CASES IN ESTATE TAX

Marcos II vs. CA
273 SCRA 47 1997
Facts: Ferdinand R. Marcos II assailed the decision of the Court of
Appeals declaring the deficiency income tax assessments and
estate tax assessments upon the estate and properties of his late
father despite the pendency of the probate proceedings of the will
of the late President. On the other hand, the BIR argued that the
States authority to collect internal revenue taxes is paramount.
Petitioner further argues that "the numerous pending court cases
questioning the late president's ownership or interests in several
properties (both real and personal) make the total value of his
estate, and the consequent estate tax due, incapable of exact
pecuniary determination at this time. Thus, respondents'
assessment of the estate tax and their issuance of the Notices of
Levy and sale are premature and oppressive." He points out the
pendency of Sandiganbayan Civil Case Nos. 0001-0034 and 0141,
which were filed by the government to question the ownership and
interests of the late President in real and personal properties
located within and outside the Philippines. Petitioner, however,
omits to allege whether the properties levied upon by the BIR in
the collection of estate taxes upon the decedent's estate were
among those involved in the said cases pending in the
Sandiganbayan. Indeed, the court is at a loss as to how these
cases are relevant to the matter at issue. The mere fact that the
decedent has pending cases involving ill-gotten wealth does not
affect the enforcement of tax assessments over the properties
indubitably included in his estate.
Issue: Is the contention of Marcos correct?
Held: No. The approval of the court, sitting in probate or as a

settlement tribunal over the deceaseds estate, is not a

mandatory requirement in the collection of estate taxes.
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.
The enforcement of tax laws and the collection of taxes are of
paramount importance for the sustenance of government. Taxes
are the lifeblood of government and should be collected without
unnecessary hindrance. However, such collection should be made
in accordance with law as any arbitrariness will negate the
existence of government itself.
It is not the Department of Justice which is the government agency
tasked to determine the amount of taxes due upon the subject
estate, but the Bureau of Internal Revenue whose determinations
and assessments are presumed correct and made in good faith.
The taxpayer has the duty of proving otherwise. In the absence of
proof of any irregularities in the performance of official duties, an
assessment will not be disturbed. Even an assessment based on
estimates is prima facie valid and lawful where it does not appear
to have been arrived at arbitrarily or capriciously. The burden of
proof is upon the complaining party to show clearly that the
assessment is erroneous. Failure to present proof of error in the
assessment will justify the judicial affirmance of said assessment.
In this instance, petitioner has not pointed out one single provision
in the Memorandum of the Special Audit Team which gave rise to
the questioned assessment, which bears a trace of falsity. Indeed,
the petitioner's attack on the assessment bears mainly on the
alleged improbable and unconscionable amount of the taxes
charged. But mere rhetoric cannot supply the basis for the charge
of impropriety of the assessments made.

CIR vs. CA and Pajonar; Estate

Tax
9/6/2013
2 Comments

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.

Dizon v CTA (Taxation)

Dizon v CTA G.R. No. 140944 April 30, 2008
FACTS:
On November 7, 1987, Jose P. Fernandez (Jose) died. Thereafter, a
petition for the probate of his will was filed with Branch 51 of the
Regional Trial Court (RTC) of Manila (probate court). The probate
court then appointed retired Supreme Court Justice Arsenio P.
Dizon (Justice Dizon) and petitioner, Atty. Rafael Arsenio P. Dizon
(petitioner) as Special and Assistant Special Administrator,
respectively, of the Estate of Jose (Estate). Petitioner alleged that
several requests for extension of the period to file the required
estate tax return were granted by the BIR since the assets of the
estate, as well as the claims against it, had yet to be collated,
determined and identified.
ISSUES:
1. Whether or not the CTA and the CA gravely erred in allowing the
admission of the pieces of evidence which were not formally
offered by the BIR; and
2. Whether the actual claims of the aforementioned creditors may
be fully allowed as deductions from the gross estate of Jose
despite the fact that the said claims were reduced or condoned
through compromise agreements entered into by the Estate with
its creditors Or Whether or not the CA erred in affirming the CTA in
the latter's determination of the deficiency estate tax imposed
against the Estate.
RULING:
1. Yes. While the CTA is not governed strictly by technical rules of
evidence, as rules of procedure are not ends in themselves and are
primarily intended as tools in the administration of justice, the
presentation of the BIR's evidence is not a mere procedural

technicality which may be disregarded considering that it is the

only means by which the CTA may ascertain and verify the truth of
BIR's claims against the Estate. The BIR's failure to formally offer
these pieces of evidence, despite CTA's directives, is fatal to its
cause
2. Yes. The claims existing at the time of death are significant to,
and should be made the basis of, the determination of allowable
deductions. 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. This is called
the date-of-death valuation rule.