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PROBLEMSP3. (LOSSES)Various types of losses were incurred by a decedent/estate as follows:  Loss due to typhoon, a day before the decedent's death, P1,000,  Loss due to shipwreck, two (2) months after the decedent's death,P500,000.  Loss due to robbery, eight (8) months after the decedent's death...

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PROBLEMS P3.1. (LOSSES) Various types of losses were incurred by a decedent/estate as follows:  Loss due to typhoon, a day before the decedent's death, P1,000,000  Loss due to shipwreck, two (2) months after the decedent's death,P500,000.  Loss due to robbery, eight (8) months after the decedent's death, P2,000,000.  Swindling loss incurred 2 months before death, 800,000  Gambling losses before death, P2,250,000 REQUIRED Question #1: How much is the deductible "losses from the gross estate of the decedent? 500K + 2M = 2.5M Question #2: How much is the deductible "losses from the gross estate of the decedent assuming the robbery loss was incurred 1 % years after the decedent's death? = 500K P3.2. (CLAIMS AGAINST THE ESTATE/INDEBTEDNESS, CAIP, etc.) The heirs of a resident citizen decedent with a total gross estate of P15,000,000 provided the following data           

Receivable from Juan, a debtor Amount collectible from Juan Unpaid taxes on the estate before death Unpaid taxes on the estate after death Unpaid mortgage on the estate Funeral expenses Medical expenses Judicial expenses Unpaid loans arising from debt instruments (notarized) Unpaid loans arising from debt instruments (not notarized) Casualty loss

P500,000 400,000 150,000 50,000 200,000 182,000 82,000 100,000 125,000 75,000 65,000

REQUIRED: Determine the total amount of allowable deduction from gross estate of the decedent including applicable special deduction. OD: 100K 150K 200K 125K 75K 65K SD: 5m

=

5,715,000

P3.3. (CLAIMS AGAINST INSOLVENT PERSONS - CAIP)

Receivable from a debtor Amount collectible Debtor's total assets Debtor's total liabilities excluding tax payable Unpaid taxes

Case ACase B 500K 500K 400K 400K

Case C 500K

Case D 500K

1.2M

1.2M

1.2M

800K

800K 800K

Allowable deductions - CAIP Case a – 500k – 400k = 100k Case b – 500k – (400k/1.2m x 500k) = 333,333 Case c – 0 – debtor insolvent Case d – 1.2m – 800k = 400k 500k – (400k/800k x 500k) = 250k P3.4. (CLAIMS AGAINST INSOLVENT PERSONS) The following data were taken from the estate of Pedro:  Claims against Juan (insolvent), P100,000, fully uncollectible  Claims against Manuel (insolvent), P200,000, 50% collectible book  Claims against a person who absconded, P300,000. REQUIRED: Based on the data provided, determine the allowable deduction from Pedro's gross estate. From Juan 100k From manuel 100k (200k x 50%) = 200k P3.5. (CLAIMS AGAINST INSOLVENT PERSONS) The gross estate of Juan includes P200,000 receivables which is duly notarized from a debtor (Pedro) whose records show: Assets 400k Liabilities 800k Pedro's liabilities composed of the following:  Due to the BIR for unpaid taxes, P200,000  Due to Juan, P200,000  Due to other creditors, P400,000

REQUIRED: Determine the amount of allowable deduction from Juan's gross estate in relation to its receivable from Pedro. 400k (200k) =200k 200k (50k) (200k/800k x 200k) =150k

P3.6. (VANISHING DEDUCTION) Juan, a Filipino residing in Davao died on December 10, 2020, leaving a gross estate of P45,000,000 including a parcel of land valued at P11,250,000, which he inherited from his father who died on October 5, 2017; that the land was previously taxed with a fair value of P9,375,000 ber for estate tax purposes in the estate of his father, that the land was subjected to a mortgage of P4,687,500 at the time it was inherited by the present decedent, which amount was deducted from the net estate of the father, that the present decedent paid P1,875,000 of the mortgage indebtedness and that the total deductions claimed for expenses, losses, including the unpaid mortgage of P2,812,500 was P5,625.000. REQUIRED: Determine the correct amount of vanishing deduction, if any. P3.7. (STANDARD DEDUCTION) Determine the allowable standard deduction from the following independent cases: CASE PARTICULARS A Decedent is single and a resident citizen of the Philippines B Decedent is a head of the family and a resident citizen of the Philippines C Decedent is a resident alien D Decedent is a non-resident alien, reciprocity clause under the tax code is applicable E Decedent is a non-resident alien, reciprocity clause under the tax code is not applicable P3.8. (FAMILY HOME) Determine the deductible family home in 2018 from the following independent cases: CASE A B C

D

Particulars Decedent is single Decedent is a head of a family Decedent is married. The family home is the exclusive property of the surviving spouse Decedent is married. The family home 10,000,00

Family Home 10M 5M

8M

E F

is the exclusive property of the decedent Decedent is married. The family home is classified as conjugal property Decedent is married. Fifty percent (50%) of the family home is classified as conjugal property, the remainder is the exclusive property of the decedent

10M 12M

10M

P3.9 The administration of a decedent’s estate (head of the family) provided the following data: Property: Domestic shares of 2,000 shares inherited 6 years ago House and lot, family home, located in Davao, inherited 2 years ago at a value of P1,500,000 Jewelry items, in the Philippines at the time of death Jewelry items kept abroad Bank deposit in a Philippine branch of a U.S. bank Interest from bank deposit after decedent's death Expenses and other charges: Funeral expenses, abroad Funeral expenses, Philippines Judicial expenses, abroad Judicial expenses, Philippines Claims against the estate with the notarized debt instrument issued in the Philippines, Donation to the Philippine government as provided in his will

P8,000,000 2m 400k 200k 5m 25k

80k 200k 100k 50k 120k 250k

REQUIRED: Determine the net taxable estate assuming: 1. The decedent was a Filipino citizen but a resident of Australia 2. The decedent was not a Filipino citizen but a resident of Davao City P3.10 A resident decedent, head of family, died leaving the following properties and obligations: Cash in bank, 50%, donated mortis causa to Nat'l Govt 50-% to Q.C. gov't House and lot in Makati, Family Home Other real properties Farm lot Claim against an insolvent debtor Transfer in contemplation of death (gratuitous)

Transfer passing under power of appointment Deductions claimed: Funeral expenses Judicial expenses Donation mortis causa to Quezon City government Unpaid mortgage on the farm lot The farm lot was inherited 5 %2 years ago by the decedent before his death with a value then of P575,000 and a mortgage indebtedness of P150,000. REQUIRED: Determine the following: 1. The taxable net estate 2. The taxable net estate assuming the farm lot was inherited (5) years ago.

P3.11. Juan died leaving a gross estate of P12,800,000 including a land inherited from his uncle 3 ½ years before his death and a car donated to him seven (7) years before his death. The following data pertain to the two properties:

Land Car

Unpaid Mortgage P100,000 50,000

FMV upon receipt P1,800,000 300k

FMV upon death P1,250,000 400k

The decedent was able to pay % of the unpaid mortgage on the land before his death. Other deductions claimed are as follows: Expenses, losses, indebtedness, taxes (excluding the unpaid mortgages above) Transfer to the Govt. (included in the estate) Death Benefits from Employer under RA 4917 Family home (included in the estate)

300k 300k 200k 2m

REQUIRED: Determine the net following: 1. Vanishing deductions 2. The net taxable estate

TRUE OR FALSE TRUE 1. Deductions from gross estate are highly disfavored in law; he who claims deductions must be able to justify his claim or right

FALSE 2 Deductions from the gross estate are generally presufned to be conjugal deductions, unless specifically provided otherwise FALSE 3. Obligations contracted by a person during his lifetime are terminated upon his death, FALSE 4 ALL claims against the insolvent person are deductible from the decedent's gross estate. TRUE 5. In a claim against insolvent person, the insolvency of the debtor must be proven and not merely alleged. FALSE 6. It could be that the amount to be included as part of the gross estate in a claim against insolvent person is less than the full amount owed TRUE 7. So that unpaid mortgage may be deducted from the gross estate, the fair market value of the mortgage property must form part of the gross estate in full TRUE 8. For unpaid taxes to be deductible from gross estate, such must have accrued at the time or before the decedent's death TRUE 9 Unpaid income taxes incurred before the decedent's death is deductible from the gross estate TRUE 10. Casualty loss is deductible from gross estate if such loss was incurred during the settlement of the estate FALSE 11. Casualty losses could be claimed as deduction from the gross income and from the gross estate. TRUE 12 In computing for vanishing deduction, the value to be taken is the lesser amount of the value of the property at the date of the previous transfer or the value of the property at the date of death of the decedent. TRUE 13 Vanishing deduction is being allowed to lessen the impact of successive taxation of the same property within a very short period TRUE 14. The benefit of vanishing deduction may only be applied once. TRUE 15. The maximum amount of deductible family home from the gross estate upon the effectivity of the TRAIN Law is P10,000,000.

Chapter Exercises MULTIPLE CHOICE Choose the letter of the correct answer. 1. Which of the following statements is true? a. Deductions from gross estate are highly disfavored in law, he who claims deductions must be able to justify his claim or right b. Receipts or invoices or other evidence to show that the expense was really incurred, if applicable, must duly support deductions against the gross estate. c. Both "a" and "b" d. Neither 'a" nor "b" 2 Which is false? a The estate tax is computed based on the net estate or taxable estate

b The net estate is determined by subtracting from the gross estate the deductions authorized by law. c. Both "a" and "b" d. Neither "a" nor "b" ORDINARY DEDUCTIONS LITE-Indebtedness or Claims against the Estate 3 Which among the following statements is correct? I. An obligation that had prescribed already during the lifetime of the decedent, or that was unenforceable against him when still alive, will not be claim against his estate when he shall be dead II. If a monetary claim against the decedent did not arise out of a debt instrument, the requirement on a notarized debt instrument does not apply. a. I only b. Il only c. Both I and II d. Neither I nor II 4. The following statements pertain to indebtedness for estate tax purposes. Which is false? I. When a person leaves property encumbered by a mortgage or indebtedness, his gross estate must include the fair market value of the property, undiminished by the mortgage or indebtedness. II. Include in the computation for the gross estate only the equity of the decedent on the property III. If the loan is merely an accommodation loan, where the proceeds of the loan went to another person, the value of the unpaid loan must not be included in the receivable of the estate. a I only c I and I only b. ll only d. Il and Ill only 5. Which among the following is false? I. If a claim against the estate arose out of a debt instrument, the debt instrument must be notarized regardless of its source II. If a monetary claim against the decedent did not arise out of a debt instrument, the requirement on a notarized debt instrument does not apply III. If the loan was contracted within three years before the death of the decedent, the administrator or executor must submit a statement showing the disposition of the proceeds of the loan a. I only b. II only c. Ill only

d. I and Ill only 6. Awa Nhen died on January 1, 2021 leaving among others the following charges and obligations: Real property tax for the year 2020 P100.000 Notarized interest bearing promissory note 100.000 Accrued interest on the promissory note at the time of death 20,000 Interest to accrue on the promissory note from the date 10,000 of death to the date of maturity Income tax due for 2020 200,000 = 430,000 How much were the allowable ordinary deductions from the gross estate? A. P420,000 b. P430,000 c P510,000 d. P520.000 7. Claims against the estate of the decedent who died on February 2021 Notes payable for money borrowed, not notarized 500,000 Accounts payable for supplies used in business 200,000 Debts from gambling losses 120,000 How much is the deductible claims against the estate? a. P200,000 b. P320,000 c P470,000 d. P850,000 LITE-Claims against Insolvent persons 8 The following statements regarding "claims against insolvent persons are correct, except a. It is a deduction even if the debtor had some properties b. It can be a deduction even if secured by a mortgage C. It should always be included in the gross estate d Should be omitted in the computation for the net taxable estate if entirely uncollectible

9 Which of the following statements is correct? a. A person is insolvent when his properties are not sufficient to pay his obligation.

b. The claims of the creditors will be satisfied out of the available properties of the insolvent debtor. c. For estate tax purposes, there are two kinds of creditors, preferred and ordinary creditors. d. All of the above LITE-Taxes 10. Which of the following is not deductible from the gross estate of a decedent? I Income taxes on income received after death II. Property taxes not accrued before death III. Estate Tax a. I and II only b. II and III only c. All of the above d. None of the above 11. Which of the following taxes is deductible from the gross estate? a. Income tax paid on income received after death b. Property tax not accrued prior to death c. Estate tax paid on, a foreign country d. Donor's tax accrued prior or before death 12. On June 30, 2020, Juan Dela Cruz passed away. The following unpaid taxes relate to his property, income on his property, and estate. Estate tax was filed and paid early on December 31, 2020. 2019 Income tax from practice of profession 300,000 Income tax-practice of profession for Jan, to June 2020 100,000 Income tax of the estate, July to December 2020 200k Real property taxes for 2018 and 2019 150k Business taxes for 2019 100k The total taxes that may be deducted from the gross estate is a P550,000 b. P750,000 c P850,000 d. P650.000 LITE-Losses 13. Which of the following is wrong? Losses deductible from the gross estate a. Should only be of property included in the Philippine gross estate. b. Should be incurred during settlement of the estate.

c. May be arising from storm.. d Should not be compensated by insurance or other form of indemnity. 14. Which is deductible from the gross estate of resident decedent? a. Loss of portion of the estate incurred during settlement period such as those arising from theft. b. Loss of portion of the estate incurred 200 days before the death of the decedent. c. Loss of portion of the estate incurred a month before the death of the decedent d. Losses on the portion of exclusive capital of surviving spouse incurred during settlement of the estate. Use the following information for the next four questions: Among the properties included in the gross estate of the decedent at the time of death is a three-story commercial building with a fair market value of P12,000,000. During the settlement of the estate and before the last day of paying the estate tax, the said property is destroyed by fire. The fair market value at the time of the incident was P13,000,000. 15. The amount that should be included as part of the gross estate is a. PO c. P12,500,000 b. P12,000,000 d 13m 16. The amount of deductible loss will be a. PO b. P12,000,000 d P13,000,000 c. P12,500,000 d. 17 Assume that the property was insured for P10,000,000 and the amount recovered from the insurance company was P9,000,000. The amount of deductible loss will be a P1,000,000 b. P3,000,000 c P9,000,000 d P12,000,000 18. Assume that 70% of the property is destroyed by fire and the property deductible loss will be is not insured. The a. PO c. P8,400.000 b. P3,600,000 d. P12,000,000

Transfer for Public Use 19 It pertains to the amount of all the 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. a. Transfer for public use b. Vanishing deduction c. Property previously taxed d. Inheritance 20. By "transfer for public use" as deduction from the gross estate is meant dispositions in: I. A last will and testament in favor of the Government of the Philippines or any political subdivision thereof, for exclusively public purposes. II. Transfer to take effect after death in favor of the Government of the Philippines, or any political subdivision thereof, for exclusively public purposes. a. I only b. Il only c. Both I and II d. Neither I nor II 21. Which of the following is not a remedy against double taxation a. Estate tax credit b. Vanishing deduction c. Delivery of property from fiduciary heir to fideicommissary in a fideicommissary substitution d. Transfer for public use 22. Which is wrong? Deduction for transfer for public use: a. Means legacy in a last will and testament to the government b. Means device in a last will and testament to the government C. Includes any kind of transfer to the government for public purpose d. Will not include legacies to charitable institutions

23. Yumao Na Rhin transferred a 3,000 square meter lot purposely to be converted as a zoo to be administered by the city government of Taw tawi The lot was acquired by the decedent 10 years ago for P50,000 Its fair market value at the time of Yumao Na Rhin's death was P5,000,000. The deduction from the gross estate relative to this transfer is a P50,000 b. P2,500,000 c. P5,000,000 d. P0

Vanishing Deductions 24. Pedro died leaving a car he acquired by purchase from Juan 4 years ago. The car was correctly included in his gross estate. The applicable vanishing rate is a 0% b. 40% c. 60% d. 80% 25. Vanishing deduction is availed by taxpayer to 1. Reduce his output vat 11. Reduce his gross income III. Reduce his gross estate a. I only b. Il ony c. IlI only d. II and III only 26. Which of the following statements regarding gross estate is incorrect? a. Vanishing deduction is being allowed to lessen the impact of successive taxation of the same property within a very short period due to the death of the decedent-transferor b. Even property previously taxed situated outside the Philippines of a non-resident alien decedent, for estate fax purposes, can be allowed vanishing deduction C So that unpaid mortgage may be deducted from the gross estate, the fair market value of the mortgaged property must form part of the gross estate in full. d. For unpaid taxes to be deductible from the gross estate, such must have accrued at the time or before the decedent's death 27. Which of the following properties of Namayapa Nha who died December 1, 2021 is subject to vanishing deduction? Property 1: Rest House in Tagaytay purchased in 2019 Property 2: Commercial lot and building inherited from her mother in 2018 and where the estate tax thereon had not been paid. Property 3: Donation from a friend in 2020. Property 4: Property won in a lottery six (6) months before death.

A B C D

Property 1 no no yes yes

Property 2 no no yes yes

Property 3 yes yes no no

Property 4 yes no yes no

28. Ded Nha, a citizen of the Philippines and a resident of Bacolod City. died testate on May 10, 2021. Among his gross estate are properties inherited from his deceased father who died on April 4, 2018. What percentage of leduction will be used in computing the amount of vanishing deduction? a 80% of the value taken as basis for vanishing deduction; b 10...