BIR Ruling [DA-326-97]

September 26, 1997 BIR RULING [DA-326-97] MEMORANDUM DATE : September 24, 1997 FOR : DCIR Estelita C. Aguirre Operations Group FROM : ACIR Sixto S. Esquivias IV Legal Service SUBJECT : Estate Tax Case of the Late Francisco Tantoco This is in response to your note regarding our draft ruling on the request for waiver of compromise penalty and surcharge on the estate tax of the late Francisco Tantoco who died on September 2, 1995, viz: "When there is a request for an extension of [filing and] payment of estate tax (within one month from due date), what may be condoned?" Section 84 (b) of the Tax Code, as amended, provides that when the Commissioner of Internal Revenue finds that the payment on the due date of the estate tax or of any part thereof would impose undue hardship upon the estate or any of the heirs, he may extend the time for payment of such tax or any part thereof not to exceed five (5) years, in case the estate is settled through the courts, or two (2) years in case the estate is settled extrajudicially . . . . If an extension is granted, the Commissioner of Internal Revenue may require the executor, or administrator, or beneficiary, as the case may be, to furnish a bond in such amount of the tax and with such sureties as the Commissioner deems necessary conditioned upon the payment of the tax in accordance with the terms of the extension. HAaECD In relation thereto, Section 249 (d) of the Tax Code, as amended, provides as follows: "(d) Interest on extended payment. If any person required to pay the tax is qualified and elects to pay the tax on installment under the provisions of this Code . . . or where the Commissioner has authorized an extension of time within which to pay a tax or a deficiency tax or any part thereof, there shall be assessed and collected INTEREST at the rate hereinabove prescribed on the tax or deficiency tax or any part thereof unpaid from the date of notice and demand until it is paid." In other words, a taxpayer may be entitled to the benefits of filing a request for extension to pay the estate tax of a decedent if the following conditions are met: 1. The executor, or administrator, or beneficiary, as the case may be, must have filed a request for extension to pay the estate tax of the decedent with the Commissioner of Internal Revenue before the due date for the payment of the estate tax for the reason that the said payment would impose undue hardship upon the estate or any of the heirs. 2. The said request for extension to pay was granted by the Commissioner in writing. 3. If the extension is granted, the Commissioner may require the executor, or administrator, or beneficiary, as the case may be, to furnish a bond in such amount, not exceeding double the amount of the tax and with such sureties as the Commissioner deems necessary, conditioned upon the payment of the said tax in accordance with the terms of the extension. 4. If no bond as stated above is furnished, then there shall be assessed and collected interest at the rate of twenty percent (20%) per annum from the due date until the amount is fully paid. In the instant case, the Administrator allegedly filed the estate tax return on time (i.e., on February 29, 1996) but no tax had been paid because the net estate was allegedly below P200,000. On March 1, 1996, the Administrator contested the re-evaluation/assessment of the subject return by the RDO and at the same time filed the request for extension to pay the estate tax with the Regional Director. No written reply was presented. On March 16, 1996 or fifteen (15) days after the due date for payment, another request for extension to pay addressed to the Commissioner this time was allegedly filed for the same reason. Again, no written reply was presented. The presumption therefore is that the request for extension to pay was not granted. TCADEc Consequently, there being no clear grant of the said request for extension to pay, the Administrator should have paid not just the basic estate tax and the corresponding interest for late payment, but as well as the compromise penalty and the surcharge imposed under Section 248 of the Tax Code, as amended. It is noted that as per the Authority to Accept Payment (ATAP) No. 2546682 dated March 15, 1996, only the basic estate tax and interest have been paid under BDO Check No. 036318, such as: Basic Tax P250,414.80 Interest 1,945.72 Total P252,360.52 ========== Thus, granting for the sake of argument that the request for extension to pay was granted by the Commissioner, still we could not possibly recommend the grant of the Administrator's request for the condonation of the compromise penalty and surcharges because we are constrained from doing so there being no showing from the documents presented that the said civil penalties had been paid by the said Administrator. Hence, there is nothing to condone. Accordingly, to answer your question as to what may be condoned when there is a timely request for an extension to pay the estate tax, we would like to state that it is the Commissioner's sole prerogative to determine the merits or demerits surrounding each particular case as to whether or not a request for condonation of penalties, such as the compromise penalty and surcharge, but exclusive of the interest, may be granted for the reason that the payment would impose undue hardship upon the estate or any of the heirs. We hope that we were able to fully answer your question on the matter. ScaAET (SGD.) SIXTO S. ESQUIVIAS IV Assistant Commissioner Legal Service