ReSA - THE REVIEW SCHOOL OF ACCOUNTANCY

CPA Review Batch 44  October 2022 CPA Licensure Examination

TAX-101
TAXATION A. TAMAYO  E. BUEN  G. CAIGA  C. LIM  K. MANUEL

ESTATE TAX (with COMPARISONS of TRANSFER TAXES)

A. BIR Form No.
Estate Tax Donor’s Tax
Tax Return BIR Form No. 1801 BIR Form No. 1800

B. Effectivity of Transfer
Estate Tax Donor’s Tax
Effectivity of transer Mortis causa Inter vivos

C. Tax rate
Estate Tax Donor’s Tax
Tax rate There shall be levied, assessed, collected The tax for each calendar year shall be
and paid upon the transfer of the net six percent (6%) computed on the
estate of every decedent, whether basis of the total gifts in excess of
resident or nonresident of the Two hundred fifty thousand pesos
Philippines, a tax at the rate of six percent (P250,000) exempt gift made during
(6%) based on the value of such net the calendar year.
estate.”

D. Composition of Gross Estate/Gross Gift

Estate Tax Donor’s Tax
Res/Cit Decedent NRA Decedent Res/Cit Donor NRA Donor
Real properties Wherever situated Situated in the Phils. Wherever situated Situated in the Phils.
Personal properties Wherever situated Situated in the Phils. Wherever situated Situated in the Phils.
Taxable transfers Wherever situated Situated in the Phils. Not applicable Not applicable

E. DEDUCTIONS ALLOWED
Estate Tax Donor’s Tax
Deductions allowed Ordinary deductions Found in the Tax Code Under TRAIN
1, Losses* 1. Gifts made to or for the use of the National
2. Indebtedness (Claims against the estate)* Government or any entity created by any of its
3. Taxes* agencies which is not conducted for profit, or to any
4. Claims against insolvent debtor* political subdivision of the said Government
5. Unpaid mortgage* 2. Gifts in favor of an educational and/or charitable,
6. Vanishing deduction religious, cultural or social welfare corporation,
7. Transfer for public use institution, accredited nongovernment organization,
Special deductions trust or philanthropic organization or research
1. Family home institution or organization.
2. Standarrd deduction Not found in the Tax Code
3. Amount received under RA 4917 1. Encumbrance on the property donated if assumed
Other deduction by done
1. Share in the conjugal property 2. Those specifically provided by donor as a
diminution from the property donated
Note: When decedent is NRA:
Phil. GE x LITE*
World GE

F. Administrative Provisions
Estate Tax Donor’s Tax
1. Notice required Notice of Death Under TRAIN (effective The donor engaged in business shall give a notice
January 1, 2018) – No longer required of donation on every donation worth at least
P50,000 to the RDO which has jurisdiction over his
place of business within 30 days after receipt of the
qualified donee institution’s duly issued Certificate
of Donation, which shall be attached to the said
Notice of Donation, stating that not more than 30%
of the said donations/gifts for the taxable year shall
be used for administration purposes.
2. Tax Returns filed 1) In all cases of transfer subject to tax; Any person who makes any transfer by gift (except
2) Where the said estate consists of registered those which are exempt from donor’s tax) shall, for
or registrable property (regardless of the the purpose of donor’s tax, make a return under
value of the gross estate) oath at least in duplicate (triplicate per BIR Form
No. 1800)
3. Persons to file 1) Executor 1) Donor
returns 2) Administrator or 2) Authorized representative
3) Any of the legal heirs

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 ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY
ESTATE TAX (with COMPARISONS of TRANSFER TAXES) TAX-101
4. Information shown 1) The value of the gross estate of the The return shall set forth:
in the returns decedent at the time of his death, or in a. Each gift made during the calendar year which
case of non-resident alien of that part of is to be included in computing net gifts;
his gross estate situated in the Philippines; b. The deductions claimed and allowable;
2) The deductions allowed from the gross c. Any previous net gifts made during the same
estate; calendar year;
3) Such part of such information as may at the d. The name of the donee; and
time be ascertainable and such e. Such other information as may be required by
supplemental data as may be necessary to rules and regulations made pursuant to law.
establish the correct taxes;
5. Time of filing Within one year from decedent’s death The donor’s tax return shall be filed within thirty
returns (30) days after the date the gift is made or
completed.
6. Returns to be supported When the estate tax returns show a gross Not applicable
with statements certified value exceeding P5,000,000
to by a CPA
7. Contents of the 1) Itemized assets of the decedent with their Not applicable
statements certified to corresponding gross value at the time of
by a CPA his death, or in case of non-resident alien,
of that part of his estate situated in the
Philippines;
2) Itemized deductions;
3) The amount of tax due whether paid or still
due and outstanding
8. Filing of certified copy of Within 30 days after the promulgation of such Not applicable
the schedule of partition order
and the order of the court
ordering the same
9. Extension for filing the The Commissioner can, in meritorious cases, No extension
returns extend the filing of returns for a period not
exceeding 30 days.
10. Place of filing of the 1) In case of resident decedent: a. In case of resident donors:
returns a) Accredited agent bank; 1) Authorized agent bank;
b) Revenue District Officer; 2) Revenue District Officer;
c) Collection Officer, or 3) Revenue Collection Officer;
d) Duly authorized Treasurer of the city or 4) Duly authorized Treasurer of the city or
municipality where the decedent was municipality where the donor was domiciled at
domiciled at the time of death. the time of the transfer.
2) In case of non-resident decedent: b. In case of non-resident donors:
a) Revenue District Office where the executor 1) Philippine Embassy or Consulate where he is
or administrator is registered; domiciled at the time of the transfer, or
b) Revenue District Office having jurisdiction 2) Office of the Commissioner (RDO No. 39 –
over the executor or administrator’s legal South Quezon City)
residence (if executor or administrator is
not registered); Note: Returns filed with Philippine Embassy or
c) Office of the Commissioner (RDO No. 39 Consulate shall be paid thereat.
– South Quezon City) (if the estate does
not have an executor or administrator in
the Philippines)
G. Payment of Tax
Estate Tax Donor’s Tax
1. Time of payment At the time the estate tax returns are filed At the time the donor’s tax returns are filed
2. Extension of time of 1) Estate is settled through the courts – not to No extension
payment exceed 5 years
2) Estate is settled extra-judicially – not to
exceed 2 years
3. Requirement of bond if If an extension is granted, the Commissioner or Not applicable
extension is granted his duly authorized representative
may require the executor, or administrator, or
beneficiary, as the case may be, to furnish a
bond in such amount, not exceeding double the
amount of the tax and with such sureties
as the Commissioner deems necessary,
conditioned upon the payment of the said tax in
accordance with the terms of the extension.
4. Extension of payment not When there is negligence, intentional disregard of Not applicable
allowed rules and regulations and fraud on the part of the
taxpayer.
5. Liability for payment 1) The estate tax shall be paid by the executor No specific provision
or administrator before the delivery of the
distributive share in the inheritance to any
heir or beneficiary;
2) Where there are two or more executors or
administrators, all of them are severally
liable for the payment of tax;

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 ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY
ESTATE TAX (with COMPARISONS of TRANSFER TAXES) TAX-101
3) The executor or administrator of an estate
has the primary obligation to pay the estate
tax but the heir or beneficiary has subsidiary
liability for the payment of that portion of
the estate tax which his distributive share
bears to the value of the total net asset.
6. Payment in installment 1) In case the available cash of the estate is No specific provision
insufficient to pay the total estate tax due,
payment by installment shall be allowed
within two (2) years from statutory date for
its payment without civil penalty and
interest..
2) In case of lapse of two years without the
payment of the entire tax due, the
remaining balance thereof shall be due and
demandable subject to the applicable
penalties and interest reckoned from the
prescribed deadline for filing the return and
payment of the estate tax.
No civil penalties or interest may be imposed
on estates permitted to pay the estate tax
due by installment. Nothing, however,
prevents the Commissioner from executing
enforcement action against the estate after
the due date of the estate tax provided that
all the applicable laws and required
procedures are followed/observed.
7. Modes of payment 1) Payment through Authorized Agent Bank 1) Payment through Authorized Agent Bank (AAB)
(AAB) (a) Over-the-counter cash payment – Maximum
(a) Over-the-counter cash payment – amount per tax payment not to exceed
Maximum amount per tax payment P10,000.00
not to exceed P10,000.00 (b) Bank debit system – taxpayer has bank
(b) Bank debit system – taxpayer has account with AAB
bank account with AAB (c) Checks – indicate “PAY TO THE ORDER OF:
( c) Checks – indicate “PAY TO THE 1) Presenting/collecting bank or the bank
ORDER OF: where the payment is to be coursed and
1) Presenting/collecting bank or the 2) FAO (for account of) Bureau or Internal
bank where the payment is to be Revenue as payee; and
coursed and 3) Under the “ACCOUNT NAME” of the
2) FAO (for account of) Bureau or taxpayer identification number (TIN)
Internal Revenue as payee; and Notes: i. Accommodation checks, second
3) Under the “ACCOUNT NAME” of the endorsed checks, stale checks,
taxpayer identification number postdated checks, unsigned
(TIN) checks and checks with
Notes: i. Accommodation checks, alterations/erasures are not
second endorsed checks, stale acceptable.
checks, postdated checks, ii. Checks to cover one tax type for one
unsigned checks and checks return period only
with alterations/erasures are not 2) Payment through Tax Debit Memo (TDM) (not
acceptable. acceptable as payments for withholding taxes,
ii. Checks to cover one tax type for fringe benefit tax, and for taxes, fees and
one return period only charges collected under special schemes or
2) Payment through Tax Debit Memo (TDM) procedures or programs of the Government or
(not acceptable as payments for BIR)
withholding taxes, fringe benefit tax, and 3) Payment through E-Payment System
for taxes, fees and charges collected under 4) Payment directly to the BIR
special schemes or procedures or programs Payment through creditable withholding taxes
of the Government or BIR)
3) Payment through E-Payment System
4) Payment directly to the BIR
Payment through creditable withholding
taxes

H. Accomplishing Tax Returns

Estate Tax Donor’s Tax
a. BIR Form No. and number BIR Form No. 1801 shall be filed in triplicate BIR Form No. 1800 shall be filed in triplicate (per BIR
of copies (per the BIR form.) Form)
1) A separate return shall be filed by each donor for
each gift (donation) made on different dates during
the year reflecting therein any previous net gifts
made in the same calendar year.
2) Only one return shall be filed for several gifts
(donations) by a donor to the different donees on
the same date.

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 ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY
ESTATE TAX (with COMPARISONS of TRANSFER TAXES) TAX-101
3) If the gift (donation) involves conjugal/community
property, each spouse shall file separate return
corresponding to his/her share in the
conjugal/community property. This rule shall likewise
apply in the case of co-ownership over the property
being donated
b. Payment and issuance of 1) Upon filing of Estate Tax Return, the estate 1) Upon filing of Donor’s Tax Return, the total amount
Revenue Official Receipt tax due shall be paid to the Authorized payable shall be paid to the Authorized Agent Bank
Agent Bank (AAB) where the return is filed. (AAB) where the return is filed.
2) In places where there are no AABs, 2) In places where there are no AABs, payment shall be
payment shall be made directly to the made directly to the Revenue Collection Officer or
Revenue Collection Officer or duly duly authorized City or Municipal Treasurer who shall
authorized City or Municipal Treasurer who issue Revenue Official Receipt (BIR No. 2524).
shall issue Revenue Official Receipt (BIR No. 3) Where the return is filed with an AAB, the lower
2524). portion of the return must be properly machine-
3) Where the return is filed with an AAB, the validated and stamped by AAB to serve as the
lower portion of the return must be properly receipt of payment.
machine-validated and stamped by AAB to 4) The machine validation shall reflect the date of
serve as the receipt of payment. payment, amount paid and transaction code, and
4) The machine validation shall reflect the date the stamp mark shall show the name of the bank,
of payment, amount paid and transaction branch code, teller’s name and teller’s initial.
code, and the stamp mark shall show the 5) The AAB shall also issue an official receipt or bank
name of the bank, branch code, teller’s debit advice or credit document, whichever is
name and teller’s initial. applicable, as additional proof of payment.
5) The AAB shall also issue an official receipt or
bank debit advice or credit document,
whichever is applicable, as additional proof
of payment.

I. GROSS ESTATE OF MARRIED DECEDENTS

Conjugal partnership of gains Absolute community of properties
(CPOG) (ACOP)
Exclusive properties of the decedent Included Included
Common properties Included Included
Exclusive properties of the surviving Not included Not included
spouse

J. COMPOSITION OF THE GROSS ESTATE OF MARRIED DECEDENTS

a. Conjugal Partnership of Gains (Relative Community of Properties) (Married before August 3, 1988)
Exclusive properties Conjugal properties
a. Properties brought into the marriage as either of a. Properties acquired by onerous title during the marriage at the expense of the
the spouse’s own; common fund, whether the acquisition be for the partnership, or for only one of the
spouses;
b. Properties acquired by gratuitous (or lucrative) b. Properties obtained from labor, industry, work or profession of either or both of the
title during the marriage; spouses;
c. Properties acquired by right of c. The fruits, natural, industrial or civil, due or received during the marriage from the
redemption or by exchange with other property common property, as well as the net fruits from the exclusive property of each
belonging to only one of the spouses; spouse;
d. Properties acquired with exclusive money of d. The share of either spouse in the hidden treasure which the law awards to the finder
either spouse. or owner of the property where the treasure is found;
e. Properties acquired through occupation such as fishing and hunting;
f. Livestock existing upon the dissolution of the partnership in excess of the number of
each kind brought to the marriage by either spouse;
g. Properties acquired by chance, such as winnings from gambling and betting.

b. Absolute Community of Properties (Married on or after August 3, 1988)

Exclusive properties Community Properties
a. Properties acquired during the a. All properties owned by spouses at the time of the celebration of
marriage by gratuitous (or lucrative) title by marriage or acquired thereafter.
either spouse, and the fruits as well as the
income thereof, if any, unless it is specifically
provided by the donor, testator or grantor that
they shall form part of the community;
b. Property for personal and exclusive use of either
spouse, however, jewelry shall form part of the
community property;
c. Property acquired before the
marriage by either spouse who has legitimate
descendants by a former marriage, and the
fruits as well as the income, if any, of such
property.

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 ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY
ESTATE TAX (with COMPARISONS of TRANSFER TAXES) TAX-101
c. Exercise: The decedent was married at the time of death. He was survived by his wife and children. Determine the taxable gross estate
(FMV at the time of death).
EXCL- CONJ- EXCL- COMM-
FMV CPOG CPOG ACOP ACOP
Cash owned by the decedent before the marriage P5,000,000
Real property inherited by the decedent during the marriage 6,000,000
Personal property received by the wife as gift before the marriage 400,000
Property acquired by decedent with cash owned before the marriage 600,000
Personal effects of the decedent purchased with the exclusive money of the wife 500,000
Jewelry purchased with cash of the surviving spouse earned before marriage 1,000,000
Property unidentified when and by whom acquired 1,200,000
Cash representing income received during the marriage from exclusive property 2,000,000
Property acquired before marriage by the decedent who has legitimate
descendants by a former marriage 3,000,000
Total
K. Exercises
The decedent, resident citizen, is a married man with a surviving spouse with the following data dies on January 1, 2021:
Conjugal real and personal properties P 14,000,000
Conjugal family home 9,000,000
Exclusive properties 5,000,000
Conjugal ordinary deductions (including P200,000 funeral
expenses and P100,000 judicial expenses) 2,300,000
Medical expenses 500,000
Using BIR Form 1801 compute the following:
a. Line 34 page 2 (Gross estate)
b. Line 35 page 2 (Ordinary deductions)
c. Line 37D page 2 (Total special deductions
d. Line 40 page 2 (Net taxable estate)
e. Line 18 page 1 (Estate tax due)
L. RULE OF RECIPROCITY (NON RESIDENT ALIEN DECEDENT/DONOR)
1. Properties covered by Intangible personal property situated in the Philippines owned by non-resident alien
reciprocity decedent/donor
2. Basic rules When there is reciprocity – The intangible personal property of non-resident alien situated in the
Philippines are not included in the gross estate.
When there is no reciprocity – The intangible personal property of non-resident alien situated in
the Philippines are included in the gross estate.
3. Properties considered The following shall be considered as situated in the Philippines (among others):
situated in the Philippines b. Franchise which must be exercised in the Philippines;
c. Shares, obligations or bonds issued by any corporation or sociedad anonima organized
and constituted in the Philippines in accordance with its law;
d. Shares, obligations or bonds issued by any foreign corporation 85% of the business of
which is located in the Philippines;
e. Shares, obligations or bonds issued by any foreign corporation if such shares, obligations
or bonds have acquired a business situs in the Philippines;
f. Shares or rights in any partnership, business or industry established in the Philippines.
4. Exercise: A decedent or a donor ahs the following properties. Check the appropriate box if included in the gross estate
Resident NRA-No NRA-With
decedent Reciprocity Reciprocity
House and lot, USA
Condominium unit, Philippines
Furniture and appliances, Philippines,
Car, USA, recently purchased,
Bonds, Philippines
Common shares of stock not traded in the local stock exchange, Philippine Corp.
Preferred shares of stock, foreign corporation, 85% of the business in the Philippines,
Proceeds of life insurance, Philippines (administrator of the estate is irrevocable
beneficiary
M. TAXABLE TRANSFERS
1. Examples of taxable a. Transfer in contemplation of death – motivated by thought of death although death may not be
transfer imminent;
b. Revocable transfer – the enjoyment of the property may be altered, amended, revoked or
terminated by the decedent;
c. Transfer passing under general power of appointment;
d. Transfer with retention or reservation of certain rights;
e. Transfer for insufficient consideration.
2. Motives that preclude a a. To relieve donor from the burden of management;
transfer from the b. To save income or property taxes;
category of one made in c. To settle family litigated and un-litigated disputes;
contemplation of death d. To provide independent income for dependents;
e. To see the children enjoy the property while the donor is alive;
f. To protect the family from hazards of business operations; and
g. To reward services rendered.

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 ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY
ESTATE TAX (with COMPARISONS of TRANSFER TAXES) TAX-101
Exercise: Determine whether or not the following fall under taxable transfers for estate tax purposes (Y/N)
Taxable transfer? Reason
1) Property transferred, transferor is of advanced age and thought of dying soon
2) Property transferred, transferor wanted to reward services rendered to him
3) Property transferred, transferor has the right to take the property back
4) Property transferred, transferor has the right to take the property back but waived the
right before he died
5) Property transferred under power of appointment which can be exercised in favor of
anybody
6) Property transferred under power of appointment which can be exercised in favor of a
person designated by the transferor of the power of appointment
7) Property transferred, the transferor has the right to the income of the transferred
property while still alive

N. TRANSFER FOR INSUFFICIENT CONSIDERATION

Estate Tax Donor’s Tax
Applicable rule Where property, other than a real property that has Where property, other than a real property that has
been subjected to the final capital gains tax, is been subjected to the final capital gains tax, is
transferred for less than an adequate and full transferred for less than an adequate and full
consideration in money or money’s worth, then the consideration in money or money’s worth, then the
amount by which the fair market value of the amount by which the fair market value of the property
property at the time of the execution of the Contract at the time of the execution of the Contract to Sell or
to Sell or execution of the Deed of Sale which is not execution of the Deed of Sale which is not preceded by
preceded by a Contract to Sell exceeded the value of a Contract to Sell exceeded the value of the agreed or
the agreed or actual consideration or selling price actual consideration or selling price shall be deemed a
shall be included in computing the amount of gross gift, and shall be included in computing the amount of
estate. gifts made during the calendar year.

A sale, exchange, or other transfer of property made in

the ordinary course of business (a transaction which
is a bona fide, at arm’s length, and free from any
donative intent), will be considered as made for an
adequate and full consideration in money or money’s
worth.”
Exercise: Determine what value shall be included in the gross estate
FMV, time of Consideration FMV, time of Amount included in the
transfer received death/donation gross estate/gross gift
Case 1 P1,000,000 P 800,000 P1,200,000
2 P1,500,000 P 900,000 P1,000,000
3 P2,000,000 None P1,500,000
4 P2,500,000 P3,000,000 P3,500,000
5 P2,200,000 P1,500,000 P1,200,000
O. OTHER ITEMS (INTANGIBLE PERSONAL PROPERTY)
1. Proceeds of life insurance Generally taxable, except when:
a. A third person is irrevocably designated as beneficiary;
b. The proceeds/benefits come from SSS or GSIS;
c. The proceeds come from group insurance.
Assumption when designation When the designation of the beneficiary is not stated or is not clear, the Insurance Code assumes
is not stated revocable designation.
2. Claims against insolvent a. The full amount of the claims is included in the gross estate.
persons b. The uncollectible amount of the claims is deducted from the gross estate.
3. Amount received by heirs a. R.A. No. 4917 is entitled ‘An Act Providing That Retirement Benefits of Employees of Private Firms
under R.A. No. 4917 Shall Not be Subject to Attachment, Levy, Execution, or Any Tax Whatsoever’.
b. The amount received by heirs from decedent’s employer as a consequence of the death of the
decedent-employee is included in the gross estate of the decedent.
c. The amount above is also allowed as deduction from gross estate.
4. Exercise
a. Determine whether or not the following proceeds of life insurance shall be included in the gross estate (Y/N)
Included? Reason
1) Proceeds from life insurance, third person is irrevocably designated as beneficiary
2) Proceeds from life insurance, third person is revocably designated as beneficiary
3) Proceeds of life insurance, the beneficiary’s designation is not clear
4) Proceeds of life insurance, administrator of the estate is irrevocably designated as beneficiary
5) Proceeds of life insurance, executor of the estate is revocably designated as beneficiary
6) Benefits received from SSS, third person is irrevocably designated as beneficiary
7) Benefits from GSIS, third person is revocably designated as beneficiary

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 ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY
ESTATE TAX (with COMPARISONS of TRANSFER TAXES) TAX-101
P. EXEMPTIONS/EXCLUSIONS
1. Exemptions of certain a. The merger of usufruct in the owner of the naked title;
acquisitions and b. The transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the
transmissions fideicommissary;
c. The transmission from the first heir, legatee or donee in favor of another beneficiary in accordance
with the desire of the predecessor; and
d. All bequest, devises, legacies or transfers to social welfare, cultural and charitable institutions, no part
of the net income of which inures to the benefit of any individual: Provided, however, that not more
than 30% of the said bequest, devises, legacies or transfers shall be used by such institutions for
administration purposes.
2. Exclusions from gross a. Amount received as war damages;
estate/gross gift under b. Amount received from US Veterans Administration;
special laws c. Benefits from GSIS and SSS.
Q. DETERMINATION OF THE VALUE OF THE ESTATE/GIFT
Estate Tax Donor’s Tax
1. Usufruct In accordance with the latest Basic Standard Mortality Table, to be No specific provision
approved by the Secretary of Finance, upon the recommendation
of the Insurance Commissioner.
2. Properties a. Generally – Fair market value at the time of a. Generally - Fair market value at the time
decedent’s death; of the gift
b. Real property – Higher between fair market value, BIR (zonal b. Real property - Provisions in estate tax
value) and fair market value, Provincial and City assessor shall apply to the valuation of said real
(assessed value); property
c. Personal properties – Recently purchased – Purchase price
d. Personal property tot recently purchased – Pawn value x 3
d. Securities (shares of stock)
1) Traded in the local stock exchange – Mean between the
highest and lowest quotations on valuation date or on a
date nearest the valuation date;
2) Not traded in the local stock exchange
a) Common (ordinary) shares – Book value on valuation
date or on a date nearest the valuation date;
b) Preferred (preference) shares – Par value
3. Exercise: Determine the value to be included in the gross estate/gross gift
a. Real property, zonal value, time of death/donation, P1,500,000; value per tax declaration, time of death/donaton,
P1,200,000
b. Real property, zonal value, 6 months before death/donation, P1,500,000; assessed value, time of death/donation,
P1,200,000
c. Personal property, recently purchased, FMV, time of death/donation, P700,000; purchase price, P800,000
d. Personal property, recently purchased, purchase price, P800,000
e. Personal property, not recently purchased, pawn value, P80,000
f. 10,000 shares of stock, traded in the local stock exchange, par value, P20/share; mean between highest and lowest
quotation, P15/share
g. 5,000 common shares, not traded in the local stock exchange, FMV, time of death P2/share; par value, P5/share
h. 5,000 common shares, not traded in the local stock exchange, par value, P5/share; book value, P4/share
i. 10,000 preferred shares, not traded in the local stock exchange par value, P10/share; book value, P15/share
R. Deductions Amplified (Estate Tax)
ORDINARY DEDUCTIONS
a. Losses
Requisites for a) Incurred during the settlement of the estate; Actual amount of loss
deduction and b) Arising from fires, storms, shipwreck, or other casualties, or from
amount deductible robbery, theft or embezzlement;
c) Not compensated for by insurance or
otherwise;
d) Not claimed as deduction for income tax
purposes in an income tax return;
e) Incurred not later than the last day for the
payment of the estate tax.
b. Indebtedness (Claims against the estate)
Requisites for a) The liability represents a personal obligation of the deceased Debts or demands of pecuniary nature which
deduction and existing at the time of his death; could have been enforced against the
amount deductible b) The liability was contracted in good faith and for adequate and deceased in his lifetime and could have been
full consideration in money or money’s worth; reduced to simple money terms
c) The claim must be a debt or claim which is valid in law and
enforceable in court;
d) The indebtedness must not have been condoned by the
creditor or the action to collect from the decedent must not
have prescribed.
e) At the time the indebtedness was incurred the debt instrument
was duly notarized; and
f) If the loan was contracted within three (3) years before the
death of the decedent, the administrator or executor shall
submit a statement showing the disposition of the proceeds of
the loan

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ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY
ESTATE TAX (with COMPARISONS of TRANSFER TAXES) TAX-101
c. Unpaid taxes
Requisites for The tax must have accrued before the death of the decedent Unpaid taxes that accrued before the
deduction and decedent’s death but not including:
amount deductible a) any income tax upon income
received after the death of
the decedent, or
b) property taxes not accrued
before his death,
c) or any estate tax.
d. Claims against insolvent persons
Requisites for a) Value of claims is included in the gross estate; Claims that are not collectible
deduction and b) The incapacity of the debtors to pay their
amount deductible obligation is proven.

e. Unpaid mortgage
Requisites for a) The fair market value of the mortgaged property without Amount of unpaid mortgage
deduction and deducting the mortgage indebtedness has been initially
amount deductible included as part of the gross estate;
b) The mortgage indebtedness was contracted in good faith and
for an adequate and full consideration.

f. Computation of Deductible Losses, Indebtedness, Taxes, Claims Against Insolvent and Unpaid Mortgage (LITE) For
Non-Resident Alien Decedent
Formula Philippine gross income
Total gross income x LITE = Deductible LITE

g. Transfer for Public Use

Requisite for deductibility Amount deductible Deducted from
The transfer must be testamentary in character or by Amount of all bequest, legacies, devises, or Exclusive property
way of donation mortis causa executed by the transfers to or for the use of the Government
decedent before his death of the Philippines, or any political subdivision
for exclusively public purpose
h. Property Previously Taxed (Vanishing Deduction) (For Estate Tax)
Rates (based on time gap)
Requisites for deduction Format of computation
a. The date of death of the present 100% - if not more than 1 Value to take P xxx
decedent must not exceed 5 years from the date year Less: Mortgage paid by present
of death of the prior decedent or date of donation. decedent xxx
b. The property can be identified as the one received 80% - if more than 1 year but Initial basis xxx
from prior decedent, or from the donor, or the not more than 2 years Less: Proportional deduction
property acquired in exchanged for the original (Initial basis/Gross estate
property so received. 60% - if more than 2 years x Deductions) xxx
c. The property must have formed part of the prior but not more than 3 years Final basis xxx
decedent’s gross estate situated in the Philippines Rate xxx
or been included in the total amount of the gifts of 40% -if more than 3 years but Vanishing deduction xxx
the donor made within 5 years prior to the present not more than 4 years Notes:
decedent’s death. 1) Under conjugal partnership of gains
d. The estate tax must have been finally determined 20% - if more than 4 years vanishing is a deduction from exclusive
and paid by the prior decedent or the donor’s tax but not more than 5 years property.
must have been paid by the donor 2) Under absolute community of property, vanishing
e. No vanishing deduction was allowed in determining deduction may be deducted from exclusive
the value of the net estate of the prior decedent property or community property.

i. Exercise on vanishing deduction

a. Decedent was a citizen of the Philippines who was single at the time of death. Compute the vanishing deduction based on the
following information that were made available:
Properties inherited two-and-a-half years before death:
Located outside the Philippines P3,000,000
Located in the Philippines
FMV, when inherited 6,500,000
FMV, time of death 7,000,000
Unpaid mortgage on the property when inherited 1,500,000
Unpaid mortgage on the property at the time of death 1,000,000
Property acquired through own labor 2,000,000
Expenses, losses, indebtedness, taxes, etc. (excluding the unpaid mortgage of P1,000,000) 800,000
Transfer for public use 970,000
Medical expenses 800,000

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 ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY
ESTATE TAX (with COMPARISONS of TRANSFER TAXES) TAX-101
j. Exercise of deductions allowed to non-resident alien decedent
1. Mr. Poh Ma Naw, a single and a non-resident alien, died of a heart attack in 2021, leaving the following properties in favor of his
heirs:
Gross estate within the Philippines P 30,000,000
Gross estate outside of the Philippines 20,000,000
Funeral expense 500,000
Judicial and administrative expenses 2,000,000
Claims against the estate 5,000,000
Loss due to theft 1,000,000
Medical expenses 500,000
His gross estate includes family home valued at 8,000,000
Compute the following using BIR Form No. 1801:
a. Line 34 page 2 (Gross estate)
b. Line 35 page 2 (Ordinary deductions)
c. Line 37D page 2 (Total special deductions
d. Line 40 page 2 (Net taxable estate)
e. Line 18 page 1 (Estate tax due)
SPECIAL DEDUCTIONS
1. Family Home - The family home, constituted jointly by the husband and the wife or by an unmarried head of the family, is the
dwelling house where they and their family reside and the land on which it is situated.
Conditions for the allowance of family home deduction Amount deductible
1) The family home must be the actual residential home of the 1) Exclusive property Full value included in the
decedent and his family at the time of his death, as certified by the gross estate
Barangay Captain of the locality the family home is situated; 2) Conjugal/community One-half (1/2) of the value
2) The total value of the family home must be included as part of the property included in the gross estate
gross estate of the decedent; and 3) Partly exclusive Exclusive part (full value)
3) Allowable deduction must be in an amount equivalent to the property, partly Conjugal/community part
current fair market value of the family home as declared or included conjugal/community (1/2 x value)
in the gross estate, or to the extent of the decedent’s interest property
(whether conjugal/community or exclusive property), whichever is Note: In all three (3) cases, the maximum amount of
lower, but not exceeding P10,000,000 (old deduction was family home deduction is P10,000,000.
P1,000,000.)
4) Exercise: For year 2021, determine the amount to be included in the GE, decedent’s interest and the FH deduction
Gross estate Decedent’s interest Family home deduction
Case 1 – Family home is conjugal property,
P13,000,000
2 - Family home is conjugal property,
P25,000,000
3 – Family home is exclusive property,
P12,000,000
4 - Family home is exclusive property,
P8,000,000
5 - Family home is partly common, partly
exclusive
Exclusive lot – P5,000,000
Conjugal house – P8,000,000
2. Standard Deduction Under TRAIN (effective January 1, 2018)
Resident/citizen decedent Non-resident alien decedent
Amount deductible P5,000,000 P500,000
3. Amount Received by Heirs Under R.A. No. 4917
Requisite for deduction Amount deductible
The amount of the separation benefit is included as part of the Any amount received by the heirs from decedent’s employer as a
gross estate of the decedent consequence of the death of the employee-decedent
4. Charges Against Exclusive or Conjugal/Communal Property Under the Family Code
a. Support of spouses, their common children and legitimate children of either spouse CONJ/COMM
b. All debts and obligations contracted during the marriage by the designated administrator-spouse for the
benefit of the conjugal partnership of gain or community, or by both spouses, or by one spouse with the
consent of the other CONJ/COMM
c. Debts and obligations contracted by either spouse without the consent of the other to the extent that the
family may have been benefited CONJ/COMM
d. All taxes, liens, charges and expenses, including major and minor repairs, upon the conjugal/community
property CONJ/COMM
e. All taxes and expenses for mere preservation made during the marriage upon the separate property of either
spouse used by the family CONJ/COMM
f. Expenses to enable either spouse to commence or complete a professional or vocational course, or other
activity for self-improvement CONJ/COMM
g. Ante nuptial debts of either spouse insofar as they have redounded to the benefit of
the family CONJ/COMM

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 ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY
ESTATE TAX (with COMPARISONS of TRANSFER TAXES) TAX-101
h. Value of what is donated or promised by both spouses in favor of their legitimate children for the exclusive
purpose of commencing or completing a professional or vocational course or other activity for self-
improvement CONJ/COMM
i. Expenses of litigation between the spouses unless the suit is found to be groundless CONJ/COMM
j. Ante-nuptial debts of either spouse that did not redound to the benefit of the family EXCLUSIVE
k. Support of illegitimate children of either spouse EXCLUSIVE
l. Liabilities incurred by either spouse by reason of crime or quasi-delict EXCLUSIVE
m. Loss during the marriage in any game of chance, betting, Sweepstakes, or any other kind of gambling whether
permitted or prohibited by law EXCLUSIVE
OTHER DEDUCTIONS
1. Share of the Surviving Spouse
Gross conjugal/community properties P xxx
Less: Conjugal/community deductions xxx
Net conjugal/community properties (NCP) P xxx
Share of surviving spouse (1/2 x NCP) P xxx
S. Tax Credit for Estate/Donor’s Tax Paid to a Foreign Country
Estate Tax Donor’s Tax
1. Entitled to tax credit Resident or citizen decedents Resident or citizen donor
2. Deducted from estate tax due The estate tax imposed in the Tax Code The donor’’s tax imposed in the Tax Code
shall be credited with the amounts of any shall be credited with the amounts of any
estate tax imposed by the authority of a donor’s tax imposed by the authority of a
foreign country. foreign country.
3. Limitations on credit
a. Only one foreign country Limit: Net estate, foreign/Entire net estate Limit: Net gift, foreign/Entire net gift x
x Philippine estate tax or Philippine donor’s tax or
Actual foreign estate tax, Actual foreign estate tax,
whichever is lower whichever is lower
b. Two or more foreign Limit (a) – Per foreign country : Net estate, Limit (a) – Per foreign country : Net estate,
countries are involved per foreign country/Entire net per foreign country/Entire net
estate x Philippine estate tax estate x Philippine estate tax
due or due or
Limit (b) – By total: Net estate (all foreign Limit (b) – By total: Net estate (all foreign
countries)/Entire net estate x countries)/Entire net estate x
Phil. estate tax due Phil. estate tax due

whichever is lower whichever is lower

4. Exercises:
a. Estate Tax: The estate of a decedent who dies January 1, 2018 has the following data (standard deduction already taken into
account):
Net estate, Philippines P1,200,000
Net estate, Country A (after P10,000 estate tax paid) 190,000
Net estate, Country B (before P14,000 estate tax paid) 200,000
Net estate, Country C (100,000)
Compute the estate tax payable if : 1) resident alien 2) non-resident alien

Exercise: Decedent died January 1, 2021. Determine whether or not notice of death, estate tax return or statement certified by
a CPA need to be filed (Y/N)
Notice of Estate tax Statement
death return certified by CPA
Case 1 – Gross estate is P16,000,000; Deductions, P11,000,000
2 – Gross estate is P4,000,000; Deductions, P6,000,000
3 – Gross estate is P2,000,000, Deductions, P600,000 (NRA decedent)
4– Gross estate is P15,00,000 comprising of car, land and shares of stock;
Deductions, P10,000,000
5 – Gross estate is P5,000,000; Deductions are P1,200,000 (NRA decedent)
7 – Gross estate is P5,500,000; Deductions are P1,000,000 (NRA decedent)

T. Acts Requiring Certification from the Commissioner that the Estate Tax Has been Paid Under TRAIN (effective January
1. 2018)

Acts requiring 1. Delivery of distributive shares to the heirs;

certification 2. Registration in the Registry of Deeds of transfer of inherited real property or real rights;
3. Payments of debt by decedent’s debtor to the heirs, legatees, executor or administrator of the creditor-
decedent;
4. Transfer of inherited shares, rights or bonds;
5. Withdrawal from decedent’s bank deposit (allowed subject to final withholding tax of 6%, withdrawal slip
shall contain a statement that all joint depositors are still living at the time of withdrawal by any one of the
joint depositors and such statement shall be under oath by the said depositor)

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 ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY
ESTATE TAX (with COMPARISONS of TRANSFER TAXES) TAX-101
Additional Cases
Estate Tax
1. The resident decedent is a married man with a surviving spouse with the following data died on January 15, 2021:
Conjugal real properties P 6,000,000
Conjugal family house 1,000,000
Exclusive family lot 400,000
Other exclusive properties 4,500,000
Conjugal ordinary deductions (including P200,000 funeral expenses and
P300,000 judicial expenses) 1,500,000
Exclusive ordinary deductions 500,000
Medical expenses 600,000

Compute the following using BIR Form No. 1801:

a. Line 34 page 2 (Gross estate)
b. Line 35 page 2 (Ordinary deductions)
c. Line 37D page 2 (Total special deductions
d. Line 40 page 2 (Net taxable estate)
e. Line 18 page 1 (Estate tax due)

2. The citizen decedent is unmarried head of the family with the following data died on March 1, 2021:
Real and personal properties (including P1,500,000 bank deposit, P500,000 of which was withdrawn
and subjected to 6% withholding tax) P 14,000,000
Family home 9,000,000
Ordinary deductions (including P100,000 funeral expenses and P200,000 judicial expenses) 2,000,000
Medical expenses 300,000

Compute the following using BIR Form No. 1801:

a. Line 34 page 2 (Gross estate)
b. Line 35 page 2 (Ordinary deductions)
c. Line 37D page 2 (Total special deductions)
d. Line 40 page 2 (Net taxable estate)
e. Line 18 page 1 (Estate tax due)

Estate Tax: A non-resident alien decedent, single, died on January 1, 2018 left the following properties:
Car, Manila (inherited 4 years before he died, FMV, date of inheritance was P1,700,000) P1.500,000
Car, USA 2.600,000
Shares of stock, USA 900,000
Shares of stock, Manila 800,000
House and lot, USA 4,800,000
Bank deposit, PNB-Manila 1,000,000
Other tangible personal properties, Manila 500,000
The administrator claimed the following deductions:
Actual funeral expenses P40,000
Judicial expenses 30,000
Loss of certain tangible personal properties 25,000
Claims against the estate 20,000
Unpaid taxes, accrued before death 15,000
Claims against insolvent person 10,000
Transfer for public use 10,000
Medical expenses 50,000

Compute the following using BIR Form No. 1801:

a. Line 34 page 2 (Gross estate)
b. Line 35 page 2 (Ordinary deductions)
c. Line 37D page 2 (Total special deductions
d. Line 40 page 2 (Net taxable estate)
e. Line 18 page 1 (Estate tax due)

END

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