Transfer Tax

Transfer Tax
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TAX  2   Estate  Tax   I.  THE  GROSS  ESTATE   A"y.  Terence  Conrad  H.  Bello     A.  Introduc:on   A.  Introduc:on   Lorenzo  v.  Posadas     1.  When  does  the  estate  tax  accrue?   §  Upon   the   death   of   the   decedent.     Inheritance   taxa:on  is  also  governed  by  the  statute  in  force   at  the  :me  of  the  death  of  the  decedent   2.  What  is  the  nature  of  the  estate  tax?   §  It  is  in  the  nature  of  an  excise  tax  imposed  upon   the   right   or   privilege   to   succeed   to,   receive,   or   take  property  by  or  under  a  will  or  the  intestacy   law,  or  deed,  grant,  or  giK,  to  become  opera:ve   at  or  aKer  death   A"y.  Terence  Conrad  H.  Bello     2    Slide  No.  3   3.  At  what  point  is  the  value  of  the  gross  estate   measured   for   purposes   of   imposing   the   estate  tax?   §  Because   succession   takes   place   and   the   right   of   the  state  to  impose  estate  tax  accrues  upon  the   death   of   the   decedent,   the   tax   should   be   measured   by   the   value   of   the   estate   as   it   stood   at   the   :me   of   the   decedent’s   death,   regardless   of  any  subsequent  con:ngency  affec:ng  value  or   any   subsequent   increase   or   decrease   in   value.   Lorenzo  v.  Posadas;  NIRC  §  85   A"y.  Terence  Conrad  H.  Bello      Slide  No.  4   A.  Introduc:on   B.  General  Defini:on  of  Gross  Estate   4.  Does   the   postponement   of   possession   postpone   the   payment  of  the  estate  tax  as  well?   §  No.   A   transmission   by   inheritance   is   taxable   at   the   :me   of   the   predecessor’s   death,   notwithstanding   the   postponement  of  the  actual  possession  or  enjoyment  of   the   estate   by   the   beneficiary,   and   the   tax   is   measured   by   the   value   of   the   property   transmi"ed   at   that   :me   regardless  of  its  apprecia:on  or  deprecia:on.       §  Thus,   the   estate   tax   is   payable   even   where   a   testator   provided  in  his  will  that  his  real  proper:es  be  held  for  a   period   of   10   years   aKer   his   death   then,   thereaKer,   the   real   proper:es   shall   go   to   his   nephew.   Lorenzo   v.   Posadas   A"y.  Terence  Conrad  H.  Bello      Slide  No.  5   C.  Cons:tu:on  of  Gross  Estate   A"y.  Terence  Conrad  H.  Bello      Slide  No.  6   C.  Cons:tu:on  of  Gross  Estate:  Property  in  which  Decedent  had  an  Interest     1.  What  shall  be  included  in  gross  estate?   Proper&es  physically  in  the  estate   a.  Property  in  which  decedent  had  an  interest   b.  Proceeds   of   life   insurance   (unless   designa:on   of   beneficiary  is  irrevocable)   Proper&es  no  longer  physically  in  the  estate   a.  Transfers  in  contempla:on  of  death   b.  Transfers  taking  effect  at  death   c.  Transfers  with  retained  interest   d.  Revocable  transfers   e.  Property  passing  under  general  power  of  appointment   f.  Transfers  for  insufficient  considera:on         A"y.  Terence  Conrad  H.  Bello     1.  What   is   generally   included   in   the   gross   estate   of   a   resident   ci:zen  decedent?   §  All   property,   real   or   personal,   tangible   or   intangible,   wherever   situated   (i.e.,   taxed   on   a   worldwide   basis)   (NIRC  §  85)   2.  Nonresident  ci:zen?    Worldwide  basis   3.  Resident  alien?    Worldwide  basis   §  Beam  v.  Yatco   4.  Nonresident  alien?       §  Only  that  part  of  his  en:re  gross  estate    which  is  situated   in  the  Philippines  (see,  however,  special  rules  in  §  104  for   certain  intangible  property)   §  CIR  v.  Campos  Rueda          Slide  No.  7   1.  What  is  covered  by  “property  in  which  decedent  had   an  interest”  (85(A))?   §  Covers   property   beneficially   owned   by   the   decedent   (includes   property   wherein   legal   :tle   is   not   in   the   name   of   the   decedent   but   is   beneficially   owned   by   the   decedent)   –  E.g.,   land   registered   in   the   name   of   a   trustor   or   a   dummy   –  Stock   cer:ficates   in   the   name   of   the   decedent’s   stock   broker   or   held   by   a   bank   in   trust   for   the   decedent   –  Cash   deposits   in   a   numbered   account   in   the   Cayman  Islands         A"y.  Terence  Conrad  H.  Bello      Slide  No.  8   C.  Cons:tu:on  of  Gross  Estate:  Property  in  which  Decedent  had  an  Interest     1.  What  is  covered  by  “property  in  which  decedent  had   an  interest”?   §  Conversely,   if   the   decedent   merely   holds   :tle   to   a   property  only  as  a  guardian  or  trustee  or  in  some  other   fiduciary   capacity   (i.e.,   mere   naked   :tle),   he   would   not   be  considered  as  having  an  interest  in  such  property   A"y.  Terence  Conrad  H.  Bello      Slide  No.  9   C.  Cons:tu:on  of  Gross  Estate:  Transfers  in  Contempla:on  of  Death   1.  An   example   of   property   no   longer   physically   in   the   patrimony  of  the  decedent  at  the  :me  of  death  (because   there   was   an   inter   vivos   transfer)   but   by   fic:on   of   law   is   brought   back   into   the   patrimony   of   the   decedent   (i.e.,   deemed  inclusion)  –  85(B)   2.  The  law  only  targets  gratuitous  transfers.    Hence,  transfers   for  a  full  and  adequate  considera:on  in  money  or  money’s   worth   is   not   covered   by   the   inclusion   (theory   of   conversion)   §  Reason:  the  transfer  amounts  only  to  a  subs:tu:on  or   exchange   of   assets   and   therefore   the   gross   estate   is   not  reduced,  and  no  estate  tax  is  avoided   A"y.  Terence  Conrad  H.  Bello      Slide  No.  10   C.  Cons:tu:on  of  Gross  Estate:  Transfers  in  Contempla:on  of  Death   3.  What  is  meant  by  a  transfer  in  contempla:on  of  death?   §  The  transfer  was  mo:vated  by  the  thought  of  death   –  e.g.,   decedent   suffers   a   stroke   but   survives;   a   day   aKer  he  is  discharged  from  the  hospital,  he  donates   his   proper:es   to   his   children   (or   “sells”   the   proper:es  for  an  insufficient  considera:on)     –  the  donated  property,  while  no  longer  physically  in   the  estate  of  the  decedent  at  the  :me  of  his  death,   would   s:ll   result   in   inclusion   because   the   transfer   was  mo:vated  by  the  thought  of  death   A"y.  Terence  Conrad  H.  Bello     C.  Cons:tu:on  of  Gross  Estate:  Transfers  in  Contempla:on  of  Death    Slide  No.  11   4.  How   do   you   know   whether   the   transfer   was   made   in   contempla:on  of  death?   §  Determined   using   a   “facts   and   circumstances”   test   (therefore,  subjec:ve).    Some  factors  considered:   –  Age  (advanced  age  at  the  :me  of  transfer?)   –  Health   (terminally   ill   at   the   :me   of   transfer   or   in   the  pink  of  health?)   –  Length  of  :me  between  the  transfer  and  death   –  Concurrent  making  of  a  will   –  And  other  similar  circumstances   A"y.  Terence  Conrad  H.  Bello      Slide  No.  12   C.  Cons:tu:on  of  Gross  Estate:  Transfers  in  Contempla:on  of  Death   C.  Cons:tu:on  of  Gross  Estate:  Transfers  Taking  Effect  at  Death   5.  Since   the   law   covers   only   transfers   mo:vated   by   the   thought   of   death,   if   the   mo:ve   for   the   transfer   is   something   else   other   than   the   thought   of   death,   the   transfer   will   not   result   in   inclusion.     Some   non-­‐death   factors:   §  Reduce  annual  income  tax  liability  of  the  transferor   §  Relieve   the   transferor   from   the   burden   of   management   §  To   protect   the   family   from   the   hazards   of   business   opera:ons   §  Or  other  valid  business  reasons   A"y.  Terence  Conrad  H.  Bello      Slide  No.  13   C.  Cons:tu:on  of  Gross  Estate:  Transfers  Taking  Effect  at  Death   §  These   transfers   are   essen:ally   equivalent   to   testamentary   disposi:ons.     The   effect   is   the   same   as   when   transfers   are   provided   for   in   a   last   will  and  testament  of  the  decedent   A"y.  Terence  Conrad  H.  Bello      Slide  No.  14   C.  Cons:tu:on  of  Gross  Estate:  Transfers  Taking  Effect  at  Death   2.  What   is   the   test   to   determine   whether   a   transfer   takes  effect  at  death?   §  The   possession   or   enjoyment   is   condi:onal   upon   surviving  the  decedent.    Thus,  if  the  transferee  of   a   property   interest   can   get   possession   or   enjoyment   while   the   decedent   transferor   is   living,   the   property   shall   not   be   included   in   the   decedent’s  gross  estate   §  Can  possession  or  enjoyment  of  the  property  be   obtained  without  surviving  the  decedent?    If  yes,   property  is  excluded  from  the  gross  estate.    If  no,   property  is  included  in  the  gross  estate   A"y.  Terence  Conrad  H.  Bello     1.  What  is  the  ra:onale  for  inclusion?    Slide  No.  15   3.  Thus   a   joint   survivorship   agreement   (e.g.,   “and/or”   account)   is   considered   a   transfer   taking  effect  at  death     §  The   survivorship   agreement   is   in   effect   a   dona:on  morCs  causa  made  by  the  deceased  co-­‐ depositor   during   his   life:me   but   effec:ve   upon   death  because  the  acquisi:on  by  the  survivor  of   the   remaining   balance   is   a   considered   a   bequest.   BIR  Rul.  10-­‐03  dated  Sept.  8,  2003   A"y.  Terence  Conrad  H.  Bello      Slide  No.  16   C.  Cons:tu:on  of  Gross  Estate:  Transfers  Taking  Effect  at  Death   C.  Cons:tu:on  of  Gross  Estate:  Transfers  with  Retained  Interest     4.  Illustra:on:   §  Sr.   “donates”   house   and   lot   to   Jr.   in   a   Deed   of   Dona:on   purportedly   transferring   ownership   over  the  house  and  lot  to  Jr.   §  In  a  side  agreement,  however,  it  was  agreed  that   :tle   to   the   house   and   lot   and   possession   would   be  transferred  only  to  Jr.  upon  the  death  of  Sr.   §  In   the   mean:me,   Sr.   would   con:nue   to   live   in   the  house  and  lot  and  retain  possession  un:l  his   death   A"y.  Terence  Conrad  H.  Bello      Slide  No.  17   C.  Cons:tu:on  of  Gross  Estate:  Transfers  with  Retained  Interest     A"y.  Terence  Conrad  H.  Bello      Slide  No.  18   C.  Cons:tu:on  of  Gross  Estate:  Transfers  with  Retained  Interest     3.  Illustra:ons:  period   a.  For   life:   decedent   transfers   property   to   a   trust   with   the   income  therefore  payable  to  himself  “for  as  long  as  I  live”  and,   upon  his  death,  the  corpus  shall  be  distributed  to  his  children     b.  For   a   period   not   ascertainable   without   reference   to   the   decedent’s   death:   decedent   transfers   property   to   a   trust,   with   income   therefrom   payable   to   himself   quarterly   for   life   but,   under   the   trust   agreement,   the   decedent   is   to   receive   none   of   the  trust  income  for  the  calendar  quarter  in  which  he  dies   c.  For   a   period   which   does   not   in   fact   end   before   decedent’s   death:   decedent,   aged   40,   transfers   property   to   a   trust   with   the  trust  agreement  providing  that  decedent  shall  receive  the   trust  income  for  10  years,  at  the  end  of  which  period,  the  trust   terminates   and   the   corpus   shall   be   distributed   to   the   decedent’s  children.    The  decedent  dies,  however,  within  the   10-­‐year  period   A"y.  Terence  Conrad  H.  Bello     1.  The  decedent  must  have  retained  an  interest  in  the  property   for  a  specified  period   2.  Two-­‐fold   test   to   determine   whether   decedent   made   a   transfer  with  retained  interest:   a.  Has  the  decedent  retained  an  interest  (i)  for  his  life;  or  (ii)   for   a   period   not   ascertainable   without   reference   to   his   death;  or  (iii)  for  a  period  that  does  not  in  fact  end  before   his  death?   b.  Did   the   decedent   retain   (i)   possession   or   enjoyment   of   the   property;   or   (ii)   the   right   to   the   income   from   the   property;  or  (ii)  the  right  to  designate  (either  alone  or  in   conjunc:on  with  any  other  person)  the  person  who  shall   possess   or   enjoy   the   property;   or   (iv)   the   right   to   designate  (either  alone  or  in  conjunc:on  with  any  other   person)  the  person  who  shall  receive  the  income?    Slide  No.  19   4.  Illustra:ons:  interest  retained   a.  Possession  or  enjoyment  of  the  property:   §  Decedent   donated   a   Juan   Luna   pain:ng   to   the   Na:onal  Museum  but  reserved  the  right  to  keep   it  for  life   §  Decedent  sold  his  house  and  lot  to  his  son  (for  a   song),  but  reserved  the  right  to  live  in  it  for  life       §  Ra&onale:   with   the   transferor   retaining   for   himself   essen:ally   full   life:me   benefits   from   the   transferred   property,   the   ul:mate   shiKing   of   enjoyment   upon   the   death   of   the   decedent   is   akin   to   a   testamentary   disposi:on   of   property,   hence,   jus:fying   the   imposi:on   of   estate   tax   at   that  :me   A"y.  Terence  Conrad  H.  Bello      Slide  No.  20   C.  Cons:tu:on  of  Gross  Estate:  Transfers  with  Retained  Interest     C.  Cons:tu:on  of  Gross  Estate:  Transfers  with  Retained  Interest     4.  Illustra:ons:  interest  retained   b.  Right  to  the  income  from  the  property:  decedent   transfers   property   to   a   trust,   with   the   income   payable  to  him  for  life,  or  to  a  dependent  of  the   decedent   whom   the   la"er   would   otherwise   have   to  support  (note:  the  decedent  need  not  directly   receive   the   income.     The   income   may   also   be   paid   to   a   third   party   in   discharge   of   the   decedent’s  obliga:on  to  the  la"er)   A"y.  Terence  Conrad  H.  Bello      Slide  No.  21   C.  Cons:tu:on  of  Gross  Estate:  Transfers  with  Retained  Interest     A"y.  Terence  Conrad  H.  Bello      Slide  No.  22   C.  Cons:tu:on  of  Gross  Estate:  Transfers  with  Retained  Interest     4.  Illustra:ons:  interest  retained   c.  Right   to   designate   person   (either   alone   or   in   conjunc:on   with   any   other   person)     who   shall   possess  or  enjoy  property  or  income  therefrom:     §  Exercisable   in   conjunc:on   .   .   .:   the   decedent   creates   a   trust   wherein   B   had   the   right   to   the   income   but   the   decedent   retains   for   life   the   right   to  designate,  with  B’s  consent,  another  person  as   an  income  beneficiary   –  Tax   policy:   Congress   wary   of   family   transac:ons,   which   are   always   suspected   of   tax  avoidance  mo:ves   A"y.  Terence  Conrad  H.  Bello     4.  Illustra:ons:  interest  retained   c.  Right   to   designate   person   (either   alone   or   in   conjunc:on   with   any   other   person)     who   shall   possess  or  enjoy  property  or  income  therefrom:     §  Exercisable   alone:   the   decedent   transfers   property   to   a   trust,   retaining   for   his   life   the   right   to   say   who   may   enjoy   the   transferred   property  or  the  income  therefrom    Slide  No.  23   4.  Illustra:ons:  interest  retained   c.  Right   to   designate   person   (either   alone   or   in   conjunc:on   with   any   other   person)     who   shall   possess  or  enjoy  property  or  income  therefrom:     §  Exercisable  in  conjunc:on  .  .  .:  If  decedent  names   a   3rd   party   as   trustee   and   gives   the   trustee   the   right  to  designate  who  shall  enjoy  the  property  or   the   income,   the   decedent   has   not   retained   the   prescribed  control.    BUT,  if  the  decedent  has  the   right   to   discharge   the   trustee   and   name   himself   trustee   with   the   same   right,   he   has   indirectly   retained  the  prescribed  control   A"y.  Terence  Conrad  H.  Bello      Slide  No.  24   C.  Cons:tu:on  of  Gross  Estate:  Revocable  Transfers   C.  Cons:tu:on  of  Gross  Estate:  Revocable  Transfers   1.  Elements  of  §  85(C)   a.  Transfer  of  property  was  made  (by  trust  or  otherwise);   b.  but,  the  enjoyment  thereof  was  subject  to  change  (at  the   date  of  decedent’s  death);   c.  through   the   exercise   of   a   power   (in   whatever   capacity   exercisable   and   without   regard   to   when   or   from   what   source  the  decedent  acquired  the  power);   §  by   the   decedent   (alone   or   in   conjunc:on   with   any   other  person);   d.  power  exercised  is  the  power  to  alter,  amend,  revoke  or   terminate  the  transfer;     e.  or   where   any   such   power   is   relinquished   in   contempla:on  of  death   A"y.  Terence  Conrad  H.  Bello      Slide  No.  25   C.  Cons:tu:on  of  Gross  Estate:  Revocable  Transfers   v  85(C)   may   overlap   with   85(B)   (transfers   with   retained   interest)     A"y.  Terence  Conrad  H.  Bello      Slide  No.  26   C.  Cons:tu:on  of  Gross  Estate:  Revocable  Transfers   3.  What  is  meant  by  “subject  to  change  in  enjoyment”?   §  If   the   decedent   could   take   back   un:l   death   property   transferred,  interests  given  are  subject  to  change   §  If   the   decedent   could   name   another   income   beneficiary,   even  if  subject  to  consent  of  originally  named  beneficiaries   §  The   enjoyment   of   the   property   transferred   is   subject   to   change   if   the   decedent   could   accelerate   the   beneficiary’s   enjoyment  of  the  property   –  Example:  under  the  trust,  A  shall  receive  income  for  10   years,  and  at  the  end  of  the  period,  the  corpus  shall  go   to  A.    The  trust,  however,  provides  that  the  trustor  may   terminate   the   trust   earlier   and   have   the   corpus   delivered  to  A  or  his  estate     A"y.  Terence  Conrad  H.  Bello     2.  The   kind   of   power   which   brings   about   inclusion,   includes   any   power   affec:ng   the   :me   or   manner   of   enjoyment   of   the   property   or   its   income,   even   though   the   decedent   could   not   benefit   from   its   exercise   and   even  though  the  iden:ty  of  the  beneficiary  is  unaffected   §  Example:  A  creates  a  trust  to  pay  income  to  B  for  life,   with  remainder  to  C,  but  reserves  the  right  to  invade   corpus  and  accelerate  enjoyment  in  C’s  favor   §  Here   C   does   not   have   full   enjoyment   and   it   is   the   retained   power   to   accelerate   the   enjoyment   which   results  in  inclusion    Slide  No.  27   4.  Example  of  power  to  revoke:   §  A   creates   a   trust   to   pay   income   to   B   for   life,   with   remainder   to   C,   but   reserves   the   right   to   take   back  the  property  altogether   5.  Examples  of  power  to  alter/amend:   §  Name  new  beneficiaries   §  Change   propor:onate   interests   among   beneficiaries   §  Remove  the  trustee  and  appoint  himself     A"y.  Terence  Conrad  H.  Bello      Slide  No.  28   C.  Cons:tu:on  of  Gross  Estate:  Revocable  Transfers   C.  Cons:tu:on  of  Gross  Estate:  Revocable  Transfers   6.  Example  of  power  to  terminate:   §  D   creates   a   trust,   with   income   payable   to   B   for   life,   remainder   to   C   or   C’s   estate,   but   reserves   the   right   to   terminate   the   trust,   effec:ng   an   immediate  distribu:on  of  corpus  to  C     –  Here   B’s   enjoyment   of   the   income   is   subject   to   change   because   the   trust   may   be   terminated   –  C’s   right   to   possess   the   property   and   enjoy   the   income   thereof   is   subject   to   change   because   his   en:tlement   to   the   property   may   be  accelerated   A"y.  Terence  Conrad  H.  Bello      Slide  No.  29   C.  Cons:tu:on  of  Gross  Estate:  General  Power  of  Appointment   A"y.  Terence  Conrad  H.  Bello      Slide  No.  30   C.  Cons:tu:on  of  Gross  Estate:  General  Power  of  Appointment   1.  A   power   of   appointment   is   the   right   to   designate   the   person   or   persons   who   will   succeed   to,   or   will   become   beneficial   owners   of,   the   property   of   a   prior   decedent.   A   power   of   appointment   may   be   a   general   power   of   appointment  or  a  limited  power  of  appointment   2.  Personali:es  involved:   §  Prior  decedent/donor  –  the  grantor  of  the  power  of   appointment   §  Decedent   –   the   grantee   of   the   power   of   appointment   §  Successor/s   –   the   person/s   who   will   succeed   to   the   property   A"y.  Terence  Conrad  H.  Bello     7.  Where   power   to   alter,   amend,   etc.   is   relinquished   in   contempla:on  of  death:   §  The  relinquishment  of  the  power  results  in  the  inclusion   of  the  same  interest  in  property  in  the  decedent’s  gross   estate   §  Except:   if   relinquishment   was   an   adequate   and   full   considera:on  in  money  or  money’s  worth   §  Example:   decedent   relinquishes   power   to   alter,   amend,   etc.  upon  realiza:on  that  he  is  terminally  ill   §  Reason:  since  the  law  treats  the  power  to  alter,  amend,   etc.   as   equivalent   to   a   property   interest,   the   relinquishment  of  said  power  in  contempla:on  of  death   is   no   different   from   a   transfer   of   property   in   contempla:on  of  death,  hence,  includable    Slide  No.  31   3.  Illustra:on:     §  A   transfers   property   to   a   trust,   with   B   as   income   beneficiary,  and  granted  C  the  right  to  direct  the  trustee,  by   will,   to   transfer   the   property   to   anybody   whom   C   nominates.     The   “anybody”   could   be   C   (i)   himself,   (ii)   his   creditors,   (iii)   his   estate,   (iv)   the   creditors   of   his   estate,   or   (v)  anybody  else  in  the  world   –  A:  prior  decedent  (grantor  of  power  of  appointment)   –  C:  decedent  (grantee  of  power  of  appointment)     –  Anybody:  successors  who  will  succeed  to  the  property   §  Thus,  if  C  (the  decedent)  exercised  or  released  the  general   power   of   appointment   by   will   or   by   deed   in   certain   instances,   the   property   subject   to   the   power   will   be   included  in  C’s  gross  estate   A"y.  Terence  Conrad  H.  Bello      Slide  No.  32   C.  Cons:tu:on  of  Gross  Estate:  General  Power  of  Appointment   C.  Cons:tu:on  of  Gross  Estate:  General  Power  of  Appointment   4.  Ra:onale  for  inclusion:     §  The   right   to   determine   who   may   become   the   beneficial   owner   of   a   property   is   such   an   important   a"ribute   of   outright   ownership   that   a   ques:on   may   be   raised   whether  for  estate  tax  purposes,  it  should  be  considered   the  equivalent  of  an  ownership  interest  includable  in  the   decedent’s  gross  estate   §  As   a   general   rule,   mere   possession   of   a   power   of   appointment   over   property   is   not   considered   an   interest   in   property.     Therefore   if   the   holder   of   the   power   dies   possessed  of  such  power,  there  is  no  “property  in  which   the  decedent  had  an  interest  in”  that  would  result  in  its   inclusion  in  gross  estate   §  By   the   same   token,   if   the   holder/grantee   exercised   the   power   of   appointment   during   his   life:me,   the   holder/ grantee   has   made   no   transfer   of   an   “interest”   in   property  which  may  be  taxed  under  §  85(A)   A"y.  Terence  Conrad  H.  Bello      Slide  No.  33   C.  Cons:tu:on  of  Gross  Estate:  General  Power  of  Appointment   A"y.  Terence  Conrad  H.  Bello      Slide  No.  34   C.  Cons:tu:on  of  Gross  Estate:  Proceeds  of  Life  Insurance   6.  Property   over   which   the   decedent   held   a   power   of   appointment   is   not   includible   in   his   gross   estate   unless   such   power  was  “general”       §  A   power   is   general   when   it   authorizes   the   grantee/ decedent   (of   the   power   of   appointment)   to   appoint   anyone,   possibly   including   himself,   his   estate,   his   creditors   or  creditors  of  his  estate.   §  A  power  is  special  where  the  grantee/decedent  can  appoint   only  a  restricted  or  designated  class  of  persons  other  than   himself.     Property   which   passes   under   a   special   power   of   appointment  is  not  includible  in  the  gross  estate   §  Example:  A  leaves  his  property  in  trust  for  his  son,  B,  for  life   and   then   in   trust   for   such   children   of   B   as   B   shall   by   will   appoint   –  The   power   of   appointment   is   a   special   power   of   appointment,   thus   the   value   of   the   property   is   excludible  from  the  gross  estate  of  B   A"y.  Terence  Conrad  H.  Bello     4.  Requisites  for  inclusion  of  property  passing  under  GPA:   a.  Existence  of  a  general  power  of  appointment;   b.  An  exercise  of  such  power  by  the  decedent  by  will  or   by   deed   in   certain   cases   (i.e.,   life:me   transfer   (i)   in   contempla:on  of  death,  or  (ii)  taking  effect  at  death,   or  (iii)  with  retained  interest);  and   c.  The   passing   of   the   property   by   virtue   of   such   exercise     5.  For   exercise   or   release   of   GPA   to   result   in   inclusion,   it   must  be  by  will  or  by  a  life:me  transfer  which  if  it  were   a  transfer  of  actual  property  would  result  in  its  inclusion   in   gross   estate   as   in   contempla:on   of   death,   or   under   the  other  life:me  transfer  rules    Slide  No.  35   1.  Proceeds   of   insurance   under   policies   taken   out   by   the  decedent  upon  his  life  shall  be  includable  if  the   beneficiary  is:   a.  The   estate   of   the   decedent,   his   executor   or   his   administrator;  or   b.  A   third   person,   unless   the   designa:on   of   the   beneficiary  is  irrevocable   2.  When  are  proceeds  of  life  insurance  excludable?   §  When   the   beneficiary   is   a   third   person   (e.g.,   wife   or   kids   of   the   insured)   and   the   designa:on   is   irrevocable   A"y.  Terence  Conrad  H.  Bello      Slide  No.  36   A.  Valua:on  of  Taxable  Transfers   II.  VALUATION  OF  ESTATE  AND   AMOUNT  TO  BE  INCLUDED  IN  CASES   COVERED  BY  85(B),  (C)  AND  (D)   A"y.  Terence  Conrad  H.  Bello     37   1.  In  a  (1)  transfer  in  contempla:on  of  death,  (2)  transfer   taking   effect   at   death,   (3)   transfer   with   retained   interest,   (4)   revocable   transfer,   and   (5)   property   passing   under   a   general   power   of   appointment,   the   value   to   include   in   gross   estate   shall   be   determined   under   the   following  rules:   a.  If   the   transfer   was   in   the   nature   of   bona   fide   sale   for   an   adequate   and   full   considera:on   in   money   or   money’s   worth,   no   value   shall   be   included   in   the   gross  estate   b.  If   the   considera:on   received   on   the   transfer   was   insufficient,   the   value   to   include   in   the   gross   estate   shall  be  the  excess  of  the  FMV  of  the  property  at  the   :me  of  the  decedent’s  death  over  the  considera:on   received   A"y.  Terence  Conrad  H.  Bello      Slide  No.  38   A.  Valua:on  of  Taxable  Transfers   2.  If   there   was   no   considera:on   received   on   the   transfer   (as   in   dona:on   morCs   causa),   the   value   includible   shall   be   the   FMV   of   the   property   at   the   :me  of  death   3.  Illustra:on:     FMV  at  the  :me  of  transfer   Considera:on  received   FMV  at  :me  of  death   Amt.  includable   A"y.  Terence  Conrad  H.  Bello     100,000   100,000   180,000   None   100,000   60,000   180,000   120,000   100,000   None   180,000   180,000    Slide  No.  39   III.  EXEMPT  TRANSFERS   A"y.  Terence  Conrad  H.  Bello     40   A.  Exempt  Transfers   A.  Exempt  Transfers   1.  What  are  the  types  of  exempt  transfers?   a.  The  merger  of  usufruct  in  the  owner  of  the  naked  :tle;   b.  The  transmission  or  delivery  of  the  inheritance  or  legacy   of  the  fiduciary  heir  or  legatee  to  the  fideicomissary   c.  The  transmission  from  the  first  heir,  legatee  or  donee  in   favor  of  another  beneficiary,  in  accordance  with  the  will   of  the  predecessor   d.  All   bequests,   devices,   legacies   or   transfers   to   social   welfare,  cultural  and  charitable  ins:tu:ons  no  part  of  the   net   income   of   which   inures   to   the   benefit   of   any   individual:   provided   not   more   than   30%   of   the   said   bequests,   legacies   or   transfers   shall   be   used   by   such   ins:tu:ons  for  administra:on  purposes   A"y.  Terence  Conrad  H.  Bello      Slide  No.  41   2.  Examples:     §  P   died   leaving   a   piece   of   land   to   Q   in   usufruct   (right   to   enjoy   the   fruits),   and   to   R   in   naked   ownership  (without  the  right  to  the  fruits).    The   land   is   subject   to   estate   tax   in   the   estate   of   P.   Upon   the   death   of   Q,   the   usufruct   shall   be   merged  into  the  naked  ownership  of  R,  who  shall   then   become   the   absolute   owner   of   the   property.    The  transmission  of  the  usufruct  from   Q  to  R  shall  be  exempt  from  estate  tax   A"y.  Terence  Conrad  H.  Bello      Slide  No.  42   A.  Exempt  Transfers   2.  Examples:     §  S   died   leaving   a   piece   of   land   to   T,   a   grandson,   to   be   owned  by  him  for  4  years,  with  the  obliga:on  to  preserve   it,   aKer   which,   one-­‐half   shall   be   given   to   U,   a   great   grandson,  and  the  other  half  to  be  retained  by  T.    This  is   fideicomissary   subs:tu:on.     The   fiduciary   heir,   T,   is   entrusted   with   the   obliga:on   to   preserve   the   property   and   transit   it   to   the   fideicomissary   heir,   U,   with   the   subs:tu:on  not  going  beyond  one  degree  from  the  heir   originally   ins:tuted,   and   both   heirs   being   alive   at   the   :me  of  the  testator’s  death.    The  transmission  from  S  to   T  is  subject  to  estate  tax.    The  transmission  from  T  to  U   shall  be  exempt  from  estate  tax   A"y.  Terence  Conrad  H.  Bello      Slide  No.  43   IV.  DEDUCTIONS  FROM  GROSS   ESTATE   A"y.  Terence  Conrad  H.  Bello     44   Deduc:ons  from  Gross  Estate   Deduc:ons  from  Gross  Estate   1.  What   are   the   deduc:ons   from   the   gross   estate   of   a   ci:zen  and  resident  decedent?   a.  ELITE  (expenses,  losses,  indebtedness,  taxes,  etc.)   b.  Vanishing  Deduc:on   c.  Transfers  for  Public  Use   d.  Family  Home   e.  Standard  Deduc:on   f.  Medical  Expenses   g.  Benefits   Received   from   Employer   by   Reason   of   Death   h.  Share  in  the  Conjugal  Property   A"y.  Terence  Conrad  H.  Bello      Slide  No.  45   A.  ELITE   A"y.  Terence  Conrad  H.  Bello      Slide  No.  46   A.  ELITE   1.  Funeral  expense   a.  Actual  funeral  expense   b.  5%  of  gross  estate   c.  P200,000   Whichever  is  the  lowest  among  a,  b,  or  c   §  Rule  of  thumb:  cut  off  point  is  the  interment  or   burial;   expenses   incurred   aKer   the   burial   or   interment  will  not  be  deduc:ble   A"y.  Terence  Conrad  H.  Bello     2.  What   are   the   deduc:ons   from   the   gross   estate   of   a   nonresident  alien  decedent?   a.  Pro-­‐rated   ELITE:   [Phil.   gross   estate/worldwide   gross  estate]  x  [ELITE]   b.  Vanishing  Deduc:on   c.  Transfers  for  Public  Use    Slide  No.  47   What  are  examples  of  funeral  expense?   §  Mourning  apparel  of  surviving  spouse  and  minor  children   §  Expenses  during  the  wake  (e.g.,  food  and  drinks)   §  Cost  of  obituary   §  Telecommunica:on   expenses   incurred   for   informing   rela:ves   of  the  decedent  (e.g.,  overseas  calls)   §  Cost   of   burial   plot,   tombstone,   monument   or   mausoleum   (but   not  their  upkeep)   §  Interment  or  crema:on  fees   §  All   other   expenses   incurred   for   the   performance   of   the   rites   and   ceremonies   incident   to   the   interment   (expenses   aKer   the   interment,  such  as  prayers,  masses,  9th  day,  40th  day,  etc.,  are   not  deduc:ble)   A"y.  Terence  Conrad  H.  Bello      Slide  No.  48   A.  ELITE   A.  ELITE   2.  Expenses  for  testamentary  or  intestate  proceedings   §  Expenses   incurred   during   the   se"lement   of   the   estate   (e.g.,   inventory   taking,   payment   of   debts   of  the  estate,  distribu:on  of  estate  to  heirs)   §  Cut-­‐off   point   is   the   last   day   prescribed   by   law,   or   the  extension  thereof,  for  the  filing  of  the  estate   tax  return   §  Expenses  incurred  aKer  the  cut-­‐off  point  are  not   deduc:ble   A"y.  Terence  Conrad  H.  Bello      Slide  No.  49   A.  ELITE   A"y.  Terence  Conrad  H.  Bello      Slide  No.  50   A.  ELITE   3.  Claims  Against  the  Estate   §  To   be   deduc:ble,   claim   must   have   been   enforceable   against  the  decedent  if  he  were  living   §  If  claim  is  a  simple  loan,  there  must  be  a  debt  instrument   which  was  notarized   §  If   the   loan   was   contracted   within   3   years   from   the   decedent’s   death,   the   executor   or   administrator   is   required   to   submit   a   statement   showing   the   disposi:on   of  the  proceeds  of  the  loan   §  §  Examples:   a.  Fees  of  executor  or  administrator   b.  A"orney’s  fees   c.  Court  or  filing  fees   d.  Accountant’s  fees   e.  Appraiser’s  fees   f.  Clerk  hire   g.  Cost  of  preserving  and  distribu:ng  the  estate   h.  Costs  of  storing  or  maintaining  the  property   i.  Broker’s  fees/commissions  for  selling  the  property   Deduc:ble   amount   of   claim   is   valued   as   of   the   death   of   decedent  irrespec:ve  of  post-­‐death  developments   –  Thus   where   the   claims   are   reduced   or   condoned   through   compromise   agreements   entered   into   by   the   estate   with   its   creditors  resul:ng  in  the  reduc:on  of  the  amount  actually  paid   post-­‐death,  the  deduc:ble  claim  would  s:ll  be  valued  as  of  the   date  of  death.  Dizon  v.  Court  of  Tax  Appeals,  G.R.  140944,  May   6,  2008   A"y.  Terence  Conrad  H.  Bello      Slide  No.  51   4.  Claims   Against   Insolvent   Persons   –   provided   the   value   of   the   decedent’s   interest   in   the   claim   is   included  in  the  gross  estate   5.  Unpaid  Debts/Mortgages  Upon  Property  –  provided   the   decedent’s   interest   in   the   property,   undiminished   by   the   debt/mortgage,   is   included   in   the  gross  estate   6.  Taxes  –  which  have  accrued  as  of  the  death  but  not   yet  paid;  does  not  include  income  tax  upon  income   received  aKer  the  death,  property  taxes  not  accrued   before  death,  or  the  estate  tax       A"y.  Terence  Conrad  H.  Bello      Slide  No.  52   A.  ELITE   B.  Vanishing  Deduc:on   7.  Casualty  Losses     §  Arising   from   fire,   storm,   shipwreck,   or   other   c a s u a l : e s ,   o r   f r o m   r o b b e r y ,   t h e K   o r   embezzlement   §  Must   not   be   compensated   for   by   insurance   or   otherwise   §  Must   not   have   been   deducted   for   income   tax   purposes   §  Losses   were   incurred   not   later   than   the   :me   required  to  pay  the  estate  tax  (6  mos.)     A"y.  Terence  Conrad  H.  Bello      Slide  No.  53   B.  Vanishing  Deduc:on   A"y.  Terence  Conrad  H.  Bello      Slide  No.  54   B.  Vanishing  Deduc:on   §  Condi:ons  for  deduc:bility:   a.  The  present  decedent  died  within  5  years  from  receipt  of   the  property  from  a  prior  decedent  or  donor;   b.  The   property   on   which   vanishing   deduc:on   is   being   claimed  must  be  located  in  the  Philippines;   c.  The   property   must   have   formed   part   of   the   taxable   estate  of  the  prior  decedent,  or  of  the  taxable  giK  of  the   donor;   d.  The  estate  tax  on  the  prior  succession  or  the  donor’s  tax   on  the  giK  must  have  been  finally  determined  and  paid;   e.  The   property   on   which   vanishing   deduc:on   is   being   taken   must   be   iden:fied   as   the   one   received   from   the   prior   decedent,   or   from   the   donor,   or   something   acquired  in  exchange  therefore;  and   f.  No  vanishing  deduc:on  on  the  property  was  allowable  to   the  estate  of  the  prior  decedent   A"y.  Terence  Conrad  H.  Bello     8.  Vanishing  deduc:on   §  Property   may   change   hands   several   :mes   within   a   very   short   period   of   :me   by   reason   of   death   of   the   owner   shortly  aKer  receiving  the  property  by  giK  or  inheritance   §  Example:   Father   dies   in   2010   leaving   a   house   and   lot,   survived  by  an  only  son.  The  son  inherits  the  the  H&L.   in  2011,  the  son  died  in  a  vehicular  accident.  The  H&L   will   form   part   of   the   son’s   estate   which   will   again   be   subject  to  estate  tax     §  This   subjects   the   property   to   double   taxa:on,   because   the   tax  is  imposed  on  each  transfer   §  The  vanishing  deduc:on  is  meant  to  mi:gate  the  effects  of   double  taxa:on      Slide  No.  55   §  Amount  deduc:ble:   •  100%  of  value:  if  prior  decedent  died  within  one   year;   •  80%:  >  one  year  <  two  years   •  60%:  >  two  years  <  three  years   •  40%:  >  three  years  <  four  years   •  20%:  >  four  years  <  five  years   A"y.  Terence  Conrad  H.  Bello      Slide  No.  56   C.  Transfers  for  Public  Use   D.  Family  Home   •  The   amount   of   all   bequests,   legacies,   devises   or   transfers  to  or  for  the  use  of  the  Government  of  the   Republic   of   the   Philippines,   or   any   poli:cal   subdivision  thereof,  for  exclusively  public  purposes   A"y.  Terence  Conrad  H.  Bello      Slide  No.  57   E.  Standard  Deduc:on   A"y.  Terence  Conrad  H.  Bello      Slide  No.  58   F.  Medical  Expenses   1.  Available   as   a   deduc:on   in   addi:on   to   the   other   deduc:ble  items   2.  Amount  deduc:ble  is  P1  million     A"y.  Terence  Conrad  H.  Bello     1.  Dwelling   house   where   a   person   and   his   family   resides,  and  the  land  on  which  it  is  situated  (follows   defini:on  in  the    Family  Code)   •  Cons:tuted  jointly  by  husband  and  wife  or  by  an   unmarried  head  of  family   2.  To   be   deduc:ble,   must   be   cer:fied   to   as   such   by   Barangay  Chairman  where  family  home  is  located   3.  Total  value  is  included  in  gross  estate   4.  Amount   deduc:ble   is   the   FMV   or   P1   million,   whichever  is  lower    Slide  No.  59   1.  Incurred  within  one  year  from  death  (whether  paid   or   unpaid);   cap   is   P500,000.00;   must   be   substan:ated     A"y.  Terence  Conrad  H.  Bello      Slide  No.  60   G.  Death  Benefits  from  Employer   H.  Capital  of  Surviving  Spouse   1.  Any   amount   received   by   an   official   or   employee’s   heirs   from   the   employer   as   a   consequence   of   the   death  of  the  said  official  or  employee  under  NIRC  §   32(B)(6)(b)     A"y.  Terence  Conrad  H.  Bello      Slide  No.  61   §  Capital  of  the  surviving  spouse  of  a  decedent  (e.g.,   conjugal   share)   shall   not   form   part   of   the   gross   estate  of  the  decedent   A"y.  Terence  Conrad  H.  Bello      Slide  No.  62   Foreign  Tax  Credits   1.  Purpose:  the  net  taxable  estate  of  a  decedent  who   was  a  resident  or  ci:zen  of  the  Philippines  includes   his   net   taxable   estate   within   and   without   the   Philippines.     It   is   possible   that   the   decedent’s   net   estate   without   the   Philippines   was   subjected   to   transfer   taxes   as   well   by   the   country   where   the   property  is  located.    There  is  therefore  a  possibility   of  double  taxa:on  of  the  same  property.   2.  The   purpose   of   the   estate   tax   credit   is   to   avoid   or   mi:gate  the  effects  of  double  taxa:on.   V.  FOREIGN  TAX  CREDITS   A"y.  Terence  Conrad  H.  Bello     63   A"y.  Terence  Conrad  H.  Bello      Slide  No.  64   Administra:ve  Provisions   1.  Tax   rate   –   schedular   rate   of   5%   -­‐   20%.   Top   rate   of   20%   applies   to   net   estates   with   a   value   of   P10M   and  above   •  •  •  •  •  VI.  ADMINISTRATIVE  PROVISIONS   A"y.  Terence  Conrad  H.  Bello     65   Administra:ve  Provisions   Personal  Proper:es   P2,000,000.00   -­‐-­‐   Family  Home   Taxable  Transfers   Conjugal   P5,000,000.00   -­‐-­‐   6,500,000.00   -­‐-­‐   -­‐-­‐   Total   P7,000,000.00   -­‐-­‐   6,500,000.00   -­‐-­‐   GROSS  ESTATE   2,000,000.00   11,500,000.00   13,500,000.00   Less:  Deduc:ons  (ELITE,  etc.)   (500,000.00)   (2,000,000.00)   (2,500,000.00)   Estate  AKer  Deduc:ons   1,500,000.00   9,500,000.00   11,000,000.00   Less:  Family  Home   (1,000,000.00)   (1,000,000.00)                      Standard  Deduc:on   (1,000,000.00)   (1,000,000.00)                      Medical  Expenses   (500,000.00)   (500,000.00)   Sub-­‐total   7,000,000.00   Less:  Share  of  Surviving  Spouse   (Net  Conjugal  Estate  ÷  2)   NET  TAXABLE  ESTATE   A"y.  Terence  Conrad  H.  Bello           A"y.  Terence  Conrad  H.  Bello      Slide  No.  66   Administra:ve  Provisions   Exclusive   Real  Proper:es  (excluding   Family  Home)     Husband  and  wife.  Husband  died   Conjugal   real   proper:es   P5M;   exclusive   real   property   P2M  (subject  to  P500k  mortgage)   Family  home  P6.5M  (subject  to  P2M  mortgage)   Medical  expenses  P500k   Compute  net  taxable  estate  and  estate  tax  due   (3,500,000.00)   NET  TAXABLE  ESTATE   P5,000,000.00   ESTATE  TAX  DUE            On  first  P2M              On  excess  over  P2M  (11%)   P135,000.00   330,000.00   465,000.00   Less:  tax  credits/payments   Foreign  Estate  Tax  Paid   -­‐-­‐   Tax  Paid  in  Return  Originally   Filed,  if  this  is  an  Amended   Return   -­‐-­‐   Total   TAX  PAYABLE   -­‐-­‐   P465,000.00   (3,500,000.00)   5,000,000.00    Slide  No.  67   A"y.  Terence  Conrad  H.  Bello      Slide  No.  68   Administra:ve  Provisions   2.  No:ce  of  Death  –  within  2  months   3.  Estate   Tax   Return   –   within   6   months;   extendible   for   up  to  30  days       4.  Payment  of  Estate  Tax  –  pay  as  you  file;  extendible   for  up  to  2  year  (extrajudicial  se"lement)  or  5  years   (judicial   se"lement),   if   payment   would   impose   “undue  hardship”  upon  estate  or  any  of  the  heirs     5.  Consequences   of   Non-­‐Payment   –   surcharge,   interest,  compromise  penalty   A"y.  Terence  Conrad  H.  Bello     TAX  2   Donor’s  Tax    Slide  No.  69   A.  Meaning  of  GiK   A.  Meaning  of  GiK   CIR  v.  Duberstein   §  Illustra:on   of   a   non-­‐taxable   giK   vs.   taxable   compensa:on  for  services  rendered   §  Court   found   that   the   Cadillac   was   “a   recompense   for  Duberstein’s  past  services,  or  an  inducement  for   him  to  be  of  further  service  in  the  future”   CIR  v.  Duberstein   §  When  is  a  payment  a  non-­‐taxable  giK  and  when   is  a  payment  taxable  compensa:on  for  services   rendered?   •  •  •  A"y.  Terence  Conrad  H.  Bello      Slide  No.  71   Mere  absence  of  a  legal  or  moral  obliga:on  to  make   such  a  payment  does  not  mean  it  is  a  giK   If   the   payment   proceeds   primarily   from   “the   constraining   force   of   any   moral   or   legal   duty,”   or   from   “the   incen:ve   of   an:cipated   benefit”   of   an   economic  nature,  it  is  not  a  giK   A   giK   in   the   statutory   sense,   on   the   other   hand,   proceeds   from   a   “detached   and   disinterested   generosity,   “out   of   affec:on,   respect,   admira:on,   charity  or  like  impulses”   A"y.  Terence  Conrad  H.  Bello      Slide  No.  72   A.  Meaning  of  GiK   B.  Composi:on  of  Gross  GiKs   §  When   conveyance   of   property   is   mo:vated   by   a   sense  of  gra:tude,  or  out  of  pure  liberality,  and  not   addi:onal   compensa:on   for   past   services   rendered,   the  transfer  is  a  giK  subject  to  donor’s  tax   Ø  Thus,   the   renuncia:on   by   a   company   of   the   proceeds   of   a   life   insurance   policy   in   favor   of   the   heirs  of  a  deceased  officer  “out  of  gra:tude”  for  his   past   services   is   a   “giK”   subject   to   donor’s   tax.   Pirovano  v.  CIR   A"y.  Terence  Conrad  H.  Bello      Slide  No.  73   B.  Composi:on  of  Gross  GiKs   A"y.  Terence  Conrad  H.  Bello      Slide  No.  74   B.  Composi:on  of  Gross  GiKs   3.  Reciprocity  rule  on  intangible  personal  property  -­‐-­‐     a.  General   rule:   intangible   personal   property   located   in   the   Philippines  belonging  to  a  non-­‐resident  alien  donor  is  included   in  gross  giKs   b.  Excep:on:  not  includible  under  the  “reciprocity  clause”   i.  if  the  donor  at  the  :me  of  the  dona:on  was  a  resident  of   a   foreign   country   which   at   the   :me   of   the   dona:on   did   not   impose   a   transfer   tax   of   any   character   in   respect   of   intangible   personal   property   of   ci:zens   of   the   Philippines   not  residing  in  that  foreign  country;  or   ii.  if  the  laws  of  the  foreign  country  of  which  the  donor  was  a   resident   at   the   :me   of   dona:on   allows   a   similar   exemp:on   from   transfer   taxes   of   every   character   in   respect  of  intangible  personal  property  owned  by  ci:zens   of  the  Philippines  not  residing  in  that  foreign  country   A"y.  Terence  Conrad  H.  Bello     1.  In   case   of   a   resident   or   ci:zen   donor,   the   gross   giKs   would  consist  of:   a.  Real  property,  regardless  of  loca:on   b.  Tangible  personal  property,  regardless  of  loca:on   c.  Intangible  personal  property,  regardless  of  loca:on   2.  In   case   of   a   non-­‐resident   alien,   the   gross   giK   would   consist  of:   a.  Real  property  located  in  the  Philippines   b.  Tangible  personal  property  located  in  the  Philippines   c.  Intangible   personal   property   located   in   the   Philippines    Slide  No.  75   4.  Examples   of   intangible   personal   property   located   in   the   Philippines:   a.  Franchises  which  must  be  exercised  in  the  Philippines;   b.  Shares,   obliga:ons   or   bonds   issued   by   a   domes:c   corpora:on;   c.  Shares,   obliga:ons   or   bonds   issued   by   a   foreign   corpora:on  85%  of  the  business  of  which  is  located  in   the  Philippines;   d.  Shares,   obliga:ons   or   bonds   issued   by   a   foreign   corpora:on,   if   such   shares,   obliga:ons   or   bonds   have   acquired  a  business  situs  in  the  Philippines;  and   e.  Shares   or   rights   in   any   partnership,   business   or   industry  established  in  the  Philippines   A"y.  Terence  Conrad  H.  Bello      Slide  No.  76   B.  Composi:on  of  Gross  GiKs   C.  Valua:on  of  Gross  GiKs   5.  Transfers   for   insufficient   considera:on   (if   transfer   was   effec:ve   during   donor’s   life:me)   –   excess   of   FMV   over   considera:on   received   considered   a   dona:on  (Sec.  100)   A"y.  Terence  Conrad  H.  Bello      Slide  No.  77   D.  Deduc:ons  from  Gross  GiKs   A"y.  Terence  Conrad  H.  Bello      Slide  No.  78   D.  Deduc:ons  from  Gross  GiKs   1.  Deduc:ons   allowed   for   resident   or   ci:zen   donor,   and  non-­‐resident  alien  donors:   a.  GiKs   made   to   or   for   the   use   of   the   Na:onal   Government   or   any   en:ty   created   by   any   of   its   agencies  which  is  not  conducted  for  profit;   b.  GiKs   in   favor   of   an   educa:onal   and/or   charitable   and/or   religious   corpora:on,   ins:tu:on,   founda:on,  trust  or  philanthropic  organiza:on  or   research   ins:tu:on   or   organiza:on:   provided,   however,   that   not   more   than   30%   of   said   giKs   shall   be   used   by   such   donees   for   administra:on   purposes       A"y.  Terence  Conrad  H.  Bello     1.  If   a   dona:on   is   made   in   property,   FMV   of   such   property   at   the   :me   of   dona:on   shall   be   the   value   of   the   gross   giK   a.  In  case  of  real  property,  value  shall  be:   i.  Current   FMV,   as   shown   in   schedule   of   values   fixed  by  the  local  assessor;  or   ii.  FMV  as  determined  by  CIR   b.  In  case  of  personal  property  recently  acquired  by  the   donor,  the  purchase  price  may  indicate  the  FMV   c.  In   the   case   of   personal   property   not   recently   acquired   by   the   donor,   there   should   be   some   evidence  of  FMV      Slide  No.  79   2.  Deduc:ons  allowed  for  resident  or  ci:zen  donors  only:   a.  Dowries   or   giKs   made   on   account   of   marriage   and   before  its  celebra:on,  or  within  one  year  thereaKer,  by   parents  to  each  of  their  legi:mate,  recognized  natural   or  adopted  children,  to  the  extent  of  the  first  P10,000   §  QuesCon:   Mr.   and   Mrs.   H   are   making   a   joint   giK   of   P40,000  out  of  community  funds  to  Mr.  I,  a  legi:mate   child,   on   account   of   marriage   and   before   its   celebra:on.    How  much  is  the  deduc:on?   §  Answer:   there   are   2   dona:ons,   one   by   Mr.   H,   in   the   amount   of   P20,000   as   gross   giK,   from   which   he   is   en:tled   to   a   P10,000   deduc:on,   and   another   by   Mrs.   H,   in   the   amount   of   P20,000   of   gross   giK,   from   which   she  is  en:tled  to  her  own  deduc:on  of  P10,000     A"y.  Terence  Conrad  H.  Bello      Slide  No.  80   E.  Net  GiKs  and  Imposi:on  of  Donor’s  Tax   E.  Net  GiKs  and  Imposi:on  of  Donor’s  Tax   1.  The  donor’s  tax  for  each  calendar  year  is  computed   on   the   basis   of   the   total   net   giKs   made   during   the   calendar  year  (NIRC  §§  99(A)  and  103(A))   2.  Donor’s   tax   return   is   filed   within   30   days   from   the   giK;  pay-­‐as-­‐you-­‐file  (NIRC  §  103(B))   3.  Formula   for   compu:ng   the   donor’s   tax   on   the   first   donaSon  for  the  calendar  year    Gross  giKs  made    Less:  deduc:ons_    Net  giKs  made     A"y.  Terence  Conrad  H.  Bello      Slide  No.  81   F.  Donor’s  Tax  Rates   1.  Donee  is  not  a  stranger  –  schedular  rates  2%  -­‐   15%   (top   rate   of   15%   applies   to   net   giKs   of   P10M  and  above)     2.  Donee  is  a  stranger  –  flat  rate  of  30%   §  A  “stranger”  is  a  person  who  is  not  a:   –  Brother,   sister   (whether   by   whole   or   half   blood),  spouse,  ancestor,  lineal  descendant   –  Rela:ve  by  consanguinity  in  the  collateral  line   within  the  4th  degree  of  rela:onship   A"y.  Terence  Conrad  H.  Bello      Slide  No.  83   4.  Formula   for   compu:ng   the   donor’s   tax   on   the   subsequent  donaSon  for  the  same  calendar  year:    Gross  giKs  made  on  this  date    Less:  deduc:ons__________                                            Net  giKs  made  on  this  date    Add:  all  prior  net  giKs  within  the  year    Aggregate  net  giKs      Donor’s  tax  on  aggregate  net  giKs    Less:  donor’s  tax  on  all  prior  net  giKs  within  the  year    Donor’s  tax  on  the  net  giKs  on  this  date     A"y.  Terence  Conrad  H.  Bello      Slide  No.  82