CHAPTER 7 – DISCUSSION QUESTIONS / PROBLEMS

1. The BIR is correct. It is not the obligation of the BIR to prove that the deductions are
not allowed, but the executor of the estate of Licupo has the burden of proof to
establish the validity of claimed deductions (Comm. vs. Algue, 158 SCRA 91). He must
point to some specific provisions of the statute in which that deduction is authorized,
and must be able to prove that he is entitled to the deduction which the law allows.
2. Deductions are classified as conjugal or community when they are normal charges
against conjugal or community properties. Thus, funeral expenses, judicial expenses,
and other expenses such as losses, indebtedness and taxes incurred which have been
beneficial to, are classified as conjugal/community property deductions.
Charges against the exclusive properties of the decedent are classified as
exclusive deductions, such as bequests, legacies or devises to the government or to
social welfare institutions.

3. a. Deductible
b. Deductible
c. Deductible
d. Deductible
e. Deductible
f. Deductible
g. Deductible
h. Not deductible. To be allowed as deduction, the expenses must not be borne by
any person whether a friend or relative.
i. Not deductible. Expenses incurred after the burial are not allowed as deduction.
j. Not deductible.

4. Case Actual 5% of GE Maximum Deductible

1 P 130,000 P P 200,000 P 80,000
80,000
2 158,000 189,00 200,000 158,000
0
3 211,000 173,75 200,000 173,750
0
4 213,500 205,61 200,000 200,000
5
5. Collection expenses 75,000
Attorney's fees (25,000 x 60%) 15,000
Accountant's fees 5,000
Executor's commissions 10,000
Appraiser's fees 4,000
Court costs 18,000
Total judicial expenses 127,000

6. No. Since the decedent exercises substantial control over the creditor corporation
and due to apparent defects in the creditor's policy and security on the loans, it would

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 be very easy to manipulate the records of the creditor corporation. Thus, based on
the facts presented, the claims were not incurred in good faith by the decedent.
7. a. The unpaid balance or 85% of the GSIS loan is deductible.
b. Not deductible because there is no more legal liability to pay the debt.
c. Not deductible. The taxes must have accrued prior to the death of the decedent.
d. Deductible. These are valid claims against the estate.
e. Not deductible. There is no valid claim against the estate because the property
was inherited thereby imposing no obligation on the decedent.

8. No, the estate of Pamugat cannot claim the P300,000 as deduction representing claim
against insolvent person because Pamaan was not actually insolvent. He was only
encountering a liquidity problem.
Liquidity should be distinguished from insolvency. While in the former, there is a
problem on insufficiency of cash; in insolvency, the total liability is more than its total
assets.
9. It is a valid deduction because it diminishes the estate of the decedent. However, it is
still counted as part of his properties. For which reason, it should be included as part
of his gross estate.
Moreover, most deductions are allowed because they diminish the value of the
distributable estate. If the amount of claims against insolvent person is not to be
included in the gross estate, it will understate the net estate by an amount equivalent
to the value of the "claims."
10. The insolvency of the debtor should be proven in court through an insolvency
proceeding, and not merely alleged. Thus, the information relayed by Mayo is not a
valid basis in allowing the estate of Mac to claim the P100,000 as a deduction from
gross estate under "claims against insolvent persons."
11. The amount of unpaid mortgage indebtedness is deductible, provided (1) the value of
the land in the amount of P950,000 is included in the gross estate of Dalahera and (2)
it was contracted bona fide and for an adequate and full consideration in money or
money's worth.
12. The entire real estate taxes of P320,000 is deductible provided that they are still
unpaid as of June 30, 2008. The income tax on income earned from January to June,
2008 of P15,500 is also deductible.
The tax on the income which have accrued after his death are not deductible.

13. a. Yes, because the shipwreck occurred after the death but before the deadline for
filing the estate tax return.
As a rule, losses are deductible from gross estate if it occurred within a
period of six(6) months from the death of the decedent.
However, since the insurance company indemnified the 50% of the value of
the car, only a loss P600,000 can be claimed as deduction from gross estate.
b. If the loss occurred before Carperter's death, it is not deductible because the lost
property should not also be included in the gross estate.

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 c. The law uses the phrase "losses incurred during the settlement of the estate."
Therefore, to be considered as a valid deduction, the loss should occur after
death irrespective of the time it was discovered.
d. If the value of the car lost was indemnified by the insurer, then the estate of
Carpenter (the owner), did not suffer any loss. Consequently, it cannot claim that
amount as deduction from gross estate.

14. In the case of White vs. Comm'r., 48 TC 439 (1967), the tax court held that an
accidental and irrevocable loss of property can be the basis of a casualty loss
deduction. The court has accepted the principle that an accidental loss of property
qualifies as a casualty provided the loss is (1) identifiable; (2) damaging to property;
and (3) sudden, unexpected, and unusual in nature.
Considering that the loss of the property complies with the essentials of a
casualty loss, the value of the jewel could have been deductible had it occurred after
the death of Carlos' wife.
15. Section 125 of the New Family Code provides that neither spouse may donate any
conjugal partnership property without the consent of the other. However, either
spouse may, without the consent of the other, make moderate donations from the
conjugal partnership property for charity or on occasions of family rejoicing or
distress.
A donation of a 200-square meter lot in the poblacion of Infanta, Quezon is not a
moderate donation. Therefore, the donation is not binding. In this case, the value of
the property is not deductible from gross estate for estate tax purposes.
16 Property – Exclusive
. A
B – Community
C – Exclusive
D – Exclusive
E – Exclusive
– Exclusive
F

17. Although the second transfer of the property took place within five(5) years from the
first transfer, the estate of the present decedent cannot claim vanishing deduction
because the full amount of the property donated to the barangay is already
deductible from gross estate as “transfer for public purpose.” Otherwise, it would
result to double deduction
18. Lower value of property P 250,000
Less: Mortgage paid 50,000
Initial basis 200,000
Less: Deductions (pro-rated)
200,0
x (575,000 - 75,000) 50,000
00
2,000,0
00

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 Base 150,00
0
Rate (more than 1 year but not more than 2 80%
years)
Vanishing deduction 120,00
0

19. 1. No 6. Yes 11. No

2. No 7. Yes 12. Yes
3. No 8. No 13. No
4. No 9. No 14. No
5. No 10. No 15. No

20. a. Decedent is an unmarried head of family.

Deductible
Case 1 P 1,000,000
Case 2 820,000

b. Decedent is married. Family home is an exclusive property.

Case 1 P 1,000,000
Case 2 820,000

c. Decedent is married. The family home is a conjugal property.

Case 1 P 1,000,000
Case 2 410,000

d. Decedent is married. The family home is composed of the house and the lot.
Thirty five percent (35%) of its value is community property.
Case 1
(P2,000,000 x 35%) x 1/2 P 350,000
( 2,000,000 x 65%) = 650,000
1,300,000
Deductible, maximum 1,000,000

Case 2
(P820,000 x 35%) x 1/2 P 143,500
( 820,000 x 65%) 533,000
Deductible 676,500

e. Decedent is married. The house, which is 70% of the total value of the family
home, is a community property, while the land which is 30% of the value of the
family home is an exclusive property.
Case 1
(P2,000,000 x 70%) x 1/2 P 700,000

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 ( 2,000,000 x 30%) 300,000
=600,000
Deductible 1,000,000

Case 2
House (820,000 x 70%) x P 287,000
1/2
Lot (820,000 x 30%) 246,000
Deductible 533,000

21. Real properties, Philippines P3,000,000.

00
Personal properties, Philippines 700,000.0
0
Gross estate 3,700,000.0
0
Less: Deductions
Funeral expenses abroad, actual
P230,000
Limit
200,000
Deductible P
200,000
Judicial expenses 90,000
Bad debts 45,000
Total 335,000
(3,700,000/7,700,000) x P335,000 160,974.0
2
Net estate 3,539,075.9
8
House, Sapporo P
2,500,000
Properties, Japan 1,500,00
0
Real properties, Philippines 3,000,00
0
Personal properties, Philippines 700,00
0
Total gross estate 7,700,00
0

22. The decedent-spouse does not solely own a conjugal or community property because
it is equally owned by the husband and the wife. The share of the spouse in the
property should not be subject to succession considering that he/she is still alive.
However, since the community or the conjugal property in the gross estate includes
the share of the surviving spouse, it should be deducted. Otherwise, estate taxes

16
 being imposed will include properties which are not subjects of succession.

23. Community property P2,500,000

Charges against community 635,000
properties
Net community property 1,865,000
Deductible share (1,865,000/2) 932,500

24. ATM deposit 126,540

Time deposit 200,000
Interest (200,000 x 18% x 6.5/12) 19,500
Less: Final tax (19,500 x 20%) 3,900 15,600
Car 441,246
13th month pay 45,000
Cellular phone 25,000
Condominium unit 1,542,895
Post-dated check 15,000
Laptop computer 40,000
Accrued wages 15,000
Cows (15,000 x 5) 75,000
Calf 5,000
Total exclusive 2,546,281
Add: Share in co-ownership
Appliances & home decors 50,000
Other personal properties 80,000
Total 130,000
Share (130,000/2) 65,000
Gross estate 2,611,281
Less: Deductions
Ordinary -
Claims against the estate
Credit card 15,273
Car loan 237,181
Utility bills 7,654
Funeral expenses 145,000 ( 405,108)
Special -
Medical expenses 28,000
Standard deduction 1,000,000 (1,028,000)
Net taxable estate 1,178,173

Notes:
1. The land donated to the government is no longer part of decedent’s interest
considering that it had been donated already. There is no tax payable
because a donation to the government is tax exempt.
2. The remaining balance of the loan with Pag-Ibig has been condoned because
the debtor died with an updated payment. This is a loan policy of Pag-Ibig.
3. The cost of appliances and other personal properties are owned by Antonio
and Vittorio in equal shares because the problem does not give the share of

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 the respective couple in the actual contribution of each.
4. Under the law on sales, a buyer of an illegally acquired property does not
acquire a title better to the property that that the seller had. Antonio is not
legally bound to reimburse Luca Brasi the P25,000 because the latter does not
acquire better title to the laptop than Vittorio had. Luca Brasi did not even
bought the computer in a trade, or fair or market.
5. Under the law on sales, the buyer is entitled to the fruits of a thing from the
time of the perfection of the contract even before its delivery. Thus, Antonio is
entitled to the calf even the cows have not yet been delivered by Tattaglia.

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