BIR Ruling

March 21, 1997 MEMORANDUM FOR: The Commissioner This refers to the internal revenue tax liabilities of the estate of MR. GERMAN L. SUCGANG for taxable year 1979. llcd MR. PANTALEON L. SUCGANG, the estate's administrator represents the following: 1. That he is the son of the late GERMAN L. SUCGANG who died in 1979 in Los Angeles, California; 2. That he resides in Los Angeles, California and has resided thereat since the 70's; 3. That the estate of his father consists of a family home located in Marulas, Bulacan covered by Transfer Certificate of Title No. 15932 and Tax Declaration Nos. A-031-01574 and A-031-05231, for residential lot with assessed value of P14,400.00 and improvement with assessed value of P3,750.00, respectively; 4. That upon the decedent's death in 1979, the corresponding estate tax on the property was not yet paid by him for he was still residing in the United States; 5. That there had been a difficulty in identifying and locating the documents for a timely compliance of the BIR requirements. In his letter dated May 27, 1996, Mr. Pantaleon L. Sucgang, thru his Philippine representative Mr. Carlos A. Lardizabal, narrated the facts above which led to non-compliance of the BIR requirements and asked that the penalties and interest for late filing and payment of taxes be abated. cdtech Records show that an Estate Tax Return was filed only on September 6, 1996 by Pantaleon L. Sucgang for and in behalf of the estate, bearing the tax paid in the amount of P1,953.00. The issue to be resolved now is whether or not a surcharge and an interest on the estate tax paid be still imposed and collected in this case. Section 114 of the applicable Revenue Code at the time provides that a surcharge of 25% of the taxes due shall be imposed and collected if an estate tax return is not filed within the time prescribed by law. This surcharge is imposable even if the return is filed voluntarily after the due date, if no reasonable cause is shown by the delay. Should it be shown that the failure to file is due to reasonable cause, as where the heir or person in possession of the property of the deceased believed in good faith that a return is not required, the surcharge cannot be imposed [Ben L. Chuy vs. Collector, C. C. No. 12823, July 16, 1958]. The instant case describes another situation where the failure to file a return within the period prescribed by law can be justified by a reasonable cause. It cannot be denied that the administrator of the estate herein has lived in the United States since the 70's and had no occasion to file the return and other documents as required by the BIR. Granting that there had been an opportunity to file the same, still, one cannot be expected to accomplish the filing requirements on mere short breaks or visits into the country, unless the intention was solely to file the return and none other. It has to be clarified, though, that there was late filing in this case, and in no way can this fact be obliterated or disregarded without imposing any penalty. For late filing, interest on the tax due automatically attaches as a civil penalty. Quoting the applicable provisions of the then Revenue Code, it reads: Section 112. Interest on deficiency . Interest upon the amount determined as a deficiency, assessed at the same time as the deficiency, shall be paid upon notice and demand from the Commissioner of Internal Revenue, and shall be collected as part of the tax, at the rate of twenty per centum per annum, from the due date of the tax to the date of the deficiency is assessed: Provided, That the maximum amount that may be collected as interest on deficiency shall in no case exceed the amount corresponding to a period of three years, the present provisions regarding prescription to the contrary notwithstanding." In recapitulation, we re-state in clear and unequivocal terms that the estate is subject to: 1. Basic Estate Tax which has already been paid; and 2. Interest for late filing computed at 20% per annum on the basic tax due, but in no case will this interest exceed the amount corresponding to a period of three (3) years. Basic Estate Tax Interest Rate Interest Due Maximum Period Total Per Year Collectible P1,953.00 x 20% = 390.3 x 3 P1,171.80 ======= The surcharge is not imposed, after it has been shown and proven that the failure to file a return is due to a reasonable cause. In the light of the foregoing considerations, it is respectfully recommended that the amount of P1,171.80 representing the maximum interest due for the late filing of the estate tax return of MR. GERMAN L. SUCGANG be collected pursuant to Sec. 114 of the applicable Internal Revenue Code, as amended. Upon payment of the aforesaid amount, a tax clearance for estate tax purposes will be issued forthwith. Respectfully submitted: (SGD.) RODULFO L. SALAZAR Chief, Appellate Division I CONCUR: (SGD.) ALICIA L. TOMACRUZ Head Revenue Executive Assistant Legal Service Recommendation-APPROVED: (SGD.) LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue