BIR Ruling [DA-390-03]

October 30, 2003 BIR RULING [DA-390-03] 248 (A) (3); 249 (B) #169-98; 111-01 ARL Business Consultancy 20 Speaker Perez Street Quezon City Attention: Catherine Anicoche Accountant Gentlemen : This refers to your letter dated September 19, 2003 requesting for a clarificatory ruling on behalf of the Estate of Eulogio S. Legaspi, Jr. It is represented that Mr. Eulogio S. Legaspi, Jr. died on September 18, 2002. On October 17, 2002 the estate was extra-judicially settled. Consequently, the Estate Tax Return was filed on April 23, 2003. The gross estate was P18,849,345.57 and the estate tax due was computed at P888,700.92. However, it was discovered that the improvement on one property was inadvertently not included in the gross estate. You seek clarification on the following issues: 1) What should be the tax base for the computation of deficiency interest? 2) Should surcharges be paid thereon? It is your position that the basis of the imposition of deficiency interest is the deficiency estate tax not the estate tax due on the gross estate pursuant to the provisions of Section 249(B) of the National Internal Revenue Code of 1997, viz. : "SEC. 249. Interest. xxx xxx xxx (B) Deficiency Interest. Any deficiency in the tax due, as the term is defined in this Code, shall be subject to interest prescribed in Subsection (A) hereof, which interest shall be assessed and collected from the date prescribed for its payment until the full payment thereof." Moreover, the Estate is willing to pay the deficiency tax in the amount of P56,533.61 but no twenty-five percent (25%) surcharge shall be imposed pursuant to the provisions of Section 248(A)(3) of the NIRC of 1997, to wit: "SEC. 248. Civil Penalties. (A) There shall be imposed, in addition to the tax required to be paid, a penalty equivalent to twenty-five percent (25%) of the amount due, in the following cases: xxx xxx xxx (3) Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment; . . ." In reply, please be informed that after consideration of the facts of the case and the law applicable thereto, this Office finds merit in your position and hereby rules as follows: 1. The basis of the imposition of the deficiency interest shall be the deficiency estate tax not the estate tax due on the gross estate. In BIR Ruling No. 169-98 dated November 25, 1998, this Office ruled that the basis of the imposition of the deficiency interest is the unpaid amount of tax, to wit: cCSHET "In addition to the above, then Section 249 of the same Tax Code provides that "there shall also be assessed and collected on any unpaid amount of tax, interest at the rate of twenty percent (20%) per annum, or such higher rate as may be prescribed by regulations, from the date prescribed for payment until the amount is fully paid." In this case, it is established that in the Estate Tax Return filed on April 23, 2003, the gross estate was P18,849,345.57 and the estate tax due was computed at P888,700.92. The estate tax due in the amount of P888,700.92 was already paid. The unpaid amount of tax is the estate tax due on the improvement on one of the real properties which was inadvertently not included in the Estate Tax Return filed on April 23, 2003. Therefore, the basis of the deficiency interest is the unpaid estate tax on the improvement on one of the real properties not the estate tax due on the gross estate of Mr. Legaspi. 2. With regard to your second query, this Office has ruled in BIR Ruling No. 111-01 dated March 12, 2001, that the surcharge is imposed only when the deficiency tax assessed is not paid within the time prescribed in the notice of assessment, to wit: "In reply please be informed that Section 5.4 and 5.5 of Revenue Regulations No. 12-99 implementing Section 248 of the Tax Code of 1997 provide that no surcharge is imposed on deficiency tax and on the basic tax unless the amount due inclusive of penalties is not paid within the time prescribed in the notice and demand. . . ." It is clear from the foregoing ruling that the 25% surcharge is due only when the deficiency tax is not paid within the time provided in the notice of assessment. In this case, no notice of assessment had yet been issued against the Estate. Therefore, when the deficiency tax is paid, no surcharge shall be imposed. Obviously, it is not paid after the lapse of the time prescribed for its payment in the notice of assessment as there is no notice of assessment yet. This ruling is issued on the basis of the foregoing facts as represented. If upon investigation it is disclosed that the facts are different, this Ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group