What is the Con Ass and What Can We do About It

Our Constitution, the fundamental law of the land, can be changed in three ways. One is through a Constitutional Convention where delegates are elected by the people. This is how our 1987 constitution was drafted. Second is through an initiative where twelve percent (12%) of the total registered voters can sign a petition for charter change. Each legislative district must be represented by at least three percent (3%) of its registered voters. And finally, through a Constituent Assembly where Congress (House of Representative and the Senate) transforms itself into a body that changes or amends the constitution. This is more popularly referred to today as the Con Ass.

The debate today is not whether Con Ass is a valid way to change the constitution. It is. Rather, it is the way the House of Representatives formed the Constituent Assembly. In our current constitution it simply states that the Constituent Assembly is formed by a vote of 3/4 of all the members of Congress. It is not stated if the vote is done separately in the House of Representatives and Senate. A 3/4 vote means 176 congressmen and 17 senators voting separately or 196 congressmen plus senators voting as one.

House Bill 1109 was passed on 2 June 2009 with a vote of majority of the Congressmen present. The way this resolution was passed has been questioned by many as unconstitutional. It does not follow the process written out to form a constituent assembly. Only the Supreme Court can now decide whether this is Constitutional or not.

To learn more, whether for or against it, participate! Apathy is the greatest sin of all! (PS: I myself am not decided on what stand to take, but I would love to see the different sides.  To tell you honestly, back in HS, I led a team for debate in favor of Cha-Cha.  And it has opened my eyes to its possibility, so long as we protect ourselves from being swallowed by the politics behind it.)

CONCERT KONTRA CON-ASS

June 10, 2009
4:00 - 7:00 pm

Ateneo de Manila University
Katipunan Avenue, Quezon City

Add comment June 9th, 2009

BIR Ruling No. 145-98 (October 9, 1998)

24(D)(1)-000-00-145-98

Dulay & Pagunsan

4/F Bee Lu Building

103-113 Sen. Gil J. Puyat Ave.

Pasay City

Attention : Atty. Sinforoso R. Pagunsan

Gentlemen :

This refers to your letter dated March 4, 1998 stating that your client, Noel Espina, had purchased a lot described under TCT No. 387499 of the Register of Deeds for the Province of Rizal, which is registered in the name of Juan Posadas III and Maria Elena Posadas, that Juan Posadas III and Maria Elena Posadas own several other parcels of land which are jointly titled in their names; that on February 9, 1982, Juan Posadas III died in an aircraft accident; that on February 8, 1994, an Agreement was executed by Maria Elena Posadas with the Administratrix of Juan Posadas III whereby an exchange of land for land was effectively sought to be approved, that is, that designated lots shall be exclusively registered in the name of one party only in exchange for exclusive ownership of other lots by the other co-owner; that this Agreement was approved by the Regional Trial Court of Manila, Branch 48, in an Order dated July 21, 1994 which is now final and executory; that Maria Elena Posadas who was assigned the property embraced under TCT No. 387499 subsequently executed a Deed of Absolute Sale in favor of your client; and that thereafter, Title to the said property may, in turn, be transferred in the name of your client upon payment of the appropriate capital gains tax, documentary stamp tax and other fees.   cdasia

Based on the foregoing representations and for purposes of transferring the Title from the joint name of Juan Posadas III and Maria Elena Posadas to Maria Elena Posadas only pursuant to the Agreement and the Order of the Court, you are now requesting, in effect, for a ruling on whether the transaction is exempt from capital gains tax.

In reply, please he informed that under Article 496 of the Civil Code, Partition as a mode of terminating co-ownership may be made by agreement between the parties or by judicial proceedings. Partition shall be governed by the Rules of Court insofar as they are consistent with the Civil Code. Thus, the said Agreement executed on February 8, 1994 by and between Maria Elena Posadas and the Administratrix of the Estate of Juan Posadas III is in fact an Agreement partitioning the properties owned by the co-owners Maria Elena Posadas and Juan Posadas III transferring from the co-ownership by designating the said properties to each of the said owners. Moreover, the transfer of Title from the co-owners is not a barter, exchange or other disposition of realty that would warrant the imposition of the capital gains tax on said transaction including the documentary stamp tax imposed in Section 196 of the Tax Code of 1997.

Such being the case, the dissolution by the co-owners of the co-ownership by an Agreement to divide among the co-owners the properties is not subject to the capital gains tax imposed under Section 24(D)(1) of the Tax Code of 1997. However, that portion of the properties of the co-ownership which is designated to be the properties belonging to the deceased co-owner, Juan Posadas III, shall be subject to the estate tax prescribed under then Section 99 of the Tax Code, as amended or the law enforced at the time of the death of the decedent, before the said properties are transferred to his heirs.

This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void.   prLL

Very truly yours,

(SGD.) BEETHOVEN L. RUALO

Commissioner of Internal Revenue

Add comment June 5th, 2009

BIR Ruling No. 130-98 (September 10, 1998)

85(H)-000-00-130-98

Atty. Dioscoro C. Peligro

Royal Tower, 4474 Singin Street

Makati City

S i r :

This refers to your letter dated June 22, 1998 requesting for a ruling as to whether or not a parcel of land covered by TCT No. 131641 located at Bangkal, Makati City is conjugal or personal property for estate tax purposes.

It is represented that the said land was originally registered in the name of Ricardo C. Samano under TCT No. 18904; that in a Memorandum of Agreement dated May 8, 1984, the owner Ricardo C. Samano, gave the said parcel of land to her sister, Luz S. Espiritu, who was at that time married to Perfecto Espiritu; that subsequently, TCT No. 18904 in the name of Ricardo C. Samano was cancelled and another title was issued in the name of Luz Espiritu under TCT No. 131641 married to Perfecto Espiritu; and that on November 5, 1995, Perfecto Espiritu died.   Cdpr

In reply, please be informed that since the aforestated parcel of land covered by TCT No. 131641 was acquired by Mrs. Luz S. Espiritu during her marriage with Perfecto Espiritu by gratuitous title, the same, having been donated to her alone by her brother, Ricardo C. Samano, in consideration of his love and affection for being the youngest and only sister, shall be considered as the exclusive property of Luz S. Espiritu (Sec. 5(f)(2), Revenue Regulations No. 17-93 dated August 30, 1993). Such being the case, the same shall not be deemed a part of the gross estate of the deceased Perfecto Espiritu for estate tax purposes, pursuant to Section 78(h) of the Tax Code, as restructured by Republic Act No. 7499 (now Section 85(H) of the Tax Code of 1997).

This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation it will be disclosed that the facts are different, then this ruling shall be considered null and void.

Very truly yours,

(SGD.) BEETHOVEN L. RUALO

Commissioner of Internal Revenue

Add comment June 5th, 2009

BIR Ruling No. 107-82 (April 6, 1982)

123-a-3 000-00 107-82

Atty. Oscar L. Uy

Suite 309 First United Bldg.

Escolta, Manila

S i r :

This refers to your letter dated September 26, 1980 requesting that the donations made in favor in the Fraternity of Freemasons represented by the Most Worshipful Grand Lodge of the Free and Accepted Masons of the Philippines and the Supreme Council of the Thirty-Third and Last Degree, Ancient and Accepted Scottish Rite of Free-masonry of the Republic of the Philippines be exempted from the donor’s gift tax as well as full deduction of said donations for income tax purposes.

In reply thereto, I have the honor to inform you that according to the articles of incorporation submitted by you, the organization is a fraternal, charitable and beneficiary Society in the form of a private non-stock corporation. Under Section 123(a)(3) of the Tax Code, gifts in favor of an educational and/or charitable, religious, cultural or social welfare corporation, institution, foundation, trust or philanthropic organization or research institution or organization, are exempt from the donor’s gift tax. Under this provision, the donee organization must be organized solely for either one of said purposes, or a combination thereof. In the case of said organization, while it is engaged for charitable purposes, it is also engaged for fraternal and beneficiary purposes which are not within the purview of said tax exemption provision. Accordingly, net gifts to the said organization exceeding P1,000 are subject to the donor’s gift tax imposed by Section 121 of the Tax Code. cdtai

Neither can the donors to the said organization claim full deduction of their donations for income tax purposes. Under Section 30(h) of the Tax Code, as amended by Batas Pambansa Blg. 45, only those donations to non-profit domestic corporation which are organized and operated exclusively for scientific, research, educational, character-building and youth and sports development, health, social welfare, cultural or charitable purposes, or a combination thereof, no part of the net income of which inures to the benefit of any private individual, can be claimed for full deduction. As heretofore stated, the above-named organization is not organized solely for charitable purposes or a combination of the purposes enumerated in Section 34(h), as amended by Batas Pambansa Blg. 45.

Finally, the donors cannot claim the donations to the above-named organization as deduction to an amount not exceeding 6%, in the case of an individual, or 3% in the case of a corporation, for the reason that the donee organization is not organized or operated exclusively for religious, charitable, scientific, youth and sports development, cultural or educational purposes or for the rehabilitation of veterans; and it is not a social welfare institution. [Sec. 30(h)(l), Tax Code]

It is understood that the aforesaid organization is exempt from income tax in respect to income derived by it as a fraternal, charitable and beneficiary society and, therefore, need not file an income tax return concerning such income. [Sec. 27(c) and (e), Tax Code]. However, the income of whatever kind and character of said organization from any of its properties, real or personal, or from any of its activities conducted for profit, regardless of the disposition made of such income shall be subject to internal revenue taxes. (Sec. 27, Tax Code, as amended by P.D. No. 1457). Moreover, it is required to file on or before April 15 of each year a profit and loss statement and balance sheet with the annual information return under oath, stating its gross income and expenses incurred during the year and a certificate showing that there has not been any change in its By-Laws, Articles of Incorporation, manner of operation and activities as well as sources and disposition of income.

It is requested that a copy of this letter be attached to the annual information return which you will file on or before April 15 of each year. cdt

Very truly yours,

RUBEN B. ANCHETA

Acting Commissioner

Add comment June 5th, 2009

BIR Ruling No. 103-96 (October 4, 1996)

78-00 000-00 103-96

Atty. Jerry F. Bantillan

(Counsel for the Heirs)

Bacolod City

S i r :

This refers to your letter dated April 2, 1996 requesting for a ruling as to whether or not road lots and open spaces titled in the name of the decedent, Remberto T. Jocson as owner and developer of a subdivision, including development costs are includible in his gross estate for purposes of the estate tax. cdasia

It is represented that the decedent, Remberto T. Jocson a resident of Bacolod City died testate on April 19, 1994 leaving among others, certain real properties composed of subdivision lots registered in his name and intended for sale to the public, all located in Bacolod City, Negros Occidental; that the bulk of these subdivision lots have already been sold by the decedent while he was still alive, except for around 13 subdivision lots; that as mandated by law the owner developer has to provide roads and open spaces and other forms of subdivision development; that a subdivision plan providing and delineating roads and open spaces was duly approved and certificates of title thereto were issued in the name of the decedent; that subdivision developments were undertaken, such as construction of drainage, sewerage, lighting, water and other basic requirements; and that the aforementioned lots and open spaces including the development costs were included in the gross estate of the decedent in the computation and assessment of the estate tax by the BIR Revenue District Office No. 77, Revenue Region No. 12, Bacolod City.

In reply, please be informed that estate tax is a tax imposed on the privilege of the deceased person to transmit his estate at death to his lawful heirs and beneficiaries, and is based on the decedents entire net estate which means his gross estate less allowable deductions and specific exemptions as determined in accordance with Sections 78 and 79 of the Tax Code as amended by R.A.. No. 7499. The value of the gross estate of the decedent shall be determined by including the value at the time of death of all property real or personal, tangible or intangible (Section 78, Tax Code, as amended by R.A.. No. 7499). Based on this definition, the following are excluded from the gross estate, viz: (1) Funeral expenses: (2) Judicial expenses for testate or interstate proceedings; (3) Claims against the estate (debts of the estate); (4) Unpaid mortgages upon, or any indebtedness in respect to property where the value of the decedent’s interest undiminished by such mortgage or indebtedness, is included in the gross estate; (5) Claims of the estate against insolvent persons (bad debts); (6) Taxes owed by decedent; (7) Losses incurred during the settlement of the estate; (8) Property previously taxed (vanishing deduction); (9) transfer for public purposes; and (10) Net share of the surviving in the conjugal estate. (underscoring supplied).

Roads and open spaces which are required by law to be reserved/set aside by the subdivision owners for the common use of the buyers of the subdivision lots and the public in general do not form part of the transmissible properties/interest of the decedent; hence, the value thereof are excluded in determining the taxable properties of the decedent subject to estate tax. Considering that roads and open spaces are for public use they are, in fact, government properties which cannot be transmitted to the heirs by way of succession. Moreover, as represented the value of such roads and open spaces was already factored, or included in the selling price of the lots; hence, all the present and future buyers are considered the common owners thereof.

Based on the foregoing, roads and open spaces in the subdivision area adverted to in your query should be excluded from the taxable gross estate of the decedent for estate tax purposes.

This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation it will be disclosed that the facts are different, and/or any of the requirements imposed in this letter are not complied with then this ruling shall be considered null and void. cdll

Very truly yours,

LIWAYWAY VINZONS-CHATO

Commissioner of Internal Revenue

Add comment June 5th, 2009

BIR Ruling No. 102-87 (April 8, 1987)

21-n 000-00 102-87

S i r :

This refers to your letter dated February 17, 1987 requesting a ruling as to the nature of the rental income received by the heirs of the late Jose Lim and Petra Ramos from the properties they acquired by inheritance which has been the subject of adjudication and extra judicial partition.

It is represented that the late spouses Jose Lim and Petra Ramos are the owners of two parcels of land located within the commercial district of Laoag City; that the spouses derived rental income from the properties during their life time; that the properties were the subject of adjudication and extrajudicial partition by the heirs; and that the heirs are receiving rental income from the properties.

In reply, please be informed that since the properties left by the deceased spouses have been the subject of an extrajudicial settlement among the heirs who continued the business of their parents by receiving the rental income of the properties from the moment of such extrajudicial settlement, an unregistered partnership has been formed. Hence, the rental income derived from said properties constitute partnership income subject to corporate income tax imposed under Section 24(n) of the Tax Code. Thus, the Supreme Court, in the case of Ona vs. Commissioner, G.R. No. L-19342, May 25, 1972, ruled as follows:

“As already indicated, for tax purposes, the co-ownership of inherited properties is automatically converted into an unregistered partnership the moment the said common properties and/or the incomes derived therefrom are used as a common fund with intent to produce profits for the heirs in proportion to their respective shares in the inheritance as determined in a project partition either duly executed in an extrajudicial settlement or approved by the court in the corresponding testate or intestate proceeding. The reason for this is simple. From the moment of such partition, the heirs are entitled already to their respective definite shares of the estate and the income thereof, for each of them to manage and dispose of an exclusively his own without the intervention of the other heirs, and, accordingly, he becomes liable individually for all taxes in connection therewith. If after such partition, he allows his share to be held in common with his co-heirs under a single management to be used with the intent of making profit thereby in proportion to his share, there can be no doubt that, even if no document or instrument were executed for the purpose, for tax purposes, at least, an unregistered partnership is formed.” cda

Very truly yours,

(SGD.) BIENVENIDO A. TAN, JR.

Commissioner

Add comment June 5th, 2009

BIR Ruling No. 101-80 (July 23, 1980)

Ms. Deryl Braithwaite

Cultural Attache

British Embassy

M a n i l a

S i r :

This refers to your letter dated May 22, 1980 requesting tax exemption on the sum of P100,000 which the British Community will donate to the Cultural Center of the Philippines (CCP) as a result of the presentation by one of your major British Companies, the Sadler’s Wells Royal Ballet, in Manila in September, 1980.

In reply, please be informed that since the aforesaid donation is being made to a cultural organization, the same is exempt from the donor’s gift tax, pursuant to Section 123(a)(3) of the Tax Code of 1977, as amended.

Moreover, since CCP is a non-municipal public corporation (Sec. 3, P.D. No. 15, as amended by P.D. No. 1444), it is a government agency. Accordingly, donations of members of the British Community to the CCP shall be deductible in full from the gross income of said members for income tax purposes, if said donations are given exclusively to finance, to provide for, or to be used in undertaking priority activities in culture according to a national priority plan to be determined by the NEDA. In case any such donation to CCP is not in accordance with the said annual priority plan, the same shall be subject to the 6% limitation prescribed in Section 30(h)(1) of the Tax Code. (Section 30(h)(2)(A) of the Tax Code of 1977, as amended by Batas Pambansa Blg. 45). aisadc

Very truly yours,

RUBEN B. ANCHETA

Acting Commissioner

Add comment June 5th, 2009

BIR Ruling No. 100-98 (June 29, 1998)

R.A. 6657 Sec. 98, NIRC’ 97-000-00-100-98

Ms. Angelita L. Amosco

Revenue District Officer

RDO No. 57, BIR

San Pedro, Laguna

M a d a m :

This refers to your letter dated December 26, 1996 stating that Science Park of the Philippines, Inc., (SPPI), a member of Investment and Capital Corporation of the Philippines (ICCP Group), as a precondition to the purchase of a tract of agricultural land, promised to relocate the tenants thereof and further promised to rebuild/replace their destroyed residential houses on the relocation site; that, thereafter, your Office, i.e., RDO No. 57 subjected the donations of lots made by SPPI in favor of the tenants to donor’s tax on stranger; that as regards the residential houses, which were built at the expense of SPPI replacing the destroyed houses, your Office did not impose the donor’s tax based on the following reasons, viz:

“1.            The company promised to relocate the tenants in other areas and destroyed their residential houses with the promise to rebuild/build their houses on the relocation site;”

“2.            The company immediately secured a building permit in 1991 and proceed with the rebuilding/building of the said replacement houses;” cdasia

“3.            The Municipal Assessor of Cabuyao, Laguna issued directly the tax declaration of the replacement houses in the name of the tenants in 1992 and 1994;

“4.            The company only made the actual donation of relocation site lots last September 17, 1996.”

that the documents and position paper by SPPI to this Office further disclosed that the purchased tract of land was an agricultural land covered by Comprehensive Agrarian Reform Program under R.A. 6657; that the relocation and donation of residential lots to the agricultural tenants and farm workers has been approved and cleared by the Department of Agrarian Reform (DAR) based on the information and findings gathered by the Municipal Agrarian Reform Office (MARO) in Cabuyao, Laguna relative to the application for conversion of the subject property into industrial use pursuant to E.O. No. 129-A, R.A. 6657 and Administrative Order No. 15 series of 1988; and that the findings which were significant in determining the plight of the agricultural tenants affected by the conversion and the availment of any incentive or exemption privilege under the law are as follows:

1.            The property subject of conversion from agricultural land planted with sugarcane, to industrial use is registered in the name of Benita P. Navarro and situated in Bo. Diezmo, Cabuyao, Laguna with a total area of 931,539 square meters;

2.            There had been 160 farm workers and about 80 families who occupied a portion of the property for residential purposes and who alleged that they had been occupying/working on the land for not less than 20 years;

3.            The land was the subject of a joint venture undertaking between the landowner and land developer, Investment and Capital Corporation of the Philippines (ICCP);

4.            On August 9, 1989, a referendum was conducted among the occupants/workers attended by 136 farm workers of whom 135 voted for the proposed conversion and one voted against the conversion; and

5.            The land is an agricultural land fully planted with sugarcane, the direct beneficiaries of which are the farm workers, occupants and residents therein. cda

that further, records and documents submitted and filed with the DAR, as stated in the Order Approving the Conversion, revealed the following:

1.            The subject property is within the Medium and Heavy industrial area delineated in the Zoning Map and Zoning Ordinance of the Municipality of Cabuyao, Laguna as certified by the Deputized Zoning Administrator, Mr. Generoso B. Opina on July 13, 1989;

2.            The Property was the subject of a petition by Diezmo Farm Workers Group requesting for acquisition of said land through the Comprehensive Agrarian Reform Program;

3.            However, the petitioner-farm workers/tenants later signed a “Salaysay” on July 2, 1989, attesting that they were not against the conversion of the subject land from agricultural to industrial use since they were promised by ICCP that they shall be relocated and be given a lot of 200 square meters each with a house of 36 square meters floor area, which shall be titled in their names, and furthermore, they will be given employment priority once the project materialized;

4.            The subject property is included in the CALABAR Special Development Project under the Philippine Assistance Program which is included in the 1989 Investment Priority Plans of the Government.

You now request opinion on the tax treatment of the homelots and houses given by SPPI to the tenants-beneficiaries. Likewise, SPPI in its letter to this Office, is requesting that, in the event a favorable ruling is made in its favor to the above donations, taxes which had been paid therefor be incorporated as part of their future tax credits instead of tax refund.

In reply, please be informed that pursuant to Section 66 of R.A 6657, otherwise known as the “Comprehensive Agrarian Reform Law of 1988″, transactions involving a transfer of ownership, like in the instant case, shall be exempted from the payment of registration fees, and other taxes for the conveyance or transfer thereof.

Applying the foregoing provision, the donation of homelots to the tenant-beneficiaries of the comprehensive agrarian reform program are therefore exempt from all taxes and fees being imposed in connection therewith. liblex

It is noted that the sale between the landowner, i.e., Benita P. Navarro and ICCP Group through Science Park of the Philippines, Inc., the latter having acquired the land pursuant to Section 65 of the same law, and application for such conversion of land use from agricultural to industrial having initially made by them, was in accordance with Administrative Order No. 1, S. 1990. The conversion which resulted in the constructive displacement of farmers-beneficiaries shall entitle the displaced beneficiaries to a disturbance compensation and the assurance of homelots and eventual employment to be provided by the applicant/developer. The grant of these privileges to the displaced farmers-beneficiaries is a measure designed to serve as a cushion on the adverse effect of the land conversion. These privileges have, likewise, been clearly set forth as among the conditions in the petition for conversion of land use, which had been voted favorably in a referendum held by the farm workers among themselves.

The Comprehensive Agrarian Reform Program (CARP) has the very purpose of lifting up the economic status of the beneficiaries and promote social justice and to move the nation towards sound rural development and industrialization. Anent to this, the State shall, likewise provide incentives to landowners to invest the proceeds of the agrarian reform program to promote industrialization, employment and privatization of public sector enterprises. On the other hand, the feasibility of acquiring the distributable portion of the land under the program has secured the rights of the agricultural workers/beneficiaries. But while being so, the subsequent conversion of the land use from agricultural to industrial had ultimately displaced the aforesaid beneficiaries.

Thus, the State, in its effort to promote rural industrialization, had authorized land use conversion under Section 65 of R.A. 6657. The favorable vote by the affected beneficiaries and the approval of conversion of land use had effectively exempted the land from the coverage of the CARP.

Such being the case, the subsequent donation of homelots, including the building of replacement houses at the relocation site, to the displaced beneficiaries and which was made to comply with the relocation of the displaced workers as required by Administrative Order No. 1 S. 1990, is exempt from donor’s tax, since, the same are deemed to be within the coverage of the comprehensive agrarian reform process. On the other hand, entitlement to disturbance compensation does not pertain to the transactions involving the transfer of ownership, but to the income/produce which were ultimately lost and has no possibility of being earned or harvested, as a result of the conversion, thus, it is subject to income tax.

Accordingly, pursuant to Section 66 of R.A. 6657, in relation to Section 65 of the Act, donations of homelots, including replacement houses built on the relocated site, made by Science Park of the Philippine, Inc. in favor of the tenants/farm workers are exempt from donor’s tax imposed under Section 91 of the Tax code, as amended (now Section 98 of the Tax Code of 1997). cdlex

In connection with the request of SPPI for incorporation of any tax refund it may have as a result of this ruling to whatever future tax credits the corporation may have, please advise them to forward their claim to the Appellate Division for the issuance of a Tax Credit Certificate in their favor.

This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void.

Very truly yours,

(SGD.) LIWAYWAY VINZONS-CHATO

Commissioner of Internal Revenue

Add comment June 5th, 2009

BIR Ruling No. 095-98 (June 19, 1998)

77 & 81(b)-000-00-095-98

Mr. Tony Briones

8-E Brooklyn Street

Cubao, Quezon City

S i r :

This refers to your letter dated April 12, 1997 requesting, on behalf of the heirs of the late Paciencia M. Sto Domingo, for a ruling as to the taxability, bases of valuation and penalties, if any, of the estate of the deceased Paciencia M. Sto. Domingo consisting of the following properties:

1.            A parcel of residential land, including improvements thereon, containing an area of 601.9 square meters covered by TCT No. 170929 and Tax Declaration Nos. 2-139 and 2-139-A (1979); and   cdasia

2.            A parcel of residential land containing an area of 617.6 square meters covered by TCT No. 170930 and Tax Declaration No. 2-140 (1979).

It is represented that the late Paciencia M. Sto. Domingo died intestate on May 19, 1978; that the above-mentioned properties are adjacent to each other and situated at 88 Kapiligan St., Araneta Subd., Brgy. Imelda, Quezon City; that the current zonal value of the said properties is P7,500.00 per square meter; and that the approved market value of the aforesaid properties per Tax Declaration are as follows:

Kind            TCT No.            Tax Decl. No.            Market Value

Land            170929            2-139            P132,420

Land            170930            2-140            135,870

Improvement            2-139-A            124,220

with remarks that the same are sunken and flooded; and that because the heirs are all living in different places and it is only now that they have the chance to settle the estate, they are now voluntarily filing the return and pay the corresponding estate tax due.

In reply, please be informed that “Estate Tax” has been defined as the tax levied on the transmission of the properties of the decedent at death and is based on the value of the net estate regardless of the number of heirs or their relationship to the decedent. Under then Section 99 of the Tax Code (now Section 88 of the Tax Code of 1997), there shall be levied, assessed, collected and paid upon the transfer of the net estate as determined in accordance with then Sections 100 and 101 of the same Code (now Sections 86 of the Tax Code of 1997), of every decedent, whether resident or non-resident of the Philippines, a tax based on the value of such net estate, as computed in accordance with the schedule found in said then Section 99.  cda

In this connection, under then Section 103 of the Tax Code (now Sec. 88 of the Tax Code of 1997), the estate shall be appraised at its fair market value as of the time of death, or as of six (6) months thereafter, at the election of the executor or administrator. However, the appraised value of real property as of the time of death, or at the election of the executor or administrator, as of six (6) months after death shall either be (a) the current and fair market value as shown in the schedule of values fixed by the Provincial and City Assessor or (b) the fair market value as determined by the Commissioner of Internal Revenue, whichever is higher, and shall be binding upon all concerned for purposes of computing any internal revenue tax based on the value of the property.

From the foregoing, the estate of the late Paciencia M. Sto. Domingo is liable to pay the estate tax imposed under then Section 99 of the Tax Code, the law then enforced at the time of her death on May 19, 1978, based on the fair market value at the time of the death of the decedent as determined by the City Assessor (and not on the zonal valuation since the tentative valuation of real properties as determined by the Commissioner started only in 1986 under RAMO No. 1-86) of the above-mentioned realties comprising the net estate of the decedent which is arrived at in accordance with the following formula:

Gross Estate (then Sec. 100)            xxx

Less: Statutory Deductions

(then Sec. 101)            xxx

            ——

Gross Conjugal Estate            xxx

Less: Share of the Surviving Spouse

(Sec. 101(c)            xxx

            ––––

Net Estate            xxx

            ====

Furthermore, under then Section 104 of the same Code (now Sec. 89 of the Tax Code of 1997), in all cases of transfers subject to tax, or where, though exempt from tax, the gross value of the estate exceeds three thousand pesos (P3,000.00), the executor, administrator, or any of the legal heirs, as the case may be, within two months after the decedent’s death, or within a like period after qualifying as executor or administrator, shall give a written notice to the Commissioner of Internal Revenue.   cdlex

Likewise, under then Section 105(b) of the same Code [now Sec. 90(B) of the Tax Code of 1997], the return required under Section 105(a) [now Sec. 90(A) of the Tax Code of 1997] shall be filed within six (6) months after the decedent’s death; but if judicial testamentary or intestate proceedings shall be instituted for the settlement of the decedent estate prior to the expiration of said period, the same must be filed within twelve (12) months after the decedent’s death.

Finally, pursuant to then Section 107(a)(1) and (2) of the Tax Code, the estate tax imposed under then Section 99 of the same Code shall be due and payable within nine (9) months after the decedent’s death and shall be paid by the executor, administrator, or the heirs to the Commissioner of Internal Revenue or to the Regional Director, Revenue District Officer or Collection Agent of the city or municipality where the decedent was domiciled at the time of death. In case judicial testamentary or intestate proceedings shall be instituted for the settlement of the decedent’s estate prior to the expiration of six months after his death, the estate tax shall be due and payable within twenty-one (21) months after the decedent’s death. [Sec. 91 of the Tax Code of 1997]

In this connection, then Section 113(a)(1) provides that where the amount of the tax imposed is not paid on the due date, there shall be collected as part of the tax, interest upon such unpaid amount at the rate of fourteen per centum (14%) per annum, from the due date until it is paid, but in no case shall it exceed the amount corresponding to a period of three years. Furthermore, pursuant to then Section 119(a) of the same Code, in addition to the aforesaid delinquency interest, for failure to pay the tax, make such return or supply such information, there shall also be imposed a penalty of not more than Two Thousand Pesos (P2,000.00) or imprisonment for not more than six months, or both. [Sections 113(a)(1) and 119(a) of the Tax Code of 1977 have been repealed by P.D. No. 1994 dated November 5, 1985].

However, since the heirs of the late Paciencia M. Sto. Domingo are now voluntarily paying the estate tax without notice and demand from the Commissioner of Internal Revenue and that the delay is for a justifiable reason, no ad valorem penalties prescribed under then Section 114 of the Tax Code shall be imposed for failure to make and file the return required to be filed therefor.   prcd

Accordingly, the estate of the late Paciencia M. Sto. Domingo is liable to pay the estate tax due plus penalties consisting of delinquency interest in the maximum rate of forty two percent (42%) computed at 14% per annum for three years and a compromise penalty in the amount of Two Thousand Pesos (P2,000.00) in lieu of the criminal liability resulting from failure to pay the tax, make the return or supply such information. You are, therefore, advised to pay this amount within ten (10) days from your receipt of this letter.

Very truly yours,

(SGD.) LIWAYWAY VINZONS-CHATO

Commissioner of Internal Revenue

Add comment June 5th, 2009

BIR Ruling No. 086-95 (June 13, 1995)

78 000-00 086-95

ATTY. JULIO H. OZAMIZ

2/F Philamlife Building

1411 Benavidez St., Legaspi Vill.

Makati, Metro Manila

S i r :

This refers to your letter dated January 4, 1995 stating that in April 1991, Mario J. Mendezona entered into a Trust Agreement with Far East Bank and Trust Co. at Manila involving an amount of P5,108,132.67 which under the Trust Agreement would be transferred and given to the heirs of Carmen F. Ozamiz upon her death; and that on July 12, 1994, Carmen F. Ozamiz died after a lingering illness. cdta

Based on the foregoing representations, you are now requesting for a ruling on the following queries:

“1.            Is this money subject to Estate tax considering that from the document itself it shows that the money belonged to Mario J. Mendezona given in trust to the heirs of Carmen Ozamiz, with the death of Carmen Ozamiz as the condition for its transfer to the heirs?

“2.            If said money placed in trust is indeed subject to Estate Tax, who is liable for payment of said tax on the amount — Mario J. Mendezona who, on the face of the document appears to have owned said money, or the Estate or Heirs of Carmen Ozamiz?”

In reply, please be informed that your abovequoted queries are answered as follows:

1.            Your first query is answered in the negative. Under Section 78 of the Tax Code, as amended, the value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated. Accordingly, and — Mario J. Mendezona is not the decedent and the money subject of the Trust Agreement between Mario J. Mendezona and Far East Bank and Trust Co. belongs to him with the condition that the said money will be transferred to the heirs of Carmen Ozamiz (the decedent) upon the death of the latter, the same is not part of the gross estate of the decedent; hence, not subject to the estate tax imposed under Section 77 of the Tax Code, as amended. However, Mario J. Mendezona is subject to the donor’s tax imposed under Section 92(b) of the Tax Code, as amended, on the transfer of the money he placed in trust to the said heirs upon the death of Carmen Ozamiz.

2.            Your second query is no longer relevant in view of the answer in your first query. casia

Very truly yours,

LIWAYWAY VINZONS-CHATO

Commissioner of Internal Revenue

Add comment June 5th, 2009