RR 2-2003

Question 1

When was RR 2-2003 issued?

Answer 1

December 16, 2002

Question 2

What is the title of RR 2-2003?

Answer 2

Consolidated Revenue Regulations on Estate Tax and Donor’s Tax Incorporating the Amendments Introduced by R.A. 8424, the Tax Reform Act of 1997.

Question 3

What is the scope of RR 2-2003?

Answer 3

These regulations shall govern the taxation of the transmission of the decedent’s estate and donations made by persons, natural or juridical, whether citizens or aliens, residents or non-residents.

Question 4

What is the law that governs the imposition of estate tax?

Answer 4

Estate taxation is governed by the statute in force at the time of death of the decedent.

Question 5

When does estate tax accrue?

Answer 5

The estate tax accrues as of the death of the decedent and the accrual of the tax is distinct from the obligation to pay the same. Upon the death of the decedent, succession takes place and the right of the State to tax the privilege to transmit the estate vests instantly upon death.

Question 6

What is the composition of the gross estate for residents and citizens?

Answer 6

All properties, real or personal, tangible or intangible, wherever situated.

Question 7

What is the composition of gross estate of non-resident aliens?

Answer 7

Only properties situated in the Philippines. With respect to intangible personal property, its inclusion in the gross estate is subject to reciprocity.

Question 8

What is the valuation of gross estate?

Answer 8

Fair market value as of the time of death.

Question 9

What is the valuation of real property in the gross estate?

Answer 9

Fair market value = HIGHER of (1) zonal value and (2) assessed value

For purposes of prescribing real property values, the Commissioner is authorized to divide the Philippines into different zones or areas and shall, upon consultation with competent appraisers, both from the private and public sectors, determine the fair market value of real properties located in each zone or area.

Question 10

What is the valuation of shares of stocks?

Answer 10

The fair market value shall depend on whether the shares are listed or unlisted in the stock exchanges.

(1) Unlisted common shares are valued based on their book value.
(2) Unlisted preferred shares are valued at par value.

In determining the book value of common shares, appraisal surplus shall not be considered as well as the value assigned to preferred shares, if there are any.

(3) For shares which are listed in the stock exchanges, the fair market value shall be the arithmetic mean between the highest and lowest quotation on the date of death, or at a date nearest the date of death.

Question 11

What is the valuation of usufruct?

Answer 11

To determine the value of the right to usufruct, use or habitation, as well as that of annuity, there shall be taken into account the probable life of the beneficiary in accordance with the latest basic standard mortality table, to be approved by the Secretary of Finance, upon recommendation of the Insurance Commissioner.

Question 12

What are the deductions allowed in computing the net estate of a resident/citizen decedent?

Answer 12

A) ELIT
B) Property Previously Taxed
C) Transfers for public use
D) The family home
E) Standard deduction
F) Medical expenses
G) Amount received by heirs under RA 4917
H) Net share of surviving spouse in CPG or ACP

Question 13

Allowed ELIT Deduction (for NRA)

Answer 13

[PH Gross Estate / World Gross Estate] x ELIT = Allowable Deduction

Question 14

What is the condition for deductions to be allowed for non-resident alien decedents?

Answer 14

No deduction shall be allowed in the case of a non-resident alien decedent, unless the executor, administrator, or anyone of the heirs, as the case may be, includes in the return required to be filed under Section 90 of the Code the value at the time of the decedent’s death of that part of his gross estate not situated in the Philippines.

Question 15

Limit for funeral expenses (paid or unpaid) up to the time of interment

Answer 15

Lowest of:

1. Actual
2. 5% of gross estate
3. Php 200,000

_​_Any amount of funeral expenses in excess of the P200,000 threshold, whether the same had actually been paid or still payable, shall not be allowed as a deduction. Neither shall the unpaid portion of the funeral expenses incurred which is in excess of the P200,000 threshold be allowed to be claimed as a deduction under “claims against the estate.”

Question 16

What are included in “Funeral Expenses”?

Answer 16

• (a) The mourning apparel of the surviving spouse and unmarried minor children of the deceased bought and used on the occasion of the burial;
• (b) Expenses for the deceased’s wake, including food and drinks;
• (c) Publication charges for death notices;
• (d) Telecommunication expenses incurred in informing relatives of the
• deceased;
• (e) Cost of burial plot, tombstones, monument or mausoleum but not their upkeep. In case the deceased owns a family estate or several burial lots, only the value corresponding to the plot where he is buried is deductible;
• (f) Interment and/or cremation fees and charges; and
• (g) All other expenses incurred for the performance of the rites and ceremonies incident to interment.

Question 17

(T/F) Expenses incurred after interment are deductible.

Answer 17

False. Expenses incurred after the interment, such as for prayers, masses, entertainment, or the like are not deductible.

Question 18

(T/F) Funeral and burial expenses borne or defrayed by relatives are not deductible.

Answer 18

True. Any portion of the funeral and burial expenses borne or defrayed by relatives and friends of the deceased are not deductible.

Question 19

(T/F) Medical expenses as of the last illness will not form part of funeral expenses.

Answer 19

True.

Question 20

Judicial expenses of testamentary or intestate proceedings are those expenses incurred in the settlement of the estate, but not beyond ____________.

Answer 20

The last day prescribed by law, or the extension thereof, for the filing of the estate tax return.

Question 21

Examples of judicial expenses

Answer 21

1. Fees of executor / administrator
2. Attorney’s fees
3. Court fees
4. Accountant’s fees
5. Appraiser’s fees
6. Clerk hire
7. Costs of preserving and distributing the estate
8. Costs of storing or maintaining property of the estate
9. Brokerage fees for selling property of estate

Question 22

Requisites for deductibility of claims against the estate

Answer 22

1. The liability represents a personal obligation of the deceased existing at the time of his death.
2. The liability was contracted in good faith and for adequate and full consideration in money or money’s worth; action to collect must have not prescribed.
3. The claim must be a debt or claim which is valid in law and enforceable in court.
4. The indebtedness must not have been condoned by the creditor; and action for collection must not have prescribed.

Question 23

Claims against insolvent persons

Answer 23

Condition: Include the value of the decedent’s interest in the gross estate

Question 24

Unpaid mortgages

Answer 24

Condition: Include in gross estate the value of decedent’s undiminished interest in the mortgaged property

Question 25

Unpaid taxes

Answer 25

Accrued as of date of death, but unpaid.

NOT INCLUDED:

• Income tax on income after death
• Property taxes not accrued before death
• Estate tax

Question 26

Losses (fires, storms, shipwreck, robbery, theft, embezzlement)

Answer 26

Condition: Not covered by insurance

• Such losses should not have been claimed as deduction for income tax purposes
• Incurred not later than last day for payment of estate tax

Question 27

In case unpaid mortgage payable is being claimed by the estate, what happens if the loan is found to be merely an accommodation loan where the loan proceeds went to antoher person?

Answer 27

The value of the unpaid loan must be included as receivable of the estate, otherwise if there is a legal impediment to recognize the same as a receivable of the estate, said unpaid obligation/mortgage shall not be allowed as a deduction from the gross estate.

Question 28

It is the dwelling house, including the land on which it is situated, where the husband and wife, or a head of the family, and members of their family reside, as certified to by the Barangay Captain of the locality. The family home is deemed constituted on the house and lot from the time it is actually occupied as a family residence and is considered as such for as long as any of its beneficiaries actually resides therein.

Answer 28

Family home

Question 29

(T/F) Actual occupancy of the family home will be considered interrupted in temporary absence due to travel, studies, or work.

Answer 29

False.

Question 30

Family home is generally characterized by __________, that is, the place to which, whenever absent for business or pleasure, one still intends to return.

Answer 30

Permanency.

Question 31

(T/F) For purposes of availing a family home deduction, a person may constitute more than one family home.

Answer 31

False. Only one family home.

Question 32

Conditions for the allowance of FAMILY HOME as a deduction from the gross estate.

Answer 32

1. Actual residential home of the decedent and family at time of his death, as certified by the Brgy. Captain of the locality where situated
2. Total value of family home must be included as part of gross estate
3. Lower of:
   
   • FMV of family home
   • One million pesos (P1,000,000).

Question 33

Standard deduction

Answer 33

1,000,000.

• No need for substantiation

Question 34

Medical expenses

Answer 34

All medical expenses (medicines, hospital bills, doctors’ fees) incurred (whether paid or unpaid) within one year before the death of the decedent.

• Duly substantiated with official receipts
• Statement of account

LIMIT: PHP 500,000

Question 35

Amount received by heirs under RA 4917

Answer 35

Any amount received by the heirs from the decedent’s employer as a consequence of the death of the decedent-employee in accordance with Republic Act No. 4917 is allowed as a deduction provided that the amount of the separation benefit is included as part of the gross estate of the decedent.

Question 36

Time for filing of estate tax return

Answer 36

Filed within six months from the decedent’s death.

Question 37

Extension of time to file estate tax return.

Answer 37

The Commissioner or any Revenue Officer authorized by him pursuant to the Code shall have authority to grant, in meritorious cases, a reasonable extension, not exceeding thirty (30) days, for filing the return.

The application for the extension of time to file the estate tax return must be filed with the Revenue District Office (RDO) where the estate is required to secure its Taxpayer Identification Number (TIN) and file the tax returns of the estate, which RDO, likewise, has jurisdiction over the donor’s tax return required to be filed by any party as a result of the distribution of the assets and liabilities of the decedent.

Question 38

Place of filing the return and payment of the tax.

Answer 38

RESIDENT DECEDENT

• RDO where the decedent was domiciled at time of death
• Pay the corresponding estate tax with AAB, RDO, CO, duly authorized Treasurer

NON-RESIDENT DECEDENT

• RDO where administrator or executor is registered
• If administrator/executor is not registered, RDO having jurisdiction over the executor or administrator’s legal residence
• If administrator/executor is not in the Philippines, RDO No. 39 - South Quezon City

Question 39

Extension of time to pay estate tax

Answer 39

When the Commissioner finds that the payment of the estate tax or of any part thereof would impose undue hardship upon the estate or any of the heirs, he may extend the time for payment of such tax or any part thereof not to exceed five (5) years in case the estate is settled through the courts, or two (2) years in case the estate is settled extrajudicially.

Question 40

Payment of estate tax by installment

Answer 40

In case the available cash of the estate is not sufficient to pay its total estate tax liability, the estate may be allowed to pay the tax by installment and a clearance shall be released only with respect to the property the corresponding/computed tax on which has been paid.

There shall, therefore, be as many clearances (Certificates Authorizing Registration) as there are as many properties released because they have been paid for by the installment payments of the estate tax.

The computation of the estate tax, however, shall always be on the cumulative amount of the net taxable estate. Any amount paid after the statutory due date of the tax shall be imposed the corresponding applicable penalty thereto. However, if the payment of the tax after the due date is approved by the Commissioner or his duly authorized representative, the imposable penalty thereon shall only be the interest.