decedent; and
b. Unpaid as of the time of his death, regardless
of whether or not it was incurred in connection
with trade or business.
This deduction will not include:
1. Income tax upon income received after death;
2. Property taxes not accrued before his death;
or
3. The estate tax due from the transmission of
his estate.
7. Losses
Requisites for Deductibility: (FLIDS)
a. Arising from Fires, storms, shipwreck, or other
casualties, or from robbery, theft, or
embezzlement;
b. Incurred not later than the Last day for the
payment of the estate tax as prescribed by
law.
c. Not compensated for by Insurance or
otherwise;
d. At the filing of the estate tax return, such
losses have not been claimed as a Deduction
for income tax purposes in an income tax
return; and
e. Incurred during the Settlement of the estate;
Note: Casualty loss can be allowed as
deduction in one instance only, either for income
tax purposes or estate tax purposes.
B. Property Previously Taxed (Vanishing
deductions) (NIRC, Sec. 86[A][2])
The deduction allowed from the gross estate of
citizens, resident aliens and non-resident aliens
for properties which were previously subject to
donors or estate taxes. The deduction is called a
vanishing deduction because the deduction
allowed diminishes over a period of five (5) years.
In property previously taxed, there are two
transfers involving the same property. The first
transfer is from the first decedent or donor to the
heir/donee, while the second transfer is from the
heir/donee (now the second decedent) to his
heirs. Note that these two transfers must occur
within five years and the first transfer has already
been subjected to transfer tax.
Requisites for Deductibility: (DIPIN)
1. Death – the present decedent died within five
years from the receipt of the property from a
prior decedent or donor;
2. Identity – the property sought to be deducted is
the one received from a prior decedent or donor;
3. Previously determined and paid – the donor's
tax on the gift or estate tax on the prior
succession was finally determined and paid;
4. Inclusion – the property must have formed part
of the gross estate situated in the Philippines of
the prior decedent, or the total amount of the
gifts of the donor; and
5. No previous deduction – no vanishing deduction
on the property was allowed to the estate of the
prior decedent. (REYES, Philippine Transfer
and Business Taxes (2008), p.52 [hereinafter
REYES, 2008]).
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Notes: 4. Step 4: Computation of vanishing deduction

1. The deduction allowed is only the amount finally Percentage
determined as the value of such property in provided
Final Vanishing
determining the value of the gift, or the gross X under Sec. =
Basis deduction
estate of such prior decedent. 86(A)(2)
2. The deduction allowed is only to the extent that of NIRC
the value of such property is included in the
decedent’s gross estate. % of the value
Period of time between the
3. Where a deduction was allowed of any of the
death of prior decedent or
mortgage or lien in determining the gift tax, or property
time of donation and the
the estate tax of the prior decedent, which were allowed as
death of the decedent
paid in whole or in part prior to the decedent’s deduction
death, then the deduction allowable for property Within the year prior to the
100%
previously taxed shall be reduced by the amount death of decedent
so paid. More than 1 year but less than 2
80%
4. Such deduction allowable shall be reduced by years
an amount which bears the same ratio to the More than 2 years but less than
60%
amounts allowable as deductions for expenses, 3 years
losses, indebtedness, taxes, and transfers for More than 3 years but less than
40%
public use as the amount otherwise deductible 4 years
for property previously taxed bears to the value More than 4 years but less than
20%
5 years
of the decedent’s estate.
5. Where the property referred to consists of two or
Illustration: A died leaving his house and lot and
more items, the aggregate value of such items
van to B, his only son. The estate tax
shall be used for the purpose of computing the
corresponding to the transmission of these
deduction. (NIRC, Sec. 86[A][2])
properties were paid. Within the year after A’s
death, B died. His gross estate including the
Formula for Computing Vanishing Deduction
house and lot and van were declared at P9.6M
(VD):
while deductions (for expenses, losses,
1. Step 1: Computation of initial basis
Value of the property subject to VD*
indebtedness, taxes, etc. and transfer for public
Less: Any Mortgage paid on that purpose) amounted to P1.8M. The following are
property relevant data: The FMV of the house and lot and
= Initial basis van at the time of A’s and B’s death are P2.4M
and P360,000, and P2.55M and P210,000
*value at the time of donation or death respectively. B also paid P210,000 of mortgage
of the prior decedent, or value at the debt.
time of death of the present decedent,
whichever is lower. The deduction is 1. Value of property
based on the individual valuation of (2,400,000+210,000) P2,610,000
each property. (DE LEON, NIRC, supra Less: Mortgage debt paid 210,000
at 725) Initial basis P2,400,000
nd
2. Step 2: Computation of 2 deduction 2. P2,400,000.00 X P1,800,000 450,000
Initial basis = 2nd P 9,600,000
ELITT**
Value of the GE X deduction
3. Initial basis P2,400,000
**ELITT refers to ELIT and Transfers for public Less: 2nd deduction 450,000
.purpose Final basis P1,950,000
Multiply by rate
3. Step 3: Computation of final basis 100%*
Initial basis Vanishing deduction P1,950,000
nd
Less: 2
deduction *The rate is 100% because B died within the
= Final basis year after A’s death.

C. Transfers for Public Use (Sec.86[A][3], NIRC)

The amount deductible shall be the entire amount
of all bequests, legacies, devises or transfers to or

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for the use of the Government of the Republic of
the Philippines or any political subdivision thereof,
exclusively for public purpose.
Requisites for Deductibility: (LAGE)
1. The disposition is in a Last will and testament;
2. To take effect After death;
3. In favor of the Government of the Philippines or
any political subdivision thereof; and
4. Exclusively for public purpose. (REYES, 2008
supra at 51).
D. Family Home (Sec. 86[A][4], NIRC; Sec. 6[D],
RR No. 2-2003)
Requisites for Deductibility:
1. The family home must be the actual residential
home of the decedent and his family at the time
of his death, as certified by the Barangay
Captain of the locality where the family home is
situated;
2. The family home must be part of the properties
of the absolute community property or of the
conjugal partnership or, of the exclusive
properties of either spouse depending upon the
classification of the property (family home) and
the property relations prevailing on the
properties of the husband and wife and included
as part of the gross estate of the decedent; and
3. Allowable deduction must be in an amount
equivalent to:
a. The current fair market value of the
decedent’s family home, or
b. The extent of the decedent's interest (whether
conjugal/community or exclusive property)
c. But not exceeding P1, 000,000.
Note: If the family home is a conjugal or
community property, the amount to be deducted is
equivalent to ½ of the fair market value, but shall
not exceed P1,000,000.
Family Home – the dwelling house, including the
land on which it is situated, where the husband or
the wife, or head of the family, and members of
their family reside, as certified by the Barangay
Captain of the locality.
Notes:
1. The family home is deemed constituted on the
house and lot from the time it is actually
occupied as a family residence and is
considered as such for as long as any of its
beneficiaries actually reside therein.
2. Actual occupancy of the house or house and lot
as the family residence shall not be considered
interrupted or abandoned in such cases as the
temporary absence from the constituted family
home due to travel or studies or work abroad,
etc.
3. The family home is generally characterized by
permanency, which is the place to which
whenever absent for business or pleasure, one
still intends to return.
4. The family home may be constituted by an
unmarried head of a family on his or her own
property.
5. For purposes of availing of a family home
deduction to the extent allowable, a person may
constitute only one family home.
6. Husband and wife shall refer to those legally
married man and woman.
E. Standard Deduction (NIRC, Sec. 86[A][5]; RR
No. 2-2003, Sec. 6[E])
A deduction in the amount of One Million Pesos
(P1,000,000) shall be allowed as an additional
deduction without need of substantiation. The full
amount of P1,000,000 shall be allowed as
deduction for the benefit of the decedent.
Difference between Sec. 86[A][5] and Optional
Standard Deduction in Sec. 34[L]
Standard deduction Optional standard
(Sec. 86 [A][5]) deduction (Sec. 34[L])
Deduction in addition to Deduction in lieu of
the other deductions itemized deductions
Amount of deduction:
Amount of deduction:
40% of gross income
P1,000,000
(R.A. 9504)
Available to resident
Applies to all individual
citizens, non-resident
taxpayers except non-
citizens and resident
resident aliens
aliens
F. Medical Expenses (NIRC, Sec. 86[A][6]; RR
No. 2-2003, Sec. 6[F])
Requisites for Deductibility:
1. The expenses must have been incurred within
one (1) year prior to death of decedent;
2. Must be substantiated with official receipts for
services rendered by the decedent’s attending
physicians, invoices, statement of accounts duly
certified by the hospital, and such other
documents in support thereof; and
3. The total amount thereof, whether paid or
unpaid, shall in no case exceed P500,000.
Note: Any amount of medical expenses incurred
in excess of P500,000 shall no longer be allowed
as deduction as “medical expenses”. Neither can
any unpaid amount thereof in excess of the
P500,000 threshold nor any unpaid amount for
medical expenses incurred prior to the one-year
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period from date of death be allowed to be
deducted from the gross estate as “claim against
the estate” (RR No. 2-2003, Sec. 6).
Illustrations on how to determine the amount
of allowable medical expenses:
1. If the actual amount of medical expenses
incurred is P250,000 then only P250,000 shall
be allowed as deduction and not to the extent of
the P500,000 threshold amount;
2. If the actual amount of medical expenses
incurred within the year prior to decedent’s
death is P600,000, only the maximum amount of
P500,000 shall be allowed as deduction. If in
case the excess of P100,000 is still unpaid,
such amount shall not be allowed to be
deducted from the gross estate as “claims
against the estate”.
Note: The amount to be deducted as medical
expenses is the lower of the actual medical
expenses and P500,000.
G. Amounts Received by Heirs under R.A. 4917
(An Act Providing that Retirement Benefits of
Employees of Private Firms shall not be
Subject to Any Tax Whatsoever) (NIRC, Sec.
86[A][7]; RR No. 02-2003 Sec. 6[G])
Any amount received by the heirs from the
decedent’s employer as a consequence of the
death of the decedent-employee in accordance
with R.A. 4917 is allowed as deduction from gross
estate, provided the amount of separation benefit
is included as part of the gross estate of the
decedent.
H. Net Share of the Surviving Spouse in the
Conjugal/Community Property (NIRC, Sec.
86[C]; RR No. 02-2003 Sec. 6[H])
After deducting the allowable deductions
appertaining to the conjugal or community
properties included in the gross estate (i.e.,
ordinary deductions), the share of the surviving
spouse must be removed to ensure that only the
decedent’s interest in the estate is taxed.
Note: The net share of the surviving spouse from
the conjugal property is considered as a deduction
from the gross estate (not an exclusion from the
gross estate which pertains to the exclusive or
capital property). Thus, the “gross estate” of the
decedent always includes the net share of the
surviving spouse from the conjugal property. This
finds relevance in determining the amount of gross
estate in relation to the filing of notice of death and
estate tax returns under Secs. 89 and 90 of the
NIRC.
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Allowable Deductions from the Gross Estate of
Non-Resident Aliens
In case of non-resident aliens, no deduction shall be
allowed unless the executor, administrator, or
anyone of the heirs, as the case may be, includes in
the estate tax return of the decedent required to be
filed, the value at the time of his death that part of
the gross estate of the non-resident not situated in
the Philippines (NIRC, Sec. 86[D]; RR No. 02-2003,
Sec. 7).
Exclusions from the Gross Estate:
1. The capital (exclusive property) of the surviving
spouse (NIRC, Sec. 85[H]).
Note: The share of the surviving spouse in the
absolute community/conjugal partnership is
considered as a deduction (NIRC, Sec. 86[C]).
2. Other items which are excluded from the gross
estate are the following:
a.GSIS proceeds/benefits
b.Accruals from SSS
c.Proceeds of life insurance where the beneficiary
is irrevocably appointed
d.Proceeds of life insurance under a group
insurance taken by employer (not taken out
upon his life)
e.War damage payments
f.Transfer by way of bona fide sales
g.Properties held in trust by the decedent
h.Acquisition and/or transfer expressly declared
as not taxable.
Exemptions from the Gross Estate (NIRC, Sec.
87): (BUFF)
1. All Bequests, devises, legacies or transfers to
social welfare, cultural and charitable institutions,
no part of the net income of which inures to the
benefit of any individual: Provided, however, That
not more than thirty percent (30%) of the said
bequests, devises, legacies or transfers shall be
used by such institutions for administration
purposes.
Note: The bequest, devises, legacies or transfers
do not include those made to educational
institutions.
2. The merger of Usufruct in the owner of the naked
title;
Illustration: X (testator) devised in his will a piece
of land: naked title to Y and usufruct to Z, for as
long as Z lives. The transmission from X to Y and
Z is subject to estate tax but the merger of the
usufruct and naked title in Y upon the death of Z is
exempt.


3. Fideicommissary substitution; Step 1:

Limitation A (By Country)
Illustration: X devised in his will real property to
his brother, Y (fiduciary heir) who is entrusted with NE foreign country X PH estate = Q
the obligation to preserve and to transmit the NE world tax
property to Z (fideicommissary), a son of Y, when
Z becomes of age. Step 2:
Compare Q with actual tax payment in the foreign
4. The transmission from the First heir, legatee or country. Whichever is lower between the two shall
donee in favor of another beneficiary, in be the amount allowed as tax credit.
accordance with the desire of the predecessor.

Illustration: X provided in his will that the land he Allowed for Y is P19,000 determined as follows:
devised to his son Y be transferred to Z after five 300,000 X 95,000 = 19,000
years. 1,500,000

Estate Tax Credit (NIRC, Sec. 86[E]) Compare P19,000 with P25,000 paid.P19,000 is
A tax credit against Philippine estate tax is allowed lower.
for the estate tax or taxes paid to a foreign country
or countries. Allowed for Z is P8,000 determined as follows:
150,000 X 95,000 = 9,500
Limitations: 1,500,000
1. The amount of the credit in respect to the tax paid
to any country shall not exceed the same Compare P9,500 with P8,000 paid. P8,000 is lower.
proportion of the tax against which such credit is
taken, which the decedent's net estate situated Step 3:
within such country taxable under the NIRC bears Add all amounts allowed per country.
to his entire net estate; (per country basis); and Country Y P 19,000
2. The total amount of the credit shall not exceed the Country Z 8,000
same proportion of the tax against which such = Total for Limitation A P 27,000
credit is taken, which the decedent's net estate
situated outside the Philippines taxable under the
Step 4:
NIRC bears to his entire net estate (overall basis).
Limitation B
Illustration:
NE of all foreign X PH estate = R
Mr. B, a citizen of the Philippines, died residing in
Country tax
the Philippines, leaving a net estate of P1,050,000 in
NE world
the Philippines and P300,000 in foreign country Y
and P150,000 in foreign country Z. The net estate in
Compare R with total actual taxes paid in foreign
country Y paid an estate tax of P25,000 to that
country. Whichever is lower shall be limitation B.
country. The net estate in country Z paid P8,000.
The estate tax due, after credit would have been
450,000 X 95,000 = 28,500
P68,000, computed as follows:
1,500,000
Net Estate, Philippines (PH) P 1,050,000
Net Estate, Y 300,000 Total amount paid is P33,000 (P25,000 + P8,000),
Net Estate, Z 150,000 which is higher than R. Then 28,500 shall be
limitation B.
= Net Estate, World P 1,500,000
Step 5:
PH estate tax on P1.5M P 95,000*
Compare Limitation A and B. Amount creditable
Less: Estate tax Credit
shall be lower between the two.
(See Figure A) 27,000
= Estate tax still due P 68,000
Limitation A P 27,000
Limitation B 28,500
*To compute estate tax due on P 1.5M refer to tax
rates under Sec. 84 of the NIRC. Amount allowed as credit P27,000.

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Procedure for Estate Tax Settlement
A. Filing of Notice of Death (NIRC, Sec. 89)
1. When notice of death shall be filed:
a. When the transfer is subject to tax; or
b. Although exempt from tax, the gross value of
the estate exceeds P20,000.
2. Period of Filing: The notice of death must be
filed by the executor, administrator or any of the
legal heirs, as the case may be, with the
Commissioner within two (2) months after the
decedent’s death or within a like period after
qualifying as executor or administrator.
B. Filing of Estate Tax Return (NIRC, Sec. 90; RR
No. 2-2003, Sec. 9)
1. When estate tax return shall be filed:
a. When the gross estate exceeds P200,000; or
b. Regardless of the value of the gross estate,
where the estate consists of registered or
registrable properties such as real property,
motor vehicle, shares of stock or other similar
properties for which a clearance from BIR is
required as condition precedent for the
transfer of ownership.
Note: When the gross estate exceeds P2M, the
estate tax return shall be supported by a
statement duly certified by a CPA.
There is also an additional requirement of
registering the estate and getting a separate TIN
(NIRC, Sec. 236[I]).
2. Period of Filing:
General Rule: Estate tax return must be filed
within six (6) months from the decedent’s death.
Exception: In meritorious cases, the
Commissioner may grant reasonable extension
not exceeding thirty (30) days.
3. Where to file the estate tax return and pay
the estate tax due:
a. Resident decedent – the executor or
administrator shall register the estate of the
decedent and secure a new TIN from the
RDO where the decedent was domiciled at
the time of his death and shall file the estate
tax return and pay the corresponding estate
tax with:
i. Authorized Agent Bank;
ii. Revenue District Officer;
iii. Collection Officer; or
iv. Duly authorized Treasurer of the city or the
municipality where the decedent was
domiciled at the time of his death,
whichever is applicable.
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b. Non-resident decedent, whether non-resident
citizen or non-resident alien, with executor or
administrator in the Philippines – the estate
tax return shall be filed with and the TIN for
the estate shall be secured from the RDO
where such executor or administrator is
registered. If the executor or administrator is
not registered, the estate tax return shall be
filed with and the TIN of the estate shall be
secured from the RDO having jurisdiction over
the executor or administrator’s legal
residence.
c. Non-resident decedent who does not have an
executor or administrator in the Philippines –
the estate tax return shall be filed with and the
TIN for the estate shall be secured from the
Office of the Commissioner.
Note: Notwithstanding the foregoing, the
Commissioner of Internal Revenue may
continue to exercise his power to allow a
different venue/place in the filing of tax returns.
C. Payment of Tax (NIRC, Sec. 91; RR No. 2-
2003, Sec. 9)
1. General Rule: “Pay-as-you-file” system – the
time for paying the estate tax is at the time the
return is filed by the executor, administrator or
the heirs.
Exception: The Commissioner may grant an
extension of time.
Requisites for Extension of Time:
a. The application for extension of time to file the
return and extension of time to pay the estate
tax must be filed with the RDO where the
estate is required to secure its TIN and file the
estate tax return;
b. The Commissioner or his duly authorized
representative shall approve the application;
c. The request must be filed before the
expiration of the original period to pay which is
within 6 months from death;
d. There must be a finding by the Commissioner
that the payment of the estate tax or any part
thereof would impose undue hardship upon
the estate or any of the heirs; and
e. The extension must be for a period not
exceeding five (5) years if the estate is settled
through the courts (judicially), or two (2) years
if settled extrajudicially.
Effects when the Extension is Granted:
a.The amount in respect of which the extension
is granted shall be paid on or before the date
of the expiration of the period of extension.

Any amount paid after the statutory due date
but within the extension period shall be
subject to interest but not to surcharge.
b.The running of the statute of limitations for
deficiency assessment shall be suspended for
the period of any such extension.
c.The Commissioner or his duly authorized
representative may require the executor, or
administrator, or beneficiary, as the case may
be, to furnish a bond in such amount, not
exceeding double the amount of the tax and
with sureties as the Commissioner deems
necessary, conditioned upon the payment of
the said tax in accordance with the terms of
the extension.
2. Payment of Estate Tax by Installment
In case the available cash of the estate is not
sufficient to pay its total estate tax liability, the
estate may be allowed to pay the tax by
installment and a clearance shall be released
only with respect to the property which has been
paid.
3. Persons Liable to Pay:
a. The estate tax shall be paid by the executor or
administrator (primarily liable) before delivery
to any beneficiary of his distributive share of
the estate.
b. When there are two or more executors or
administrators, all of them shall be severally
liable for the payment of the tax.
c. The beneficiary shall be subsidiarily liable for
the payment of that portion of the estate which
his distributive share bears to the value of the
total net estate. The extent of his liability,
however, shall in no case exceed the value of
his share in the inheritance.
Duties of Certain Officers or Debtors:
1. Executor or administrator must ensure that
payment shall be made of the amount of which he
is notified before he shall be discharged from
personal liability (NIRC, Sec. 92).
2. Judge will not issue authorization to deliver
distributive share until certification of payment is
shown (NIRC, Sec. 94).
3. Register of Deeds shall not register in the
Registry of Property any document transferring
real property or real rights therein without
certification from the Commissioner that the tax
actually due thereon had been paid (NIRC, Sec.
95).
4. Lawyer, notary public, or any government
officer, intervening in the preparation or
acknowledgment of documents regarding partition
or disposal of donation inter vivos or mortis causa,
legacy or inheritance, shall have the duty of
furnishing the Commissioner, Regional Director,
Revenue District Officer or Revenue Collection
Officer of such documents (NIRC, Sec. 95).
5. A debtor of the deceased shall not pay his debts
to the heirs, legatee, executor or administrator of
his creditor, unless the certification of the
Commissioner that the estate tax imposed by
NIRC has been paid is shown, but he may pay the
executor or judicial administrator without said
certification if the credit is included in the inventory
of the estate of the deceased (NIRC, Sec. 95).
6. A corporation will not transfer to new owners of
shares, bonds, obligation or rights without
certification from the Commissioner that the tax
actually due thereon had been paid (NIRC, Sec.
97).
7. When a bank has knowledge of the death of a
person who maintained a joint account, it shall not
allow any withdrawal by the surviving depositor
without the above certification (NIRC, Sec. 97).
The administrator of the estate or any one (1) of
the heirs of the decedent may, upon authorization
by the Commissioner, withdraw an amount not
exceeding twenty thousand pesos (P20,000)
without the said certification.
DONOR’S TAX
Kinds of Donation:
1. Inter vivos; and
2. Mortis Causa
Differences between Donation Inter Vivos and
Donation Mortis Causa (DE LEON, NIRC, supra
at 748):
Inter Vivos Mortis Causa
Nature
Donation made Donation which are to
take effect upon the
between living persons
death of the donor and
to take effect during the
partake of a
lifetime of the donor testamentary disposition
Tax Liability
Subject to Donor’s tax Subject to Estate tax
Donor’s Tax
An excise tax imposed on the privilege to transfer
property by way of gift inter vivos based on a pure
act of liberality without any or less than adequate
consideration and without any legal compulsion to
give (DOMONDON, 2008, supra at 1010).
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Basic Principles of Donor’s Tax: 746). If the donor dies before he learns of the
1. Donor’s tax shall be imposed upon the transfer by acceptance, the donation does not take effect.
any person, resident or non-resident, of any
property by gift (NIRC, Sec. 98). 5. Form prescribed by law – The donation of an
2. Donor’s tax shall apply whether the transfer is by immovable or real property shall be made in a
trust or otherwise, and whether the gift is direct or public document, specifying therein the property
indirect, and whether the property is real or donated and the value of the charges which the
personal, tangible or intangible (NIRC, Sec. 98). donee must satisfy. The acceptance may be made
3. The donor’s tax is imposed on donations inter in the same deed of donation or in a separate
vivos. public document, but it shall not take effect unless
4. Donations mortis causa partake of the nature of it is done during the lifetime of the donor. If the
testamentary dispositions and are subject to acceptance is made in a separate instrument, the
estate tax (CIVIL CODE, Art. 728). donor shall be notified thereof in an authentic
form, and this step shall be noted in both
Nature of Donor’s Tax: instruments (CIVIL CODE, Art. 749; RR No. 02-
1. It is an excise tax on the privilege of the donor to 2003, Sec. 11).
give or on the transfer of property by way of gift
inter vivos. Law that Governs the Imposition of Donor’s Tax
2. It is not a property tax (RR No. 2-2003, Sec. 11). The law in force at the time of the completion of the
donation (RR No. 2-2003, Sec. 11)
Purposes or Objects of Donor’s Tax:
1.Donor’s tax supplements the estate tax by The transfer of property by gift is perfected from the
preventing the avoidance of the latter through the moment the donor knows of the acceptance of the
device of donating the property during the lifetime donee; it is completed by delivery, either actually or
of the deceased. constructively, of the donated property to the donee
2.It also prevents the avoidance of income taxes, (Id).
since a gratuitous transfer is an exclusion from
gross income under Sec. 32 of the NIRC (DE When donor’s tax apply
LEON, NIRC, supra at 748). The donor’s tax shall not apply unless and until
there is a completed gift.
Requisites of a Taxable (Valid) Donation:
(CDDAF) A gift that is incomplete because of reserved powers
1. Capacity of the donor – All persons who may becomes complete when either:
contract and dispose of their property may make a 1. The donor renounces the power; or
donation (CIVIL CODE, Art. 735). The donor’s 2. His right to exercise the reserved power ceases
capacity shall be determined as of the time of the because of the happening of some event or
making of the donation (CIVIL CODE, Art. 737). contingency or the fulfillment of some condition,
2. Donative intent (intention to donate) – Donative other than because of the donor's death (RR No.
intent is necessary only in cases of direct gift. If 02-2003, Sec. 11).
the gift is indirectly taking place by way of sale,
exchange or other transfer of property as Schedule of Tax Rate
contemplated in cases of transfers for less than 1. Graduated rates
adequate and full consideration (NIRC, Sec. 100), Of the
But not The tax
donative intent is not always essential to constitute Over Plus excess
over shall be
a gift. over
3. Delivery, whether actual or constructive, of the P100,000 Exempt
subject gift – There is delivery if the subject matter P100,000 200,000 P0 2% P100,000
is within the dominion and control of the donee. 200,000 500,000 2,000 4% 200,000
4. Acceptance by the donee – The acceptance is 500,000 1 million 14,000 6% 500,000
necessary, because nobody is obliged to receive a 1 million 3 million 44,000 8% 1 million
gift against his will. Once the acceptance is made 3 million 5 million 204,000 10% 3 million
known to the donor, the will of the donor and 5 million 10 million 404,000 12% 5 million
donee concur, and the donation, as a mode of 10 million 1,004,000 15% 10 million
transferring ownership, becomes perfect (Osorio
v. Osorio, G.R. No. L-16544, March 30, 1921).
The graduated tax rates are only applicable if the
donee is a not a stranger.
Acceptance must be made during the lifetime of
the donor and of the donee (CIVIL CODE, Art.

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A legally adopted child is entitled to all the rights
and obligations provided by law to legitimate
children, and therefore, donation to him shall not
be considered as donation made to stranger (RR
No. 02-2003, Sec. 10[B]).
2. Fixed Rate
If the donee is a stranger, the tax payable by the
donor shall be thirty percent (30%) of the net gifts.
Stranger
a. A person who is not a brother or sister (whether
by whole or half-blood), spouse, ancestor, and
lineal descendants; and
b. A person who is not a relative by consanguinity
in the collateral line within the fourth degree of
relationship (NIRC, Sec. 99[B]).
A donation is considered made to a stranger
when it is:
1. Between business organizations; or
2. Between an individual and a business
organization (RR No. 2-2003, Sec. 10[B]).
Classification of Donor:
1. Resident citizens;
2. Non-resident citizens;
3. Resident aliens;
4. Non-resident alien;
5. Domestic corporation; and
6. Foreign corporation.
Note: A corporation, whether domestic or foreign, is
included since it is capable of entering into a
contract of donation, through a Board Resolution
(compare with estate tax).
Determination of Gross Gift:
1. Resident or Citizen Donor – Gross gift includes
real properties, tangible and intangible personal
properties wherever located.
2. Non-resident Alien Donor – Gross gift includes
real properties, tangible and intangible properties
located in the Philippines (REYES, 2008, supra at
133-134).
Properties Considered Situated in the
Philippines:
a. Real, intangible and tangible personal
properties, or mixed, located in the Philippines
and outside of the Philippines, depending on the
kind of donor;
b. Franchise which must be exercised in the
Philippines;
c. Shares, obligations or bonds issued by any
corporation or partnership, organized in the
Philippines in accordance with our laws;
d. Shares, obligations or bonds issued by any
foreign corporations, 85% of which is located in
the Philippines;
e. Shares, obligations or bonds issued by any
foreign corporation if such shares, obligations or
bonds have acquired a business situs in the
Philippines;
f. Shares or rights in any partnership, business or
industry established in the Philippines (NIRC,
Sec. 104).
Net Gifts
The net economic benefit from the transfer that
accrues to the donee. Accordingly, if a mortgaged
property is transferred as a gift, but imposing upon
the donee the obligation to pay the mortgage
liability, then the net gift is measured by deducting
from the FMV of the property the amount of
mortgage assumed (RR No. 2-2003, Sec.11).
Valuation of Gifts
1. Real property – it shall be valued at the FMV of
the property at the time of the gift. However, the
appraised FMV of the property shall be whichever
is higher between the FMV as determined by the
Commissioner or the FMV as shown in the
schedule of values fixed by Provincial and City
Assessors (NIRC, Sec.102, Sec. 88[B]).
2. All other property – it shall be valued at the FMV
of the property at the time of the gift (NIRC,
Sec.102).
Specific Cases of Transfers Inter Vivos
1.Donations Between Spouses
General Rule: Such donation during their
marriage is void (FAMILY CODE, Art. 87).
Void donations are not subject to donor’s tax.
However, if it was already paid, taxpayer only
have two (2) years from the date of payment to
ask or file for a claim for refund, regardless of any
supervening event.
Exceptions:
a. Donations mortis causa; and
b. Moderate gifts which the spouses may give
each other on the occasion of any family
rejoicing.
2. Donations by One of the Spouses
If what was donated is a conjugal or community
property and only the husband signed the deed of
donation, there is only one donor for donor’s tax
purposes, without prejudice to the right of the wife
to question the validity of the donation without her
consent (RR No. 02-2003, Sec. 12).
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Husband and wife are considered separate and
distinct taxpayers for purposes of donor’s tax (RR
No. 02-2003, Sec. 12).
3. Donations Made to Conceived and Unborn
Child
Such donations may be accepted by those
persons who would legally represent them if they
were already born (CIVIL CODE, Art. 742).
4. Contribution for Election Campaign
Any contribution in cash or in kind to any
candidate, political party or coalition of parties for
campaign purposes shall be governed by the
Election Code, as amended (NIRC, Sec. 99[C]).
R.A. 7166 providing for synchronized national and
local elections provides that “Any provision of law
to the contrary notwithstanding, any contribution in
cash or kind to any candidate, or political party or
coalition of parties for campaign purposes, duly
reported to the Commission, shall not be subject
to the payment of any gift tax.”
Political contributions made prior to the passage of
R.A. 7166 on November 25, 1991 were subject to
donor’s tax (Abello v. CIR, G.R. No. 129721,
February 23, 2005).
No corporation, domestic or foreign, shall give
donations in aid of any political party or candidate
or for purposes of partisan political activity
(CORPORATION CODE, Sec. 36).
5. Renunciation of the Share of the Surviving
Spouse
Renunciation by the surviving spouse of his/her
share in the conjugal partnership or absolute
community after the dissolution of the marriage in
favor of the heirs of the deceased spouse or any
other person is subject to donor’s tax (RR No. 02-
2003, Sec. 11)
6. Renunciation of Inheritance to a Co-Heir
A general renunciation of inheritance in favor of a
co-heir is not a donation for the purposes of
taxation, unless specifically and categorically done
in favor of identified heir/s to the exclusion or
disadvantage of the other co-heirs in the
hereditary estate. The same becomes the property
of the co-heir and treated as an additional
inheritance (RR No. 02-2003, Sec. 11).
7. Renunciation of Inheritance to Another Person
Not a Co-Heir
There is donation subject to donor’s tax since
there is a change in the distribution of the estate
(RR No. 02-2003, Sec. 11).
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8. Life Insurance with Third Person as
Beneficiary
There is donation in favor of the beneficiary, not in
the sum received by the heir from the insurer, but
in the total amount of premiums that have been
paid by the insured, provided that:
a. All the benefits of which are payable to
beneficiaries other than the insured’s estate and
the insured retains no power to change the
beneficiaries; and
b. Insured relinquishes his assignment, by
designation of a new beneficiary, or otherwise,
every power retained by him in a previously
issue policy.
In this case, an additional gift results every time a
premium is paid by the insurer.
9. Remuneratory Donations
A remuneratory donation is one where the donee
gives something to reward past or future services
or because of future charges or burdens, when the
value of said services, burdens or charges is less
than the value of the donation (De Luna v. Abrigo,
G.R. No. L-57455, January 18, 1990).
Remuneratory donations shall be governed by the
provisions on donation as regards that portion
which exceeds the value of the burden imposed.
(CIVIL CODE, Art. 783)
10. Donations to Homeowners Association
Gifts, donations and other contributions received
by the homeowners’ associations are subject to
donor’s tax (RMC No. 53-2013).
Contributions to associations in exchange for
goods, services and use of properties constitute
as other assessments/charges from activity in
exchange for the performance of a service, use of
properties or delivery of an object. As such, these
fees are income on the part of the associations
that are subject to income tax as well as to VAT
(RMC No. 53-2013).
Transfers which may be Considered as
Donation:
1. Transfer for Less than Adequate and Full
Consideration
General Rule: If the property transferred is for
less than adequate and full consideration in
money or money’s worth, the amount by which the
FMV exceeds the consideration shall be deemed
A gift and be included in computing the amount of
gifts made during the year (NIRC, Sec. 100).

Reason: The NIRC considers the transfer as a
donation since what motivated the transferor in
transferring the property is his generosity.
In essence, the donor intended a donation but
opted to transfer the property for inadequate
consideration so to avoid paying donor’s tax.
Exception: Where property transferred is real
property located in the Philippines considered as
capital asset, the donor’s tax is not applicable but
the Final Capital Gains Tax of six percent (6%) of
the fair market value or gross selling price,
whichever is higher (SABABAN, supra at 154).
Where the consideration is fictitious, the entire
value of the property transferred shall be subject
to donor’s tax (DE LEON, NIRC, supra at 760).
2. Forgiveness of Indebtedness
If the creditor condones the indebtedness of the
debtor the following rules will apply:
a. On account of debtor’s services to the creditor,
the same is taxable income to the debtor.
b. If no services were rendered but the creditor
simply condones the debt, it is taxable gift and
not the taxable income (DE LEON, NIRC, supra
at 752).
Illustration: Creditors A, B and C condoned the
debt of Company Q pursuant to a court approved
restructuring. Are the creditors liable for donor’s
tax? No. The transaction is not subject to donor’s
tax since the condonation was not implemented
with a donative intent but only for business
consideration. The restructuring was not a result
of the mutual agreement of the debtors and
creditors. It was through court action that the debt
rehabilitation plan was approved and implemented
(BIR Ruling No. DA 028-2005, January 24, 2005).
Donations which are Tax Exempt (NIRC, Sec.
101)
1. Dowries
Requisites for Exemption:
a. The gift was made on account of marriage;
b. It was made before or within one year after the
celebration of marriage;
c. Donor is a parent;
d. Donee is a legitimate, recognized natural, or
adopted child of the donor; and
e. The amount of the gift exempted is only to the
extent of the first P10,000 (per parent if made
out of conjugal or community funds) (REYES,
Philippine Transfer and Business Taxes, (2006),
pp. 109-110) [hereinafter REYES, Transfer].
2. Gifts Made to or for the Use of the National
Government or any Entity Created by any of its
Agencies which is Not Conducted for Profit or
to any Political Subdivision of the said
Government
3. Gift in Favor of an Educational and/or
Charitable, Religious, Cultural or Social
Welfare Corporation, Institution, Accredited
Non-Government Organization or
Philanthropic Organization or Research
Institution
Requisites:
a. Not more than thirty percent (30%) of the said
gift should be used for administrative purposes;
b. The donee must be a non-stock, non-profit
organization or institution;
c. The donee organization or institution should be
governed by trustees who do not receive any
compensation;
d. The said donee should not be authorized to
receive dividends;
e. Said donee devotes all of its income to the
accomplishment and promotion of its purposes
enumerated in its Articles of Incorporation;
f. The NGO must be accredited by Philippine
Council for NGO Certification; and
g. The donor engaged in business shall give notice
of donation on every donation worth at least
P50,000 to the RDO which has jurisdiction over
his place of business within thirty (30) days after
receipt of the qualified donee’s institution’s duly
issued Certificate of Donation (RR No. 2-2003,
Sec. 13).
Note: Donation of ordinary assets to charitable
institutions is exempt from donor’s tax provided
the abovementioned requisites are complied with
(BIR Ruling No. 097-2013, March 20, 2013).
If the donor is VAT-registered person and the
donation involves ordinary assets, the donation is
subject to VAT, the same being a transaction
deemed sale (BIR Ruling No. 097-2013, March
20, 2013).
4. Athlete’s Prizes and Award
Requisites:
a. In local and international sports tournaments
and competitions;
b. Held in the Philippines or aboard; and
c. Sanctioned by their respective national sports
associations (R.A. 7549).
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5. Encumbrances on the Property Donated if donation to B in the amount of P1,000,000, and in

Assumed by the Donee August 2007 in the amount of P500,000.
Return No. 1
Illustration: X donated a mortgaged property to Y Date of Amount of
Donor’s tax paid
with the condition that Y will assume the donation donation
mortgage. The value of the mortgage assumed by January P124,000 [(44,000 +
P1,000,000
Y is exempted from donor’s tax as it is deducted 2007 1,000,0000) x .08]
from the FMV of the property to arrive at the net
gift subject to donor’s tax. Return No. 2
Date of Amount of
Donor’s tax paid
6. Donations made to the following entities donation donation
exempted under special laws: March 2007 P1,000,000
a. Aquaculture Department of the Southeast Asian Add:
Fisheries Development Center of the January P2,000,000
Philippines; 2007
b. Development Academy of the Philippines; Total P204,000 [(44,000 +
P3,000,000
c. Integrated Bar of the Philippines; donation 2,000,000) x .08)]
d. International Rice Research Institute; Less: Tax
e. National Museum; Credit
f. National Library; (donor’s tax
124,000
paid on
g. National Social Action Council;
January
h. Ramon Magsaysay Foundation;
2007)
i. Philippine Inventor’s Commission;
Donor’s tax
j. Philippine American Cultural Foundation; and P80,000
due
k. Task Force on Human Settlement on the
donation of equipment, materials and services. Return No. 3
Date of Amount of
Exemption of Gifts Made by Non-Residents Donor’s tax paid
donation donation
Aliens: August 2007 P500,000
1. Gifts made to or for the use of the National Add:
Government or any entity created by any of its January P1,000,000
agencies which is not conducted for profit or to 2007
any political subdivision of the said Government; March 2007 P2,000,000
and Total P254,000 [(204,000
2. Gift in favor of an educational and/or charitable, P3,500,000
donation + 500,000) x 0.10)]
religious, cultural or social welfare corporation, Less: Tax
institution, foundation, trust or philanthropic Credit
organization or research institution or (donor’s tax
204,000
organization, provided, however, that not more paid on
than 30% of said gifts shall be used by such January and
donee for administration purposes (NIRC, Sec. March 2007)
101[B]). Donor’s tax
P50,000
due
Computation of Donor’s Tax
Will it not amount to double taxation, since the
Basis of Donor’s Tax previous donations were already subjected to
The basis shall be the total net gifts made during the donor’s tax?
calendar year (NIRC, Sec. 99). No. There is no double taxation. Under the
cumulative method, the tax paid for the previous
Cumulative v. Splitting Method (SABABAN, supra methods will be considered as tax credit for
at 152-153) succeeding donations.
Cumulative Method – when the donor makes two
or more donations within the same calendar year, it Splitting Method – the donor makes two or more
is required that the said donations be included in the donations during different calendar years.
return for the last donation.
This method is a form of tax avoidance, which can
Illustration: A donated to his son B in January be availed of by the donor to lower the tax to be
2007, P2,000,000. In March 2007, A made another paid.

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Illustration: Donor A wants to donate P200,000 to Country X had a fair market value of P300,000 at
her daughter B on December 2013. Instead of the time of the donation and paid a donor’s tax to
donating the whole P200,000 on December 2013, A that country amounting to P10,000.
can opt to donate P100,000 on December 2013, and
another P100,000 on January 1, 2014 to avoid The Philippine donor’s tax still due after tax credit for
paying donor’s tax which would otherwise be in the the donor’s tax paid to Foreign Country X would
amount of P2,000. This is so because donor’s tax is have been computed, as follows:
computed on the basis of the total net gifts made
during the calendar year. Net gift to B, property in the Philippines P200,0000
Net gift to C, property in X Foreign 300,000
General Rule: The methods are significant to the Country
donor in relation to donees. For donees who are = Net gift, world P 500,000
non-stranger, the graduated tax rates are applicable,
while for strangers, a fixed rate of thirty percent Donor’s tax P 14,000
(30%) is applicable. Less: Tax credit* see computation 8,400
below
Exception: When the amount of donation is = Donor’s Tax still due P 5,600
P10,000,000 or above, the cumulative method is no
longer relevant since in that case, the rate *Computation
applicable is fifteen (15%), hence, it is as if the rate Foreign donor’s tax P 10,000
is fixed. paid
Limitation:
For strangers, whether the method to be used is P300,000 X P14,000 8,400
cumulative or splitting, it is immaterial since any P500,000
donation made to them is subject to a fixed rate of Allowed P 8, 400
thirty percent (30%).
Return, Filing and Payment
Tax Credit for Donor’s Tax Paid to Foreign A. Filing of Return – Any individual who makes any
Country transfer by gift and are required to pay tax due
The donor’s tax imposed upon a citizen or resident shall make a return under oath in duplicate and
at the time of the donation shall be credited with the include the following:
amount of any donor’s tax, of any character and 1. Each gift made during the calendar year which
description, imposed by the authority of a foreign is to be included in computing net gifts;
country (NIRC, Sec. 101[C]). 2. Deductions claimed and allowable;
3. Any previous net gifts made during the same
Limitations to the Tax Credit: calendar year;
1. The amount of credit shall not exceed the same 4. The name of the donee;
proportion of the tax against such credit is taken, 5. Relationship of the donor to the donee; and
which the net gifts situated within such country 6. Such further information as the Commissioner
taxable under donor’s tax bears to entire net gifts may require (NIRC, Sec. 103; RR No. 2-2003).
(per country basis); and
2. The amount of the tax credit shall not exceed the B. Time of Filing – The return shall be filed within
same proportion of the tax against such credit is thirty (30) days after the date the gift is made or
taken, which the donor’s net gifts situated outside completed (RR No. 02-2003, Sec. 13[B]).
the Philippines taxable under donor’s tax bears to
his entire net gifts (overall basis). C. Place of Filing – Unless the Commissioner
otherwise permits, the return shall be filed and the
Note: This tax credit is allowed only for residents tax paid to an:
and citizens of the Philippines for the donor’s taxes 1. Authorized Agent Bank;
they paid in a foreign country. 2. Revenue District Officer;
3. Revenue Collection Officer;
Illustration: On March 10, 2013, A, a resident and 4. Duly authorized treasurer of the city or
citizen of the Philippines, made a donation of municipality where the donor was domiciled at
property in the Philippines to B, his brother. On the the time of the transfer; or
same date, he made a donation of property in X 5. If there be no legal residence in the Philippines,
Foreign Country to C, A’s sister. The property in the with the Office of the Commissioner (NIRC, Sec.
Philippines had a fair market value of P200,000 at 103).
the time of the donation. The property in the Foreign

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Note: In case of gifts made by non-resident, the

return may be filed with the Philippine Embassy or
Consulate in the country where he is domiciled at
the time of the transfer, or directly with the Office
of the Commissioner (NIRC, Sec. 103).

D. Payment of Gift Tax – The donor’s tax is paid

upon filing of return. No extension is allowed as
compared to estate tax. (NIRC, Sec. 103)

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