Vidal de Roces vs Posadas Jr

58 Phil 108 [GR No. L-34937 March 13, 1933]

Facts: On March 1o and 12, 1925, Esperanza Tuazon, by means of public documents, donated certain parcel of lands situated in
Manila to the plaintiffs herein who with their respective husbands accepted them in the same public documents which were duly
recorded in the registry of deeds. By virtue of said donations, the plaintiffs took possession of the said lands, received the fruits thereof
and obtained the corresponding transfer certificate of title. On January 25, 1926, the donor died in the city of Manila leaving the
forced heir and her will which was admitted to probate, she bequeathed to each of the donees the sum of Php5,000. After the estate
had been distributed among the instituted legatees and before the delivery of their respective shares, the appellee herein, as collector of
internal revenue, ruled that the appellant as donees and legatees should pay as inheritance taxes the sums of Php16,673 and
Php13,951.45 respectively. At first, the appellants refused to pay the aforementioned taxes but, at the insistence of the appellee in
order not to delay the adjudication of the legacies, they agreed at last to pay them under protest. Hence, plaintiff-appellants filed an
action to recover the taxes paid under protest.

Issue: Whether or not inheritance tax should be imposed on donations inter vivos.

Held: Yes. The tax collected by the appellee on the properties donated in 1925 really constitutes an inheritance tax imposed on the
transmission of said properties in contemplation or in consideration of the donor’s death and under circumstance that the donees were
later instituted as the former’s legatees. For this reason, the law considers such transmission in the form of gifts inter vivos, as
advances on the inheritance and nothing therein violates any constitutional provision, in as much as said legislation is within the
power of the legislature.

Property subject to inheritance tax – the inheritance tax ordinarily applies to all property within the power of the state to reach passing
by will or the laws regulating intestate succession or by gifts inter vivos in the manner designated by statute, whether such property be
real or personal, tangible or intangible, corporeal or incorporeal.

While a donee inter vivos, who after the predecessor’s death proved to be an heir, legatee or 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 tax.

It may be inferred from the allegations contained in par 2 and 7 thereof that said donations inter vivos were made in consideration of
the donor’s death. We refer to the allegations that such transmissions were effected in the month of March 1925, that the donor died in
January 1926, and that the donees were instituted legatees in the donor’s will which was admitted in probate. It is from these
allegations, especially the last, that we infer a presumption juris tantum that said donations were made mortis causa and, as such are
subject to payment of inheritance tax.
LORENZO vs. POSADAS

FACTS:

Thomas Hanley died, leaving a will and considerable amount of real and personal properties. The will bequeathed
Matthew Hanley, Thomas' nephew, the money and the real estate. Also stipulated was that the property will only be
given ten years after Thomas' death.

The CFI appointed PJM Moore as considered trustee to administer the real properties. Moore acted as trustee until
he resigned and Pablo Lorenzo was appointed in his stead.

Juan Posadas, the CIR, assessed inheritance tax against the estate amounting to P2,057.74. Lorenzo paid the tax
after he was ordered by the CFI due to the CIR's motion. Lorenzo claimed that the inheritance tax should have been
assessed after 10 years and asked for a refund.

The CIR denied the protest and reassessed Lorenzo of P1,191.27 which represents interest due on the tax and which
was not included in the original assessment. However, the CFI dismissed this counterclaim and also denied
Lorenzo’s claim for refund against the CIR, thus the case.

ISSUES :Whether the estate was delinquent in paying the inheritance.

Whether the inheritance tax be computed from its value ten years later.
Whether the compensation of the trustees should be part of the estate subject to tax.

RULING:

YES. The delinquency in payment occurred when Moore became trustee. The interest due should be computed from
that date and it is error of Lorenzo to compute it one month later. A surcharge 25 per centum should be added to the
tax and interest due and unpaid within ten days after the date of notice. The CIR communicated with Moore and a
date was fixed. As the tax and interest due were not paid on that date, the estate became liable for the payment of the
surcharge.

NO. The Court held 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.

NO. A trustee, no doubt, is entitled to receive a fair compensation for his services . But from this it does not follow
that the compensation due him may lawfully be deducted in arriving at the net value of the estate subject to tax.
CIR vs. Pajonar

G.R. No. 123206 March 22, 2000

Facts: Private respondent Josefina Pajonar was the guardian of the person of decedent Pedro Pajonar. The
property of the decedent was put by the RTC- Dumaguete, under the guardianship of the Philippine National
Bank via special proceeding, wherein 50, 000 was spent therein for payment of attorney's fees.

When the decedent died, instead of filing a estate tax return, PNB advised Josefina to extra-judicially settle the
estate of his brother. The decedent's estate was extra-judicially settled and the heirs paid an amount of 60, 753
for the notarization of the deed of extra-judicial settlement of estate.

The private paid the estate tax, however, they were subsequently assessed of deficiency taxes because the
amount paid in the special proceeding [50, 000] and the notarization fee [60, 753] cannot be claimed as a
deduction to the decedent's estate. Private respondent paid the said taxes under protest. While the case is under
review by the BIR, she filed a claim for refund in the CTA which was granted.
Issue: whether or not the notarial fee paid for the extrajudicial settlement in the amount of P60,753 and the
attorney's fees in the guardianship proceedings in the amount of P50,000 may be allowed as deductions from
the gross estate of decedent in order to arrive at the value of the net estate.

Held: Yes.

As to the deductibility of the amount spent for notarization of the deed of extra-judicial settlement of
estate- Explained the SC, administration expenses, as an allowable deduction from the gross estate of the
decedent for purposes of arriving at the value of the net estate, have been construed by the federal and state
courts of the United States [which the law on allowable deductions from gross estate was copied!] to include all
expenses "essential to the collection of the assets, payment of debts or the distribution of the property to the
persons entitled to it."

In other words, the expenses must be essential to the proper settlement of the estate. Expenditures incurred for
the individual benefit of the heirs, devisees or legatees are not deductible. This distinction has been carried over
to our jurisdiction. Thus, in Lorenzo v.Posadas the Court construed the phrase "judicial expenses of the
testamentary or intestate proceedings" as not including the 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 estate
for the benefit of the testamentary heir. In another case, the Court disallowed the 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 in the settlement of the estate. Neither may attorney's fees incident
to litigation incurred by the heirs in asserting their respective rights be claimed as a deduction from the gross
estate.

In this case, it is clear that the extrajudicial settlement was for the purpose of payment of taxes and the
distribution of the estate to the heirs. The execution of the extrajudicial settlement necessitated the notarization
of the same. It follows then that the notarial fee of P60,753.00 was incurred primarily to settle the estate of the
deceased Pedro Pajonar. Said amount should then be considered an administration expenses actually and
necessarily incurred in the collection of the assets of the estate, payment of debts and distribution of the
remainder among those entitled thereto. Thus, the notarial fee of P60,753 incurred for the Extrajudicial
Settlement should be allowed as a deduction from the gross estate.

Deductible expenses of administration of the estate may include executor's or administrator's fees, attorney's
fees, court fees and charges, appraiser's fees, clerk hire, costs of preserving and distributing the estate and
storing or maintaining it, brokerage fees or commissions for selling or disposing of the estate, and the like.
Deductible attorney's fees are those incurred by the executor or administrator in the settlement of the estate or in
defending or prosecuting claims against or due the estate.

As to the deductibility of attorney's fees in the Special proceedings- As a rule attorney's fees in order to be
deductible from the gross estate must be essential to the collection of assets, payment of debts or the
distribution of the property to the persons entitled to it. The services for which the fees are charged must relate
to the proper settlement of the estate. [34 Am. Jur. 2d 767.] In this case, the guardianship proceeding was
necessary for the distribution of the property of the late Pedro Pajonar to his rightful heirs. It is noteworthy to
point that PNB was appointed the guardian over the assets of the deceased. Necessarily the assets of the
deceased formed part of his gross estate. Accordingly, all expenses incurred in relation to the estate of the
deceased will be deductible for estate tax purposes provided these are necessary and ordinary expenses for
administration of the settlement of the estate. Hence the attorney's fees of 50, 000 is deductible from the gross
estate of the decedent.
Marcos vs. CA

Facts: Following the death of former President Marcos in 1989, a Special Tax Audit Team was
created on June 27, 1990 to conduct investigations and examinations of tax liabilities of the late
president, his family, associates and cronies. The investigation disclosed that the Marcoses failed
to file a written notice of death of the decedent estate tax return and income tax returns for the
years 1982 to 1986, all in violation of the Tax Code. Criminal charges were field against Mrs.
Marcos for violation of Secs. 82, 83 and 84, NIRC.

The CIR thereby caused the preparation of the estate tax return for the estate of the late
president, the income returns of the Marcos spouses for 1985 and 1986 and the income tax
returns of petitioner Marcos II for 1982 to 1985. On July 26, 1991, the BIR issued deficiency
estate tax assessments and the corresponding deficiency income tax assessments. Copies of
deficiency estate and income tax assessments were served personally and constructively on
August 26, 1991 and September 12, 1991 upon Mrs. Marcos. Likewise, copies of the deficiency
income tax assessments against petitioner Marcos were personally and constructively served.
Formal assessment notices were served upon Mrs. Marcos on October 20, 1992.

The deficiency tax assessments were not administratively protested by the Marcoses within 30
days from service thereof. Subsequently, the CIR issued a total of 30 notices to levy on real
property against certain parcels of land and other real property owned by Marcoses.

Notices of sale at public auction were duly posted at the Tacloban City Hall and the public
auction for the sale of 11 parcels of land took place on July 5, 1993. There being no bidder, the
lots were declared forfeited in favor of the government.

Petitioner filed a petition for certiorari and prohibition with an application for TRO before the CA
to annul and set aside the notices of levy as well as the notice of sale and to enjoin the BIR from
proceeding with the auction. The CA dismissed the petition ruling that the deficiency
assessments for the estate and income taxes have already become final and unappealable and
may thus be enforced by summary remedy of levying upon the real property.

Issue: Whether or not the proper avenue of assessment and collection was taken by
respondent bureau.

Held: Apart from failing to file the required estate tax return within the time required for filing
the same, petitioner and other Marcos heirs never questioned the assessment served upon
them, allowing the same to lapse into finality, and prompting the BIR to collect said taxes by
levying upon the properties left by the late President Marcos.

The Notice of Levy upon real property were issued within the prescriptive period and in
accordance with Sec. 222 of the Tax Code. The deficiency tax assessment, having become final,
executory and demandable, the same can now be collected through the summary remedy of
distraint and levy pursuant to Sec. 205 of the Tax Code.

Issues:
The pivotal question the court is tasked to resolve refers to the authority of the Bureau of Internal
Revenue to collect by the summary remedy of levying upon, and sale of real properties of the decedent,
estate tax deficiencies, without the cognition and authority of the court... sitting in probate over the
supposed will of the deceased.
Ruling:
Strictly speaking, the assessment of an inheritance tax does not directly involve the administration of a
decedent's estate, although it may be viewed as an incident to the complete settlement of an estate... it is
made the duty of the... probate court to make the amount of the inheritance tax a part of the final decree
of distribution of the estate
It is not against the property of decedent, nor is it a claim against the estate as such, but it is against the
interest or property right which the heir, legatee,... devisee, etc., has in the property formerly held by
decedent... nor is it an adversary proceeding between the state and the person who owes the tax on the
inheritance.
the enforcement and collection of estate tax, is executive in character, as the legislature has seen it fit to
ascribe this task to the Bureau of Internal Revenue.
Such taxes, we said, were exempted from the application of the statute of non-claims, and this is...
justified by the necessity of government funding, immortalized in the maxim that taxes are the lifeblood of
the government.
Vectigalia nervi sunt rei publicae - taxes are the sinews of the state.
Taxes assessed against the estate of a deceased person, after administration is opened, need not be
submitted to the committee on claims in the ordinary course of administration... exercise of its control over
the administrator, the court may direct the payment... of such taxes upon motion
Such liberal treatment of internal revenue taxes in the probate proceedings extends so far, even to
allowing the enforcement of tax obligations against the heirs of the decedent, even after distribution of the
estate's properties.
There is nothing in the Tax Code, and in the pertinent remedial laws that implies the necessity of the
probate or estate... settlement court's approval of the state's claim for estate taxes, before the same can
be enforced and collected.
under Section 87 of the NIRC, it is the probate or settlement court which is bidden not to authorize the
executor or judicial administrator of the decedent's estate to deliver any distributive share to any party
interested in the estate, unless it is shown a
Certification by the Commissioner of Internal Revenue that the estate taxes have been paid.
CIR v. PINEDA
GR No. L-22734, September 15, 1967
21 SCRA 105

FACTS: Atanasio Pineda died, survived by his wife, Felicisima Bagtas, and 15 children, the eldest of whom is Atty. Manuel
Pineda. Estate proceedings were had in Court so that the estate was divided among and awarded to the heirs. Atty Pineda's share
amounted to about P2,500.00. After the estate proceedings were closed, the BIR investigated the income tax liability of the
estate for the years 1945, 1946, 1947 and 1948 and it found that the corresponding income tax returns were not filed.
Thereupon, the representative of the Collector of Internal Revenue filed said returns for the estate issued an assessment and
charged the full amount to the inheritance due to Atty. Pineda who argued that he is liable only to extent of his proportional
share in the inheritance.

ISSUE: Can BIR collect the full amount of estate taxes from an heir's inheritance.

HELD: Yes. The Government can require Atty. Pineda to pay the full amount of the taxes assessed.
The reason is that the Government has a lien on the P2,500.00 received by him from the estate as his share in the inheritance,
for unpaid income taxes for which said estate is liable. By virtue of such lien, the Government has the right to subject the
property in Pineda's possession to satisfy the income tax assessment. After such payment, Pineda will have a right of
contribution from his co-heirs, to achieve an adjustment of the proper share of each heir in the distributable estate.
All told, the Government has two ways of collecting the tax in question. One, by going after all the heirs and collecting from
each one of them the amount of the tax proportionate to the inheritance received; and second, is by subjecting said property of
the estate which is in the hands of an heir or transferee to the payment of the tax due. This second remedy is the very avenue the
Government took in this case to collect the tax. The Bureau of Internal Revenue should be given, in instances like the case at
bar, the necessary discretion to avail itself of the most expeditious way to collect the tax as may be envisioned in the particular
provision of the Tax Code above quoted, because taxes are the lifeblood of government and their prompt and certain availability
is an imperious need.
Ruiz v CA (Taxation)
Estate of Hilario Ruiz v CA G.R. No. 118671. January 29, 1996

FACTS:
Hilario M. Ruiz executed a holographic will naming as his heirs his only son, Edmond Ruiz, his adopted daughter, private respondent
Maria Pilar Ruiz Montes, and his three granddaughters,

On April 12, 1988, Hilario Ruiz died.

On June 29, 1992, four years after the testator’s death, it was private respondent Maria Pilar Ruiz Montes who filed before the Regional
Trial Court, Branch 156, Pasig, a petition for the probate and approval of Hilario Ruiz’s will and for the issuance of letters testamentary
to Edmond Ruiz

ISSUE:

whether the probate court, after admitting the will to probate but before payment of the estate’s debts and obligations, has the authority:
(1) to grant an allowance from the funds of the estate for the support of the testator’s grandchildren; (2) to order the release of the titles
to certain heirs; and (3) to grant possession of all properties of the estate to the executor of the will.

RULING:

1. No. Be that as it may, grandchildren are not entitled to provisional support from the funds of the decedent’s estate. The law clearly
limits the allowance to “widow and children” and does not extend it to the deceased’s grandchildren, regardless of their minority or
incapacity.

2. No. No distribution shall be allowed until the payment of the obligations above-mentioned has been made or provided for, unless the
distributees, or any of them, give a bond, in a sum to be fixed by the court, conditioned for the payment of said obligations within such
time as the court directs.

3. No. The right of an executor or administrator to the possession and management of the real and personal properties of the deceased
is not absolute and can only be exercised “so long as it is necessary for the payment of the debts and expenses of administration, He
cannot unilaterally assign to himself and possess all his parents’ properties and the fruits thereof without first submitting an inventory
and appraisal of all real and personal properties of the deceased, rendering a true account of his administration, the expenses of
administration, the amount of the obligations and estate tax, all of which are subject to a determination by the court as to their veracity,
propriety and justness.