THE COLLECTOR OF INTERNAL REVENUE vs. ELLEN WOOD McGRATH x---------------------------------------------------------x ELLEN WOOD McGRATH vs.

CIR and CTA Nature: Appeal by (1) CIR from a decision of CTA declaring the estate of Dora Anna Wood exempt from the payment of inheritance tax and by (2) Ellen c!rath" administratrix" for the dismissal of her claim of having been discharged from paying the taxes assessed by CIR on the estate. FACT : #. CIR assessed against the estate of Dora Anna Wood taxes" interests and s$rcharges amo$nting to %&'"(#).*&. +. !CIR: c!rath" administratrix" filed a petition against the original assessment made by the CIR. a. CIR rendered a final decision re,$esting c!rath to pay %-*"#&&.'# as inheritance tax and penalties" pl$s corresponding interest $p to the date of payment. -. !CTA: c!rath filed a petition for revie. alleging that CIR/s assessment of the taxes on the estate of Dora Anna Wood are e"ce##$%e and $&&e'a& a. 0he prays for the ref$nd of %#-"*12.1-. &. CTA rendered 3$dgment declaring the estate of Dora Anna Wood e"e()t *r+( t,e )a-(ent +* t,e $n,er$tance ta". /ut #u/0ect t+ t,e e#tate ta" 1+rt, 213.145677. a. As petitioner had already paid %+2")1+.#'" CIR .as ordered to ref$nd %1"&##.*&. ). ! C: both filed an appeal a. CIR appealed that no reciprocity exists bet.een California and %hilippine la.s4 Therefore" CTA/s decision sho$ld be reversed. b. c!rath also appealed alleging that since CIR accepted a chec5 in f$ll settlement of all death taxes d$e and payable" it can no longer collect the alleged deficiency taxes. c. I UE81: W67 CTA erred in holding that there exists reciprocity bet.een the California and %hilippine la.s on the matter of the death tax on intangible personal property HELD: 8es" CTA erred. 7o reciprocity exists. Estate is liable for payment of inheritance tax. RATIO: 7o reciprocity can be extended in the case of the estate of Dora Anna Wood beca$se the &a1 +* Ca&$*+rn$a d+e# n+t 'rant *u&& e"e()t$+n from the estate and inheritance taxes to 9ilipino residents in that state. It is clear from both ,$oted provisions :see belo.; that the rec$)r+c$t- (u#t /e t+ta&" that is" .ith respect to transfer or death taxes of any and every character" in the case of the %hilippine la." and to legacy" s$ccession" or death tax of any and every character" in the case of the California la.. If any of the t.o states collects or imposes and does not exempt any transfer" death" legacy" or s$ccession tax of any character" the reciprocity does not .or5.
ect$+n 122 +* +ur Nat$+na& Interna& Re%enue C+de provides< . . . And, provided, further" That no tax shall be collected $nder this Title in respect of intangible personal property :a; if the decedent at the time of his death .as a resident of a foreign co$ntry .hich at the time of his death did not impose a transfer tax or death tax of any character in respect of intangible personal property of citi=ens of the %hilippines not residing in the foreign co$ntry" or :b; if the la.s of the foreign co$ntry of .hich the decedent .as 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 o.ned by citi=ens of the %hilippines not residing in that foreign co$ntry.> ect$+n 13971 +* t,e Ca&$*+rn$a In,er$tance Ta" La1 reads< >0EC. #-()#. Intangibles of nonresident< Conditions. Intangible personal property is exempt from the tax imposed by this part if the decedent at the time of his death .as a resident of a Territory or another 0tate of the ?nited 0tates of a foreign state or co$ntry .hich then imposed a legacy" s$ccession" or death tax in respect to intangible personal property of its o.n residents" b$t either< >:a; Did not impose a legacy" s$ccession" or death tax of any character in respect to intangible personal property of residents of this 0tate" or >:b; @ad in its la.s a reciprocal provision $nder .hich intangible personal property of a non-resident .as exempt from legacy" s$ccession" or death taxes of every character if the Territory or other 0tate of the ?nited 0tates or foreign state or co$ntry in .hich the nonresident resided allo.s a similar exemption in respect to intangible personal property of residents of the Territory or 0tate of the ?nited 0tates or foreign state or co$ntry of residence of the decedent.>

I UE82: W67 CIR/s acceptance of the chec5 in the amo$nt of %*"'2#.&*" Ain f$ll settlement of all death taxes d$e and payable"A constit$tes a compromise that exting$ishes c!arth>s obligation to pay

additional death taxes. HELD: 7B. The acceptance did not exting$ish c!arth/s obligation to pay additional death taxes.

RATIO: The letter of acceptance of the amo$nt made by the Collector of Internal Reven$e is to the effect that the amo$nt sho$ld be acco$nted for as )art )a-(ent of the estate tax d$e. There .as" therefore . n+ a'ree(ent /et1een t,e ta")a-er and t,e C+&&ect+r +* Interna& Re%enue t,at t,e a(+unt +**ered 1a# t+ /e acce)ted t+ c+()r+($#e a ta" &$a/$&$t- . Taxes are fixed by la. and are not s$b3ect to contract bet.een the taxpayer and the tax officer" except .hen there is an act$al compromise" .hich in the case at bar does not exist. The acceptance of any amo$nt by employees or officials" .hich does not constit$te a f$ll payment of the amo$nt fixed by la." is no gro$nd or reason for the claim for exemption by the taxpayer from liability for the remaining amo$nt d$e $nder the la.. Taxes are not s$b3ect to agreements bet.een the taxpayer and the tax officer" and if any s$ch agreements are made" they cannot serve to defeat or discharge the liability that the la. fixes as the f$ll amo$nt of the tax. 9$rthermore" any error made by a tax official in the assessment or comp$tation of taxes does not have the effect of relieving the taxpayer from the f$ll amo$nt of liability as fixed by la.. Errors of tax officers or officials of the !overnment do not bind the !overnment or pre3$dice its right to the taxes or d$es collectible by it from its citi=ens. I UE83: W67 the fail$re of CIR to ma5e a revised assessment p$rs$ant to 0ection '* and '1 of the 7ational Internal Reven$e Code relieves the administratrix from paying any deficiency in the inheritance taxes. HELD: 7B. 0ection '1 of the 7ational Internal Reven$e Code" $pon .hich the claim is fo$nded" refers to the personal liability of an administratrix from any deficiency tax" not the liability of the estate $nder administration. !ranting that the administratrix may not be personally liable" it does not follo. therefrom that the estate $nder administration .o$ld also be free from liability. I UE8:: W67 the estate is exempt from the payment of any deficiency tax beca$se of the fail$re of the Collector to ma5e the assessment of the deficiency death taxes and to demand their payment" in accordance .ith 0ection '& of the 7IRC. HELD: 7B. 0ection '& of the 7IRC applies to a case .here there is no ret$rn filed or .here one is filed b$t is false or fra$d$lent. In the case at bar t,ere 1a# a return and t,e #a(e 1a# n+t *a&#e +r *raudu&ent. @ence the assessment indicated in 0ection '& of the 7ational Internal Reven$e Code is not re,$ired. In any case" the assessment made in the letters of the respondent Collector are s$fficiently clear and specific" and are a valid assessment of the taxes on the estate $pon the facts and fig$res given by the co$nsel for petitioner c!rath. DI 2O ITION: Decision of the CTA is reversed and Ellen Wood c!rath is re,$ired to pay %+-"-*+.1'.