CHAPTER 7 DISCUSSION QUESTIONS / PROBLEMS

1. The BIR is correct. It is not the obligation of the BIR to prove that the deductions are not allowed, but the executor of the estate of Licupo has the burden of proof to establish the validity of claimed deductions (Comm. vs. Algue, 158 SCRA 1!. "e must point to some specific provisions of the statute in which that deduction is authori#ed, and must be able to prove that he is entitled to the deduction which the law allows. %eductions are classified as con&ugal or community when they are normal charges against con&ugal or community properties. Thus, funeral expenses, &udicial expenses, and other expenses such as losses, indebtedness and taxes incurred which have been beneficial to, are classified as con&ugal'com m unity property deductions. (harges against the exclusive properties of the decedent are classified as exclusive deductions, such as be)uests, legacies or devises to the government or to social welfare institutions. *. a. b. c. d. e. f. g. h. i. &. -. %eductible %eductible %eductible %eductible %eductible %eductible %eductible +ot deductible. To be allowed as deduction, the expenses must not be borne by any person whether a friend or relative. +ot deductible. ,xpenses incurred after the burial are not allowed as deduction. +ot deductible.
(ase

$.

.ctual 3 1*4,444 1/5,444

/0 of 1,

2aximu m 3 $44,444 $44,444

%eductible 3 54,444 1/5,444 16*,6/4 $44,444 6/,444 1/,444 /,444 14,444 -,444 15,444 1$6,444

1 $ * /.

3 54,444 15 ,444

$11,444 16*,6/4 $1*,/44 $4/,71/

$44,444 $44,444

(ollection expenses .ttorney8s fees 9$/,444 x 740! .ccountant8s fees ,xecutor8s commissions .ppraiser8s fees (ourt costs Total &udicial expenses

7.

+o. :ince the decedent exercises substantial control over the creditor corporation and due to apparent defects in the creditor8s policy and security on the loans, it would 1$

be very easy to manipulate the records of the creditor corporation. Thus, based on the facts presented, the claims were not incurred in good faith by the decedent. 6. a. b. c. d. e. The unpaid balance or 5/0 of the 1:I: loan is deductible. +ot deductible because there is no more legal liability to pay the debt. +ot deductible. The taxes must have accrued prior to the death of the decedent. %eductible. These are valid claims against the estate. +ot deductible. There is no valid claim against the estate because the property was inherited thereby imposing no obligation on the decedent.

5.

+o, the estate of 3amugat cannot claim the 3*44,444 as deduction representing claim against insolvent person because 3amaan was not actually insolvent. "e was only encountering a li)uidity problem. Li)uidity should be distinguished from insolvency. ;hile in the former, there is a problem on insufficiency of cash< in insolvency, the total liability is more than its total assets.

It is a valid deduction because it diminishes the estate of the decedent. "owever, it is still counted as part of his properties. =or which reason, it should be included as part of his gross estate. 2oreover, most deductions are allowed because they diminish the value of the distributable estate. If the amount of claims against insolvent person is not to be included in the gross estate, it will understate the net estate by an amount e)uivalent to the value of the >claims.>

14.

The insolvency of the debtor should be proceeding, and not merely alleged. Thus, valid basis in allowing the estate of 2ac to gross estate under >claims against insolvent

proven in court through an insolvency the information relayed by 2ayo is not a claim the 3144,444 as a deduction from persons.>

11.

The amount of unpaid mortgage indebtedness is deductible, provided 91! the value of the land in the amount of 3 /4,444 is included in the gross estate of %alahera and 9$! it was contracted bona fide and for an ade)uate and full consideration in money or money8s worth. The entire real estate taxes of 3*$4,444 is deductible provided that they are still unpaid as of ?une *4, $445. The income tax on income earned from ?anuary to ?une, $445 of 31/,/44 is also deductible. The tax on the income which have accrued after his death are not deductible.

1$.

1*.

a.

@es, because the shipwrecA occurred after the death but before the deadline for filing the estate tax return. .s a rule, losses are deductible from gross estate if it occurred within a period of six97! months from the death of the decedent. "owever, since the insurance company indemnified the /40 of the value of the car, only a loss 3744,444 can be claimed as deduction from gross estate.

b.

If the loss occurred before (arperter8s death, it is not deductible because the lost property should not also be included in the gross estate. 1*

c.

The law uses the phrase >losses incurred during the settlement of the estate.> Therefore, to be considered as a valid deduction, the loss should occur after death irrespective of the time it was discovered. If the value of the car lost was indemnified by the insurer, then the estate of (arpenter 9the owner!, did not suffer any loss. (onse)uently, it cannot claim that amount as deduction from gross estate.

d.

1-.

In the case of White vs. Comm'r., 48 TC 439 (1967 , the tax court held that an accidental and irrevocable loss of property can be the basis of a casualty loss deduction. The court has accepted the principle that an accidental loss of property )ualifies as a casualty provided the loss is 91! identifiable< 9$! damaging to property< and 9*! sudden, unexpected, and unusual in nature. (onsidering that the loss of the property complies with the essentials of a casualty loss, the value of the &ewel could have been deductible had it occurred after the death of (arlos8 wife.

1/.

:ection 1$/ of the +ew =amily (ode provides that neither spouse may donate any con&ugal partnership property without the consent of the other. "owever, either spouse may, without the consent of the other, maAe moderate donations from the con&ugal partnership property for charity or on occasions of family re&oicing or distress. . donation of a $44B s)uare meter lot in the poblacion of Infanta, Cue#on is not a moderate donation. Therefore, the donation is not binding. In this case, the value of the property is not deductible from gross estate for estate tax purposes.

17 .

3roperty . B ( % , =

D ,xclusive D (ommunity D ,xclusive D ,xclusive D ,xclusive D ,xclusive

16.

.lthough the second transfer of the property tooA place within five9/! years from the first transfer, the estate of the present decedent cannot claim vanishing deduction because the full amount of the property donated to the barangay is already deductible from gross estate as Etransfer for public purpose.F Gtherwise, it would result to double deduction Lower value of property LessH 2ortgage paid Initial basis LessH %eductions 9proB rated!
$44,4 44 $,444,4 44 x 9/6/,444 B 6/,444!

15.

3 $/4,444 /4,444 $44,444 /4,444

1-

Base Rate 9more than 1 year but not more than $ years! Ianishing deduction 1 . 1. $. *. -. /. a. +o +o +o +o +o 7. 6. 5. . 14. @es @es +o +o +o 11. 1$. 1*. 1-. 1/. +o @es +o +o +o

1/4,44 4 540 1$4,44 4

$4.

%ecedent is an unmarried head of family. (ase 1 (ase $ %eductible 3 1,444,444 5$4,444

b. %ecedent is married. =amily home is an exclusive property. (ase 1 (ase $ 3 1,444,444 5$4,444

c. %ecedent is married. The family home is a con&ugal property. (ase 1 (ase $ 3 1,444,444 -14,444

d. %ecedent is married. The family home is composed of the house and the lot. Thirty five percent 9*/0! of its value is community property. (ase 1 93$,444,444 x */0! x 1'$ 9 $,444,444 x 7/0! J 1,*44,444 %eductible, maximu m (ase $ 935$4,444 x */0! x 1'$ 9 5$4,444 x 7/0! %eductible e. 3 1-*,/44 /**,444 767,/44 3 */4,444 7/4,444 1,444,444

%ecedent is married. The house, which is 640 of the total value of the family home, is a community property, while the land which is *40 of the value of the family home is an exclusive property. (ase 1 93$,444,444 x 640! x 1'$ 3 644,444 1/

9 J744,444

$,444,444 x *40!

*44,444 1,444,444

%eductible (ase $ "ouse 95$4,444 x 640! x 1'$ Lot 95$4,444 x *40! %eductible $1. Real properties, 3hilippines 3ersonal properties, 3hilippines 1ross estate

3 $56,444 $-7,444 /**,444 3*,444,444. 44 644,444.4 4 *,644,444.4 4

LessH %eductions =uneral expenses abroad, actual 3$*4,444 Limit $44,444 %eductible ?udicial expenses Bad debts Total 9*,644,444'6,644,444! x 3**/,444 +et estate "ouse, :apporo 3roperties, ?apan Real properties, 3hilippines 3ersonal properties, 3hilippines Total gross estate $$.

3 $44,444 4,444 -/,444 **/,444 174, 6-.4 $ *,/* ,46/. 5 3 $,/44,444 1,/44,44 4 *,444,44 4 644,44 4 6,644,44 4

The decedentB spouse does not solely own a con&ugal or community property because it is e)ually owned by the husband and the wife. The share of the spouse in the property should not be sub&ect to succession considering that he'she is still alive. "owever, since the community or the con&ugal property in the gross estate includes the share of the surviving spouse, it should be deducted. Gtherwise, estate taxes 17

being imposed will include properties which are not sub&ects of succession. $*. (ommunity property (harges against community properties +et community property %eductible share 91,57/,444'$! .T2 deposit Time deposit Interest 9$44,444 x 150 x 7./'1$! LessH =inal tax 91 ,/44 x $40! (ar 1* th month pay (ellular phone (ondominium unit 3ostBdated checA Laptop computer .ccrued wages (ows 91/,444 x /! (alf Total exclusive .ddH :hare in coBownership .ppliances K home decors Gther personal properties Total :hare 91*4,444'$! 1ross estate LessH %eductions Grdinary B (laims against the estate (redit card (ar loan Ltility bills =uneral expenses :pecial B 2edical expenses :tandard deduction +et taxable estate 3$,/44,444 7*/,444 1,57/,444 *$,/44 1$7,/-4 $44,444 1 ,/44 *, 44 1/,744 --1,$-7 -/,444 $/,444 1,/-$,5 / 1/,444 -4,444 1/,444 6/,444 /,444 $,/-7,$51

$-.

/4,444 54,444 1*4,444 7/,444 $,711,$51

1/,$6* $*6,151 6,7/1-/,444 $5,444 1,444,444

9 -4/,145 ! 91,4$5,444 ! 1,165,16*

+otesH 1. The land donated to the government is no longer part of decedentMs interest considering that it had been donated already. There is no tax payable because a donation to the government is tax exempt. $. The remaining balance of the loan with 3agBIbig has been condoned because the debtor died with an updated payment. This is a loan policy of 3agBIbig. *. The cost of appliances and other personal properties are owned by .ntonio and Iittorio in e)ual shares because the problem does not give the share of 16

the respective couple in the actual contribution of each. -. Lnder the law on sales, a buyer of an illegally ac)uired property does not ac)uire a title better to the property that that the seller had. .ntonio is not legally bound to reimburse Luca Brasi the 3$/,444 because the latter does not ac)uire better title to the laptop than Iittorio had. Luca Brasi did not even bought the computer in a trade, or fair or marAet. Lnder the law on sales, the buyer is entitled to the fruits of a thing from the time of the perfection of the contract even before its delivery. Thus, .ntonio is entitled to the calf even the cows have not yet been delivered by Tattaglia.

/.

15