Transfer and Business Taxes Solutions Manual Tabag Garcia 3rd Edition PDF Free

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Transfer & Business Taxation (Tabag & Garcia) 3rd Edition

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SOLUTIONS MANUAL

TRANSFER & BUSINESS TAXATION, 3rd Editon By: TABAG & GARCIA

CHAPTER 1 – SUCCESSION & TRANSFER TAXES TRUE OR FALSE 1. T 2. T 3. T 4. T 5. F MULTIPLE CHOICE 1. D 2. A 3. D 4. C 5. C 6. A 7. B 8. A 9. B 10. A 11. D

6.

T

11.

T

7. 8. 9. 10.

F T T T

12. 13. 14. 15.

T T T F

12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22.

C C B D C B D C B B B

23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33.

D B D D B D A D B A D

34. 35. 36. 37. 38. 39. 40. 41. 42. 43. 44.

D B B D B D D B D B B

45. 46. 47. 48. 49. 50. 51. 52. 53. 54. 55.

B C D D A B A D D D B

61. 62. 63. 64. 65. 66. 67. 68. 69. 70.

A A A C D B A C C D

CHAPTER 2 – GROSS ESTATE TRUE OR FALSE – SET A 1. T 6. 2. T 7. 3. F 8. 4. T 9. 5. T 10. TRUE OR FALSE – SET B 1. T 6. 2. F 7. 3. F 8. 4. T 9. 5. T 10. MULTIPLE CHOICE 1. A 16. 2. B 17. 3. D 18. 4. B 19. 5. C 20. 6. C 21. 7. A 22. 8. B 23. 9. A 24. 10. A 25. 11. C 26. 12. B 27.

1 |

T T T T T

11. 12. 13. 14. 15.

T F F T T

16. 17. 18. 19. 20.

F T T T T

F T T T F

11. 12. 13. 14. 15.

T F F T F

16. 17. 18. 19. 20.

T T T F T

D C B D A D A B A C C C

31. 32. 33. 34. 35. 36. 37. 38. 39. 40. 41. 42.

C B B A B B D C B D C C

46. 47. 48. 49. 50. 51. 52. 53. 54. 55. 56. 57.

C D C C C D D C C C B D

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13. 14. 15.

D A C

28. 29. 30.

D B D

43. 44. 45.

B C B

58. 59. 60.

C C A

Supportng Compuatons:

23. Bank deposit in he foreign branch o branch  off a domesc bank Bank deposit in Makat branch o branch off a foreign bank Shares of stock issued by a domesc corpora corporaon on

P500,000 300,000 1,000,000

(cercate kept in Canada) Franchise exercised in Manila Receivable, debtor from Mindanao Toal Exclusion from he gross esae

800,000 200,000 P2,800,000

House and lot, family home in Quezon City Bank deposit in Makat branch o branch off a foreign bank Shares of stock issued by a domesc corpora corporaon on

P1,500,000 300,000 1,000,000

(cercate kept in Canada) Franchise exercised in Manila Receivable, debtor from Mindanao Toal Inclusion from he gross esae

800,000 200,000 P3,800,000

23.

25. Shares of stocks, domesc corp.

P250,000

(cercate kept in UK) Shares of stocks, domesc corp.

100,000

(cercate kept in Phils.) Franchise exercised in the Phils. Receivables, debtor is from Phils. Inangibles subjec o reciprociy

200,000 50,000 P600,000

26. Land & building, Philippines House and lot, Philippines Shares of stocks, domesc corp. (cercate kept in UK) Sh Sha ares res of st stoc ock ks, dom domes scc corp. orp. (cer ercate kep eptt in Phils hils..) Franchise exercised in the Phils. Receivables, debtor is from Phils. Gross Esae 33.

(P12M/100,000) x 1,000 shares = P120,000

34. 35.

(P10M/100,000) x 1,000 shares = P100,000 P110 x 1,000 shares = P120,000

36.

(P140 + P80/2) x 1,000 shares = P110,000

P2,000,000 3,500,000 250,000 100,00 0,000 0 200,000 50,000 P6,100,000

44. Consideraon Land Shares of stock Vintage car Painng

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FMV upon

received P1,500,000 100,000 50,000 250,000

transfer P1,500,000 50,000 80,000 400,000

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FMV upon death P2,000,000 150,000 100,000 500,000

Gross Estate None. Valid sale None. Valid sale P50,000 250,000

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INCLUSION IN THE GROSS ESTATE 44.

P300,000

Bequests to charitable instuons are considered exclusions from the gross estate only if the

problem clearly states that not more than 30% were used for administrave purposes.

PROBLEM SOLVING: PROBLEM 1

(1) P19,300,000

(2) P19,300,000

(3) P11,800,000

(4) P14,300,000 NRA with R

Cizen/

NRA w/o R

Resident (# 1 & 2) P8,000,000 5,000,000 3,000,000 2,000,000

Family home in the Philippines Parcel land of with vacaon house in Malaysia Farm land in the Philippines Shares of stock of a domesc corporaon deposite deposited d in a bank safety deposit box in Malaysia Shares of stock of a foreign corporaon he entre

(# 3) P8,000,000

(# 4) P8,000,000

3,000,000

3,000,000 2,000,000

500,000

500,000

business of which is in he Philippines, Philippines , deposited in a bank safety deposit box in Malaysia Receivable from a friend who has no property whatsoever Receivables under insurance policies:  Life insurance policy, taken by the decedent on his own life, with his estate as revocable beneciary beneciary  Life insurance policy, taken by the decedent, with his daughter as revocable beneciary  Life insurance policy, taken by the decedent on his own life, with his son as irrevocable beneciary  Life insurance (group) taken by the employer of the decedent, with the estate as revocable beneciary  Property insurance, for a loss of property  Accident insurance, for injury sustained TOTAL GROSS ESTATE

300,000

300,000

300,000

200,000

200,000

200,000

300,000

300,000

300,000

-

-

-

-

-

-

50,000 50,000 P19,300,000

50,000 50,000 P11,800,000

50,000 50,000 P14,300,000

PROBLEM 2 To Juan To Pedro To Maria To Sisa Toal Gross Esae

P25,000,000 18,000,000 15,000,000 20,000,000 P78,000,000

PROBLEM 3

3 |

1.

P230,0000

2.

P1,100,000

3.

P0

4.

P5,000,000

5.

P1,0 P1,000,0 00,000 00 + [1M x (1M x 10% x 1.5 1.5)] )] = P P1,1 1,150,0 50,000 00 r d

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MODIFIED IDENTIFICATI IDENTIFICATION ON EXERCISE A 1. 2. 3. 4. 5. 6. 7. 8.

Included Included Excluded Included Excluded Excluded Included * Excluded

11. 12. 13. 14. 15. 16. 17. 18.

Included*** Excluded** Excluded** Included Included Included Excluded Excluded**

9. 10.

Excluded** Excluded

19. 20.

Excluded Included

*Included in the gross estate if the beneciary is the estate, administrator administrator or executor. In case of doubt, the item should be taxable. **Exclusions from the gross estate. Nonetheless, the tax code requires these items to be included rst in the gross estate before deducng the same from the gross estate. *** Bequests to charitable instuons are considered exclusions from the gross estate only if the problem clearly states that not more than 30% were used for administrave purposes. purposes. EXERCISE B 1.

P0; vali valid d sa sale le

EXERCISE C

  1.

P10M

2.

P0; vali valid d sa sale le

2.

P20M

3.

P0; vali valid d sa sale le

3.

P5M

4.

P4,000,000

4.

P10M

5.

P6,000,000

5.

P0

CHAPTER 3 – DEDUCTIONS FROM THE GROSS ESTATE TRUE OR FALSE 1. T 2. T 3. T 4. T 5. T 6. F MULTIPLE CHOICE 1. C 2. 3. 4. 5. 6. 7. 8. 9.

4 |

D D C C B B D C

7. 8. 9. 10. 11. 12.

T T T F F F

13. 14. 15. 16. 17. 18.

F F T F T T

19. 20. 21. 22. 23. 24.

T T T F T T

25. 26. 27. 28. 29. 30.

T T F T F T

12.

C

23.

A

34.

C

45.

C

13. 14. 15. 16. 17. 18. 19. 20.

B A A A D D D D

24. 25. 26. 27. 28. 29. 30. 31.

A A B B B C A C

35. 36. 37. 38. 39. 40. 41. 42.

A C B B C D A D

46. 47. 48. 49. 50. 51. 52. 53.

B A A C C A A A

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10. A 21. C 11. B 22. D Supportng Compuatons:

32. 33.

D C

43. 44.

D D

54. 55.

B D

7. Mourning clothing of the decedent’s surviving spouse Mourning ccllothing of of tth he d de ecedent’s d de ependent cch hildren Expenses of the wake preceding the burial Publicaon charges for death noces Telecommunicaon expenses incurred in informing relaves

P1,500 3,200 40,000 5,000 3,000

of the deceased Cost of burial plot Interment fees and charges Expenses Expe nses for the perform performanc ance e of the rites & cere ceremoni monies es

20,000 12,000 5,000

incident to interment Actual Funeral Expenses Limit: 5% of Gross Estate (P2M x 5%)

P89,700 P100,000

ALLOWED (Lower Amoun)

P89,700

15. Real property tax for the year 2013 Notarized interest bearing promissory note Accrued interest on the promissory note at the me of 

P100,000 100,000   20,000

death Income tax due for 2013 Allowable deductons (Disregard standard deducon)

200,000 P420,000

23. Income tax from pracce of profession - 2013 Income ta tax fr from pracce o off pr profession fo for Ja Jan.-June ‘‘1 13 Real property taxes for 2013 Deductble axes

P300,000 100,000 150,000 P550,000

35.

ERRATUM:  Pedro died leaving a car acquired by purchase from Pedro  JUAN  41. Value to take/Inial Basis Mortgage paid Inial basis 2nd Deducon:

P900,000 (50,000) 850,000

(850/1,000 x P100,000**) Final Basis X Vanishing rae VANISHING DEDUCTION

(85,000) P765,000 40% P306,000

** Morgage P150,000 – 50,000 54. Shares, domesc corporaon Tangible personal property Gross Estate

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P500,000 1,500,000 2,000,000

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ELIT (500,000 x 2,000/2,500) Taxable Estate TAX DUE 1s  P5  P500,000 In excess of P500,000 = (1,100,00 x 8%) Esae Tax Due

(400,000) P1,600,000

Gross E Esstate (T (Tangible p prroperty Ph Phils.) ELIT (1,200,000 x 6,000/10,000,000) Taxable Esae

P6,000,000 (720,000) P5,280,000

P15,000 88,000 P103,000

55.

PROBLEM SOLVING Problem 1 Case A: P150,000 Case B: P200,000 Case C: P150,000 Case D: P150,000 Case E: P0

Problem 2 ASSUME GROSS ESTATE OF P2,000,000 Embalming charges Burial apparel of the decedent Cost of con Mourning apparel of the surviving spouse during the burial Mourning apparel of the minor child Snacks and drinks during the wake

P15,000 3,500 125,000 5,000 2,000 12,500

Honoraria of priest for daily masses before burial 2,000 Telecommunicaon Telecommuni caon charges to inform relaves 1,000 Charges for death noce published in a newspaper 8,000 Cost of video footage of the burial and interment 12,000 Funeral car service during interment 4,000 Hono Honora rari rium um of pr prie iest st wh who o cele celebr brat ated ed th the e mas masss du duri ring ng inte interm rmen entt 2, 2,00 000 0 Cost of tombstone 30,000 ACTUAL FUNERAL EXPENSE P232,000 Vs. Limi (P5% of P2M) 100,000 ALLOWABLE FUNERAL EXPENSE P100,000 NOTE: Hospital bills for two months of conneme connement nt before decedent’s death should be charged to “medical expenses” Problem 3 Case A: P100,000

Case B: P333,333 computed as follo follows: ws: Receivable Collectible portion (400/1,200) x 500,000 Unco Un coll llec ecti tibl ble e por porti tio on of th the e cla claim im

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P500,000 (166,667) P333 P333,,33

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3 Case C: P0. Debtor is not insolvent

Problem 4 DUE FROM PEDRO  Asses of Pedro Pedro Less: Due o he BIR for unpaid axes Balance Collectble by Juan UNCOLLECTIBLE PORTION

P200,000 P400,000 (200,000) 200,000 X 200/600

(Deductble from Juan’s Gross Esae) Problem 5

(66,667) P133,333

Queston 1: 1: P550,000 computed as follows:

Unpaid taxes on the estate before death Unpaid mortgage on the estate Unpai Unp aid d loa loans ns ar arisi ising ng from from deb debtt ins instr trume uments nts (notarized) Unpaid loans arising from debt instruments (not notarized). The debt instrument was issued issued by a nancial institution not requiring notarizations for debt instruments issued Tota To tall Ded Deduc ucti tibl ble e Cla Claim im Again gainst st the the Est Estat ate e

P150,000 200,000 125,000 75,000

P550 P550,,00 0

Queston 2: 2: P2,097,000 computed as follows

Ordinary Deductions: Claim against insolvent person Unpaid taxes on the estate before death

P100,000 150,000

Unpaid mortgage on the estate Funeral expenses  Actual = P182,000 P182,000 + 37,500 = P219,500 Limit = P5M x 5% = P250,000 Maximum = P200,000  Judicial expenses expenses Unpai Unp aid d loa loans ns ar arisi ising ng from from deb debtt ins instr trume uments nts (notarized) Unpaid loans arising from debt instruments (not notarized). The debt instrument was issued issued by a nancial institution not requiring notarizations for debt instruments issued Casualty loss Special Deductions: Standard deduction Medical expenses Total Allowable deduction from the gross estate

200,000 200,000

100,000 125,000 75,000

65,000 1,000,000 82,000 P2,097,00 0

Problem 6 Queson 1: P217,500 Queson 2: P217,500

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Same answer with with question #1. Whether or not the the estate was settled judicially is irrelevant in the determination of allowable deduction for judicial expenses.

Soluon: Expenditures incurred incurred for the collection of assets and payment of debts Attorneys fees (1/2 were incurred after six months) P40,000 x 1/2 Accountant’s fees Executor’s commission Appraiser’s fees Court fees Cost of preserving an and di distributing th the estate Cost of storing or maintaining the property of the estate Brok Broke erage fees ees fo forr sel elli ling ng prope opert rty y of the the esta state Total allowable judicial expenses

P100,000 20,000

25,000 15,000 2,500 18,000 15,000 12,000 10 10,0 ,000 00 P217,50 0

Problem 7 Lo Loss ss du due e tto o sshi hipw pwre recck, two two ((2) 2) mon onth thss ae aerr tthe he de dece cede dent nt’s ’s de deat ath. h. Robbery Robb ery loss, seve seven n (7) months aer the dec decedent edent’s ’s death. The

P5 P500 00,0 ,000 00 2,000,000

de dece cede den n’s ’s ex exec ecu uor or wa wass al allo lowe wed d by he he Bu Bure reau au of In Ine ern rnal al Revenue o exend he ling ling (within  (within the period allowed by the Tax Code) of estate tax return due to a meritorious reason Allowable Deducton

Problem 8 Value to take 1st De  D educon: Mortgage paid

P937,500 (187,500)

P2,500,000

Inndial basis 2  Deducon: Proporonate deducon

P750,000

(750/4,500) x 562,500 Final Basis x Vanishing rate Vanishing Deducton

(93,750) P656,250 40% P262,500

Problem 9

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Value to take 1st De  D educon: Mortgage paid Inial basis 2nd Deducon: Proporonate deducon

P1,500,000 -----P1,500,000

(1,500/1,980) x 170,000 Final Basis x Vanishing rate Vanishing Deducton

(128,788) P1,371,212 80% P1,096,970

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Problem 10 Case A: P1,000,000 Case B: P1,000,000 Case C: P1,000,000 Case D: P0 Case E: P0 Problem 11 Case A: P500,000 Case B: P500,000 Case C: P150,000 Case D: P500,000 Case E: P0 Problem 12 Case A: P1,000,000 Case B: P500,000 Case C: P0 Case D: P500,000 Case E: P600,000 Case F: P750,000;

[ (1M/2) + (500,000/2)]

Problem 13 Gross Estate Funeral expenses

P3,000,000 (150,000)

 Acual P300,000 P300,000 – 120, 120,000 000 = P180 P180,000 ,000 Limi = P3M x 5% = P150,000 Standard deducon

(1,000,000)

Medical expenses Taxable Esae

(400,000) P1,450,000

CHAPTER 4 – PROPERTY RELATIONS

TRUE OR FALSE 1. T 2. T 3. T 4. T 5. T MULTIPLE CHOICE 1. A 2. B 3. B* 4. C 5.

9 |

C

6. 7. 8. 9. 10.

F F T F F

11. 12. 13. 14. 15.

T F T T F

16. 17. 18. 19. 20.

F T T T T

7. 8. 9. 10.

D D B C

13. 14. 15. 16.

B D** A D

19. 20. 21. 22.

C C A A

25. 26. 27. 28.

C D C A ***

11.

D

17.

D

23.

D

29.

D

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6.

D

12.

C

18.

C

24.

B

30.

D

*Change Aug. 3, 1998 TO Augus 3, 1988 ** Under conjugal partnership of gains, fruits earned during marriage, regardless of source, are common properes Supportng Compuatons No. 22 and 23 Gross Esae: Rest House in Batangas Car Commercial land Income from the commercial land Inco Income me fr from om ex excl clus usiv ive e prop proper erty ty of th the e spouse Jewelry owned before the marriage Other properes at the me of her death Gross Esae

Exclusive P2,500,000 1,000,000 5,000,000

Conjugal  

500,000 200,000 300,000 P8,800,000

1,000,000 P1,700,000

No. 24 and 25 Gross Esae: Rest House in Batangas Car Commercial land Income from the commercial land Jewelry owned before the marriage Other properes at the me of her death Gross Esae

Exclusive P2,500,000

P2,500,000

Common 1,000,000 5,000,000 500,000 300,000 1,000,000 P7,800,000

No. 26 Conjugal properes Conjugal Deducons:   Funeral expenses

P200,000 (35,000)

 Acual = P45,000 P45,000 Limi = (P500,000 + 200,000) x 5% = 35,000   Judicial expenses   Claim against the estate Net Conjugal properes Divide

(20,000) (45,000) P100,000 2

Share of he Surviving Spouse

P50,000

No. 27 Real property, Philippines Real property, USA Funeral expenses

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P4,000,000 5,000,000 (200,000)

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Judicial expenses (200,000 – 50,000) Claim against insolvent persons Unpaid taxes Balance Standard Deducons Medical expenses (max.allowed) Family Home (P1,500,000/2) Sha Share of tth he ssu urviv rvivin ing g spo spous use e ((P P8,55 8,550 0,00 ,000/2 /2)) Ne Taxable Esae

(150,000 (50,000) (50,000) P8,550,000 (1,000,000) (500,000) (750,000) (4,27 4,275, 5,0 000 00)) P2,025,000

No. 28 Exclusive Conjugal real properes Conjugal family home Exclusive properes Total Ordinary Deducons:   Funeral expenses

P2,500,000 P2,500,000

Common P5,000,000 1,500,000 P6,500,000

Total

P9,000,000

(75,000)

 Acual P300,000 P300,000 x 25% = P75,000 P75,000 Limi = 5% x P9M = P450,000   Casualty losses***   Miscellaneous deducons (P1M x 75%) Net Special Deducons:   Standard Deducons   Medical expenses (P500,000 x 50%)   Family Home (1,500,000/2)   Share of the surviving spouse (5,675,000/2)

(100,000) P2,400,000

(750,000) P5,675,000

(825,000) P8,075,000 (1,000,000) (250,00) (750,000) (2,837,500)

Ne Taxable Esae

P3,275,000

ERRATUM:  DISREGARD  ….Exclusive ….Exclusive Properes are NET of Casualty Losses***  No. 29 ABSOLUTE COMMUNITY OF PROPERTY Properes-Land Other personal property owned before marriage Other personal property acquired during marriage Gross Estate Ordinary Deducons Funeral expenses Judicial expenses Net conjugal before special deducons Share of surviving spouse (P1,800,000/2)

Exclusive P2,400,000

P2,400,000

Common 1,600,000 500,000 P2,100,000 (200,000) (100,000) P1,800,000 P900,000

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No. 30 CONJUGAL PARTNERSH PARTNERSHIP IP OF GAINS Exclusive P2,400,000 1,600,000

Properes-Land Other personal property owned before marriage Other personal property acquired during marriage**** Gross Estate Ordinary Deducons Funeral expenses Judicial expenses Vanishing Deducons***** Net Estate Before Special Deducons Standard deducons Medical expenses Share of the surviving spouse (P200,000/2) Share of surviving spouse (P1,800,000/2)

Common

P500,000 P500,000

P4,000,000

Total

P4,500,000

(200,000) (100,000) (1,120,000) P2,880,000

200,000

P3,080,000 (1,000,000) (500,000) (100,000) P1,480,000

****If silent and unless the problem clearly illustrate that it is exclusive, assume the property is common. Value to take 1st De  Deducon: Mortgage paid Inial basis 2nd Deducon: Proporonate deducon

P1,500,0 00 P1,500,000

(1,500/4,500) x 300,000 Final Basis x Vanishing rate Vanishing Deducton

(100,000) P1,400,000 80% P262,500

*****

PROBLEM SOLVING PROBLEM 1:

(a)P1,624,773

(b)P4,132,955

(c)P3,691,250

Exclusive properes Conjugal properes* ELIT** Vanishing Deducons *** Transfer for Public Use **** Net Estate Share of the Surviving Spouse (4,132,955/2) Ne Taxable Esae 1s  P2,000,000 In excess of P2,000,000 @ 11% ESTATE TAX DUE

(d)P321,038

Exclusive P2,000,000

Common

Total

P5,000,000 (867,045)

P7,000,000

P4,132,955

P5,757,728 (2,066,478) P3,691,250

(175,227) (200,000) P1,624,773

P135,000 186,038 P321,038

*The problem is silent as to reciprocity, hence, the gross estate should include tangible and intangible properes within the Philippines.

**ELIT:

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Funeral expenses Judicial expenses Claim against the estate TOTAL ELIT X ALLOWABLE ELIT

P200,000 800,000 1,725,000 P2,725,000 7,000/22,000 P867,045

**VANISHING DEDUCTIONS: Value to take 1st De  Deducon: Mortgage paid Inial basis 2nd Deducon: Proporonate deducon

****

P500,0 00 P500,000

(500/7,000) x 867,045 (61,932) Final Basis P438,068 x Vanishing rate 40% Vanishing Deducton P175,227 Since the proper properes es were were alr already eady cclass lassied ied a ass exclusiv exclusive e and ccommo ommon, n, it sshould hould be be ass assumed umed that that

the exclusive properes were already inclusive of transfer for public use. PROBLEM 2:

Citzen )  (Deceden:  (Deceden: Residen Citzen) a) b)

Vanis Vanishin hing g deduc deducon on = P1,6 P1,676, 76,200 200 Net e exclu xclusive sive proper property ty of the d deced ecedent ent = P7,923, P7,923,800 800

c) d)

Net Taxab ccom ommun munity prop pte ropert y 323,8 = P1 P17, 7,800 800,00 ,000 0 Net Ta xable le esta eity state = erty P P15, 15,323 ,800 00

e) Es Esta tate te tax tax due due = P2, P2,279 279,7 ,760 60 Exclusive P10,000,000

Exclusive properes Ordinary Deductons: Conjugal properes Funeral expenses Judicial expenses Claims against conjugal properes Claims against exclusive properes* Legacy agains exclusive propertes ** VANISHING DEDUCTION* DEDUCTION*** Amount received under RA4917 Net ex exclusive/conjugal Special Deductons:

Conjugal

Toal

20,000,000 (200,000) (300,000) (200,000) (400,000) (1,676,200) P7,923,800

(1,500,000) P17,800,000

Standard deducon Medical expenses Share of he surviving spouse NET TAXABLE ESTATE ESTATE TAX DUE

P30,000,000 (200,000) (300,000) (200,000) (400,000) (1,676,200) (1,500,000) P25,723,800 (1,000,000) (500,000) (8,900,000) P15,323,800 P2,279,760

*From the informaon provided in the problem, the amount of P400,000 as “claim against exclusive property” should pertain to the unpaid mortgage mortgage on the land inherited. Therefore, the present dece decedent dent paid paid P100 P100,00 ,000 0 on the origi original nal amou amount nt of the mort mortgag gage e (P (P500 500,0 ,000) 00)..

This This should should be ta taken ken into

consideraon in compung the vanishing deducon. ** LEGACY AGAINST EXCLUSIVE PROPERTIES

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Legacy means bequest or inheritance of personal personal properes. The deducble legacy/devised legacy/devised (bequests) under the tax code are: 

Transfer for “public use” (Rule: Include both in the “Gross Estate” as well as in the “Deducons from the Gross Estate) ; and



Bequests to charitable instuons wherein not more than 30% of the bequest was used for administrave administrav e purposes (Rule: Same as transfer for public use)

From the informaon informaon provided above, the problem w was as silent as to the type of the legacy. In case of  doubt, the two types of transfers enumerated above should not be assumed. Therefore, the item should be treated as a simple “legacy” or “transfer in contemplaon of death” which is added only in the gross estate. Value to take Mortgage Paid (refer (refer o explanaton above) above) Inial basis 2nd Deducon: 2,900/30,000 x P1.1M Final Basis x rate Vanishing Deducton*** Deducton***

P3,000,000 (100,000) P2,900,000 (106,333) P2,793,667 60% P1,676,200

PROBLEM 3:

(Deceden: Residen Alien) Alien)

(a) Net Taxable estate = P3,570,00 P3,570,000; 0;

(b)Estate tax due = P307,700

House and lot, USA * Investment in stock, Philippines

P2,000,000 800,000

Investment in stock, USA Investment in bonds, USA Cash in bank, Philippines Cash on hand, Philippines Accounts receivable Car, Philippines Legacy in favor of Philippine Naonal Red Cross** Devise to Quezon City for children’s playground** Total Gross Estate Ordinary Deductons: Funeral expenses Judicial expenses Unpaid Philippine income tax for income in 2011 Loss on December 31, 2012 due to the Legacy in favor of Philippine Naonal Red Cross Devise to Quezon City for children’s playground Accounts receivable (fully uncollecble) *** Special Deductons: Standard deducon Medical expenses Ne Taxable Esae Esae Tax Due

1,000 000 700,000 300,000 50,000 200.000 800,000 50,000 70,000 P5,970,000 P150,000 300,000 120,000 10,000 50,000 70,000 200,000

(900,000) (1,000,000) (500,000) P3,570,000 P307,700

NOTE (Problem 3) *Family home is not allowed as a deducon for single decedent

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**To be deducble, the legacy/devise should be included rst in the decedent’s gross estate ***Assume the debtor is an insolvent person. PROBLEM 4

a)

(Deceden: Residen Alien) Alien) Vanis Vanishin hing gd dedu educ con on = P441 P441,46 ,463 3

b)

Net Taxab Taxable le esta estate te = P3 P3,2 ,200, 00,00 000 0

c) Es Esta tate te ta taxx due due = P38 P386,7 6,739 39 Exclusive P3,000,000

Land House and Lot, furniture and appliances Other tangible personal properes

Conjugal

Toal

P5,000,000 1,200,000

Amount received under RA4917 Claims against insolvent persons Ordinary deductons: Funeral expenses Judicial expenses Other claims against conjugal properes Claims against insolvent persons Unpaid mortgage** VANISHING DEDUCTION* Net exclusive/conjugal Special deductons: Standard deducon Medical expenses Share of he surviving spouse TAXABLE ESTATE Esae Tax Due

1,000,000 50,000

P10,250,000

(200,000) (100,000) (500,000) (50,000) (350,000) (441,463) P2,208,537

P6,400,000

P8,608,537 (1,000,000) (120,000) (3,200,000) P4,288,537 P386,739

Value to take/Inial Basis*** 2nd Deducon: 2,500/10,250 x 1,200,000 Final Basis x rate Vanishing Deducton* Deducton*

P2,500,000 (292,683) P2,207,317 20% P441,463

** P700,000 – 350,000 = P350,000 ***The amount paid on the mortgage should not be considered in compung the vanishing deducon because the amount pertains pertains to a mortgage entered into by Pedro during his lifeme. lifeme. To be deducble, the mortgage should have been assumed on the property at the me of inheritance.

PROBLEM 5

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Conjugal

Absolue

Parnership E

Communiy E

1.

Real Property inheried inheried by  by the decedent during during the  the

2.

marriage. Income earned during during marriage  marriage from the property in the

C

E

3.

preceding number. Property acquired by the decedent with cash owned

E

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4. 5. 6. 7.

before the marriage Pe Pers rson onal al be belo long ngin ings gs us used ed exclusively   exclusively   by by the decedent Jewelry for the exclusive use of one of the spouses Property unidened when and by whom acquired Lot acqui acquired red before before the marri marriage age by the the surv survivi iving ng sspou pouse se

E C C E

E C C E

E C C

E C C

(surviving spouse had a previous marriage and legimate 8. 9. 10.

children in that previous marriage) Income from the lot above Cash – income during marriage Exc Exclusiv lusive e prop property erty was was sol sold, d, and was re repurc purchase hased d using using conjugal property

CHAPTER 5 – ESTATE TAX CREDIT AND ESTATE TAX DISTRIBUTABLE

MULTIPLE CHOICE 1. B 2. C 3. D 4. C 5. C 6. C 7. C

8. 9. 10. 11. 12. 13. 14.

A D A D D A D

15. 16. 17. 18. 19. 20. 21.

A C C A D A C

22. 23. 24. 25. 26. 27. 28.

C A C D C A B

29. 30. 31. 32.

C D A B

Supportng Compuatons:

No.5 Estate tax due (for P4M) Estate tax credit (3/4 x P355,000) vs P80,000 Esae ax payable

P355,000 (80,000) P275,000

No. 6 Estate tax due (for P500,000) Less: Estate tax credit Esae ax payable

P55,000 (20,500) P34,500

Limi 1: Singapore: 300/1,000 x P55,000 USA: 100/1,000 x P55,000

Limi P16,500 5,500

Acual P30,000 4,000

Allowed P16,500 4,000 P20,500

P22,000

34,000

22,000 P20,500

Limi 2: 400/1,000 x P55,000 ALLOWED TAX CREDIT (LOWER AMOUNT) No. 7 Gross Estate Deducons Share of the surviving spouse (5,000,000 x 6 60 0% x 5 50 0%)

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P10,000,000 (5,000,000) (1,500,000)

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Net taxable estate P3,500,000 Tax Due P300,000 Estate tax credit (2.8/3.5 x P300,000) vs P124,500 (124,500) Esae ax payable P175,500 Net estate France = [(6M -2M) x 0.6 x 1/2] + (6M-2M) x 0.4 = P2,800,000 Net estate R.P.

= [(4M-3M) x 0.6 x 1/2] + (4M-3M) x 0.4 = P700,000

No. 8 Estate tax due (for P500,000) Less: Estate tax credit Esae ax payable Limi 1: Japan: 300/1,200 x P71,000 USA: Exclude for purposes of compung Limit 1 HK: 450/1,200 x P71,000

P71,000 (41,417) P29,583 Limi P17,750 26,625

Acual P20,000 45,000

Allowed P17,750 26,625

P44,375 Limi 2: (Include USA) 700/1,200 x P71,000 ALLOWED TAX CREDIT (LOWER AMOUNT)

P41,417

65,000

41,417 P41,417

No. 9 and 10 Property inherited Property acquired through own labor Funeral expenses Judicial expenses Claims against the estate

Net Taxable P1,400,000 3,600,000 (200,000) (200,000)

Net Distributable P1,400,000 3,600,000 (240,000) (200,000)

(40,000)

(40,000)

(1,000,000) P3,560,000

(20,000) P4,500,000

Notarized Not notarized Standard deducon Ne Taxable/Disribuable esae No. 28

Leer “a” ……….The Bureau of Internal Revenue can ask payment from the heirs to whom the estate has been disurbed disurbed   …….. change o Disribued

PROBLEM SOLVING Problem I:

(1)P200,000  

(2)P0; not allowed

Net Taxable Estate

P10,000,000

Estate Tax Due [P465,000 + (5M x 15%)]

P1,215,000

Es Esa ae e ax ax cr cred edi i (4/1 (4/10 0 x P1 P1,2 ,215 15,0 ,000 00)) vs P2 P200 00,0 ,000 00 Estate tax payable

(2 (200 00,0 ,000 00)) P1,015,000

Problem II: Net Taxable Estate

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P2,000,000

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Estate Tax Due Estate tax credit Esae ax payable aer ax credi Net Taxable Estate Limi 1: Canada: 500/2,000 x P135,000 USA: 500/2,000 x P135,000 Limi 2: 1,000/2,000 x P135,000 ALLOWED TAX CREDIT

P135,000 (67,500) P67,500 P2,000,000 Limi P33,750 33,750

Acual P150,000 110,000

Allowed P33,750 33,750 P67,500

P67,500

260,000

67,500 P67,500

Problem III:

 (a) Net Taxable estate = P3,570,000; (b)Estate tax due a aer er tax credit = P142,770 (c ) Net Distributable Estate = P4,427,230 House and lot, USA * Investment in stock, Philippines Investment in stock, USA Investment in bonds, USA*** Cash in bank, Philippines

P2,000,000 800,000 1,000 000 700,000 300,000

Cash on hand, Philippines Accounts receivable Car, Philippines Legacy in favor of Philippine Naonal Red Cross** Devise to Quezon City for children’s playground** Total Gross Estate

50,000 200.000 800,000 50,000 70,000 P5,970,000

Ordinary Deductons: Funeral expenses Judicial expenses Unpaid Philippine income tax for income in 2011 Loss on December 31, 2012 due to the Legacy in favor of Philippine Naonal Red Cross Devise to Quezon City for children’s playground Accounts receivable (fully (fully uncollectble) uncollectble) Special Deductons: Standard deducon Medical expenses NET TAXABLE ESTATE Esae Tax Due Estate Tax Credit

 

P150,000 300,000 120,000 10,000 50,000 70,000 200,000

(900,000) (1,000,000) (500,000) P3,570,000 P307,700 (164,930)

Limit: [(3,200/5,970) x 307,700 = P164,930

  Actual: P250,000 ESTATE TAX DUE AFTER ESTATE TAX CREDIT

P142,770

NOTE: *Family home is not allowed as a deducon for single decedent **To be deducble, the legacy/devise should be included rst in the decedent’s gross estate

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*** Considered as Estate “within” TOTAL GROSS ESTATE ( ESTATE (R Refer above) Ordinary Deductons: Funeral expenses Judicial expenses Unpaid Philippine income tax for income in 2011 Loss on December 31, 2012 due to the Legacy in favor of Philippine Naonal Red Cross Devise to Quezon City for children’s playground Accounts receivable (fully (fully uncollectble) uncollectble) Special Deductons: Standard deducon Medical expenses Esae Tax Due aer ax Credi NET DISTRIBUTABLE ESTATE

P5,970,000 P150,000 300,000 120,000 10,000 50,000 70,000 200,000

(500,000) (142,770) P4,427,230

Problem IV: Real property, Philippines Claim Agains Insolven Persons

(900,000)

P4,000,000 50,000

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Real property, USA Real property, Japan Net estate, Malaysia Total Gross Estate (common)

3,000,000 2,000,000 (1,000,000) P8,050,000

Funeral expenses (maximum) Judicial expenses (P200,000-100,000) Claim agains insolven persons Unpaid taxes Net estate before special deducons X (Share of the surviving spouse) Net Net e est stat ate eo off tthe he de dece cede dent nt in th the e con conju juga gall pro prope per res es Standard Deducon Family Home Medical Expenses NET TAXABLE ESTATE

(200,000) (100,000) (50,000) (50,000) P7,650,000 1/2 P3,8 P3,825 25,0 ,000 00 (1,000,000) (1,000,000) (500,000) P1,325,000

TAX DUE: 1ST P5  P500,000 In excess of P500,000 @ 8%

P15,000 66,000

ESTATE TAX DUE Estate Tax Credit (None; No Estate Tax Payments abroad) ESTATE TAX PAYABLE

P81,000 ---P81,000

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Total Gross Estate (common; as computed above) Funeral expenses (actual) Judicial expenses (actual) Claim against insolvent persons Unpaid taxes Net estate before special deducons X (Share of the surviving spouse) Net est estat ate e of of tthe he dec decede edent in th the co conj njug ugal al pr prop ope eres res Standard Deducon Family Home Medical Expenses (actual) Estate Tax NET DISTRIBUTABLE ESTATE

P8,050,000 (300,000) (200,000) (50,000) (50,000) P7,450,000 1/2 P3, P3,725 25,,00 000 0 ----------(650,000) (81,000) P2,994,000

CHAPTER 6 – DONOR’S TAX TRUE OR FALSE 1. T 2. T 3. F 4. T 5. T 6. T MULTIPLE CHOICE 1. A 2. A 3. C 4. C 5. B

7. 8. 9. 10. 11. 12.

F T F F T F

13. 14. 15. 16. 17. 18.

F F F F F F

19. 20. 21. 22. 23. 24.

F F F F F T

25. 26. 27. 28. 29. 30.

T T F T F F

11. 12. 13. 14. 15.

D B C D D

21. 22. 23. 24. 25.

D C A D C

31. 32. 33. 34. 35.

B C D A B

41. 42. 43. 44. 45.

A B A A C

6 7.. 8. 9. 10.

D D D D C

1 16 7.. 18. 19. 20.

B* D A B C

2 26 7.. 28. 29. 30.

C D C D B

3 36 7.. 38. 39. 40.

D C B D** D

4 46 7.. 48. 49. 50.

B B D D A

Supportng compuaton: No. 17. ERRATUM: Leer “C”:

A gi to the the Internaonal Internaonal Rice Research Instute…… is exemp from gi *

No. 19. If the sale is considered co cous, us, the enre value at the date of sale is subject to donor’s tax. No. 22. Leer “a” – onerous transfer caegorically done in Leer “b” - To be considered valid donaon, the renunciaon should be specically and caegorically done heir(s) to the exclusion or disadvantage of the other co-heir(s) in the hereditary estate. favor of idented heir(s) to Leer “c” – gratuitous transfer, subject to donor’s tax

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No. 25. Donaon to Gross Gis (2M/2) /2 Less Dowry Net taxable gi

Pedro P500,000 (10,000) P490,000

Clara P500,000 P500,000

No. 28.

Gross Gis (5M/2) Less Dowry Net taxable gi

DONEE Son D. in Law P2,500,000 (10,000) P2,490,000 -

No. 32-34. NG (3/1) Tax Due (P25,000 x 2%) GG (5/1) Dowry PNG 3/1 TNG Tax Due Tax Paid 3/1 D.T. Payable GG (7/1) PNG 3/1 and 5/1 TNG Tax Due Toal Taxes Paid 7/1

No. 39.

Husband 125,000 P500

Wife 125,000 P500

P100,000 (10,000) 125,000 P215,000

P100,000 (10,000) 125,000 P215,000

P2,600 (500) P2,100

P2,600 (500) P2,100

100,000 100,000 215,000 215,000 P315,000 P315,000 6,600 6,600 P13,200

Taxable gi Tax Due Ta Taxx C Cre redi ditt P4, P4,50 500 0v vs. s. (2 (200 00/3 /300 00 x P6, P6,0 000=P 00=P4, 4,0 000) 00) D.T.Pyable

P300,000 P6,000 (4 (4,0 ,000 00)) P2,000**

**Change Choice “d” from P2,200 o P2,000