BIR Ruling

June 7, 1996 Estate of Rosemarie T. de Toda c/o Ms. Rosemarie T. Delgado (Administratrix of the Estate of Rosemarie T. de Toda) 1745 Adriatico St. Malate, Manila 1100 M a d a m : This refers to your request for reconsideration of the deficiency estate tax assessment issued by this Office against the Estate of Rosemarie T. de Toda involving the amount of P147,931,995.20 covered by Assessment Notice No. FAS-E-91-91-002313 dated July 18, 1991. LLcd Please be informed that after a careful study of the facts of the case and the law and jurisprudence applicable thereto, we find protest to be without merit and devoid of legal and factual basis based on the following findings/reasons: A. The Assessment has become final and unappealable It is our contention that the protest letter dated August 22, 1991, duly stamped to have been received on August 23, 1991, by the Assistant Commissioner for Collection, this Bureau, is only a pro-forma protest as it failed to substantially comply with the requirements prescribed under Section 6 of Revenue Regulations No. 12-85 which provides for the procedure governing administrative protest of assessments issued by this Bureau. The particular statements of facts and/or law which should be the basis of your request for reinvestigation was not categorically specified and properly documented. Furthermore, inspite of the lapse of thirty day-period requested by you in your letter dated August 22, 1991 in order to substantiate the disallowed deductions, our records show that you failed to substantiate the said protest within the said period. Your follow-up letter dated October 8, 1991 likewise failed to cite new grounds which could be the basis of a request for reconsideration. Subsequent follow-up letters dated October 10, 1991 requesting for an extension of 15 days to file documentary evidence; a letter dated October 18, 1991 requesting again for another 30 days from October 30, 1991 to gather documents; another letter dated November 20, 1991 requesting for another set of examiners to handle the case; a letter dated January 27, 1992, requesting for a reinvestigation/reconsideration of the warrants of distraint and levy issued on the properties of the estate, at the same time informing this Office that you are still in the stage of submitting the supporting documents on the value of the estate and the claims against it, are all Pro-forma request as they failed to substantiate your protest as required by the aforesaid Revenue Regulations. The Supreme Court, in the case of Cecilia Teodoro Dayrit, et. al. vs. Hon. Fernando A. Cruz and the Commissioner of Internal Revenue, L-39910, September 26, 1988, has an occasion to rule on this point: Says the Court: ". . . Petitioner's letter asking for a reconsideration of the questioned assessments cannot be considered as one disputing the assessments because petitioners failed to substantiate their claim that the assessments are contrary to law. Petitioners asked for thirty (30) days to submit their position paper but failed to submit the same. Hence, the letter for reconsideration was nothing but a mere scrap of paper." Furthermore, our records show that Ms. Carmen Andrande was designated/authorized as attorney in fact of the estate to the late Rosemarie T. de Toda to file and sign for and on behalf of the heirs of the estate, the estate tax return and to submit to the Bureau of Internal Revenue, any and all documents that may be necessary to the complete settlement of the said estate, as per special power of attorney executed on April 22, 1991. The protest letter dated August 22, 1991 filed on August 23, 1991 however shows that it was filed and signed not be the party authorized by the state. Hence, for all legal intents and purposes we submit that, it is as if no protest was filed by the estate. The regulations provide that a protest must be filed within thirty (30) days from receipt of the assessment (Sec. 7, RR No. 12-85) In your follow-up protest letter dated October 8, 1991, you admitted that on July 16, 1991 (par. No. 4, 1st page), you received an assessment notice for P147,931,995.20 as deficiency estate tax of the late Rosemarie T. de Toda. The records show however that the letter of protest was filed only on August 23, 1991 ( with the Office of the Assistant Commissioner for Collection). This indubitably shows that the protest was filed out of time as it was filed after the lapse of the thirty-day period counted from the date of receipt of the assessment notice. Obviously, since the protest was filed only after the lapse of the thirty-day reglementary period, the assessment has already become final and unappealable, as provided for in section 9 of Revenue Regulations No. 12-85 and by express provision of Section 229 of the Tax Code, (the law governing administrative protests), thus; "Sec. 9 Finality of Assessments . If a taxpayer who receives an assessment from the Bureau of Internal Revenue fails to file a protest within the period prescribed in Section 7 of these Regulations, the said assessments shall become final and unappealable and the taxpayer is thereby precluded from disputing the assessment. Sec. 7 When to file Protest . a protest must be filed within thirty (30) days from receipt of the assessment. Sec. 229. Protesting of assessment . . . Such assessment may be protested administratively by filing a request for reconsideration or reinvestigation in such form and manner as may be prescribed by implementing regulations within thirty (30) days from receipt of the assessment; otherwise the assessment shall become final and unappealable." It is our stand that the position paper dated March 2, 1992 filed by the counsel of the estate received by the Bureau on March 5, 1992 specifying the grounds of the protest with proofs of the alleged claim against the estate, did not cure the defects of the letter protest dated August 22, 1991 as it was also filed out of time. B. No Indubitable evidence of a bona-fide Indebtedness It is your allegation that there was a claim against the estate and/or an indebtedness of the estate in the amount of P137,265,466.00 to a group of creditors represented by Mr. George Tan. Documentary proofs submitted by you in support hereof however, failed to convince this Office that there was a bonafide indebtedness of P137,265,466.00 as alleged to warrant the revision/cancellation of this assessment based on the following reasons. 1. The self-serving statements of accounts and the check vouchers submitted allegedly representing the personal loan of the decedent, we believed, are not sufficient proof of a bonafide indebtedness, in the absence of a clear and convincing evidence to prove the contrary. In the case of Collector of Internal Revenue vs. Aurelio P. Reyes, G. R. No. L-11534 & L-11558, November 25, 1958, the Supreme Court held as follows: "In the case of personal loans, it is not enough to prove the existence of such loans by the presentation of promissory notes or "vales" signed by the borrower, or of checks or vouchers evidencing payment. By the very nature of loan transaction between individuals, such transactions are easily concocted, especially between friends and relatives, and promissory notes, "vales", checks or other similar documents in the absence of other relevant evidence, deserve scant consideration. This is a specially true where the supposed borrower has a pending tax assessment. In order that such transaction may be properly considered, it is essential that the existence thereof must be proven by clear and convincing evidence independent of promissory notes, "vales" or other similar documents." Records would show that not even the basic document of actual indebtedness i.e. promissory note and/or the cancelled checks evidencing the alleged initial loan of P4 million and the subsequent loan of P5 million were ever submitted in support of the alleged indebtedness; 2. If it was really a legitimate loan, the alleged loan plus interest must have been reflected in the financial statement of the decedent-borrower; likewise, the accrued interest should have been recognized in the financial statement of the alleged lender; George R. Tan, and/or group of creditors; On loans not appearing in the books of accounts, the Supreme Court, in the case of The City Lumber Co. Inc. vs. Melecio Domingo and Court of Tax Appeals, G.R. No. L-18611, January 30, 1964, has this to say: "Where the alleged loan, which the taxpayer claims to be the cash credit balance, is not shown in his book of account and neither were any receipts or other evidence produced to show that said amount was a loan received by said taxpayer, or that a loan was ever secured, it was held that the respondent Court did not err in not considering the credit cash balance as a loan secured by petitioner". 3. Considering the huge amount involved, it seems strange that no demand for payment thereof was ever made by the supposed lender from 1983 to 1991; 4. The financial capacity of the alleged creditor/lender to give loans was not well-established based on records on file with the Bureau (William Li Yao vs. Collector of Internal Revenue, G. R. No. L-11875, December 28, 1963) 5. The alleged creditors did not file a claim, which is the most natural thing to do, with the administratrix, on these 3 occasions to wit; aisadc a. The publication of the extra judicial settlement of the estate among the heirs on April 29, 1991; b. The publication of card of thanks on March 22 and 25, 1991; c. Upon investigation of the estate by the Bureau; 6. That in the extra judicial settlement among the heirs, which was published in the Manila Times, classified ads on April 29, 1991, it was expressly provided in paragraph 4 page 2 thereof that the deceased, Rosemarie T. de Toda left no debts; 7. Likewise, in the petition for settlement of intestate estate filed on March 11, 1991 with the Regional Trial Court, Makati, Branch 65, by petitioner Benigno Toda Jr., it was also specifically mentioned in the petition, par. 5 thereof, that the petitioner has no knowledge of any creditor of the decedent or of any persons who may have claims against her. The argument that since the deceased had lived separately from her husband and were not communicating with each other for over ten years, hence justifies the position/statement made by the petitioner that he has no knowledge of any alleged creditors, contradicts par. 3 of the petition itself which states that, the estate may provisionally be estimated to have a net value of five million pesos. If in fact they have been living separately for over ten years, how can he in certain terms alleged that the estate may provisionally be estimated at P5 million? [By coincidence, the petition filed on March 11, 1991 wherein the net value of the estate was pegged at P5 million almost jibe with the net taxable estate of P5.6 million of the estate as per estate return filed on May 8, 1991 (copy furnished by you);] 8. The so called "wrap-up liability with special power of attorney" dated December 20, 1985 is not enforceable against the estate because the special power of attorney expired upon the death of the principal, Rosemarie T. De Toda on March 4, 1991; 9. That the "out of court settlement" dated March 20, 1991 in special proceedings No. M2711 RTC Makati Branch 65, is not enforceable against the estate because not all the heirs had signed said agreement; 10. No proof was ever submitted by the heirs evidencing the payment of the alleged indebtedness pursuant to paragraph No. 3 of page 2 of the agreement mentioned in no. 9, which provides for payment within a period of two years, or on or before March 20, 1993; 11. There was no showing that the decedent acquired any asset as a consequence of the alleged loan obtained in 1983 and 1985, as her estate is composed mostly of the assets acquired as her share upon the dissolution of the conjugal partnership in 1981; 12. Records likewise show that she was to receive P40,000,000.00 upon the dissolution of the conjugal partnership in June 9, 1981. Considering further that she has income producing properties like the Rosaria apartments, and maybe, dividends from her stock holdings of several publicly listed corporations (based on record on file with the Bureau), there was no showing not occasion to show that she was in dire need of cash so as to incur the alleged indebtedness; 13. It is the view of this office that the court decision in the petition for specific performance docketed as civil case No. 92-12628 rendered by the Regional Trial Court, Branch 99, Quezon City which tends to show that the estate has an indebtedness of P137,265,466.00, likewise with the self-serving admissions/evidences of indebtedness presented in court, are not adequate of reasonably sufficient proofs to allow the claims against the estate for tax purposes considering that the Bureau was not informed nor notified nor was a party to the cases filed. Related decided case on this point are as follows: "In order to be deductible, it's not necessary for a local court approval of the claim (Smyth V. Ericson ( 1955, CA9, 221 F2d 1) or even for filing of formal proof of claim by the creditor with the local court (Est Element, (1949) 13 Tc 19). Nor is local court approval itself sufficient to support a claim for estate tax deduction (Est Nemerov, Tc Memo 1956. 164; U.S. vs. Mitchell, (1934, CA7) 74 F2d 571). what's required is that the claim, whether filed, approved, or even paid, be allowable by the laws of the jurisdiction, domestic or foreign, under which the estate is being administered (Req. # 20. 2053-4). The local court may have approved a claim . . . but, for tax reasons, not objected to by the estate whose beneficiaries were the same persons as the claimants. In such cases, IRS will determine independently whether the claim is allowable, that is, enforceable against the estate under the applicable local law . (First-Mechanics National bank of trenton, (1939) 40 BTA 876, affd (CA3) 117 F2d 127)." 14. The estate failed to submit the schedule of payments and supporting documents as alleged in the following letters of the counsel of the estate, inspite of repeated request for extension of time to submit the same, to wit: a. June 26, 1992 request for extension of time or up to August 31, 1992 to submit schedule of payments & supporting documents; b. August 26, 1992 request for another extension of 30 days or up to September 30, 1992 to submit schedule of payments & supporting documents; To our mind, the period to protest and or to appeal an assessment is not interrupted by the filing of these pro-forma request for reconsideration and/or repeated request for extension of time to submit supporting documents, etc. For to hold otherwise would be to put off indefinitely, the finality of an assessment solely dependent on the will of the taxpayer and at his convenience by the simple expedient of filing pro-forma motions and/or repeated request for extension of time to file documentary evidence in support of his protest. This would be detrimental to the interest of the Government, for taxes are the lifeblood of the Government and their prompt availability an imperious need (North Camarines Lumber Co., vs. Collector of Internal Revenue (109 Phil. 511). Moreover, warrants of distraint & levy were already issued and served on the properties of the estate. This is tantamount to a denial of the reconsideration and is appealable to the Court of Tax Appeals. Also, the period to appeal has already expired. Thus, based on the foregoing, and for your failure to comply with the requirements prescribed under Revenue Regulations No. 12-85 i.e. for failure to protest/appeal within the thirty-day period and for filing pro-forma request for reconsideration, we find that the assessment has already become final and unappealable and immediately executory. In view thereof, you are requested to pay the full amount of P147,931,995.20 with updated penalties to the Revenue District Office, Revenue District Office No. 33 (Intramuros, Ermita, Malate, Manila) within (15) days from receipt hereof in order that herein tax case can be closed and terminated. LLjur This constitutes the final decision of this Office on the matter. Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue June 7, 1996 MEMORANDUM FOR: The Assistant Commissioner (Collection Service) Forwarded herewith is the entire docket bearing on the internal revenue tax case of the estate of the late Rosemarie T. de Toda involving the amount of P147,931,995.20 as deficiency estate tax, exclusive of updated interest, attention being invited to our letter of even date to the taxpayer which is self explanatory. If the taxpayer fails to pay the tax due, with updated interest, within the fifteen (15) days period stated in our letter, the taxes due should be satisfied from the properties distributed and in the hands of the heirs by the enforcement of the tax lien under Section 220 of the Tax Code. Likewise, it appearing from the records that the estate has an income producing property (Rosaria Apartments), the rental income thereof must be subject to garnishment in order to protect the interest of the government. LLphil LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue