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Martha Rose C. Serrano
Vidal de Roces v. Posadas
G.R. No. 34937 March 13, 1933
Imperial, J.:
1. Sometime in 1925, plaintiffs Concepcion Vidal de Roces and her husband, as well as one Elvira Richards,
received as donation several parcels of land from Esperanza Tuazon. They took possession of the lands
thereafter and likewise obtained the respective transfer certificates.
2.The donor died a year after without leaving any forced heir. In her will, which was admitted to probate, she
bequeathed to each of the donees the sum of P5,000. After the distribution of the estate but before the
delivery of their shares, the CIR (appellee) ruled that plaintiffs as donees and legatees should pay inheritance
taxes. The plaintiffs paid the taxes under protest.
3. CIR filed a demurrer on ground that the facts alleged were not sufficient to constitute a cause of action. The
court sustained the demurrer and ordered the amendment of the complaint but the appellants failed to do so.
Hence, the trial court dismissed the action on ground that plaintiffs, herein appellants, did not really have a
right of action.
4. Plaintiffs (appellant) contend that Sec. 1540 of the Administrative Code does not include donation inter vivos
and if it does, it is unconstitutional, null and void for violating SEC. 3 of the Jones Law (providing that no law shall
embrace more than one subject and that the subject should be expressed in its titles ; that the Legislature has
no authority to tax donation inter vivos; finally, that said provision violates the rule on uniformity of taxation.
5. CIR however contends that the word 'all gifts' refer clearly to donation inter vivos and cited the doctrine in
Tuason v. Posadas.
Issue: Whether or not the donations should be subjected to inheritance tax
YES. Sec. 1540 of the Administrative Code clearly refers to those donation inter vivos that take effect
immediately or during the lifetime of the donor, but made in consideration of the death of the decedent. Those
donations not made in contemplation of the decedent's death are not included as it would be equivalent to
imposing a direct tax on property and not on its transmission.
The phrase 'all gifts' as held in Tuason v. Posadas refers to gifts inter vivos as they are considered as advances in
anticipation of inheritance since they are made in consideration of death.
Dison v. Posadas Digest
Dison v. Posadas
G.R. No. 36770 November 4, 1932
Butte, J.:
1. Plaintiff Luis Dison filed a suit against CIR to recover inheritance tax paid under protest amounting to
P2,808.73. Felix Dison, plaintiff's father executed a deed of gift which transferred 22 tracts of land, reserving to
himself during his lifetime the usufruct of 3 tracts. The donation was formally accepted by plaintiff.
2. The plaintiff (herein petitioner) alleged in his complaint that the tax is illegal since he received the property by
a deed of gift inter vivos duly accepted and registered before the death of his father. He also contended that
Act 2601 being an inheritance tax statute, does not tax gifts. The defendant answered in general denial with a
countermand. The court dismissed the countermand. Both sides appealed, but the CIR appeal was dismissed.
Issue: Whether or not the gifts inter vivos are taxable (inheritance tax)

Inheritance tax is imposed upon the gift inter vivos that plaintiff received from his father as this was really an
advancement upon the inheritance to which he would be entitled upon the death of the latter. Sec. 1540 of
the Administrative Code did not tax gifts per se but only those which are made to those who shall prove to be
heirs, devisees, legatees and donees mortis causa of the donor. The term 'heirs' include those given the status of
heirs irrespective of the quantity of property they may receive as such.
BPI vs. Posadas
GR No. 34583, October 22, 1931
BPI, as administrator of the estate of deceased Adolphe Schuetze, appealed to CFI Manila absolving
defendant, Collector of Internal Revenue, from the complaint filed against him in recovering the inheritance
tax amounting to P1209 paid by the plaintiff, Rosario Gelano Vda de Schuetze, under protest, and sum of
P20,150 representing the proceeds of the insurance policy of the deceased.
Rosario and Adolphe were married in January 1914. The wife was actually residing and living in Germany when
Adolphe died in December 1927. The latter while in Germany, executed a will in March 1926, pursuant with its
law wherein plaintiff was named his universal heir. The deceased possessed not only real property situated in
the Philippines but also personal property consisting of shares of stocks in 19 domestic corporations. Included in
the personal property is a life insurance policy issued at Manila on January 1913 for the sum of $10,000 by the
Sun Life Assurance Company of Canada, Manila Branch. In the insurance policy, the estate of the deceased
was named the beneficiary without any qualification. Rosario is the sole and only heir of the deceased. BPI, as
administrator of the decedents estate and attorney in fact of the plaintiff, having been demanded by
Posadas to pay the inheritance tax, paid under protest. Notwithstanding various demands made by plaintiff,
Posadas refused to refund such amount.
ISSUE: WON the plaintiff is entitled to the proceeds of the insurance.
SC ruled that(1)the proceeds of a life-insurance policy payable to the insured's estate, on which the premiums
were paid by the conjugal partnership, constitute community property, and belong one-half to the husband
and the other half to the wife, exclusively; (2)if the premiums were paid partly with paraphernal and partly
conjugal funds, the proceeds are likewise in like proportion paraphernal in part and conjugal in part; and (3)the
proceeds of a life-insurance policy payable to the insured's estate as the beneficiary, if delivered to the
testamentary administrator of the former as part of the assets of said estate under probate administration, are
subject to the inheritance tax according to the law on the matter, if they belong to the assured exclusively, and
it is immaterial that the insured was domiciled in these Islands or outside.
Hence, the defendant was ordered to return to the plaintiff one-half of the tax collected upon the amount of
P20,150, being the proceeds of the insurance policy on the life of the late Adolphe Oscar Schuetze, after
deducting the proportional part corresponding to the first premium.
Collector vs. Fisher
CIR vs. CA, CTA and Pajonar
Facts: Private respondent Josefina Pajonar was the guardian of the person of decedent Pedro Pajonar. The
property of the decedent was put by the RTC- Dumaguete, under the guardianship of the Philippine National
Bank via special proceeding, wherein 50, 000 was spent therein for payment of attorney's fees.
When the decedent died, instead of filing a estate tax return, PNB advised Josefina to extra-judicially settle the
estate of his brother. The decedent's estate was extra-judicially settled and the heirs paid an amount of 60, 753
for the notarization of the deed of extra-judicial settlement of estate.

The private paid the estate tax, however, they were subsequently assessed of deficiency taxes because the
amount paid in the special proceeding [50, 000] and the notarization fee [60, 753] cannot be claimed as a
deduction to the decedent's estate. Private respondent paid the said taxes under protest. While the case is
under review by the BIR, she filed a claim for refund in the CTA which was granted.
Issue: whether or not the notarial fee paid for the extrajudicial settlement in the amount of P60,753 and the
attorney's fees in the guardianship proceedings in the amount of P50,000 may be allowed as deductions from
the gross estate of decedent in order to arrive at the value of the net estate.
Held: Yes.
As to the deductibility of the amount spent for notarization of the deed of extra-judicial settlement of estateExplained the SC, administration expenses, as an allowable deduction from the gross estate of the decedent
for purposes of arriving at the value of the net estate, have been construed by the federal and state courts of
the United States [which the law on allowable deductions from gross estate was copied!] to include all
expenses "essential to the collection of the assets, payment of debts or the distribution of the property to the
persons entitled to it."
In other words, the expenses must be essential to the proper settlement of the estate. Expenditures incurred for
the individual benefit of the heirs, devisees or legatees are not deductible. This distinction has been carried over
to our jurisdiction. Thus, in Lorenzo v. Posadas the Court construed the phrase "judicial expenses of the
testamentary or intestate proceedings" as not including the compensation paid to a trustee of the decedent's
estate when it appeared that such trustee was appointed for the purpose of managing the decedent's real
estate for the benefit of the testamentary heir. In another case, the Court disallowed the premiums paid on the
bond filed by the administrator as an expense of administration since the giving of a bond is in the nature of a
qualification for the office, and not necessary in the settlement of the estate. Neither may attorney's fees
incident to litigation incurred by the heirs in asserting their respective rights be claimed as a deduction from the
gross estate.
In this case, it is clear that the extrajudicial settlement was for the purpose of payment of taxes and the
distribution of the estate to the heirs. The execution of the extrajudicial settlement necessitated the notarization
of the same. It follows then that the notarial fee of P60,753.00 was incurred primarily to settle the estate of the
deceased Pedro Pajonar. Said amount should then be considered an administration expenses actually and
necessarily incurred in the collection of the assets of the estate, payment of debts and distribution of the
remainder among those entitled thereto. Thus, the notarial fee of P60,753 incurred for the Extrajudicial
Settlement should be allowed as a deduction from the gross estate.
Deductible expenses of administration of the estate may include executor's or administrator's fees, attorney's
fees, court fees and charges, appraiser's fees, clerk hire, costs of preserving and distributing the estate and
storing or maintaining it, brokerage fees or commissions for selling or disposing of the estate, and the like.
Deductible attorney's fees are those incurred by the executor or administrator in the settlement of the estate or
in defending or prosecuting claims against or due the estate.
As to the deductibility of attorney's fees in the Special proceedings- As a rule attorney's fees in order to be
deductible from the gross estate must be essential to the collection of assets, payment of debts or the
distribution of the property to the persons entitled to it. The services for which the fees are charged must relate
to the proper settlement of the estate. [34 Am. Jur. 2d 767.] In this case, the guardianship proceeding was
necessary for the distribution of the property of the late Pedro Pajonar to his rightful heirs. It is noteworthy to
point that PNB was appointed the guardian over the assets of the deceased. Necessarily the assets of the
deceased formed part of his gross estate. Accordingly, all expenses incurred in relation to the estate of the
deceased will be deductible for estate tax purposes provided these are necessary and ordinary expenses for
administration of the settlement of the estate. Hence the attorney's fees of 50, 000 is deductible from the gross
estate of the decedent.
Rafael Arsenio S. Dizon, v. CTA and CIR
G.R. No. 140944; April 30, 2008
Facts: Jose P. Fernandez died in November 7, 1987. Thereafter, a petition for the probate of his will was

filed. The probate court appointed Atty. Rafael Arsenio P. Dizon as administrator of the Estate of Jose
An estate tax return was filed later on which showed ZERO estate tax liability. BIR thereafter issued a deficiency
estate tax assessment, demanding payment of Php 66.97 million as deficiency estate tax. This was
subsequently reduced by CTA to Php 37.42 million. The CA affirmed the CTAs ruling, hence, the instant
The petitioner claims that in as much as the valid claims of creditors against the Estate are in excess of the gross
estate, no estate tax was due. On the other hand, respondents argue that since the claims of the Estates
creditors have been condoned, such claims may no longer be deducted from the gross estate of the
Issue: Whether the actual claims of creditors may be fully allowed as deductions from the gross estate of Jose
despite the fact that the said claims were reduced or condoned through compromise agreements entered
into by the Estate with its creditors
Held: YES. Following the US Supreme Courts ruling in Ithaca Trust Co. v. United States, the Court held that postdeath developments are not material in determining the amount of deduction. This is because estate tax is a
tax imposed on the act of transferring property by will or intestacy and, because the act on which the tax is
levied occurs at a discrete time, i.e., the instance of death, the net value of the property transferred should be
ascertained, as nearly as possible, as of the that time. This is the date-of-death valuation rule.
The Court, in adopting the date-of-death valuation principle, explained that: First. There is no law, nor do we
discern any legislative intent in our tax laws, which disregards the date-of-death valuation principle and
particularly provides that post-death developments must be considered in determining the net value of the
estate. It bears emphasis that tax burdens are not to be imposed, nor presumed to be imposed, beyond what
the statute expressly and clearly imports, tax statutes being construed strictissimi juris against the government.
Second. Such construction finds relevance and consistency in our Rules on Special Proceedings wherein the
term "claims" required to be presented against a decedent's estate is generally construed to mean debts or
demands of a pecuniary nature which could have been enforced against the deceased in his lifetime, or
liability contracted by the deceased before his death. Therefore, the claims existing at the time of death are
significant to, and should be made the basis of, the determination of allowable deductions.
Estate of Fidel F. Reyes and Estate of Teresita R. Reyes vs. CIR
Lorenzo v. Posadas, G.R. No. L-43082 (64 PHIL 353) June 18, 1937
Facts: Herein petitioner Lorenzo, in his capacity as trustee of the estate of a certain Thomas Hanley, deceased,
brought an action against respondent Posadas, Collector of Internal Revenue. Petitioner alleges the
respondent to have exceeded in its tax collection, which, as assessed by the former, should only be in the
amount of PhP1,434.24 instead of PhP2,052.74. Disregarding the allegation, respondent filed a motion in the CFI
of Zamboanga praying that the trustee be made to pay such tax. The motion was granted. Petitioner paid the
amount in protest, however notified the respondent that until a refund is prompted, suit would be bought for its
recovery. Respondent overruled the protest. Hence, the case at bar.
1. Whether or not the provisions of Act No. 3606 (Tax Law) which is favorable to the taxpayer be given
retroactive effect?
Held and Reasoning: No. The respondent levied and assessed the inheritance tax collected from the petitioner
under the provisions of section 1544 of the Revised Administrative Code as amended by Act No. 3606.
However, the latter only enacted in 1930 not the law in force when the testator died in 1922. Laws cannot be
applied retroactively. The Court states that it is a well-settled principle that inheritance taxation is governed by
the statue in force at the time of the death of the decendent. The Court also emphasized that a statute
should be considered as prospective in its operation, unless the language of the statute clearly demands or
expresses that it shall have retroactive effect Act No. 3606 does not contain any provisions indicating a
legislative intent to give it a retroactive effect. Therefore, the provisions of Act No. 3606 cannot be applied to

the case at bar.

GR. No. 155541
January 27, 2004
During the lifetime of the decedent Juliana vda. De Gabriel, her business affairs were managed by the
Philippine Trust Company (PhilTrust). The decedent died on April 3, 1979 but two days after her death, PhilTrust
filed her income tax return for 1978 not indicating that the decedent had died. The BIR conducted an
administrative investigation of the decedents tax liability and found a deficiency income tax for the year 1997
in the amount of P318,233.93. Thus, in November 18, 1982, the BIR sent by registered mail a demand letter and
assessment notice addressed to the decedent c/o PhilTrust, Sta. Cruz, Manila, which was the address stated in
her 1978 income tax return. On June 18, 1984, respondent Commissioner of Internal Revenue issued warrants of
distraint and levy to enforce the collection of decedents deficiency income tax liability and serve the same
upon her heir, Francisco Gabriel. On November 22, 1984, Commissioner filed a motion to allow his claim with
probate court for the deficiency tax. The Court denied BIRs claim against the estate on the ground that no
proper notice of the tax assessment was made on the proper party. On appeal, the CA held that BIRs service
on PhilTrust of the notice of assessment was binding on the estate as PhilTrust failed in its legal duty to inform the
respondent of antecedents death. Consequently, as the estate failed to question the assessment within the
statutory period of thirty days, the assessment became final, executory, and incontestable.
(1) Whether or not the CA erred in holding that the service of deficiency tax assessment on Juliana through
PhilTrust was a valid service as to bind the estate.
(2) Whether or not the CA erred in holding that the tax assessment had become final, executory, and
(1) Since the relationship between PhilTrust and the decedent was automatically severed the moment of the
taxpayers death, none of the PhilTrusts acts or omissions could bind the estate of the taxpayer. Although the
administrator of the estate may have been remiss in his legal obligation to inform respondent of the decedents
death, the consequence thereof merely refer to the imposition of certain penal sanction on the administrator.
These do not include the indefinite tolling of the prescriptive period for making deficiency tax assessment or
waiver of the notice requirement for such assessment.
(2) The assessment was served not even on an heir or the estate but on a completely disinterested party. This
improper service was clearly not binding on the petitioner. The most crucial point to be remembered is that
PhilTust had absolutely no legal relationship with the deceased or to her Estate. There was therefore no
assessment served on the estate as to the alleged underpayment of tax. Absent this assessment, no
proceeding could be initiated in court for collection of said tax; therefore, it could not have become final,
executory and incontestable. Respondents claim for collection filed with the court only on November 22, 1984
was barred for having been made beyond the five-year prescriptive period set by law.
CIR vs. Gonzales
In November 1966, the Supreme Court issued a decision declaring Lilia Gonzales to be liable for the entire tax
deficiency due on an estate left by her father. Gonzales seeks reconsideration for her not to be adjudged as
liable for the whole tax since she administers only 1/3 of the estate. And that the other 2/3 is now administered
by his deceased brothers widow, Florencia Yusay.

ISSUE: Whether or not Gonzales is only liable for 1/3.

HELD: No. In the first place, Florencia cannot be adjudged liable because she is not a party to this case.
Gonzales appealed the tax assessments to the Court of Tax Appeals hoping for a favorable judgment. The
adverse judgment shall be borne by her. Under the tax code, failure to pay the estate and inheritance taxes
before distribution of the estate would subject the executor or administrator to criminal liability. The Supreme
Court also clarified, it is immaterial that Gonzales administers only one-third of the estate and will receive as her
share only said portion, for her right to the estate comes after taxes. As an administratrix, she is liable for the
entire estate tax. As an heir, she is liable for the entire inheritance tax although her liability would not exceed
the amount of her share in the estate. Besides, the tax payment shall come from the estate before actual
GR No. L-22734, September 15, 1967
21 SCRA 105
FACTS: Atanasio Pineda died, survived by his wife, Felicisima Bagtas, and 15 children, the eldest of whom is Atty.
Manuel Pineda. Estate proceedings were had in Court so that the estate was divided among and awarded to
the heirs. Atty Pineda's share amounted to about P2,500.00. After the estate proceedings were closed, the BIR
investigated the income tax liability of the estate for the years 1945, 1946, 1947 and 1948 and it found that the
corresponding income tax returns were not filed. Thereupon, the representative of the Collector of Internal
Revenue filed said returns for the estate issued an assessment and charged the full amount to the inheritance
due to Atty. Pineda who argued that he is liable only to extent of his proportional share in the inheritance.
ISSUE: Can BIR collect the full amount of estate taxes from an heir's inheritance.
HELD: Yes. The Government can require Atty. Pineda to pay the full amount of the taxes assessed.
The reason is that the Government has a lien on the P2,500.00 received by him from the estate as his share in
the inheritance, for unpaid income taxes for which said estate is liable. By virtue of such lien, the Government
has the right to subject the property in Pineda's possession to satisfy the income tax assessment. After such
payment, Pineda will have a right of contribution from his co-heirs, to achieve an adjustment of the proper
share of each heir in the distributable estate.
All told, the Government has two ways of collecting the tax in question. One, by going after all the heirs and
collecting from each one of them the amount of the tax proportionate to the inheritance received; and
second, is by subjecting said property of the estate which is in the hands of an heir or transferee to the
payment of the tax due. This second remedy is the very avenue the Government took in this case to collect the
tax. The Bureau of Internal Revenue should be given, in instances like the case at bar, the necessary discretion
to avail itself of the most expeditious way to collect the tax as may be envisioned in the particular provision of
the Tax Code above quoted, because taxes are the lifeblood of government and their prompt and certain
availability is an imperious need.