was a citizen and resident of a foreign country which at the time of his death
1. did not impose a transfer tax or death tax of any character
2. in respect of the intangible personal property of citizens of the Philippines not residing in that foreign country; or
• The law of the foreign country of which the decedent was a citizen and resident a the time of his death:
1. allow a similar exemptions from transfer taxes or death taxes of every character
2. in respect of the intangible personal property owned by citizens of the Philippines not residing in that foreign country. B. DEDUCTIONS FOR ESTATE OF A CITIZEN OR
A RESIDENT (Revenue Regulations 2-2003 and Sec. 86):
1) Expenses, Losses, Indebtedness, and Taxes:
(a) actual funeral expenses or five percent (5%) of the gross estate whichever is lower (not exceeding P200,000)
(b) judicial expenses of the testamentary or intestate proceedings
(c) claims against the estate
(d) claims against insolvent persons included in the gross estate
(e) unpaid mortgages or indebtedness upon property
(f) unpaid taxes
(g) losses incurred during the settlement of the estate
2) Transfers for Public Use-to the government of the Republic of the Philippines or any political subdivision thereof, exclusively for public purposes
3) Vanishing deductions 4) Family Home
5) Standard Deduction -- P1,000,000 6) Medical Expenses
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7) Amount Received by Heirs under RA 4917 8) Net Share of the surviving spouse in the
Conjugal Property (1) ORDINARY DEDUCTIONS A. Funeral expenses
FUNERAL EXPENSES are costs which are actually incurred in connection with the interment or burial of the deceased.
• EXAMPLES OF FUNERAL EXPENSES:
a) The mourning apparel of the surviving spouse and unmarried minor children of the deceased bought and used on the occasion of the burial;
b) Expenses for the deceased’s wake, including food and drinks;
c) Publication charges for death notices;
d) Telecommunication expenses incurred in informing relatives of the deceased;
e) Cost of burial plot, tombstones, monument or mausoleum but not their upkeep. In case the deceased owns a family estate or several burial lots, only the value corresponding to the plot where he is buried is deductible; f) Interment and/or cremation fees and
charges; and
g) All other expenses incurred for the performance of the rites and ceremonies incident to interment.
• EXAMPLES OF NON-DEDUCTIBLE FUNERAL EXPENSES:
a) Expenses incurred after the interment, such as for prayers, masses, entertainment, or the like are not deductible.
b) Any portion of the funeral and burial expenses borne or defrayed by relatives and friends of the deceased are not deductible.
• Substantiation Requirements:
o The expenses must be duly supported by receipts or invoices or other evidence to show that they were actually incurred (RR 2-2003)
B. Judicial Expenses
• What are JUDICIAL EXPENSES for estate taxation?
o These deductible items are expenses incurred during the settlement of the estate but not beyond the last day prescribed by law, or the extension thereof, for the filing of the estate tax return.
• Judicial Expenses should be supported by a sworn statement of account issued and signed by the creditor.
• EXAMPLES OF JUDICIAL EXPENSES (1) Fees of executor or administrator (2) Attorney’s fees
(3) Court fees; (4) Accountant’s fee; (5) Appraiser’s fee; (6) Clerk hire;
(7) Cost of preserving and distributing the estate;
(8) Brokerage fees for selling property of the estate.
CIR v. CA 328 SCRA 666
• Expenses incurred in the extrajudicial settlement of the estate must be necessary costs toward the settlement of the case
• Attorney’s fees to be deductible should essential to the collection of assets, payment of debts or the distribution of the estate
C. Claims against the Estate
Debts or demands of a pecuniary nature which could have been enforced against the deceased in his lifetime and could have been reduced to simple money judgments.
• SOURCES OF CLAIMS AGAINST THE ESTATE:
1) Contract; 2) Tort; or
3) Operation of Law
• REQUISITES FOR DEDUCTIBILITY:
a) A personal obligation of the deceased existing a the time of his death except
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unpaid obligations incurred incident to his death such as unpaid funeral expenses and unpaid medical expenses which are classified under a different category of deductions,
b) Contracted in good faith and for adequate and full consideration in money or money's worth,
c) Must be a debt or claim which is valid in law and enforceable in court,
d) Must not have been condoned by the creditors or the action must not have prescribed.
e) Duly substantiated
• Substantiation in case of Loans or other Similar Indebtedness:
a) notarized at the time incurred, except loans from financial institutions where notarization not part of business practice or policy
b) A statement under oath executed by the administrator or executor of the estate reflecting the disposition of the proceeds of the loan if said loan was contracted within three (3) years prior to the death of the decedent D. Claims against Insolvent Persons
• Condition for deductibility: The value of decedent’s interest in the claim is included in the gross estate and the incapacity of the debtors to pay their obligation is proven.
E. Unpaid Mortgage
• CONDITIONS FOR DEDUCTIBILITY:
o The value of the decedent’s interest over the property encumbered is included as part of the gross estate undiminished by the amount of mortgage
o The deduction shall be limited to the extent that the mortgage was contracted bona fide and for an adequate consideration
• Other Rules in Respect to Unpaid Mortgage o Determine the recipient or beneficiary of
the loan which must be verified;
o If merely an accommodation made by decedent, then balance of loan considered as receivable and part of GE o If there is a legal impediment to
recognize the same as receivable of the estate, the unpaid obligation shall not be
allowed as a deduction from the GE F. Taxes
• What taxes are deductible?
Income taxes, real estate or property taxes due at the time of death which were unpaid as of the time of death
• TAXES NOT DEDUCTIBLE: 1. estate taxes
2. income tax on income received after death
3. property taxes not accrued before death G. Losses
1. REQUISITES FOR DEDUCTIBILITY:
1. Losses should arise from fire, storm, shipwreck, or other casualty, robbery, theft or embezzlement;
2. Losses should not be compensated by insurance or otherwise;
3. Losses should not be claimed as deduction in the income tax return of the taxable estate;
4. The losses should occur during the settlement of the estate; AND that
5. The losses should occur before the last day for the payment of the estate tax (last day to pay 6 months after the decedent’s death)
(2) TRANSFER FOR PUBLIC USE