BIR Ruling [DA-220-06]

April 7, 2006 BIR RULING [DA-220-06] Ms. Felipa Go Alcantara Administrator #95 Guyabano St., Potrero Malabon City M a d a m : This refers to your letter dated April 4, 2006 in effect requesting for legal opinion whether the income derived from the properties of the decedent after his death forms part of the gross estate for estate tax purposes. At the outset, "Estate Tax" has been defined as the tax levied on the transmission of the properties of the decedent at death and is based on the value of the net estate regardless of the number of heirs or their relationship to the decedent. (BIR Ruling No. 095-98 dated June 19, 1998) The first step in the computation of estate tax is the determination of the gross estate. The gross estate is the total value of all property, whether real or personal, tangible or intangible, the actual and beneficial owner of which was the decedent at the time of his death. Pursuant to Section 88(B) of the Tax Code, the estate shall be appraised at its far market value as of the time of death. Considering the foregoing discussions, should the income of the properties left by the decedent be included in the gross state due to late filing of the estate tax return? We answer in the negative. Under the New Civil Code of the Philippines, the rights to the succession are transmitted from the moment of death (Art. 777, Civil Code). The properties, rights and obligations of a deceased person are deemed submitted to the heirs and beneficiaries at the moment of death. Consequently, by operation of law, the properties of the decedent at the time of death are considered transferred to his heirs immediately after his death. The heirs will then become co-owners of the properties pending their partition. Accordingly, any increase in the value of the properties left by the decedent will not form part of the gross taxable estate of the decedent but should be attributed to the undistributed share among the heirs. The pronouncement of the Supreme Court in the case of Lorenzo vs. Posadas (64 Phil. 353), though the particular subject is the inheritance tax, can be considered in the determination of the value of the gross taxable estate. Thus said the Supreme Court: "If death is the generating source from which the power of the state to impose inheritance taxes its being and if, upon the death of the decedent, succession takes place and the right of the state to tax vests instantly, the tax should be measured by the value of the estate as it stood at the time of the decedent's death, regardless of any subsequent contingency affecting the value or any subsequent increase or decrease in value." In view of all the foregoing, this Office is of the considered opinion that the increase in the value of the properties left by the decedent after his death shall not form part of the gross taxable estate because the subsequent appreciation is immaterial for estate tax purposes. IHCacT Very truly yours, (SGD.) PABLO M. BASTES, JR. OIC-Head Revenue Executive Assistant Legal Service