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TAX 2 - Week 2 - Estate Tax, Administrative Requirements - Coggle Diagram

- - - - F. Administrative Requirements (89-92)
        
        F. Tax Amnesty on Estate Tax (RMC No. 68-2019)
        
        G. Inhibitions, Responsibilities, Obligations in the Enforcement of Estate Tax
        
        H. Consequences of Non-Payment of Estate Tax
        
        I. Status of Heirs Pending Partition of Estate - Upon the death of the decedent, the heirs acquire legal title to the estate The heirs are considered co-owners of the shares,
        
        J. Effect of Renunciation/Waiver by Some Heirs - Check if repudiation and accretion apply. If accretion, no donor's tax. But, if renunciation in favor of another heir, then considered donation.
        
        2 more items...
        
        Surcharge - A civil penalty imposed IN ADDITION to the tax required to be paid.
        
        Deficiency Interest - Interest at the rate of 12% per annum on any deficiency in the tax due, which interest shall be assessed and collected from the date prescribed for its payment until:
        
        (a) full payment thereof; or
        
        (b) upon issuance of a notice and demand by the CIR or his authorized representative, whichever comes first [Sec 249(B), NIRC; Sec. 3, RR 21-2018]
        
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        Surcharge Rates - can be 25% or 50%
        
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        Discharge of Executor or Administrator from Personal Liability (92) - If the executor or administrator makes a written application to the Commissioner for determination of the amount of the estate tax and discharge from personal liability therefore, the Commissioner (as soon as possible, and in any event within one (1) year after the making of such application, or if the application is made before the return is filed, then within one (1) year after the return is filed, but not after the expiration of the period prescribed for the assessment of the tax in Section 203 shall not notify the executor or administrator of the amount of the tax. The executor or administrator, upon payment of the amount of which he is notified, shall be discharged from personal liability for any deficiency in the tax thereafter found to be due and shall be entitled to a receipt or writing showing such discharge.
        
        Payment Before delivery (94) - No judge shall authorize the executor or judicial administrator to deliver a distributive share to any party interested in the estate unless a certification from the Commissioner that the estate tax has been paid is shown.
        
        Coverage -
        
        GR - estate of decedents who died on or before December 31, 2017, with or without assessments duly issued therefor, whose estate taxes have remained unpaid or have accrued as of December 31, 2017:
        
        XCPN - Provided, however, That the Estate Tax Amnesty hereby authorized and granted shall not cover instances enumerated under Section 9 hereof.
        
        Rates -
        
        GR - 6% at time of death of decedent of total net estate
        
        XCPN - if tax return previously filed, 6% based on net undeclared estate
        
        XCPN 2 - If total allowable deducitons exceed gross estate, minimum estate amnesty tax of P5,000
        
        Immunities - Immunity is final and irrevocable upon compliance with all conditions and payment of corresponding estate amnesty tax. This covers all estate taxes for 2017 and prior years and all ppurtenant civil, criminal, and administrative cases and penalties under the National Internal Revenue Code of 1997, as amended.
        
        Exceptions - Estate tax cases which have become final and executory, as well as properties involved in cases pending in appropriate courts covering the following:
        
        (a) Falling under the jurisdiction of the Presidential Commission on Good Government;
        
        (b) Involving unexplained or unlawfully acquired wealth under Republic Act No. 3019, otherwise known as the Anti-Graft and Corrupt Practices Act, and Republic Act No. 7080 or An Act Defining and Penalizing the Crime of Plunder;
        
        (c) Involving violations of Republic Act No. 9160, otherwise known as the Anti-Money Laundering Act, as amended;
        
        (d) Involving tax evasion and other criminal offenses under Chapter II of Title X of the National Internal Revenue Code of 1997, as amended; and
        
        (e) Involving felonies of frauds, illegal exactions and transactions, and malversation of public funds and property under Chapters III and IV of Title VII of the Revised Penal Code.
        
        Joint Bank Account - 6% for half only.
        
        Estate Tax Return (Sec. 90) -
        
        Liability for Payment of Tax (91) - Pay as you file, At he time the return is filed by the executor, administrator or the heirs.
        
        By Whom paid -
        
        Primarily Liable - The estate through the executor or administrator.
        
        Mode of Payment -
        
        Payment shall be made before the delivery of the distributive share in the inheritance.
        
        If there are two or more executors or administrators, all of them are severally liable for the payment of the tax.
        
        The tax clearance issued by the CIR or the RDO having jurisdiction over the estate will serve as the authority to distribute the remaining properties.
        
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        Subsidiarily Liable - the heirs or beneficiaries, for the payment of that portion of the estate tax which his distributive share bears to the value of the total net estate. [Sec. 9(9), RR 12-2018] The heirs shall be liable in proportion to their share in the inheritance. [Marcos v. CA, G.R. No. 120880 (1997)]
        
        Extension of Time of Payment - The CIR may allow an extension of payment, if payment on the due date would impose undue hardship upon the estate or any of the heirs:
        
        Judicial - Extension not to exceed 5 years, in case the estate is settled judicially, or
        
        Extrajudicial - 2 years, if estate is settled extrajudicially
        
        Effect of
        
        Bond - CIR may require 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 CIR deems necessary, conditioned upon the payment of the said tax in accordance with the terms of the extension.
        
        Payment of the amount in respect of which the extension is granted on or before the date of the expiration of the period of the extension
        
        Suspension of the running of the statute of limitations for deficiency assessment for the period of any extension
        
        Any amount paid after the statutory due date of the tax, but within the extension period, shall be subject to interest but not to surcharge. [Sec. 9(5), RR 12-2018]
        
        When Extension not Proper - If taxes are assessed due to negligence, intentional disregard of rules and regulations, or fraud on the part of the taxpayer, no extension will be granted by the CIR.
        
        Payment by installment [Sec. 91(C), NIRC] - If available cash of the estate is insufficient to pay the total estate tax due, payment by installment shall be made within 2 years from the statutory date of filing, without civil penalty and interest.
        
        When Filed -
        
        In all cases of transfers subject to estate tax, or
        
        Regardless of the gross value of the estate, when the said estate consists of registered or registrable property such as real property, motor vehicle, shares of stock or other similar property for which a clearance from the BIR is required as a condition precedent for the transfer of ownership thereof in the name of the transferee.
        
        Period for Filing -
        
        GR - Within 1 year from the date of death.
        
        XCPN - The CIR shall have authority to grant, in meritorious cases, a reasonable extension not exceeding 30 days for filing the return.
        
        By Whom Filed - The executor, administrator, or any of the legal heirs, as the case may be, under oath. If there is no executor or administrator appointed, qualified, and acting within the Philippines, any person in actual or constructive possession of any property of the decedent may file this return.
        
        Where Filed/Paid
        
        Resident Citizen - The RDO where the decedent was domiciled at the time of his death and shall file the estate tax return and pay the corresponding estate tax with: any of the ff:
        a. An authorized agent bank (AAB), or
        b. Revenue District Officer (RDO), or
        c. Collection Officer, or
        d. Duly authorized Treasurer of the city or municipality in which the decedent was domiciled at the time of his death
        
        Non-Resident Decedent -
        
        With an Executor/Administrator in PH - The estate tax return shall be filed with and the TIN for the estate shall be secured from the RDO where such executor or administrator is registered.
        
        Without Executor/Administrator - The estate tax return shall be filed with and the TIN for the estate shall be secured from the Office of the Commissioner through RDO 39 QC. [Section 9(8), RR 12-2018]
        
        If the executor or administrator is not registered, it shall be filed with and the TIN for the estate shall be secured from the RDO having jurisdiction over the executor or administratorâ€™s legal residence. [Section 9(8), RR 12-2018]
        
        Required Contents -
        
        The value of the gross estate of the decedent at the time of his death, or in case of a NRA, of that part of his gross estate situated in the Philippines;
        
        The deductions allowed from gross estate in determining the net taxable estate; and
        
        Such part of such information as may at the time be ascertainable and such supplemental data as may be necessary to establish the correct taxes.
        
        For estate tax returns showing a gross value exceeding P5,000,000, there must be a statement duly certified to by a CPA containing the following:
        a. nItemized assets of the decedent with their corresponding gross value at the time of his death, or in the case of a NRA, of that part of his gross estate situated in the Philippines;
        b. Itemized deductions from gross estate allowed in Sec. 86; and
        c. The amount of tax due whether paid or still due and outstanding.
      - 1. Tax Rate - 6%
        
        2. Tax Credit for Estate Taxes Paid to Foreign Country – Sec. 86(D), NIRC - Remedy against international double taxation.
        
        a. Per Country Limitation - Amount of the credit in respect to the tax paid to any country shall not exceed the same proportion of the tax against which such credit is taken, which the decedent's net estate situated within such country taxable under the tax code bears to his entire net estate. (Foreign Net Estate//Entire Net Estate) x PH estate Tax
        
        b. Global Limitation - The total amount of the credit shall not exceed the same proportion of the tax against which such credit is taken, which the decedent's net estate situated outside the Philippines taxable under the tax code bears to his entire net estate. (Foreign Net Estate//Entire Net Estate) x PH estate Tax
        
        Lower of two amounts is the final allowable tax credit.
        
        General Rule - Estate tax credited with the amounts of estate tax imposed by the authority of a foreign country.
        
        Who May Claim - Estate of a decedent who was a resident or citizen of the Philippines at the time of death.
    - - 2. Deductions; Non-resident Aliens
        
        a. Standard Deduction – Sec. 86(B)(1), NIRC
        
        Resident - P5M
        
        Non-Resident - P500k
        
        b. Claims Proportion to Philippine property – Sec. 86(B)(2), NIRC - Refers to claims against estate, claims of the deceased against insolvent persons, unpaid mortgages, where the value of the part bears tot he value of entire gross estate,w herever situated.
        
        c. Property previously taxed (Vanishing Deduction)
        
        d. Transfers for Public Use
        
        e Share of Surviving Spouse – Sec. 86(C), NIRC
      - a. Standard Deduction -
        
        Resident - P5M
        
        Non-Resident - P500k
        
        b. Claims against the Estate - These refer to 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. Claims against the estate or indebtedness in respect of property may arise out of contract, tort, or operation of law
        
        Must be existing at the time of death. Deductible regardless of any post-death developments.
        
        Subject to submission of duly notarized debt instrument (at time debt was incurred), and if indebtedness was contracted within 3 years before death of decedent, a statement showing disbursement of proceeds.
        
        c. Claims against Insolvent Persons - Refer to claims against persons insolvent where the value of the decedent's itnerest is included in the value of the gross estate.
        
        d. Unpaid Mortgages, Taxes and Casualty Losses
        
        e. Property previously taxed (Vanishing Deduction) - Represents the amount where the property was previously subjected to transfer taexes, either donor's or estate tax.
        
        f. Transfers for Public Use - This refers to amounts representing bequests, legacies, devises or transfers to or for the use of the Government of the Republic of the Philippines or any political subdivision thereof, for exclusively public purposes.
        
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        Requisties for Deductibility -
        
        Death – The present decedent died within 5 YEARS from the date of death of the prior decedent OR the date of gift.
        
        Identity of the property – The property can be identified as the one received from prior decedent or donor.
        
        Inclusion of the property – The property must have formed part of the gross estate situated in the Philippines of the prior decedent, or have been included in the total amount of the gifts of the donor.
        
        Previous taxation of property – The estate tax on the prior succession, or the donor’s tax on the gift must have been finally determined and paid by the prior decedent or by the donor.
        
        No previous vanishing deduction on the property – No such deduction on the property was allowed in determining the value of the net estate of the prior decedent. This is intended to preclude the application of vanishing deduction on the same property more than once.
        
        Unpaid Mortgages - Requisites for Deductibility (RR-12-2018) -
        
        The value of the decedent’s interest therein, undiminished by such mortgage or indebtedness, is included in the value of the gross estates.
        
        The mortgages were contracted bona fide and for an adequate and full consideration in money or money’s worth.
        
        Accommodation Loan - here, the loan proceeds went to another person, the value of the unpaid loan must be included as a receivable of the estate. If there is a legal impediment to recognize the same as a receivable of the estate, said unpaid obligation shall not be allowed as a deduction. In all instances, the mortgaged property, to the extent of the decedent’s interest therein, should always form part of the gross taxable estate
        
        Unpaid Taxes- Requisites for Deductibility (RR-12-2018) -
        
        Taxes which have accrued as of or before the death of the decedent, and
        
        Unpaid as of the time of his death, regardless of whether or not it was incurred in connection with trade or business.
        
        Casualty Losses- Requisites for Deductibility (RR-12-2018) -
        
        Incurred during the settlement of the estate
        
        Arising from fires, storms, shipwreck, or other casualties, or from robbery, theft, or embezzlement
        
        Not compensated for by insurance or otherwise
        
        At the filing of the estate tax return, such losses have NOT been claimed as a deduction for income tax purposes in an income tax return
        
        Incurred not later than the last day for the payment of the estate tax (i.e., 1 YEAR from decedent’s death). Therefore, all casualty losses after the prescribed
        
        Requisites for Deductibility -
        
        The full amount owed by the insolvent must first be included in the decedent’s gross estate; and
        
        The incapacity of the debtor to pay his obligation should be proven, although a judicial declaration of insolvency is not required.
        
        Effect of Partial Payment - Full amount owed shall be included int he gross estate, with uncollectible amount allowed as a deduction.
        
        Requirements for Deductibility - The liability:
        
        REPRESENTS - a personal obligation of the deceased existing at the time of his death;
        
        CONTRACTED - in good faith and for adequate and full consideration in money or money’s worth;
        
        VALID/ENFORCEABLE - both legally valid and enforceable in court
        
        NO CONDONATION - indebtedness must not have been condoned by the creditor or the action to collect from the decedent must not have prescribed;
        
        SUBSTANTIATED - Reasonably certain in amount and substantiated
        
        Substantiation Requirements -
        
        Simple Loans/Advances -
        
        The debt instrument must be duly notarized at the time the indebtedness was incurred UNLESS loans granted by financial institutions where notarization is not part of business practice/policy
        
        Duly notarized Certification from the creditor as to the unpaid balance of the debt, including interest as of the time of death.
        
        Proof of financial capacity of the creditor to lend the amount at the time the loan was granted, as well as its latest audited balance sheet showing the unpaid balance of the decedent-debtor.
        
        A statement under oath executed by the administrator or executor of the estate reflecting the disposition of the proceeds of the loan if it was contracted within 3 years prior to the death of the decedent.
        
        Unpaid Obli from purchase of goods/services -
        
        Documents evidencing the purchase of goods or service e.g., receipts, sales invoices, etc.,
        
        Duly notarized certification from the creditor as to the unpaid balance of the debt, including interest as of the time of death.
        
        Certified true copy of the latest audited balance sheet of the creditor with a detailed schedule of its receivable showing the unpaid balance of the decedent-debtor. A certified true copy of the updated latest subsidiary ledger/records of the debtor-decedent, should likewise be submitted.
  - - - a. Property Relationship between Spouses
        
        Community of Property
        
        i. Absolute community -
        
        GR - All properties of the spouses at the time of marriage or acquired thereafter.
        
        XCPN -
        2a. Property acquired during marriage by gratuitous title + fruits/income thereof unless stipulated
        2b. Property for personal and exclusive use of either spouse UNLESS jewelry
        2c. 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.
        
        ii. Conjugal partnership of gains -
        
        GR - Properties acquired during the lifetime fo the marriage.
        
        XCPN -
        2a. That which is brought to the marriage as his or her own;
        2b. That which each acquires during the marriage by gratuitous title;
        2c. That which is acquired by right of redemption, by barter or by exchange with property belonging to only one of the spouses; and
        2d. That which is purchased with exclusive money of the wife or of the husband.
        
        Others
        
        iii. Complete separation of property –
        
        GR - All earnings from his or her profession, business or industry and all fruits, natural, industrial or civil, due or received during the marriage from his or her separate property
        
        XCPN - Both spouses shall bear the family expenses in proportion to their income, or, in case of insufficiency or default thereof, to the current market value of their separate properties. The liabilities of the spouses to creditors for family expenses shall, however, be solidary.
        
        iv. Marriage settlement
        
        v. Property regime of unions without marriage -
        
        Capacitated to Marry - Joint ownership
        
        No Capacity to Marry - There must be actual proof of joint contribution for joint ownership. Ownership in proportion to respective contributions.
      - 3. Merger in Usufruct - (A) The merger of usufruct in the owner of the naked title;
        
        4. Transmission of fiduciary - The transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the fideicommissary
        
        5. Donee Institution - the transmission from the first heir, legatee or donee in favor of another beneficiary, in accordance with the wishes of the predecessor, is exempt from estate tax
        
        6. Family Home – Articles 152-157, 161, Family Code; Sec. 86(A)(7), NIRC; RR 12-2018;
        
        Under the Civil Code, a testator may designate one or more persons to substitute the heir or heirs instituted in case such heir or heirs should die before him, or should not wish or should be incapacitated, to accept the inheritance. Art. 859. Two or more persons may be substituted for one, and one person may be substituted for two or more heirs. Art. 859
        
        Transfers to Social Welfare, Cultural and Charitable Institutions - Bequests, 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, shall not be subject to estate tax, provided that not more than thirty (30%) percent of the said bequests, devises, legacies or transfers shall be used by such institutions for administrative purposes
        
        Withdrawal of Deceased Bank Accounts -
        
        Yes. Sec. 97 of the NIRC provides that a bank who has knowledge of the death of a person who maintained a bank deposit account alone, jointly with another, such bank shall allow any withdrawal from the account subject to a final withholding tax of 6%. This is allowed even before securing a certificate authorizing registration for the estate, as the latter is necessary only prior to the registration of any property in the name of an heir.
        
        However, RR 12-2018 qualifies this by providing that an eCAR certificate must be presented by an executor, administrator or any of the legal heirs prior to withdrawing from the bank account if the bank deposit accounts have either been: 1) duly included in the gross estate; and 2) the estate taxes have been paid:
- - - - Payment
        
        Time of Payment -
        
        GR - At the time the return is filed.
        
        XCPN (Sec. 91) - The CIR may allow an extension of payment, if payment on the due date would impose undue hardship upon the estate or any of the heirs:
        2a. Judicial Settlement - 5 years maximum limit for extension
        2b. Extrajudicial Settlement - 2 years maximum limit for extension
        
        By Whom Paid -
        
        Primarily Liable - Estate, through the executor or administrator. If there are two or more of them, they are severally liable for the payment tax.
        
        Subsidiarily Liable - Heirs or beneficiaries, for the portion of the estate tax which the distribute share bears tot eh value of the total net estate. Heirs are liable in proportion to their share in the inehritance
        
        Conditions for Distribution -
        
        Payment shall be made before the delivery of the distributive share in the inheritance.
        
        The tax clearance issued by the CIR or the RDO having jurisdiction over the estate will serve as the authority to distribute the remaining properties.
        
        No Extension - Where the taxes are assessed by reason of negligence, intentional disregard of rules and regulations, or fraud on the part of the taxpayer, no extension will be granted by the CIR.
        
        Effect of Extension -
        
        Bond - CIR may require furnishing of a bond, not exceeding double the amount of tax and with such sureties as it deems necessary, conditioned upon the payment of the tax according to the terms of the extension.
        
        Suspension - of the running of the statute of limitations for deficiency assessment for the period of any extension
        
        Interest - Any amount paid after statutory due date but, within extension period shall be subject to INTEREST but NOT to surcharge.
        
        Payment by Installment (91C) - In case the available cash of the estate is insufficient to pay the total estate tax due, payment by installment shall be made within 2 years from the statutory date of filing, without civil penalty and interest.
    - - Gross Value Estates in Excess of 5M - To be accompanied by statement of a duly certified CPA stating the following:
        
        Itemized assets of the decedent with their corresponding gross value at the time of his death, or in the case of a NRA, of that part of his gross estate situated in the Philippines;
        
        Itemized deductions from gross estate allowed in Sec. 86; and
        
        The amount of tax due whether paid or still due and outstanding.
    - - Where Filed -
        
        Resident Decedent -
        
        RDO - Register the estate and secure a new TIN where domiciled at time of death.
        
        Payment of Estate Tax -
        2a. An authorized agent bank (AAB), or
        2b. Revenue District Officer (RDO), or
        2c. Collection Officer, or
        2d. Duly authorized Treasurer of the city or municipality in which the decedent was domiciled at the time of his death
        
        Non-Resident Decedent -
        
        With Executor/Admin in PH - Estate Tax Return & TIN for the estate shall be secured from the RDO where such executor or administrator is registered.
        1a. If Unregistered - shall be filed with and the TIN for the estate shall be secured from the RDO having jurisdiction over the executor or administrator’s legal residence. [Section 9(8), RR 12-2018]
        
        Without Executor/Administrator - From the office of the Commissioner, through RDO 39 QC