Lorenzo v.

Posadas
G.R. No. L-43083
June 18, 1937

Facts

Thomas Hanley died leaving a will and considerable amount of real and
personal properties. The will was filed for probate with the CFI for the
settlement and distribution of his estate. The will provides that the properties
left by the deceased will pass on to Matthew Hanley after a period of ten years.
The CFI considered it proper to appoint a trustee to administer the properties.
While the plaintiff was trustee of the property, the defendant CIR assessed an
inheritance tax in the amount of Php2k which includes penalties and
surcharges.

The defendant filed a motion with the CFI handling the probate
proceedings, praying that plaintiff be ordered to pay the sum of Php2k. The
motion was granted and plaintiff paid the amount under protest. The
defendant overruled the protest and refused to refund the said amount.

Issue & Ruling

Whether or not the inheritance tax has become due and demandable
immediately upon the death of the decedent (Yes)

Plaintiff contends that the properties could not legally pass to the
instituted heir until the expiration of ten years from the death of the testator
and, that the inheritance tax should be based on the value of the estate in
1932, or ten years after the death of the testator.

If death is the generating source from which the power of the estate to
impose inheritance taxes takes its being and if, upon the death of the decedent,
succession takes place and the right of the estate to tax vests instantly, the tax
should be measured by the value of the estate as it stood at the time of the
decedent's death, regardless of any subsequent contingency value of any
subsequent increase or decrease in value. "The right of the state to an
inheritance tax accrues at the moment of death, and hence is ordinarily
measured as to any beneficiary by the value at that time of such property as
passes to him. Subsequent appreciation or depreciation is immaterial." 

But whatever may be the rule in other jurisdictions, we hold that a

transmission by inheritance is taxable at the time of the predecessor's death,
notwithstanding the postponement of the actual possession or enjoyment of the
estate by the beneficiary, and the tax measured by the value of the property
transmitted at that time regardless of its appreciation or depreciation.
CIR v. De Lara
G.R. No. L-9456
January 6, 1958

Facts

The decedent was an American citizen who came to the Philippines in

1905. After his retirement in 1922, he accepted an executive position in a
publishing company and he continued to hold such position until the outbreak
of the war. He executed his last will and testament in Santa Cruz, California in
1941. He joined the Board of Censors of the United States Navy and, during
the war, he was taken prisoner by the Japanese forces and was held at
Catbalogan Samar, where he was reportedly been executed in 1944.

At the time of his death, Miller owned several properties located in the
United States and shares of stock in a Philippine Corporation, valued at
Php51k. Testate proceedings were initiated in the Court of California where the
will was admitted to probate. Thereafter, ancillary proceedings were filed by the
executors of the will before the CFI of Manila which admitted to probate the
will. After due investigation, the CIR assessed an estate and inheritance tax
amounting to Php77k including penalties and other increments. On appeal
with the CTA, it ordered the estate to pay the amount of Php2k representing
the estate taxes due.

Issue & Ruling

Whether or not the decedent was a resident of the Philippines and

therefore must be taxed in and out of the Philippines (No)

In determining the "gross estate" of a decedent, it is first necessary to

decide whether the decedent was a resident or a non-resident of the Philippines
at the time of his death. The Collector maintains that under the tax laws,
residence and domicile have different meanings; that tax laws on estate and
inheritance taxes only mention resident and non-resident, and no reference
whatsoever is made to domicile; that Miller during his long stay in the
Philippines had required a "residence" in this country, and was a resident
thereof at the time of his death, and consequently, his intangible personal
properties situated here as well as in the United States were subject to said
taxes. The Ancilliary Administrator, however, equally maintains that for estate
and inheritance tax purposes, the term "residence" is synonymous with the
term domicile.

The Court agreed with the CTA that at the time the NIRC was
promulgated in 1939, the prevailing construction given by the courts to the
residence was synonymous with domicile, and that the two were used
interchangeably.

At the time of his death, Miller had his residence or domicile in Santa
Cruz, California. He never acquired a house for residential purposes in the
Philippines for he stayed at the Manila Hotel and later on at the Army and Navy
Club. Also, the bulk of his savings and properties were in the United States. To
his home in California, he had been sending souvenirs, such as carvings,
curios and other similar collections from the Philippines and the Far
East. From the foregoing, it is clear that as a non-resident of the Philippines,
the only properties of his estate subject to estate and inheritance taxes are
those shares of stock issued by Philippines corporations.
CIR v. Fisher
G.R. No. L-11622
January 28, 1961

Facts

The deceased Walter G. Stevenson was born in the Philippines in 1874 of

British descent. He was married to Beatrice Mauricia Stevenson in 1909 at
Manila. He died in 1951 at San Francisco, California, where he and his wife
moved and established their permanent residence since 1945. He left a will
which was executed in San Francisco and duly probated in the Supreme Court
of California. He instituted his wife as his sole heiress to the properties they
acquired while residing in the Philippines, including two parcel of lands at
Baguio and shares of stock and cash credit with several domestic corporations.

Ancillary administrative proceedings were instituted in the CFI of Manila

for the settlement of the estate. The ancillary administrator filed a preliminary
estate and inheritance return in order to secure the waiver of the CIR on the
inheritance tax due on the shares of stock at Mindanao Mother Lode Mines.
The CIR accepted the valuation of the personal properties declared therein, but
increased the appraisal of the two parcel of lands at Baguio. After allowing
deductions, the CIR assessed the estate the amount of Php5.1k for estate tax
and Php10.8k inheritance tax, or a total of Php16k. Both of these assessments
were paid by the estate.

The ancillary administrator filed an amended estate and inheritance tax

in pursuance with his reservation made at the time of the filing of the
preliminary return. In the amended return, the valuation of the stocks in the
Mindanao Mother Lode Mines were reduced for a total valuation of Php42k. In
addition, the ancillary administrator made claim for several deductions which
amounts to Php21k. In the meantime, Beatrice assigned all her rights and
interest in the estate to respondents.

The ancillary administrator filed a second amended estate and

inheritance tax return which contained new claims for additional exemptions
and deductions. In this last return, the estate claimed that it was liable only for
the amount of Php525 for estate tax and Php238 for inheritance tax. The
refund of the amount of Php15.2k allegedly overpaid, was requested by the
estate. The CIR denied the claim which led to the commencement of the action
in the CFI of Manila.

The case was forwarded to the CTA which ruled that (a) one-half share of
the surviving spouse in the conjugal property should be deducted from the net
estate; (b) the intangible properties is exempt from inheritance tax pursuant to
the provision of the NIRC in relation to the California Inheritance Tax Law; (c)
the assessment of the parcels of land in Baguio be valued at Php52k and the
shares in the Mindanao Mother Lode Mines be appraised at Php.38 per share;
and (d) the estate is entitled to a deduction of Php2k for the funeral expenses
and judicial expenses of Php8k.

Issue & Ruling

Whether or not the CTA erred in exempting respondents from the

payment of inheritance tax by virtue of the rule of reciprocity (Yes)

It is clear from both these quoted provisions that the reciprocity must be
total, that is, with respect to transfer or death taxes of any and every character,
in the case of the Philippine law, and to legacy, succession, or death taxes of
any and every character, in the case of the California law. Therefore, if any of
the two states collects or imposes and does not exempt any transfer, death,
legacy, or succession tax of any character, the reciprocity does not work. This
is the underlying principle of the reciprocity clauses in both laws.

In the Philippines, upon the death of any citizen or resident, or non-

resident with properties therein, there are imposed upon his estate and its
settlement, both an estate and an inheritance tax. Under the laws of California,
only inheritance tax is imposed. On the other hand, the Federal Internal
Revenue Code imposes an estate tax on non-residents not citizens of the
United States, but does not provide for any exemption on the basis of
reciprocity. This being the case, will a Filipino, non-resident of California, but
with intangible personal properties there, be entitled to the exemption clause of
the California law, since the Californian has not been exempted from every
character of legacy, succession, or death tax because he is, under our law,
under obligation to pay an estate tax?

Upon the other hand, if we exempt the Californian from paying the estate
tax, we do not thereby entitle a Filipino to be exempt from a similar estate tax
in California because under the Federal Law, which is equally enforceable in
California he is bound to pay the same, there being no reciprocity recognized in
respect thereto. In both instances, the Filipino citizen is always at a
disadvantage. We do not believe that our legislature has intended such an
unfair situation to the detriment of our own government and people. We,
therefore, find and declare that the lower court erred in exempting the estate in
question from payment of the inheritance tax.

We are not unaware of our ruling in the case of Collector of Internal

Revenue vs. Lara exempting the estate of the deceased Hugo H. Miller from
payment of the inheritance tax imposed by the Collector of Internal Revenue. It
will be noted, however, that the issue of reciprocity between the pertinent
provisions of our tax law and that of the State of California was not there
squarely raised, and the ruling therein cannot control the determination of the
case at bar. Be that as it may, we now declare that in view of the express
provisions of both the Philippine and California laws that the exemption would
apply only if the law of the other grants an exemption from legacy, succession,
or death taxes of every character, there could not be partial reciprocity. It
would have to be total or none at all.
CIR v. Campos Rueda
G.R. No. L-13250
October 29, 1971

Facts

The decedent was a Spanish national and was a resident of Morocco from
1931 up to her death in 1955. At the time of her death, she left intangible
personal properties in the Philippines.

Respondent, as administrator of the estate, filed a provisional estate and

inheritance tax return on all the properties of the decedent. Petitioner, pending
investigation, issued an assessment for the estate and inheritance taxes for a
total amount of Php369k which was paid by the respondent. Respondent filed
an amended return wherein the intangible personal properties amounting to
Php396k were claimed as exempted from taxes. Petitioner denied the request
for exemption on the ground that the law of Tangier is not reciprocal to the
provision of the NIRC. In denying the motion for reconsideration of respondent,
petitioner premised the denial on the ground that there was no reciprocity with
Tangier, which was a mere principality, not a foreign country.

The CTA reversed the decision of the petitioner and held that copies of
legislation of Tangier showed that the element of reciprocity was not lacking.

Issue & Ruling

Whether or not the requisite of statehood is necessary in order to

avail of the rule on reciprocity (No)

The controlling legal provision as noted is a proviso in Section 122 of the

National Internal Revenue Code. It reads thus: "That no tax shall be collected
under this Title in respect of intangible personal property (a) if the decedent at
the time of his death was a resident of a foreign country which at the time of
his death did not impose a transfer tax or death tax of any character in respect
of intangible person property of the Philippines not residing in that foreign
country, or (b) if the laws of the foreign country of which the decedent was a
resident at the time of his death allow a similar exemption from transfer taxes
or death taxes of every character in respect of intangible personal property
owned by citizens of the Philippines not residing in that foreign country." The
only obstacle therefore to a definitive ruling is whether or not as vigorously
insisted upon by petitioner the acquisition of internal personality is a
condition sine qua non to Tangier being considered a "foreign country".
Deference to the De Lara ruling, as was made clear in the opening paragraph of
this opinion, calls for an affirmance of the decision of the Court of Tax Appeals.

It does not admit of doubt that if a foreign country is to be identified with

a state, it is required in line with Pound's formulation that it be a politically
organized sovereign community independent of outside control bound by
penalties of nationhood, legally supreme within its territory, acting through a
government functioning under a regime of law. It is thus a sovereign person
with the people composing it viewed as an organized corporate society under a
government with the legal competence to exact obedience to its commands.

What is undeniable is that even prior to the De Lara ruling, this Court
did commit itself to the doctrine that even a tiny principality, that of
Liechtenstein, hardly an international personality in the sense, did fall under
this exempt category. 
Zapanta v. Posadas
G.R. No. L-29204
December 29, 1928

Facts

The decedent died without any ascendants or descendants leaving a will

in which he instituted his sister Irene Pineda as his sole heiress. During his
lifetime, the decedent donated some of his properties by instrument to the six
plaintiffs, severally, with several conditions which, if not complied with, would
lead to the revocation of the donations ipso facto. The donation also provides
that it shall take effect immediately upon acceptance. The six plaintiffs filed a
separate action against the CIR for the inheritance tax which they paid under
protest. The trial court held that the donations to the six plaintiffs are
donations inter vivos, and therefore, not subject to inheritance tax.

Issue & Ruling

Whether or not the donations made by the decedent are donations

inter vivos and therefore not subject to inheritance tax (Yes)

In our opinion, said donations are inter vivos. It is so expressly stated in

the instruments in which they appear. They were made in consideration of the
donor's affection for the donees, and of the services they had rendered him, but
he has charged them with the obligation to pay him a certain amount of rice
and money, respectively, each year during his lifetime, the donations to become
effective upon acceptance. They are therefore not in the nature of
donations mortis causa but inter vivos.

It is a donation inter vivos, because its effect was produced by the

donees' acceptance during the donor's lifetime and was not determined by the
donor's death. Upon being accepted they had full effect. If the donor's life is
mentioned in connection with this condition, it is only fix the donor's death as
the end of the term within which the condition must be fulfilled, and not
because such death of the donor is the cause which determines the birth of the
right to the donation. The property donated passed to the ownership of the
donees from the acceptance of the donations, and these could not be revoked
except upon the nonfulfillment of the condition imposed, or for other causes
prescribed by the law, but not by mere will of the donor.

Neither can these donations be considered as an advance on inheritance

or legacy, because they are neither an inheritance nor a legacy. And it cannot
be said that the plaintiffs received such advance on inheritance or legacy, since
they were not heirs or legatees of their predecessor in interest upon his death.
Neither can it be said that they obtained this inheritance or legacy by virtue of
a document which does not contain the requisites of a will.

Besides, if the donations made by the plaintiffs are, as the appellants

contended, mortis causa, then they must be governed by the law on testate
succession. In such a case, the documents in which these donations appear,
being instruments which do not contain the requisites of a will, are not valid to
transmit the property to the donees. Then the defendants are not justified in
collecting from the donees the inheritance tax, on property which has not been
legally transferred to them, and in which they acquired no right.
Tuason v. Posadas
GR No. L-30885
January 23, 1930

Facts

Esparanza Tuason made two separate donations inter vivos of certain

property to plaintiffs Mariano Tuason and Alfonso Tuason. She died of senile
weakness a year after, leaving a will bequeathing Php5k to Mariano. Her
judicial administratix paid the prescribed inheritance tax on these two bequest.
Furthermore, the defendant assessed both plaintiffs the amount of Php3.8k
and Php6.6k respectively, both of which paid under protest. They filed an
action against the defendant for the recovery of the amount that was collected
from them as inheritance tax.

Issue & Ruling

Whether or not plaintiffs are subject to inheritance tax for the

donations they received from the decedent during her lifetime (Yes)

Section 1536 of the Administrative Code provides: Every transmission by

virtue of inheritance, devise, bequest, gift mortis causa, or advance in
anticipation of inheritance, devise, or bequest shall be subject to the following
tax;

Section 1540 then provides: After the aforementioned deductions have

been made, there shall be added to the resulting amount the value of all gifts
or advances made by the predecessor to any of those who, after his death, shall
prove to be his heirs, devisees, legatees, or donees mortis causa.

When the law say all gifts, it doubtless refers to gifts inter vivos, and
not mortis causa. Both the letter and the spirit of the law leave no room for any
other interpretation. Such, clearly, is the tenor of the language which refers to
donation that took effect before the donor's death, and not to mortis
causa donations, which can only be made with the formalities of a will, and
can only take effect after the donor's death.

This being so, and it appearing that the appellees after the death of the
decedent, were found to be legatees under her will, the donation inter vivos she
had made to them in 1922 and 1923, must be added to the net amount that is
to be taxed.

It was said that under such an interpretation, while a donee inter

vivos who, after the predecessor's death prove to be an heir, a legatee, or a
donee mortis causa, would have to pay the tax, another donee inter vivos who
did not prove to be an heir, a legatee, or a donee mortis causa of the
predecessor, would be exempt from such a tax.
Dizon v. Posadas
G.R. No. L-36770
November 4, 1932

Facts

Plaintiff filed an action with the CFI against the defendant CIR for the
recovery of an inheritance tax in the sum of Php2.8k which he paid under
protest. He alleged that he received the subject properties from his father
before his death through a deed of gift inter vivos which was duly accepted and
registered for the latter’s death. The CFI dismissed the case. The only evidence
introduced in the trial court was the proof of payment under protest and the
deed of gift.

Issue & Ruling

Whether or not the gifts received by the plaintiff are subject to

inheritance tax (Yes)

The appellant argues that there is no evidence in this case to support a

finding that the gift was simulated and that it was an artifice for evading the
payment of the inheritance tax, as is intimated in the decision of the court
below and the brief of the Attorney-General. We see no reason why the court
may not go behind the language in which the transaction is masked in order to
ascertain its true character and purpose. In this case the scanty facts before us
may not warrant the inference that the conveyance, acknowledged by the donor
five days before his death and accepted by the donee one day before the donor's
death, was fraudulently made for the purpose of evading the inheritance tax.
But the facts, in our opinion, do 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 argument advanced by the appellant that he is not an heir of his

deceased father within the meaning of section 1540 of the Administrative Code
because his father in his lifetime had given the appellant all his property and
left no property to be inherited, is so fallacious that the urging of it here casts a
suspicion upon the appellants reason for completing the legal formalities of the
transfer on the eve of the latter's death. We do not know whether or not the
father in this case left a will; in any event, this appellant could not be deprived
of his share of the inheritance because the Civil Code confers upon him the
status of a forced heir. We construe the expression in section 1540 "any of
those who, after his death, shall prove to be his heirs", to include those who, by
our law, are given the status and rights of heirs, regardless of the quantity of
property they may receive as such heirs. That the appellant in this case
occupies the status of heir to his deceased father cannot be questioned.
Construing the conveyance here in question, under the facts presented, as an
advance made by Felix Dison to his only child, we hold section 1540 to be
applicable and the tax to have been properly assessed by the Collector of
Internal Revenue.
Vidal de Roces v. Posadas
G.R. No. L-34937
March 13, 1993

Facts

Esperanza Tuason donated certain parcels of land located in Manila by

means of a public instrument to the plaintiff. By virtue of said donations, the
plaintiffs took possession of the property obtained the corresponding certificate
of title. Esperanza died without leaving any compulsory heir and her will
bequeathed to each donees the sum of Php5k. After the estate was distributed
among the donees and legatees and before delivery of their respective shares,
the CIR ruled that they should pay as inheritance tax Php16k and Php13k
respectively. Despite their hesitancy, they agreed to pay under protest.

The plaintiffs filed with the CFI an action to recover the amount paid
under protest to defendant. The CIR filed a demurrer on the ground that the
facts alleged does not constitute a sufficient cause of action. The CFI sustained
the demurrer and ordered the plaintiffs to amend their complaint. Because of
their failure to amend their complaint, the case was dismissed.

Issue & Ruling

Whether or not the provision regarding the additions of gifts and

advances includes donations inter vivos

The gifts referred to in section 1540 of the Revised Administration Code

are, obviously, those donations inter vivos that take effect immediately or
during the lifetime of the donor but are made in consideration or in
contemplation of death. Gifts inter vivos, the transmission of which is not made
in contemplation of the donor's death should not be understood as included
within the said legal provision for the reason that it would amount to imposing
a direct tax on property and not on the transmission thereof, which act does
not come within the scope of the provisions contained in Article XI of Chapter
40 of the Administrative Code which deals expressly with the tax on
inheritances, legacies and other acquisitions mortis causa.

Our interpretation of the law is not in conflict with the rule laid down in
the case of Tuason and Tuason vs. Posadas, supra. We said therein, as we say
now, that the expression "all gifts" refers to gifts inter vivos inasmuch as the
law considers them as advances on inheritance, in the sense that they are
gifts inter vivos made in contemplation or in consideration of death. In that
case, it was not held that that kind of gifts consisted in those made completely
independent of death or without regard to it.

Said legal provision is not null and void on the alleged ground that the
subject matter thereof is not embraced in the title of the section under which it
is enumerated. On the contrary, its provisions are perfectly summarized in the
heading, "Tax on Inheritance, etc." which is the title of Article XI. Furthermore,
the constitutional provision cited should not be strictly construed as to make it
necessary that the title contain a full index to all the contents of the law. It is
sufficient if the language used therein is expressed in such a way that in case
of doubt it would afford a means of determining the legislators intention.
Lastly, the circumstance that the Administrative Code was prepared and
compiled strictly in accordance with the provisions of the Jones Law on that
matter should not be overlooked and that, in a compilation of laws such as the
Administrative Code, it is but natural and proper that provisions referring to
diverse matters should be found.

Dizon v. CTA
G.R. No. 140944
April 30, 2008

Facts

A petition for the probate of the will of Jose Fernandez was filed with the
RTC of Manila. The court appointed retired Justice Dizon and petitioner as
Special and Assistant Special Administrator of the estate. Justice Dizon
informed respondent of the special proceedings for the Estate.

Petitioner alleged that several request to extend the period to file a return
was granted by the BIR since the assets and liabilities of the estate had not
been accounted for. Justice Dizon authorizes petitioner to sign and file on
behalf of the estate the required estate tax. Petitioner requested the probate
court to authorize the selling of some properties forming part of the estate, for
the purpose of paying its creditors.

However, the BIR issued an assessment demanding the payment of

Php66.9 million as deficiency estate tax. Petitioner moved for request but such
was denied. During the hearings conducted by the CTA, petitioner did not
present testimonial evidence but merely documentary evidence while
respondent presented one of the revenue examiners who conducted the
investigation on the estate tax of Jose Fernandez. The CTA denied the petition,
stating that the pieces of evidence introduced by the BIR were admissible in
evidence. Nevertheless, the CTA did not fully adopt the assessment of the BIR
and came up with its own computation amounting to Php37.4 million. Such
ruling was affirmed by the CA.

Issue & Ruling

Whether or not the actual claims of the creditors may be fully

allowed as deductions from the gross estate despite said claims being
reduced or condoned (Yes)

It is noteworthy that even in the United States, there is some dispute as

to whether the deductible amount for a claim against the estate is fixed as of
the decedent's death which is the general rule, or the same should be adjusted
to reflect post-death developments, such as where a settlement between the
parties results in the reduction of the amount actually paid. On one hand, the
U.S. court ruled that the appropriate deduction is the "value" that the claim
had at the date of the decedent's death. Also, as held in Propstra v.
U.S.,  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. These pronouncements essentially
confirm the general principle that post-death developments are not material in
determining the amount of the deduction.

On the other hand, the Internal Revenue Service (Service) opines that
post-death settlement should be taken into consideration and the claim should
be allowed as a deduction only to the extent of the amount actually paid.
Recognizing the dispute, the Service released Proposed Regulations in 2007
mandating that the deduction would be limited to the actual amount paid.
In announcing its agreement with Propstra, the U.S. 5th Circuit Court of
Appeals held: 
 We are persuaded that the Ninth Circuit's decision...in Propstra correctly
apply the Ithaca Trust date-of-death valuation principle to enforceable claims
against the estate. As we interpret Ithaca Trust, when the Supreme Court
announced the date-of-death valuation principle, it was making a judgment
about the nature of the federal estate tax specifically, that it is a tax imposed
on the act of transferring property by will or intestacy and, because the act on
which the tax is levied occurs at a discrete time, i.e., the instance of death, the
net value of the property transferred should be ascertained, as nearly as
possible, as of that time. This analysis supports broad application of the date-
of-death valuation rule.

We express our agreement with the date-of-death valuation rule, made

pursuant to the ruling of the U.S. Supreme Court in Ithaca Trust Co. v. United
States. First. There is no law, nor do we discern any legislative intent in our tax
laws, which disregards the date-of-death valuation principle and particularly
provides that post-death developments must be considered in determining the
net value of the estate. It bears emphasis that tax burdens are not to be
imposed, nor presumed to be imposed, beyond what the statute expressly and
clearly imports, tax statutes being construed strictissimi juris against the
government. Any doubt on whether a person, article or activity is taxable is
generally resolved against taxation. Second. Such construction finds relevance
and consistency in our Rules on Special Proceedings wherein the term "claims"
required to be presented against a decedent's estate is generally construed to
mean debts or demands of a pecuniary nature which could have been enforced
against the deceased in his lifetime, or liability contracted by the deceased
before his death. Therefore, the claims existing at the time of death are
significant to, and should be made the basis of, the determination of allowable
deductions.
CIR v. Gonzales
G.R. No. L-19495
November 24, 1966

Facts

Matias Yusay died intestate leaving two heirs, namely, Jose S. Yusay
(legitimate child) and Linda Yusay Gonzales (acknowledged natural child).
Intestate proceedings were instituted in the CFI of Iloilo and Joes was
appointed administrator. Jose filed with the BIR an estate and inheritance tax
return in the amount of Php187k without mentioning any heir. However, after
investigation, the BIR assessed the estate in the amount of Php219k. Based on
the findings, the estate and inheritance tax due in the sum of Php6.8k and
Php16.9k, respectively.

Two years later, the BIR increased the assessment of the estate and
inheritance tax in the sum of Php8.2k and Php22.1k plus inheritance tax plus
delinquency interest and demanded payment thereof. Meanwhile, the CFI
required Jose to show proof of payment of tax. He requested as extension of
time within which to pay the tax by posting a surety bond to guarantee
payment within one year. The CIR denied the request and issued a warrant of
distraint and levy; however, this was not enforced because all the personal
properties subject to distraint were located in Iloilo City.

The Provincial Treasurer of Iloilo requested the BIR to furnish him copies
of the assessment to support a motion for payment of taxes which the
Provincial Fiscal would file before the CFI of Iloilo. The records however do not
show whether the fiscal filed a claim for the taxes due.

The Commissioner appointed by the CFI for the partition reported that
the gross estate is in the amount of Php356.6k. More than a year later, an
agent of the BIR appraised the CIR of the existence of the said reamended
project of partition. The CIR caused the estate of Matias to be reinvestigated. A
new assessment for estate and inheritance tax in the sum of Php16.2k and
Php69.1k.

The assessment was sent to respondent in view of Jose’s death. No

payment having been made despite repeated demands, the CIR filed a proof of
claim for the estate and inheritance taxes with the settlement court.
Respondent filed an answer alleging non-receipt of the subject assessment
since there were two persons administering the estate. In the said answer, she
expressed her willingness to pay the taxes corresponding to her share.

Few months later, respondent disputed the legality of the assessment,

claiming that the right to make an assessment has already prescribed
inasmuch as more than five years had elapsed since the filing of the returns.
The CIR rejected this request because: 1) the right to assess taxes has not been
lost since the return which did not name the heirs cannot be considered a true
and complete return; and 2) the estate’s administrator waived the defense of
prescription when he filed a surety bond to guarantee payment of taxes.

Respondent filed a petition for review in the CTA which ruled that the
right of the CIR to assess the estate and inheritance taxes have prescribed.
 Issue & Ruling

Whether or not the right to assess has not yet prescribed since the
returns submitted did not contain the name of the heirs (No)

A return need not be complete in all particulars. It is sufficient if it

complies substantially with the law. There is substantial compliance (1) when
the return is made in good faith and is not false or fraudulent; (2) when it
covers the entire period involved; and (3) when it contains information as to the
various items of income, deduction and credit with such definiteness as to
permit the computation and assessment of the tax.

There is no question that the state and inheritance tax return filed by
Jose S. Yusay was substantially defective. First, it was incomplete. It declared
only ninety-three parcels of land representing about 400 hectares and left out
ninety-two parcels covering 503 hectares. Said huge under declaration could
not have been the result of an over-sight or mistake.

Second, the return mentioned no heir. Thus, no inheritance tax could be

assessed. As a matter of law, on the basis of the return, there would be no
occasion for the imposition of estate and inheritance taxes. When there is no
heir - the return showed none - the intestate estate is escheated to the State.
The State taxes not itself

The return filed in this case was so deficient that it prevented the
Commissioner from computing the taxes due on the estate. It was as though no
return was made. The Commissioner had to determine and assess the taxes on
data obtained, not from the return, but from other sources. We therefore hold
the view that the return in question was no return at all as required in Section
93 of the Tax Code.
CIR v. Pineda
G.R. No. L-22734
September 15, 1967

Facts

Atanasio Pineda died and was survived by his wife and 15 children, the
eldest of whom was respondent. Estate proceedings were held in the CFI of
Manila wherein the widow was appointed administratrix. The estate was
divided among and awarded to the heirs, respondent receiving the amount of
Php2.5k.

After the proceedings were closed, the BIR investigated the income tax
liability of the estate and it found that it did not file the corresponding income
tax return for the years 1945-1948. The CIR filed the said returns for the estate
amounting to Php2.7k.

Respondent contested the assessment. He appealed to the CTA alleging

that he was appealing only that portion pertaining to him as one of the heirs.
The judgment of the CIR was reversed by the CTA on the ground that his right
to assess has already prescribed.

The CIR appealed to the SC and proposed to hold respondent liable to

pay all the taxes found by the CTA in the amount of Php760 instead of only
paying the amount of taxes corresponding to his share in the estate.
Respondent opposed the proposition on the ground that he is liable for unpaid
income tax due to the estate only to the portion of the shares he received.

Issue & Ruling

Whether or not respondent may be required to pay the full amount

of the taxes assessed (Yes)

As a holder of property belonging to the estate, Pineda is liable for he tax

up to the amount of the property in his possession. The reason is that the
Government has a lien on the P2,500.00 received by him from the estate as his
share in the inheritance, for unpaid income taxes4a for which said estate is
liable, pursuant to the last paragraph of Section 315 of the Tax Code, which we
quote hereunder:

If any person, corporation, partnership, joint-account (cuenta en

participacion), association, or insurance company liable to pay the income tax,
neglects or refuses to pay the same after demand, the amount shall be a lien in
favor of the Government of the Philippines from the time when the assessment
was made by the Commissioner of Internal Revenue until paid with interest,
penalties, and costs that may accrue in addition thereto upon all property and
rights to property belonging to the taxpayer: . . .

By virtue of such lien, the Government has the right to subject the
property in Pineda's possession. After such payment, Pineda will have a right of
contribution from his co-heirs,5 to achieve an adjustment of the proper share
of each heir in the distributable estate