BIR Ruling [DA-291-06]

May 3, 2006 BIR RULING [DA-291-06] Sec. 98; DA-037-2003 dtd 2/6/03 S.M. Basconcillo & Associates Law Offices R-301 Prudential Bank Bldg. Aurora Blvd., Cubao, Quezon City Attention: Atty. Rodolfo M. Manangan Gentlemen : This refers to your letter dated April 6, 2006 in behalf of your client, the heirs of ROGACIANO J. DELA CRUZ, requesting confirmation of your opinion that the renunciation made by the surviving heirs in favor of one (1) co-heir in their Deed of Extrajudicial Settlement of Estate with Waiver of Rights is exempt from donor's tax. It is represented and shown by documents that on February 10, 1977, the spouses Rogaciano and Irenea dela Cruz executed a Deed of Absolute Sale of three (3) parcels of land, covered by TCT Nos. 13856, 136255 and 54724 of the Registry of Deeds for the Province of Rizal, in favor of their children; that on February 28, 1977, Rogaciano dela Cruz died intestate; that on September 17, 1977, the heirs of the decedent executed a Deed of Extrajudicial Settlement of the Estate of Rogaciano dela Cruz with Waiver of Rights covering the same properties subject of the aforesaid Deed of Absolute Sale; that the surviving spouse waived all her rights in the properties in favor of all her co-heirs; and that the co-heirs also waived all their rights in favor of one co-heir, Benjamin dela Cruz. You are of the opinion that the renunciation made by the surviving wife and the other co-heirs in favor of their son/brother, Benjamin B. dela Cruz, is exempt from the imposition of donor's tax and that, however, the adjudication of the conjugal share of the surviving wife in the conjugal partnership is subject to donor's tax, but it must be computed at fair market value of the property per Tax Declaration at the time of the execution of the Deed of Extrajudicial Settlement. In reply, please be informed that as a rule, when a person renounces/repudiates his part of the inheritance, the right of accretion takes place and the same is added or incorporated to that of the co-heirs, co-devisees or co-legatees. The share of the one who renounces his part of the inheritance shall accrue to his co-heirs in the same proportion that they inherit pursuant to Articles 1018 and 1019 of the New Civil Code of the Philippines. CTaIHE In the instant case, when the surviving wife, Irenea B. dela Cruz, and the other children, namely, Cresenciano, Ernesto, Jesus, Maria, Herminigildo and Virginia, all surnamed dela Cruz, waived their shares in the inheritance in favor of Benjamin B. dela Cruz, their co-heir, accretion had effectively taken place in the latter's favor and the renounced shares were added or incorporated to his share. Undoubtedly, when the surviving wife and the other co-heirs renounced their shares in the inheritance, they did not donate the property which had never become theirs. Such being the case, the renunciation is not subject to donor's tax imposed under Section 98 of the Tax Code of 1997. Moreover, the inheritance renounced by the surviving wife and other children to their co-heir, Benjamin dela Cruz, is an additional inheritance to Benjamin. Consequently, the corresponding estate tax computed in accordance with the schedule provided for under Section 84 of the same Tax Code, shall imposed upon transfer of the net estate to Benjamin B. dela Cruz. ( BIR Ruling No. DA-251-99 dated April 23, 1999 ) It should be emphasized that the subject of the waiver is limited to the share in the inheritance and does not cover the conjugal share of Irenea B. dela Cruz. Therefore, the adjudication of the renounced properties to Benjamine B. dela Cruz refers to the conjugal share of the deceased Rogaciano dela Cruz. Moreover, the conjugal share of Irenea B. dela Cruz in the conjugal partnership between her and her late husband, if so adjudicated to whomever, is subject to donor's tax computed at fair market value of property per Tax Declaration or fair market value prescribed by the Commissioner of Internal Revenue, prevailing at the time of the donation, whichever is higher. ( Sec. 102 of the Tax Code ) This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service